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Student Loan Repayment: Grace Periods What to Know

January 25, 2018

If you got a loan for school, you should have had some counseling regarding your debt. Student loan debt is probably the least exciting part of graduating from college. If you are a recent graduate, you may hear a whole lot about a 6 month grace period. Let’s explore exactly what a 6 month grace period is, how to prepare for the end of the 6-month grace period, or how your approach to the grace period will affect you in the future.

 

Grace Periods

“No one told me about this” if that’s what you said when you read the intro paragraph; well you wouldn’t be the first, but you are in the right place! As a borrower, you are responsible for your financial decisions. It’s your responsibility to assure your loan gets paid on-time. If you don’t make payments on your loan in time it will affect your credit and could take a long time for that delinquency to be removed. A grace period is provided by the lender to a borrower. Grace periods are common for any type of loan not just student loan debt and can be common with credit cards too. The lender will allow you a specified period of time in which you are excused from making payments towards the debt. If you’re a recent college graduate, you’ll likely receive a 6 month grace period. The length of the grace period you’ll receive can change based on the types of student loans you have and who your loan provider is.

 

Unsubsidized Stafford Loans Vs Subsidized Stafford Loans

If you have a  Stafford Loan after Graduation you’ll be granted a 6 month grace period in which you are not required to make payments. If you have a Subsidized Stafford Loan that was originated before July 1, 2014, it will not accrue interest during the grace period. If you have an Unsubsidized Stafford Loan you will be responsible to pay the interest that is accrued while you utilize in-school deferment, grace period, or once the interest is capitalized upon repayment.

 

Direct PLUS & Parent PLUS Loans

Direct PLUS loans are taken out by graduate students without a cosigner. There is a 6 month grace period after the student is no longer enrolled for atleast half-time. Interest is accrued from the time of disbursement and is capitalized at repayment.

 

Parent PLUS loans are taken out by parents or guardians, of dependent undergraduate students. Repayment is expected when the loan is disbursed. Interest will begin to accrue from the time of disbursement. There is an optional 6 month grace period once the student is no longer enrolled for atleast half-time.

 

Federal Perkins Loans

These loans are provided to students that have “exceptional financial need.” After you graduate, withdrawal, or drop under half-time status you have a nine-month grace period. Borrowers with Perkins loans shouldn’t be charged during the initial grace period.

 

Private Loans

Private loans vary, so if a grace period is permitted it is ultimately up to the lender who provided you with the loan. Typically you should be able to find any information regarding a grace period in your loan agreement. When using a private lender it’s likely that interest will be accrued during the grace period and then ultimately capitalized upon repayment.

 

What is Capitalized Interest?

Capitalized Interest can seem pretty complex, but it’s fairly simple and REALLY important that you understand what it is. When your loan is disbursed or the funds are sent to your institution, the interest on that loan starts to accrue. Yes, even if you are still in school interest is being accrued on those funds. Upon your repayment that interest will get added onto the principal balance of your loan. Now, capitalized interest will depend on the type of loan that you have. As we discussed above some loans will accrue interest and some will not so be sure to know the types of loans that you have.

 

So how exactly does capitalized interest work? Let’s say that you went to school for 4 years, borrowed $10,000 a year with a 7% interest rate. So you borrowed a total of $40,000 from your lender.  If you didn’t make payments during school and you had a 6-month grace period (no payments) you would have acquired $1,412 in interest only, after the grace period! If you had a 10-year loan term, the total amount that you’ll have paid on the loan with interest capitalization is $57,700.  That equates to an additional penny for every dollar you borrowed. Try calculating your capitalized interest here

 

Financial Planning

It should go without saying, but if you can make payments while you’re in school or payments while you’re in your grace period, do it! If you are the last minute type of person and didn’t know about capitalized interests until just now, it’ll be okay. Step one- don’t panic! Here are some ways that you can pay down your debt.

