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Head of ELFI Talks Deferment

June 27, 2018

Source: Money Management International

 

Student loan borrowers may have the option to defer their payments while they’re enrolled at least half-time and during a grace period after leaving school. Parents who take out a loan for their child may also be given the same options. However, deferring your payments might be a decision that comes back to bite you later.

 

What is student loan deferment?

“Deferment is a feature that student loans have that’s not really offered on other types of loans,” says Barbara Thomas, executive vice president of SouthEast Bank and head of the bank’s Education Loan Finance division, a student loan refinancing lender.

 

“It was initially designed for students who don’t have a source of income and can’t afford to make payments,” she says. To allow students to focus on completing their degree, the lender temporarily allows borrowers to put off making payments until after they leave school.

 

The terms of when and how deferment work can vary depending on whether you’re taking out a federal or private student loan and what type of degree you or your child are pursuing. You be able to put your loans into deferment while you’re in school, during a grace period after leaving school, if you return to school, become disabled, are unemployed, if you’re on active duty military service, and in some other situations.

 

Aside from subsidized federal student loans, interest will accrue on your loans while you’re deferring payments. As a result, you could graduate with more debt than you took out.

 

Student loan interest rates, accrual, and capitalization.

Congress determines the interest rate on federal student loan, which can vary depending on whether you’re an undergraduate, graduate or professional student, or parent of a student. Currently, all federal student loans have a fixed interest rate, meaning the rate won’t change once the loan is disbursed.

 

Private student loans are offered with either fixed or variable rates, and your interest rate can depend on the lender and your creditworthiness. If you take out a variable-rate loan, the interest rate may rise or fall in the future if the benchmark rate that your loan’s rate depends on rises or falls.

 

The interest on student loans doesn’t compound while your loans are in deferment. By contrast, if you have a credit card, generally the interest that accrues today will be added to your balance. Tomorrow, the interest rate will apply to your new balance, and slightly more interest will accrue.

 

With student loans, the interest rate applies to your loan’s principal (the amount you borrowed) while your loan is in deferment, but the interest isn’t added to your principal during this period. So, you don’t get charged interest on the interest. However, when you start making your full payments, all the interest that accrued will capitalize and be added to your loan’s principal.

 

“Undergraduates, in particular, don’t understand how (capitalization) works,” says Thomas. “They’ll wind up with a higher loan balance and higher monthly payment.” Also, since your principal balance is larger, you’ll accrue more interest each month.

 

The same process can occur if you put your loans back into deferment, or temporarily stop making payments while they’re in forbearance, in the future.

 

The cost of deferring your payments.

To understand the potential impact of deferring your payments versus making monthly payments while you’re in school, we compared several scenarios. A few factors remain the same in each:

  • A student borrows $10,000 with a 6 percent interest rate at the start of a four-year program.
  • There’s a 51-month deferral period (45 months in school plus a six-month grace period).
  • Once the grace period ends, the loan has a 10-year (120-month) repayment period.

 

We used the following tools to help in our calculations, and you can use them as well to figure out the numbers for your specific situation.

 

 

While real students often take out new loans at the start of each school term rather than one large loan at the beginning, the example shows how even making modest $25 monthly payments could lead to significant long-term savings. Also, the in-deferment payments can help lower your required monthly payments later, which could make it easier to manage your budget after graduation.

 

Is deferring your payments ever a good idea?

It’s easy to talk about making payments while you’re in school but being able to afford them can be a different matter. After all, you’re taking out student loans because you need money to pay for school.

 

“If you don’t have discretionary income, then deferring your payments makes sense,” says Thomas. “You may have no other option.”

 

However, many graduate students, professional students, and parents of students are working and have an income. Even some undergraduates may have a modest income. “If you can afford to spend $25 to $50 a month on discretionary spending, then why can’t you put that money towards a loan?” asks Thomas. Doing so could save you a lot of money in the long run.

 

If you’re currently considering student loans, in school, or repaying your student loans and want assistance understanding your options, consider speaking with one of Money Management International’s trained student loan counselors. They can offer a one-on-one review and analysis of your situation, and give you recommendations based on your unique situation.

 

 

2020-10-28
Refinancing Private Student Loans

Many individuals take out private student loans to finance their undergraduate or graduate school education. Once they have obtained their respective degrees and graduated, student loan payments will begin coming due, typically following a grace period. While many individuals will pay their student loans to their original lender with the same interest rates and terms as when they obtained their loans, many choose to refinance their private student loans to reduce their monthly payment, save on interest, or pay off their loans faster.   Refinancing private student loans is the process of taking a new loan out with a private lender, often with a different interest rate and loan term. This page will provide an overview of refinancing private student loans to help you determine whether you should consider it.  

