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Student Loan Refinancing

Glossary of Student Loan Refinancing Terms

December 20, 2018

There are so many terms that borrower’s encounter in the student loan application process, most borrowers may not be exactly sure what each means. If you’re getting ready to apply or just want to know what the documents are talking about, here’s our glossary of common student loan terms that you should know.

 

Adjusted Gross Income (AGI) and Gross Income

Gross income is the total income you earn in a year before deductions for federal or state taxes, credits, and so on. Adjusted gross income is the income you earn in a year which is eligible to be taxed after accounting for deductions. AGI is usually lower than your gross income and is what many institutions use to determine if you can get perks like loan tax benefits or financial aid, grants, etc. The easiest place to find these are on your official tax return.

 

Adverse Action Letter

When you apply for credit, insurance, a loan, or sometimes even employment, and are denied due to something negative on your credit report, the organization inquiring might be required to send you one of these. It explains why you were turned down and it’s important because it gives you a reason to see if something is wrong on your credit report.

 

Amortization

This term describes how the principal is paid over the course of a loan.  Most student loans are fully amortized, meaning that if all payments are made as scheduled over the life of the loan the principal balance will be fully repaid at the maturity date.  Other types of loans, including some types of mortgage loans, have a feature known as a balloon payment.  With a balloon payment, regularly scheduled payments do not fully repay the principal amount borrowed, so when the loan matures the final payment contains a larger, or balloon, payment of all remaining principal.

 

Annual Loan Limit

This is the maximum loan amount you can borrow for an academic year. Loan limits can vary by facts like grade level and loan type.

 

Award Letter

If you received financial aid, expect to see an award letter that explains the different types of aid for which you are eligible. The document will also include information about your loans, grants, or scholarships, and you’ll see a new one each year that you’re in school.

 

Borrower

The person who is responsible for paying back a student loan. You may not be the only one responsible, like if you signed with a cosigner, but the loan is for you and your academic fees and tuition. You’re the borrower.

 

Capitalized Interest

When unpaid interest gets added to the principal balance (increasing your overall balance and future interest), this is called capitalization. This is why it’s important to pay interest whenever possible. Capitalization might happen at the end of a grace period or deferment, or after forbearance, depending on whether it’s a federal or private loan. When a loan is consolidated or if it enters default, capitalization may occur.

 

Cosigner

If needed, borrowers can add a second person who shares responsibility for a student loan. This second person co-signs the loan and becomes partially responsible for repayment in the event that the primary borrower is not able to pay.

 

Consolidation Loan

Consolidation is when a new loan replaces your current student loans. People might do this to make payments easier to manage or to reduce the amount you owe each month or in total. There are lots of things to know about consolidation.

 

Default/Delinquent

A loan is considered delinquent when a scheduled payment is not made in a timely manner.  Delinquency can result in the imposition of late charges, collection calls or letters, and negative information being placed on a credit report.  Default is when the lender determines that the borrower has failed to honor the terms of the loan agreement in such a way that the lender is entitled to declare the entire loan balance due and payable, even if the loan has not yet reached its maturity date.  Serious delinquency is very often the reason for a loan being declared in default, but loan agreements typically provide that certain other events can trigger a default.  Before entering into a loan agreement, always read the loan agreement carefully and understand what can constitute a default under that loan.

 

Deferment

Students can usually postpone loan repayment if they meet certain criteria. This might be a pre-set time limit or can be when someone is in school and not able to make payments. Unsubsidized loans accrue interest while being deferred, but subsidized loans do not accrue interest while in deferment.

 

Disbursement

This is when your school receives funds like financial aid money or student loan funds. The institution then applies it to your bill for tuition and school-related fees. If you consolidate, the disbursement happens when money is sent to pay off your old loans.

 

Discharge

When some or all of your student loan debt is canceled, this is called discharge.

 

Entrance/Exit Interview or Counseling

Schools provide entrance or exit counseling to help students understand important financing topics like how to repay loans and stay in good standing with student loans. This can happen during enrollment as an entrance to the process, and after graduation as part of leaving the school system.