 

Pay over the minimum payment. Regardless, if you’re on an Income-Based Repayment plan or just making the minimum payment, interest is still being accrued! In order to cut down on the interest being accrued and concentrate more of those payments onto the principle of your loan, you need to pay more. It’s easier said than done, but any additional money that you can put towards the debt will help you to pay less overall. Try making a budget that will allow you to make bi-monthly payments towards the debt. Bi-monthly payments will allow you to pay down the interest sooner so your payments are concentrated on the principle of the loan.

 

Look to an Employer

A benefit that companies recently have found beneficial is helping employees with student loan debt. Some companies offer resources for graduates like paying contributions toward the debt and offering other financial resources. If you are in the market for new employment, try looking into this as a company benefit. If your employee can contribute to your debt pay down you’ll have the ability to pay it down sooner!

 

SideGigs

Lucky for you, the gig economy has become rather popular! Try picking up an extra side job, where the profits can all go straight towards your debt. You don’t need a special talent to have a side job. Though a talent helps there are always jobs like babysitting, dog walking, or even housesitting. If you aren’t sure where to start there are a ton of websites that you can use to create a profile and get connected with people locally.

 

Refinance Student Loans

If you have a high interest rate and a steady income refinancing student loans could be a good option. Refinancing allows you to combine multiple loans into one loan, allows you to select the repayment terms, and can help to cut down on the interest rate. In order to qualify for a student loan refinance you’ll need a steady income and usually a FICO score of 650 or higher. If you can’t qualify on your own, be sure to ask about adding on a cosigner.

 

Responsible Borrowing

If you’re a recent graduate or in-school currently, don’t try to hide from your debt. Avoiding making payments on your loan will only hurt you and your credit history. Do your research and talk with your lender. The more you can educate yourself as a borrower the better. Just remember, you’re building a strong foundation and you’ll be establishing yourself as a financially responsible borrower.  In a few years, you’ll be thanking yourself for the responsible financial choices that you’ve made!

 

Student Loan Refinancing or Consolidation?

 

 

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2020-01-24
This Week in Student Loans: January 24

Please note: Education Loan Finance does not endorse or take positions on any political matters that are mentioned. Our weekly summary is for informational purposes only and is solely intended to bring relevant news to our readers.

  This week in student loans:

A Zero Based Budget Helped This Woman Pay Off $215k Worth of Student Loan Debt in 4 Years

When Cindy Zuniga accomplished a major milestone when she graduated from law school in 2015, however, she also came out with $215,000 in student loan debt. See how she managed to eliminate her debt in just four years by both refinancing her student loans and using a zero based budget.  

Source: ABC News

 

signing legislation

Court Cites Student Loans As Reason To Deny Bar Admission To New Lawyer

Student loan debt can sometimes be a barrier to obtaining professional licensure, specifically for teachers, doctors, and nurses. For one recent graduate of law school, her student loan debt played a significant role in her being denied a license to practice law.  

Source: Forbes

 

Student Loan Debt Is a Key Factor for Gen Z When Making Career Decisions

A recent survey found that Gen Z's concern over student loan debt is a key factor in their career decisions, causing many to prioritize finances over passion when it comes to their fields of study. The study found that an overwhelming 61% of college students would take a job they're not passionate about due to the pressure to pay off their student loans.  

Source: Yahoo News

    That wraps things up for this week! Follow us on FacebookInstagramTwitter, or LinkedIn for more news about student loans, refinancing, and achieving financial freedom.  
 

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.

2020-01-23
Current LIBOR Rate Update: January 2020

This blog provides the most current LIBOR rate data as of January 15, 2020, along with a brief overview of the meaning of LIBOR and how it applies to variable-rate student loans. For more information on how LIBOR affects variable rate loans, read our blog LIBOR: What It Means for Student Loans.

 

What is LIBOR?

