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LIBOR Rates, Historical LIBOR Rates, and Variable Rate Loans

November 15, 2016
Updated December 20, 2019

Variable rate loans have interest rates that vary and are based on a financial market index that changes over time. One very well-known financial market index that many variable rate loans are based upon is the London Interbank Offer Rate, or LIBOR. Understanding this financial index and how it is determined is important when evaluating variable rate loan products.

What are LIBOR Rates?

LIBOR is a benchmark rate that banks charge each other to borrow money. More important to borrowers, however, is that this rate is the first step involved in calculating short-term interest rates on a variety of loans — like student loans, mortgages, credit cards, etc. LIBOR is determined daily and is based on rates that a reference panel of banks can borrow from other banks on the London market for each calculated currency, including the U.S. dollar (USD), Euro (EUR), pound sterling (GBP), Japanese yen (JPY), and Swiss franc (CHF).

 

>> Related: LIBOR: What it Means for Student Loans

 

You may have noticed that the definition of LIBOR is included when calculating rates for variable rate loans. LIBOR’s seven available maturities and associated rates are: overnight, one week, and 1, 2, 3, 6, and 12 months. These maturity figures state the cyclical duration for which the variable interest rate can change on your loan. For instance, the interest rate on a one-week term can change weekly, and the 3-month term can change every 3 months (or quarterly). Because these cyclical changes may change your loan’s interest rate, it is important to note that your monthly payment and the total expected interest owed over the life of the loan may change as well.

 

To see which maturity is associated with your variable rate loan, look for the timeframe before the word LIBOR found on your promissory note. You can also read the loan agreement to understand how often the interest rate is subject to adjustment and understand how to identify the correct index amount.  For example, Education Loan Finance’s variable rate loans are subject to adjustment quarterly based upon the 3-month LIBOR, while other lenders may adjust rates more frequently by basing rates upon the 1-month LIBOR.

LIBOR Changes and Your Interest Rate

While variable rate loans, whether refinanced or not, tend to have starting rates that are often lower than fixed loan rates for the same maturity date, these variable rates can change after you close on your loan — including the possibility to increase over the life of your loan. Changes in LIBOR result in changes to your variable rate loan’s interest rate.

 

Here is how it works: If the 3-month LIBOR is 0.4 percent and Education Loan Finance’s (or your lending institution’s) margin is 3 percent, then your monthly rate would be 3.40 percent for those three months. However, if the 3-month LIBOR changes to 1 percent in the next quarter (remember, this scenario is working on a 3-month cyclical change), then your monthly rate would increase to 4 percent for those next three months.

 

If the LIBOR increases dramatically to a rate such as 15 percent, Education Loan Finance actually puts a 9.95 percent interest rate cap on the interest rate that you will be charged for 5, 7, 10, 15, or 20-year variable rate loan terms. This means that no matter how high the LIBOR rate increases, you will never pay more than 9.95 percent interest on the aforementioned variable rate loans if you choose a variable rate loan and refinance your student loan with Education Loan Finance.*

 

What are Historical LIBOR Rates?

Historical LIBOR shows borrowers and consumers the variability in rates over the years. These historical data provide insight into the magnitude of LIBOR rate changes in the past.

 

Historical LIBOR rates can be reviewed and downloaded here. Simply change the frequency to the desired maturity and make sure the date range is accurate. Scroll down and select ‘download data’ to view the rates for your selected time period. Another option is to view multiple maturities at one time, over thirty years, on this scrolling chart. Whichever you choose, please note that these links are provided for historical purposes only. You should always refer to the terms of your promissory note for details  — like date, source, time period — on how the rate for your loan will be determined.

 

Like many lending or refinancing institutions, Education Loan Finance’s variable rate loans are tied to 3-month LIBOR rates, which means they are subject to change based on this publicly available index. The big takeaway is that while there are no guarantees with variable rates, they do tend to start at lower rates than rates on fixed-rate loans with the same term. If you decide to initially refinance your student loan debt with a variable rate loan product, just remember that if rates begin to increase, you can refinance again in the future with a fixed rate loan from Education Loan Finance at no cost to you.