 

Expected Family Contribution (EFC)

This amount is an estimate based on how much money you, your spouse, and/or family can contribute to your tuition for the academic year. It’s calculated with information provided on your FAFSA and helps determine your financial need. Financial need is calculated as the cost of attendance minus your EFC. This determines your eligibility for aid including Stafford loans, Perkins loans, scholarships, and grants.

 

Fixed or Variable Interest Rate

If an interest rate cannot change over time, it is fixed. A variable interest rate can change over the life of the loan.  Variable rates can move up or down based upon changes to an identified index, such a prime rate, a particular U.S. Treasury note, or LIBOR.  LIBOR stands for the London Interbank Offered Rate, and is an index commonly used with student loans.  Some variable rate loans may have a “cap” and/or a “floor.”  A cap is the maximum rate that can be applied to the loan, regardless of changes to the index.  A floor is just the opposite – the minimum rate for the loan regardless of changes to the index.

 

Forbearance

Forbearance is when you can postpone or reduce student loan payments, but interest continues to accrue and increase the total amount you owe.

 

Free Application for Federal Student Aid (FAFSA)

FAFSA is the application a student must complete to apply for any type of federal student aid including loans, grants, or scholarships.

 

Full-Time/Part-Time Enrollment

Whether you are enrolled or not, and your status as part-time or full-time can affect different aspects of student loan financing and repayment. Part-time is usually six credit hours and full-time is twelve, but this can vary.

 

In-School Deferment

While in actively enrolled in school, you might be able to postpone your federal or private student loan payments until you graduate or drop below half time.

 

Loan Forgiveness

When you qualify for certain programs, you may be able to have the final balance of your loans forgiven after a certain period of time. There are specific criteria for eligibility and usually a detailed application process.

 

Master Promissory Note (MPN)

This document states the terms of repayment for your student loans and is the official document proving your commitment to repay the money you borrowed with interest. To receive federal loans, all borrowers must sign an MPN.

 

Principal Balance

The principal balance is the amount of money borrowed under the loan that you currently owe. It doesn’t include interest or fees that are either unpaid or yet to accrue.

 

Repayment Period

This amount of time is what you have to repay your student loans. Standard for Stafford loans is ten years, but this can be extended with reduced repayment plans. The longer you take to pay your loans, usually, the more you end up paying in interest. A repayment plan is the formal agreement you have with a servicer that details how you plan to repay your loans each month.

 

Repayment Terms

These terms represent all of your rights and responsibilities for the student loan, including what you’ll pay for monthly payments. Lenders are required to disclose repayment terms to you before you can commit to borrowing a loan.

 

Right to Cancel

Once an approved application has been accepted by the borrower, the federal Truth in Lending Act requires the lender to provide a Final Truth in Lending disclosure statement.  This final disclosure statement includes a three business day right to cancel, during which time the borrower can change their mind and cancel the loan.  To protect borrowers, the lender cannot disburse the loan proceeds until the right to cancel period has expired.

Servicer

The loan servicer handles your student loan billing like collecting payments and offering customer service between you and the lender.

 

Student Aid Report (SAR)

The SAR is a detailed list of all of the financial and personal information you submitted for your FAFSA, including financial info for your family. Your school receives a copy of this and you should receive one as well.

 

Subsidized and Unsubsidized Loans

While in school and during your grace period, the government pays the interest on your subsidized loans so you don’t have to. Federal loans that are not based on financial need are unsubsidized, meaning you’re responsible for paying the interest that accrues.

 

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Man contemplating which student loans to refinance in 2020
2020-09-10
Which Student Loans Should You Refinance in 2020?

With interest rates favorable to student loan borrowers, right now can be a great time to refinance. But not all loans are created equal. In fact, it may be better to wait to refinance certain types of loans. Keep reading to find out which student loans you should refinance in 2020.    By Caroline Farhat  

Refinancing Rates at All-Time Lows. Should You Refinance?

Refinancing interest rates for student loans are at an all-time low in history. This is due to the Federal Reserve lowering interest rates in response to the COVID-19 pandemic. When the Federal Reserve lowers interest rates, this impacts rates that lenders will use on loans that you borrow. This change affects private student loans with variable interest rates and any new loan that you want to take out, including refinancing rates. This makes it an ideal time to refinance if you have certain loans.      As of September 8, 2020, student loan refinancing rates are as low as 2.39% for a variable interest rate loan and 2.79% for a fixed interest rate loan. If you refinance now you could potentially be saving thousands of dollars over the loan term because you will be able to lock in a low interest rate. This will also save you on your monthly payment.   