Should I Refinance Private Student Loans?

Refinancing private student loans is very similar to the process of consolidating student loans, which is when you combine multiple student loans into one loan with a weighted average interest rate. However, there are several potential benefits of refinancing private student loans that student loan consolidation does not offer. Here are a few of the
benefits of student loan refinancing.  

Lower Private Student Loan Refinancing Rates

Above all, the primary benefit of refinancing student loans is the potential to save money by lowering your interest rate. When you graduated from your respective program, the interest rates on your private student loans may have been higher than what private lenders currently offer to refinance student loans.   For example, if you took our $50,000 in private student loans at a 6.0% interest rate for a 20-year term, your monthly payment would be $358.22 per month, and you would pay a total of $85,971.73 over your loan term if all payments were made on time, with approximately $35,971.73 of that total being paid on interest alone. If you refinanced your $50,000 private student loans to the 20-year term with a 4.5% interest rate, your monthly payment would drop to $316.32 and you would pay just $75,917.93 over your loan term, with approximately $25,917.93 of that total being paid in interest. You would save $41.90 per month and $10,053.80 in interest costs.   The interest rate that is offered to you depends on a variety of factors that are typical when taking out a loan, such as your credit score, credit history, debt-to-income ratio, among other factors. Raising your credit score 50 or 100 points could make a considerable impact on how much you could save by refinancing private student loans. See how much you could potentially save by using our student loan refinancing calculator.*  

Adjusting Your Repayment Terms

In addition to lowering your interest rate, refinancing private student loans also allows you to adjust the length of your loan term to fit your goals and budget. Typically, shorter loan terms come with lower interest rates, allowing you to save on interest over your loan term, while longer loan terms come with slightly higher rates, but allow you to save on your monthly payments. Here are three ways that adjusting your repayment can help you better manage your student loans.
  • Simplify repayment by combining loans. When you refinance your private student loans, you can consolidate or combine multiple loans into a single loan with a single monthly payment. This can help you better track your total loan balance and get a clearer look at your repayment timeline.
  • Extend your loan term to save on monthly payments. By extending your loan term, you can spread out your payments over a longer period of time, often allowing you to reduce the amount you pay monthly. Having this extra cash can allow you to use that money for other financial goals, such as saving for retirement or purchasing a home.
  • Shorten your loan term to save on interest and pay off your loan faster. Oppositely of extending your loan term, shortening your loan term can often allow you to lower your interest rate and will shorten the amount of time that interest accrues, allowing you to save on interest and pay off your loans faster.
 

Choosing a New Lender

Another benefit of refinancing private student loans is the opportunity to switch to a new lender who may have additional benefits, such as forbearance options in the case of financial hardship or superior customer service. For example, with Education Loan Finance, if you are unable to repay your loan because of financial hardship or medical difficulty, Education Loan Finance may grant forbearance for up to 12 months. Additionally, Education Loan Finance offers superior customer service in the form of readily available Personal Loan Advisors who can help you through each step of the refinancing process and guide you toward the right repayment plan. Keep in mind that refinancing student loans for the sole purpose of switching lenders may not be the best decision, especially if it costs you money. If you're interested in refinancing student loans, learn more about Education Loan Finance.  

Reasons Not to Refinance Private Student Loans

Refinancing private student loans can be beneficial to many people, however, there are certain circumstances in which this may not be the case. It's important to understand whether refinancing private student loans will help you save on your student loans or pay them off faster.   For example, if you attempt to refinance private student loans and the interest rate you qualify for doesn't either help you save in total interest paid, nor helps you lower your monthly payments, you may want to wait some time and improve your borrowing credentials before refinancing. In some situations, even if you are able to lower your monthly payments, but will be paying a significant amount more in total interest costs, you may want to consider if it's the best solution. Likewise, if you are saving in total interest, but your monthly payment will be unmanageable, you may be at risk of missing payments or, even worse, defaulting on your loan. Additionally, refinancing with a new lender may cost you certain benefits that your current lender offers.  

Consolidating Private Student Loans vs Refinancing

When you are attempting to adjust your student loan repayment terms, you may come across student loan consolidation options. While student loan refinancing and consolidation are similar in that you are combining multiple loans into one loan with a single lender, the two are not exactly the same. Learn more about the difference between student loan consolidation vs. refinancing.  

Can I Refinance My Private Student Loans?