 

Top Tips for Finding the Perfect Lender to Refinance Student Loans

 


 

*Subject to credit approval. Terms and conditions apply.

 

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2020-02-07
This Week in Student Loans: February 7

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:

The Dangers Of Using A 529 Plan For Student Loan Debt

The Setting Every Community Up for Retirement (SECURE) Act that was signed into law on December 20 allows families with a 529 college savings plan to use some of the savings to pay off student loan debt. Previously, you would have to pay a 10% penalty on 529 earnings (not contributions) in order to use the savings for non-qualified expenses, such as paying student loans. This Forbes article explains the limitations of using such plans to pay off student debt.  

Source: Forbes

 

How Each State is Shaping the Personal Finance IQ of its Student

According to CNBC, there's increasing research showing that students who are required to learn financial literacy or take personal finance courses in high school make better financial decisions in their early adult life. See how certain states are taking measures to ensure their students are more financially literate in this article.  

Source: CNBC

 

Student Loan Debt Statistics for 2019

Yahoo Finance has released a report on the state of student loan debt for the year of 2019, including information about the average student loan debt per borrower and student loan debt by state, age, race, and gender.  

Source: Yahoo Finance

 

Ohio Dad Got 55,000 Identical Letters About His Daughter's Student Loan

An Ohio father of a student loan borrower was shocked when he received 59 bins of mail containing 55,000 identical letters from the servicer of his daughter's student loans. The delivery was so large that the man had to pick up the delivery at the back door of the post office and had to make two trips. The servicer claimed it was due to a glitch in the outgoing mail process and that they would work to ensure the mistake would not happen again. When asked what he might do with the letters, the father said, "I just may start a fire, a bonfire, and burn it all," while laughing.  

Source: CNN

    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.

2020-02-06
Private Student Loan Repayment Options Explained (Video)

So you’ve worked hard to get accepted to a great college, and you’ve taken out student loans to make this dream a reality. Now, it’s time to determine the best student loan repayment option before the academic year begins. This video explains the four common student loan repayment options, highlighting the pros and cons of each. These repayment options include:

  • Immediate Repayment
  • Partial Repayment
  • Interest-Only
  • Full Deferment
   

Immediate Repayment Plan

Let’s begin with the immediate repayment option. With this type of repayment plan, you’d begin to make both principal and interest payments as soon as the loan is fully disbursed. This allows you to save money on interest and speed up the repayment process since your loan will be paid off in less time. Keep in mind that immediate repayment is the only plan that does not provide you with a 6-month grace period.

 

Partial Repayment Plan

Next, there’s the partial payment plan. Here, you’d pay a low fixed monthly payment while you are in school, and then ramp up your payments after you graduate, or become a part-time student. This is more affordable on a month-to-month basis; however the interest you do not pay off will then be added to your loan balance after college, increasing your post-grad payments.

 

Interest-Only Repayment Plan

Another intriguing repayment plan option is interest-only, which means you’ll make payments only for the interest that accrues on your loan while you’re in school.  Once you graduate, you’d pay on the interest and principle of your loan. This helps you save money long-term since you’ll cover the interest while you’re in school. Some lenders may offer you lower interest rates if you agree to begin repaying your student loans while enrolled in college.

 

Full Deferment Plan

Finally, there’s the full deferment plan. This allows you to hold off on making any student loan payments while you’re a full-time student. It may sound great to delay payments while in school or during your grace period, but you’ll end up paying more for the loan overall since the interest continues to accrue during the deferment and grace periods. This then gets added to your total loan once you start making payments.

 

Of course, the best way to navigate the student loan repayment process is to consult a professional. Contact ELFI to connect with a Personal Loan Advisor who can walk you through your options.