Example of Savings When Refinancing

Here is an example of how much can be saved by lowering your interest rate:    If you have $60,000 in student loans and an interest rate of 9% with 10 years remaining on your loan term, your estimated monthly payment would be $760.00. If you took advantage of the low interest rates now and qualified for a fixed rate of 3.76% you could save as much as $159.00 per month and over $19,000 in interest over the remaining 10 years.    To find out your possible savings, use our
Student Loan Refinance Calculator* where you can put in your specific loan numbers to obtain an estimate of the amount of savings for your specific situation.   So now that you see how beneficial it can be to refinance student loans, which ones should you try to refinance in 2020?   

Considerations for Refinancing Federal Student Loans

Federal student loans are currently benefiting from the protections provided by the CARES Act and the subsequent Executive Order signed on August 8, 2020. The benefits provided include: 
  • 0% interest - Right now federal loans are not accruing any interest because of the lowered interest rate. This means the loans are not increasing and can actually be paid off faster if payments are made while the interest rate is 0%.
  • Administrative forbearance - This means no payments are due during forbearance. Payments are set to resume in January 2021. 
  • During the administrative forbearance, payments that you would have made during this time but are not required to make, still count towards forgiveness for loans in the Public Service Loan Forgiveness program. 
  All of these benefits are set through December 31, 2020, making it more ideal to wait until 2021 if you want to refinance any federal student loans. If you have federal loans and were to refinance them now, you would lose these federal benefits. During this time if you have a federal student loan it is best to use the money that you would normally be paying on your loans to save for an emergency fund, pay off other high interest debt, or use it to make a lump sum payment on your loans when payments resume.    

Best Student Loans to Refinance in 2020

The loans that would be best to refinance now in 2020 include:  

Private Student Loans

If you obtained private student loans in the early 2000s you could have an interest rate as high as 9%. Refinancing older student loans would greatly benefit from the much lower interest rates. Even if you have newer student loans with a lower interest rate than 9%, with rates so low you may be able to refinance with a shorter term length and still be able to see savings and cut time off your student loan.    Here is how that could work: with a student loan balance of $60,000 with 18 years remaining at 7% interest you would be paying approximately $489 per month. But if you refinance the loan and qualify for a rate of 4.07% you could save an estimated $43 per month, over $25,000 in interest, and cut your loan term down to 15 years. That’s saving you time and money on your student loans!  

Variable Interest Loans

If you have a variable interest rate loan, you may also be experiencing the benefits of the interest rates being lowered. However, just as rates can be lowered, they can be raised. If you want the security of knowing your rate cannot go up, now would be a good time to lock in a low fixed interest rate.    

Bottom Line

Refinancing is a great way to save money on your loans. Knowing the current student loan environment is helpful to determine the best financial move for you now. With the current CARES Act, refinancing only your private student loans and not your federal student loans may be the most financially savvy move you can make this year.  
  *Subject to credit approval. Terms and conditions apply.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no­­­ control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.
2020-09-04
Student Loan Refinance Rates Just Dropped Again. Should You Refinance?

If you have student loan debt and are looking for ways to save money, you’re in luck because right now is a great time to consider refinancing your loans. Currently, refinancing rates are at an all-time historic low. As of September 3, 2020, interest rates for refinancing student loans are currently as low as 2.79% for a fixed rate. Compared this to the early 2000s when private student loan rates were as high as 9% and you can see that now is the time to take advantage of the opportunity to see significant savings. Before you decide on refinancing your student loans, it’s best to consider the pros and cons.  

Pros of Refinancing Now

When you refinance student loans, it means you are obtaining a new private student loan to pay off your old loan or multiple student loans. You can refinance private and federal student loans. The new loan may have a different term length than your previous loan and will have a different interest rate (presumably a lower one) and monthly payment. Here are some reasons refinancing now could be beneficial:    

Lock in a Low Rate 

If you refinance now, you will be able to take advantage of the low refinancing rates being offered. Having a low interest rate helps you save money in interest costs. This can also help you pay off your loan faster if you are able to pay more than the minimum payment and can put more towards the principal of the loan. To see just how much a lower interest rate can save you, check out this example:   If you have student loan debt in the amount of $50,000 with an interest rate of 7% and a loan term of 20 years, your monthly payment would be approximately $388.00. If you refinance and qualify for an interest rate of 4.65% with the same loan term your payment would be approximately $320.00 and you would save over $16,000 in interest costs over the length of the loan. A lower interest rate can result in huge savings!     