The London Interbank Offered Rate (LIBOR) is a money market interest rate that is considered to be the standard in the interbank Eurodollar market. In short, it is the rate at which international banks are willing to offer Eurodollar deposits to one another. Many variable rate loans and lines of credit, such as mortgages, credit cards, and student loans, base their interest rates on the LIBOR rate.

 

How LIBOR Affects Variable Rate Student Loans

If you have variable-rate student loans, changes to the LIBOR impact the interest rate you’ll pay on the loan throughout your repayment. Private student loans, including refinanced student loans, have interest rates that are tied to an index, such as LIBOR. But that’s not the rate you’ll pay. The lender also adds a margin that is based on your credit – the better your credit, the lower the margin. By adding the LIBOR rate to the margin along with any other fees or charges that may be included, you can determine your annual percentage rate (APR), which is the full cost a lender charges you per year for funds expressed as a percentage. Your APR is the actual amount you pay.

 

LIBOR Maturities

There are seven different maturities for LIBOR, including overnight, one week, one month, two months, three months, six months, and twelve months. The most commonly quoted rate is the three-month U.S. dollar rate. Some student loan companies, including ELFI, adjust their interest rates every quarter based on the three-month LIBOR rate.

 

Current 1 Month LIBOR Rate - January 2020

As of Wednesday, January 15, 2020, the 1 month LIBOR rate is 1.67%. If the lender sets their margin at 3%, your new rate would be 4.67% (1.67% + 3.00%=4.67%). The chart below displays fluctuations in the 1 month LIBOR rate over the past year.

  Chart displaying current 1 month LIBOR rate as of January 15, 2020.

(Source: macrotrends.net)

   

Current 3 Month LIBOR Rate - January 2020

As of Wednesday, January 15, 2020, the 3 month LIBOR rate is 1.84%. If the lender sets their margin at 3%, your new rate would be 4.84% (1.84% + 3.00%=4.84%). The chart below displays fluctuations in the 3 month LIBOR rate over the past year.

  Chart displaying current 3 month LIBOR rate as of January 15, 2020. (Source: macrotrends.net)  

Current 6 Month LIBOR Rate - January 2020

As of Wednesday, January 15, 2020, the 3 month LIBOR rate is 1.87%. If the lender sets their margin at 3%, your new rate would be 4.87% (1.87% + 3.00%=4.87%). The chart below displays fluctuations in the 6 month LIBOR rate over the past year.

  Chart displaying current 6 month LIBOR rate as of January 15, 2020. (Source: macrotrends.net)  

Current 1 Year LIBOR Rate - January 2020

As of Wednesday, January 15, 2020, the 1 year LIBOR rate is 1.95%. If the lender sets their margin at 3%, your new rate would be 4.95% (1.95% + 3.00%=4.95%). The chart below displays fluctuations in the 1 year LIBOR rate over the past year.

  Chart displaying current 1 year LIBOR rate as of January 15, 2020. (Source: macrotrends.net)  

Understanding LIBOR

If you are planning to refinance your student loans or take out a personal loan or line of credit, understanding how the LIBOR rate works can help you choose between a fixed or variable-rate loan. Keep in mind that ELFI has some of the lowest student loan refinancing rates available, and you can prequalify in minutes without affecting your credit score.* Keep up with the ELFI blog for monthly updates on the current 1 month, 3 month, 6 month, and 1 year LIBOR rate data.

 
 

*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.

2020-01-21
5 Things to Do Immediately After Graduation

By Kat Tretina

Kat Tretina is a freelance writer based in Orlando, Florida. Her work has been featured in publications like The Huffington Post, Entrepreneur, and more. She is focused on helping people pay down their debt and boost their income.

 

If you’re in your senior year and preparing for graduation — congratulations! Graduating from college is a huge accomplishment.

 

But after the hat toss, you have to start worrying about things like finding a job. And, if you’re like most college students, you probably have student loan debt to manage, too. As you start preparing for graduation, here are five things you should do to handle your student loans.