Anyone with private student loans can refinance them as long as they qualify by meeting a private lender's specific eligibility requirements for refinancing student loans.   For example, in order to refinance with Education Loan Finance*, you must meet the following criteria at a minimum:
  • be a U.S. citizen or permanent resident alien without conditions and with proper evidence of eligibility.
  • be at the age of majority or older at the time of loan application.
  • have a minimum loan amount of $15,000.
  • have earned a Bachelor’s degree or higher.
  • have a minimum income of $35,000.
  • have a minimum credit score of 680.
  • have a minimum credit history of 36 months.
  • have received a degree from an approved post-secondary institution and program of study.
  In conclusion, refinancing private student loans can be very helpful to individuals who qualify and are interested in saving money in interest or lowering their monthly payments. Learn more about student loan refinancing with ELFI to see if it's right for you.
paying down student loans with a credit card
2020-10-27
Should I Pay Down Credit Card or Student Loan Debt?

Dealing with student loans can be incredibly challenging for many college graduates. According to Experian, Americans carry an average student loan balance of $35,359. On top of that, the average credit card debt is nearly $6,200, says the credit reporting agency.    In most cases, targeting one debt at a time can help you pay off your balances faster and save you more money on interest. So should you pay down credit card or student loan debt first?   Here’s how to develop your strategy:  

Should You Pay Off a Credit Card or Student Loan First?

In the vast majority of cases, it’s better to prioritize your credit card debt before your student loan debt. This is primarily because credit cards charge higher interest rates than student loans.    Additionally, credit cards don’t have set repayment schedules, so it’s easy to add to your balance even while you’re paying them off. As a result, credit cards may keep you in debt for longer than student loans with firm repayment terms.   For example, let’s say you have the following debts:  
  • A credit card balance of $7,000 on an account with a 20% annual percentage rate (APR) and a $120 monthly payment.
  • Combined student loans worth $30,000 with a weighted-average rate of 6.5% and a $341 monthly payment. 
  In total, your minimum monthly payment would be $461, and if you were to pay just that amount and add no new debt to your credit card, you’d pay off the student loans in 10 years and the credit card in a little more than 11 years. You’d also pay a total of $24,739 in interest over that time.   Now, let’s say you could afford to put $510 toward your debt every month. If you were to add the extra payment toward your credit card debt until it was paid down, your balance would be paid off in a little under six years. Then if you use the total amount you were putting toward your card toward your student loans, you’d pay those off about a year and a half early. You’d also save $9,643 in interest.   If you were to do the opposite and focus on your student loans first, you’d pay those off sooner, but the higher interest rate on your credit cards will result in more total interest charges.    You can use a debt avalanche calculator to find out what you could save with your specific situation.  

Can You Pay Off Student Loans with a Credit Card?

Another thing you may be wondering is, can you transfer student loans to a credit card? The U.S. Department of the Treasury doesn’t allow federal student loan servicers to accept credit cards as a payment method, and it’s unlikely you’ll find a private lender that offers it as an option.   But you still can technically use a credit card to pay off a student loan by using the balance transfer feature. 

Many credit card issuers send out blank balance transfer checks that you can use to pay off other credit card accounts or other types of debt. These checks often include an introductory 0% APR promotion, which could potentially save you money as you pay down your balance.   To use one to pay off student loans, you’d write the check out to your loan servicer and submit it as payment or write the check to yourself and deposit it into your checking account, then make a payment.   But just because it’s possible to do this doesn’t mean it’s a good idea. In fact, you’ll be hard-pressed to find a scenario where using a credit card balance transfer to pay off a student loan is the right move. Here’s why:  
  • Balance transfers come with fees, which can range up to 5% of the transfer amount.
  • If you don’t pay off the balance before the promotional period ends, you’ll be stuck paying a higher interest rate, which can be in the mid teens or even upwards of 20%, on the remaining balance. 
  • The lack of a set repayment term on a credit card can make it more difficult to stick to your repayment plan and keep you in debt longer. 
  In other words, if you have credit card debt, using a balance transfer credit card to pay it off interest-free is generally a good idea. But it’s not worth doing the same thing with your student loan balance.   If you have a cash-back rewards credit card, you can also opt to use your rewards to help pay down your student loans.   

Using Your Credit Cards Wisely While You Have Student Loan Debt

In an ideal world, you’d never carry a balance on a credit card because when you pay your bill in full every month, you’ll avoid interest charges. But if your financial situation is tight because of student loan debt and other obligations, it can be difficult to avoid.    Whether or not you can afford to avoid credit card debt right now, here are some tips to help you limit your exposure to the risks they present:  

Always pay on time

Even if you can just make the minimum monthly payment, paying on time will ensure that you don’t get slapped with late fees and a ding to your credit score. If you do miss a payment, make sure to get caught up quickly — you won’t avoid a late fee but late payments aren’t reported to the credit bureaus until they’re past due by 30 days.  

Try to avoid a high balance

Your credit utilization rate is the percentage of available credit you’re using at a given time. So if you have a $1,000 balance on a card with a $2,000 credit limit, your utilization rate is 50%. There’s no hard-and-fast rule for what your rate should be, but the higher it is, the more damage it will do to your credit score. So if you can, try to keep your balance as low as possible relative to your credit limit.  

