ELFI is monitoring the Coronavirus (COVID-19) outbreak and following guidance from state and federal agencies. If you have been impacted by the Coronavirus, our Customer Care Center is available to help you.
×
TAGS
Lifestyle
Personal Finance
Student Loans

Should You Save for Your Child’s College Fund or Pay Your Student Loans?

March 30, 2020

As you start to grow your family, you may be wondering whether you should continue to aggressively pay down your student loans or start saving for your little bundle of joy’s college fund. Do you immediately set up a 529 to start saving for their college expenses? Or should you focus on paying your student loans before saving for your kid’s college? Here is some information to consider before you decide.

 

By Caroline Farhat

 

For the 2018-2019 school year, families spent an average of $26,226 on college. With tuition rates and the cost of living increasing, higher education can be an expensive endeavor to undertake. In 2019, 64% of families planned to pay for college by saving, according to Sallie Mae’s “How America Pays for College 2019 Study”

 

With all this in mind, you may think it’s a good idea to start saving for your child to attend college when they are a newborn. Perhaps the heavy burden of your student loans is something you want your child to avoid. However, it’s important to consider some factors:

 

Do you have a healthy retirement account?

Financial experts will argue you should not save for your child’s college expenses if it prevents you from saving for your retirement. The argument is based on the fact that you can’t borrow for your living expenses in retirement, but your child can borrow for school costs. If you wait to save for retirement after sending your child off to school with their tuition saved for, you will be missing out on vital years of compounding. Saving for retirement early can earn you thousands of dollars more than if you were to start saving later!

 

What do your other debt payments look like?

Is your financial situation stable enough to be able to pay tuition or save for future tuition costs? To determine this you should consider what debt (including your student loans) you have. Are you able to make all your debt payments? Do you have an emergency fund you are contributing to? If you have unpaid debts or don’t have an emergency fund, you may need to delay saving for future college expenses at this time. 

 

Can you afford tuition payments or monthly college savings in your budget?

If saving for your child’s college expenses is a priority for you, plan for it in your budget. If you are able to continue making your own student loan payments, save for retirement, and continue to build an emergency fund while saving for your child’s college expenses, go for it! Ready to make a budget, but not sure how? Check out this budgeting method

 

Options to Consider 

If you want to help with your child’s college expenses but it’s not financially feasible at this time, here are some ways you may still be able to help:

  • Refinance your student loans. If you are trying to save some money in your budget for your child’s college expenses consider refinancing your student loans. Refinancing allows you to obtain a new loan, presumably at a lower interest rate, to pay off your old loan. The new loan with a lower interest rate can result in significant savings for your monthly payment and in interest costs over the life of the loan. This monthly savings can go directly into your child’s college savings. To find out how much you may be able to save, check out our student loan refinance calculator.* 
  • Don’t feel bad if saving for your child’s higher education is not something you can afford. In 2019, 50% of families borrowed for college. This figure also includes families who had some savings. Student loans, both federal and private, are an important resource to pay for college expenses. Help your child determine how much they need to borrow and compare their options.     
  • If it’s not in the budget to save for future education expenses start saving any cash gifts your child receives. Take those gifts and open a 529 plan for your child. A 529 is a tax-advantaged investment account that allows you to save for qualified higher education expenses such as tuition and room and board. 

 

Ways to Save on College Costs

When you are deciding how to pay for college expenses, be sure to include your child in the discussion. After all, they will be starting their adult life and should have a good understanding of finances. Here are some points of discussion to get you started:

  1. Can they take Advanced Placement classes or do dual enrollment in high school to earn college credits? Earning college credits while still in high school is significantly less expensive, or possibly free in some cases, and can cut down on the required number of classes when they actually attend college. This can help them graduate early or reduce the amount of tuition you need to pay. 
  2. Is your child considering a private or public college? The type of school they are considering can have a significant impact on the cost. In 2019, the average cost of a private school was $48,510 per year compared to $21,370 for a public college. Though the sticker price for a private college is a lot higher, private schools often have the ability to give more generous financial aid. Before eliminating a potential college due to costs, be sure to look at their financial aid statistics. 
  3. Will they be eligible for any scholarships? There are a number of general and niche scholarships that your child can apply to. College Board’s Scholarship Search is a good resource to find out about scholarship opportunities. Tip: Be sure to fill out the FASFA, which allows you to be eligible to receive aid such as grants, scholarships, work-study and federal student loans. 
  4. Will your child have a job during school to help pay for expenses? A job on campus can be a great way for a college student to be more involved on campus and earn money for their living expenses. 