 

1. Find Your Loan Details

You likely needed to take out several loans to pay for school. It’s common for graduates to have as many as 12 different student loans when they graduate from college. Worse, your loans can be sold and transferred to different servicers, making it difficult to keep track of your debt.

 

After you graduate, look up all of your student loans and figure out who your loan servicers are, what your monthly payment is, and your due dates.

 

Federal Student Loans

To find your federal loans, use the National Student Loan Data System. Just enter your Federal Student Aid ID and password and you can view all of the federal loans under your name. The site will list your loan servicer and loan balance. Once you have that information, you can go to the loan servicer’s website and create an account and start making payments.

 

Private Student Loans

For private loans, you can identify the different loans and lenders by looking up your credit report at AnnualCreditReport.com, which allows you to get one free credit report per year. Your credit report will show what company currently manages your loan. When you find your loan servicer, you can contact the company directly to find out how to open an online account and make payments.

 

2. Create a Budget

Your student loan payments will likely eat up a significant part of your monthly income, especially when you’re just starting out in your career. To make sure you can afford the payments and your other living expenses, spend some time creating a monthly budget.

 

While you can use software like You Need a Budget (YNAB), you can also make a budget with just a simple pen and paper. List all of your monthly income, including earnings from your job and side gigs. Next, list all of your expenses, such as rent, utilities, internet service, student loan payments, car payments, and insurance.

 

Hopefully, your income exceeds your spending. If that’s not the case, you’ll have to look for areas to cut to give you some more breathing room in your monthly budget. Or, you can boost your income by freelancing or launching a side gig.

 

3. Sign Up for an Income-Driven Repayment Plan

If your starting salary is too low, or if you can’t afford the payments on your federal student loans, consider signing up for an income-driven repayment (IDR) plan.

 

There are four different IDR plans. While the specifics of each plan vary, the general concept is the same: the loan servicer extends your repayment term and caps your monthly payments at a percentage of your discretionary income. Depending on your income and family size, you can dramatically reduce your monthly bill. In fact, some people qualify for payments as low as $0.

 

After 20 to 25 years of making payments, the loan servicer will forgive your remaining loan balance. While the forgiven amount is taxable as income, IDR plan forgiveness can still help you save thousands.

 

You can apply for an IDR plan online.

 

4. Refinance Student Loans

If you have private student loans or a mix of both federal and private loans and want to pay off your debt as quickly as possible, look into student loan refinancing. By working with a private lender to take out a loan for the amount of your existing debt, you could potentially lower your interest rate, helping you save money. Or, you could get a longer repayment term and reduce your monthly payments, making them more affordable.

 

How effective is student loan refinancing? The savings can be significant. According to The Institute for College Access & Success, the average graduate has $29,200 in student loan debt. If you had that much debt with a 10-year repayment term and a 6% interest rate, your monthly payment would be $324. By the end of your loan term, you’d pay a total of $38,902.

 

But if you refinanced your debt and qualified for a 10-year loan at 4% interest, your monthly payment would drop to $296 per month. Over the course of your loan, you’d repay just $35,476. Refinancing your student loans would allow you to save over $3,400.

  chart showing the difference between refinances student loan and original loan

While there are some drawbacks to refinancing your education debt, refinancing can be a smart way to manage your loans. If you decide that student loan refinancing is right for you, use ELFI's Student Loan Refinancing Calculator to get an idea of what your repayment plan could look like. Prequalification is 100% online, free, and won’t affect your credit score*.

 

5. Sign Up for Automatic Payments

Managing your different loans and their various payment due dates can be overwhelming. But missing a payment can hurt your credit, and you could be subject to costly fees and penalties.

 

Signing up for automatic payments is a great way to ensure you never miss a payment and improve your credit history.

 

The Bottom Line

Your college graduation may feel far off, but it’ll be here before you know it. When it comes to preparing for graduation, developing a student loan repayment strategy is essential. By creating a plan now, you can ensure you’re ready to handle your student loan debt when your payments are due.

 
 

*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.