Seek lower interest rates

As you work to pay down credit card debt, a balance transfer card with a 0% APR promotion can be a great way to save money on interest charges, even if you can’t pay the balance in full before the promotional period ends. If you can’t qualify for a balance transfer card, you may try to call your card issuer and see if you can get a reduced interest rate. There’s no guarantee your request will be granted, but credit card companies will sometimes offer a lower rate for at least a short period.  

Avoid using your card as you pay it off

If you keep adding charges to your credit card while you’re paying down the balance, it can feel like you’re taking two steps forward and one step back. If you can, try to stick to using cash or your debit card while you pay down your debt — at least for most of your expenses — to make it easier to achieve your goal.   As you take these steps, you’ll be able to avoid some of the drawbacks that come with using credit cards regularly. They’ll not only help preserve your credit score but also make it easier to pay off your balance, so you can turn your focus to your student loans.  
  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.
2020-10-23
Ace Your Interview: Job Interview Tips

Life after graduation is full of responsibilities, like taxes, groceries and full-time jobs, but also full of opportunities. To capture these opportunities, you need to be prepared, and the best way to do that is to make sure you give the best job interviews possible. Here are a few job interview tips to help:  

Write a Top-Notch Resume

First step: get your
resume into shape. Make sure you fill it with your valuable work experience and qualifications. Your goal is to showcase the most successful and productive version of yourself possible.   Volunteer work, certifications, awards, and other accomplishments can all have a place on your resume. Many people like to build from resume templates you can find online, but if you use a resume template, just be sure you’ve thoroughly checked the verbiage to make sure it doesn’t sound scripted.   Your resume should show off your unique talents and skill set, as well as any numbers or figures that back up your work.  

Do the Research

One of the most important job interview tips is doing research beforehand. You want to be knowledgeable about both the job and the employer when you are being interviewed. Look at the company website to learn about company history, accomplishments, and other information. Also, take some time to read recent news about the company.   When you know what the company is looking for, you’ll be able to easily answer questions about how you will fit into the work environment.  

Know the Common Questions

Many interviewers ask the same, basic questions to better understand their candidates. While some may ask curveball questions, as well, you’ll be a step ahead if you come prepared with answers to common questions.   Examples include “Tell me about yourself” and “What are your greatest strengths and weaknesses?” Even though these sound like very basic questions, it’s important to give a thoughtful answer. Take your time thinking through responses prior to the interview. Indeed has a fantastic list of 125 such questions to ensure you are never at a loss for words.   Don’t stress about knowing all the answers; just practice the ones you think are most important. Then, if they ask you something unexpected, you’ll have a few ideas to pull from.  

Practice

Once your research is done, it’s time to practice. Ask a friend, parent, sibling or roommate to run through interview questions with you. Focus on answering smoothly and confidently.   In a similar vein, treat any job interview you go to as practice. If you don’t get the job, you’ve still gained valuable interview experience.  

Ask Questions

One job interview tip some people don't think about is to prepare your own questions.   A job interview isn’t just an opportunity for a prospective employer to learn about you. It’s also a chance for you to learn about them. Ask questions you really want answers to, not just questions you think will impress the interviewer. Honest questions demonstrate interest and can help you decide whether you’d like to work for the company.   Ideally, you should prepare your questions in advance. That way, you’ll be ready when the interviewer asks, “Do you have any questions for me?” If you’re at a loss for words, questions about corporate culture and growth opportunities are always good options.  

Dress the Part

When dressing for a job interview, you should think about the first impression you’d like to make on your potential employer. If you aren’t sure about an outfit, err on the side of caution. It’s better to be overdressed than underdressed. When in doubt, it’s hard to go wrong with simple, business-professional clothing.   Of course, this is by no means an all-purpose interview cheat code. Different employers will expect their employees to wear different things. An interview at a bank will require far more formal dress than an interview at quick-service restaurant.   Again, though, err on the side of caution. You likely won’t be passed over for a job because you were too well dressed. To top it all off, research has shown that dressing up can significantly boost your confidence.  

Follow Up

After the interview, consider sending a thank-you email to the hiring manager. Express your gratitude for the interview and impress upon them your interest in the position. Be enthusiastic. You’ve got one more chance to make a positive impression.   If you get the job, congratulations. That’s fantastic. If you don’t, don’t stress. You’ve done the best you could do, and you’ve gained valuable interview experience to boot. Sometimes it takes time to find the perfect job. With your interview experience, you’ll be all the more likely to get it. If you’re looking for a job in the medical field, check out this article on common resume mistakes for medical professionals.  
  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.