Save on Monthly Cost

  If your goal is to save some money, refinancing can definitely help accomplish that goal in most cases. If you qualify for a lower interest rate, with the right loan term you can save on the monthly cost of your student loans. Based on the example above, you would see a savings of over $60 per month. In certain instances where your new interest rate is significantly lower than your previous interest rate, you may be able to shorten the length of your loan term and still save in monthly costs. This will save you money and time on your student loan!      

Save on Interest over the Loan Term

  If you refinance to a lower interest rate you can literally save thousands of dollars over the life of the loan. These savings can be put towards other financial goals, setting you up for a stronger financial future. Your savings rate will depend on what your current interest rate is on your loan and the new rate you will qualify for. If you are interested to see how much your savings could be, use our
Student Loan Refinancing Calculator to get an idea of your savings.*   

Single Payment 

Refinancing is also beneficial to help simplify your finances. If you have multiple student loans that you are paying with different due dates, it can be difficult to keep up with all the different loans. When you refinance, you can essentially consolidate all or some of your student loans into one loan with one payment. This will make it easier to manage your finances. You will also be less likely to miss a due date and avoid having to pay late fees.     

Cons of Refinancing Now

Although there are numerous benefits for many student loan borrowers, there are some drawbacks to consider before deciding whether refinancing is right for you now.     

Lose Federal Borrower Protections

  When you refinance federal student loans, you will obtain a private student loan, which means you will not have access to any of the federal borrower protections currently being offered due to the COVID-19 pandemic. Therefore, if you refinance your federal student loans now you will lose the following protections: 
  • 0% interest: an executive order was signed on August 8, 2020 extending a 0% interest rate on federal student loans through December 31, 2020. This means no interest will be accruing on your federal loans through the end of the year. If you refinance now, interest will begin accruing on your new loan at your new rate.  
  • Administrative Forbearance: included in the executive order extending the 0% interest rate, the administrative forbearance was also extended through December 31, 2020 meaning no student loan payments will be due on most federal student loans until 2021. If you refinance now, payments will begin being due at the start of the loan, instead of resuming in 2021.  
  • Other federal borrower protections that are lost when you refinance include: 
  • Public Service Loan Forgiveness (PSLF): if you work for a qualifying employer and have qualifying loans that you are hoping will be discharged through PSLF, it would not be wise to refinance any federal loans. Private student loans are not eligible for this program.  
  • Deferment or Forbearance options are more flexible with federal student loans. 
 

Considerations to Make

If you are still unsure whether refinancing is a wise financial move for you, consider some of these options:
  • Only refinance any private student loans you have and not federal loans. That way you can take advantage of a low interest rate on some of your loans, but still keep the federal borrower protections on your federal loans.
  • Wait until 2021 to refinance when the federal protections of 0% interest and administrative forbearance will end, and rates may still be low. Although keep in mind rates can change and increase.
 

Bottom Line

Deciding whether to refinance your student loans now is a decision that should make wise financial sense for you. Ultimately any time you focus on your financial future and plan financial decisions, it is a step in the right financial direction!  
  *Subject to credit approval. Terms and conditions apply.
2020-08-28
How College Graduates Can Still Take Advantage of Low Student Loan Rates

If you went to college before the 2020-2021 school year and took out student loans, you, unfortunately, have terrible luck.    In May, the U.S. Department of Education announced it was slashing federal student loan interest rates to their lowest rates in decades. The changes aren’t retroactive, so if you took out student loans before July 1, 2020, you’re stuck with the higher rate you agreed to when you signed your promissory note.    If that feels unfair, there is a workaround: student loan refinancing.* By refinancing your loans, you can secure a lower interest rate and save money over the life of your loans.   