 

Tips for Starting Your Student Loan Repayment Journey

 
2020-02-05
7 Tips for Parents Paying A Child’s Student Loans

$233,610. This is the amount of money today’s average American family can expect to spend raising one child. If this seems like a lot, get ready for more sticker shock since this doesn’t include the cost of college. The average tuition at a public in-state school for the 2019-2020 school year is $10,116. Multiply that by four years (plus student loan interest), and you’re adding another $50,000+ to the total cost of raising a child.    If you’re reading this blog, you’re likely well aware of the cost of college, and you might now be looking for ways to help your son or daughter pay their college debt. Your recent graduate likely has a student loan (and if they’re lucky, parents who offered to make payments toward that loan). Or you might have taken out a parent loan* to fully cover the cost of college for your child. Either way, those loans are staring you in the face, begging to be paid.   Luckily, there are no rules against helping your son or daughter pay off student loan debt. However, there are some tips to help you navigate this offer.    

Set Up Automatic Payments

The easiest way to help manage your child’s student loan debt is by setting up automatic payments from your checking or savings account. We all get busy and forget items on our to-do list. And while one or two missed payments might not make a difference, several can result in late fee charges and dings on your credit, especially if the loan is in your name or if you were a co-signer for the loan.   

Play By the Rules (Tax Rules)

If you help pay your child’s student loan debt, you might need to pay gift tax and file a gift tax return during tax season. A gift tax applies to the giver (that’s you) and to any contributions more than $15,000, as of 2020. Tuition is excluded from gift tax but, unfortunately,  loan payments are not. Double-check current IRS regulations around loan payments before making the decision to help pay your child’s student loan debt. Here is a current FAQ list around gift tax.  

Focus on Loans with High-Interest Rates

Look at all your loans—car loans, mortgage loans, credit card debt—and focus on those with the highest interest rate. If you have a credit card with an 18% interest rate, and the interest on your child’s student loan is just 8%, it would be wiser to focus on paying your card first. Even adding an extra $50 or $100 per paycheck to those higher rate loans can help in the long run.  

Prepay the Loan

If you receive a bonus or a cushy tax return, allocate those extra funds toward the student loan debt. By paying down your child’s student loan faster, you can reduce the total amount of interest paid over the life of the loan by paying less monthly interest.    You can also allocate extra funds toward paying your child’s student loans by rearranging other existing finances. For example, if you have multiple credit cards, consolidate the balances into one loan. A single loan with a fixed interest rate that’s lower than the APR on your credit card will help you simplify and save.   

Refinance Student Loans

Refinancing student loans is another way to simplify payments and readjust finances. Whether the loan is a parent loan or student loan, reducing the interest rate lowers monthly and total loan payments. You can also change the term of the loan to 5, 7, or 10 years to help lower monthly payments, allowing you to reallocate funds to other expenses or debts (refer back to our tip about paying off debts with high-interest rates first).   Related >> Should You Refinance Parent PLUS Loans?   ELFI offers student loan refinancing options for both parents and students. We also have no application fees, no loan origination fees, and no penalty of paying off your student loan early. See how much you could save with ELFI Student Loan Refinancing*.  

Set Up Biweekly vs. Monthly Payments

You might have noticed that some months, you get an extra paycheck. This is because the 52 weeks in a year don’t evenly divide into four weeks for every 12 months. You can take advantage of these extra four weeks by setting up biweekly loan payments. If your monthly payment is $300, and you readjust to paying $150 every other week, you pay the same amount each paycheck, but end up with an extra loan payment paid over the course of a year. This pays your student loan debt faster. Another bonus? This tip works for paying off any loans, not just student loans.   

Fully Understand Your Offer

Paying your child’s student loans, whether partially or in full, is a generous offer. It can help your new graduate get on his or her feet in the working world. It can also help free up money for dealing with other debts or life’s unexpected surprises. Since your offer also impacts your financial situation, be sure you fully understand the pros and cons. Consider how close you are to retirement, and if your 401k or other funds will suffer. Be aware of the balances and interest rates in your other debts.    Whether or not you chose to help your child pay their loan, student loan refinancing (or even refinancing your parent loan) can help avoid the hassle of multiple payments and get a more affordable rate and flexible terms. See if you qualify for student loan refinancing*.   
  *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.