Current federal student loan interest rates

As of July 1, 2020, the following federal loan interest rates apply: 
  • Direct Subsidized and Unsubsidized Loans: Interest rates on Direct loans for undergraduate students went from 4.53% to just 2.75%. 
  • Direct Unsubsidized Loans for graduate students: The interest rate on graduate loans decreased from 6.08% to 4.30%. 
  • PLUS Loans: The interest rate on Parent PLUS Loans and Grad PLUS Loans went from 7.08% to 5.30%. 
If you took out loans even a day before July 1, 2020, you have a much higher rate, and the federal government doesn’t offer any way to take advantage of the lower interest rates.    The impact of these rate differences can be significant.    For example, let’s say Laura went to college during the 2019-2020 school year and took our Direct Unsubsidized undergraduate loans. She borrowed $15,000 and had a 10-year term at 4.54% interest. By the end of her repayment term, she’d pay $3,681 in interest charges.    Laura’s friend Jennifer is going to college during the 2020-2021 academic year. She also will take out $15,000 in student loans, but she qualifies for a 10-year loan at a reduced rate of 2.75%. At the end of her repayment period, she’ll pay just $2,174 in interest charges. The reduced interest rate allows Laura to save over $1,500.    Direct Unsubsidized Loan Comparison Chart for 2019 vs. 2020  

How to lower your interest rate with student loan refinancing

If you have an older federal student loan and want to lower your rate, student loan refinancing may be a solution for you.    With the Federal Reserve slashing rates and the London Interbank Offered Rate (LIBOR) at a record low, you can get a low variable or fixed-rate loan. Fixed-rate loans tend to follow the trend of the Federal Reserve. As interest rates are reduced, fixed-rate loans usually follow suit.    With variable-rate loans, private lenders typically use LIBOR to set their rates. Private lenders will base their rates on the LIBOR plus their margin. Since the LIBOR can fluctuate over time, your variable interest rate can change, too.    Right now, the LIBOR rate is much lower than it was even six months ago. If you refinance and opt for a variable-rate loan, you could dramatically lower your interest rate.    Refinancing interest rates are at historic lows for fixed and variable-rate loans, so now is a great time to refinance your debt if you want to get rid of high-interest debt.   

How student loan refinancing works

When you refinance, you apply for a loan from a private lender like Education Loan Finance. Unlike federal loans, which typically don’t require a credit check, private refinancing lenders base their decisions off of your creditworthiness and income.    If you have good credit, you can qualify for a loan at a competitive rate. If you have less-than-perfect credit, you can still refinance your debt. You’ll just need a cosigner with good to excellent credit to apply for the loan with you.    Refinancing has multiple benefits:  

1. Save money

When you refinance and qualify for a lower rate, you can save a substantial amount of money.    ELFI customers reported that they are saving an average of $272 each month and should see an average of $13,940 in total savings after refinancing their student loans with ELFI.1    Use the student loan refinance calculator to find out how much you could save by refinancing your loans.*   

2. Consolidate your debt

To pay for college, you likely had to take out multiple student loans. You may have a mix of federal and private loans and have different loan servicers, monthly payments, and due dates to manage. Juggling multiple loans can be confusing, making it more likely you’ll lose track and miss a payment.    When you refinance your debt, you’ll consolidate all of your loans into one. Instead of having multiple loans and due dates, you’ll have just one loan and one easy payment to remember.   

3. Reduce your monthly payments

When you apply for student loan refinancing, you can qualify for a lower interest rate. But, you can also change your loan term. If you decide to extend your loan term, you can reduce your monthly payment and get more breathing room in your budget, a valuable benefit when you’re getting your career off the ground.    Later on, when you’re more established and making more money, you can make extra payments and pay off your debt early without paying a prepayment penalty.   

How to refinance your loans

Refinancing your loans is a simple process; You can get a rate quote from ELFI online without affecting your credit score.* Once you find a loan that works for your needs, you can finish the application process online.    If you need help or have additional questions, call ELFI to speak to a Personal Loan Advisor at 844-601-3534.   
  *Subject to credit approval. Terms and conditions apply.   1Average savings calculations are based on information provided by SouthEast Bank/ Education Loan Finance customers who refinanced their student loans between 2/7/2020 and 2/21/2020. While these amounts represent reported average amounts saved, actual amounts saved will vary depending upon a number of factors.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no­­­ control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.