 

Bottom Line 

The ability to help your child pay for future educational expenses can be a great feeling. But before you take on this endeavor, you’ll want to be sure that your financial situation is stable enough. Armed with this information, you can make an informed decision for how you can successfully pay off your student loans and save for your child’s college expenses.

 


 

*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.

Leave a Reply

Your email address will not be published. Required fields are marked *

Young woman reading student loan news
2020-05-22
This Week in Student Loans: May 22

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:
what you need to know about student loan debt relief

What you need to know about debt relief on student loans

As there have obviously been some major changes in the world of student loans recent, the Washington Post covers many frequently asked questions in this article, from the details of the Heroes Act to how the new changes affect a variety of borrowers.  

Source: Washington Post

 

college's loan default rate

Why a college's student loan default rate matters

With the extended deadline for "decision day" approaching, this US News & World Report brings to light how a college's default rate, or the average portion of students who default on their student loans, should matter to students who are choosing where to attend college.  

Source: US News & World Report

 

Donors provide students with debt relief

Anonymous donors paid off $8 million in student loans for first-generation grads

According to CBS News, a group of anonymous donors contributed a total of $8 million to pay off college loans for up to 400 first-generation college students who have overcome financial hardships, from homelessness to poverty. The donors are longtime supporters of Students Rising Above (SRA), a Bay Area nonprofit.  

Source: CBS News

 

Student Loan Debt Relief

More relief could be coming for student loan borrowers

While the CARES Act has already suspended federal student loan payments through September 30, 2020, a new bill known as the HEROES Act, passed by the House last Friday, would include additional relief for borrowers with both federal and private student loans, including potentially suspending federal student loans another year through September 30, 2021.  

Source: CNBC

    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.

Clock representing the time it takes to pay off student loans.
2020-05-21
How Long Does it Take to Pay Off Student Loans?

If you have student loan debt, do you know what your loan term is and how long your payments are expected to last? On average, college graduates think they will have their loans paid off in six years. Is this a realistic expectation to pay off loans that quickly? Here we will show you how long it actually takes people to pay off student loans. And if you are looking for ways to pay them off faster, we have some tips for that as well.     

Loan Terms

The loan term is how long it will take you to repay the loan if you only pay the amount owed each month and do not make any additional payments. For federal student loans, the average loan term on the standard repayment plan is 10 years. However, there are options to increase the loan term up to 30 years, depending on the amount of money owed and what payment plan you choose. Increasing the loan term will cause you to pay more interest over the lifetime of the loan, but may require a smaller payment compared to the standard repayment plan.    

Average Time to Repay Undergraduate Loans

Although the standard loan term is ten years, many people take much longer than that to repay student loans. The average time it takes to repay student loans depends on what degree you obtained, mainly because of the amount of loans taken out. However, it also depends on the income you are earning. If you work in a job that is in your degree field, you may be earning the average income in the sector and be able to pay off your loans in the average amount of time. However, if you are not working in your degree field and your salary is lower than the average salary for that degree, it may take more time to pay off.
  • The average amount of student loan debt for a person who finished some college, but did not obtain a degree is $10,000. The average amount of time it takes to repay the loans is just over 17 years.  
  • For a person who obtained an Associate degree, the average amount of debt is $19,600 and on average it will take just over 18 years to pay off the loans. 
  • For college graduates that earned a Bachelor’s degree they will repay an average of $29,900 in student loan debt and will take approximately 19 years and 7 months to repay the loans. 
 

Average Time to Repay Graduate Loans

Earning a graduate degree takes more time and, of course, more money. The average amount of student loan debt for graduate degrees is $66,000. However, certain degrees require much more than the average amount of loans and, therefore, more time to pay. 
  • Medical school - The average student loan debt for medical graduates in 2019 was $223,700. Because of the high salaries doctors are able to earn after residency it can take an average of 13 years to repay the student loans. 
  • MBA - If you earn an MBA the average student loan debt is $52,600 and can take 22 years and 10 months to repay.
  • Law degree - Obtaining a J.D. may cause you to rack up the average of $134,600 in student loans and it will take an average of 18 years to repay.  
  • Dentist - To become a dentist it will cost an average of $285,184 in student loans and may take 20-25 years to pay off the debt.  
  • Veterinarians - Attending veterinary school can cost an average of $183,014 in student loans. It may take veterinarians longer to repay their student loans than traditional medical colleagues because their average income is much lower at $93,830. It can take 20-25 years to repay the loans. 
 

How to Pay Student Loans Off Early

If seeing these averages makes you panic, don’t worry! Use them as motivation to pay your loans off faster. Here are some ways to accomplish that:   

Student Loan Refinancing 

Refinancing student loans is extremely advantageous for many borrowers because it can save you money on monthly payments and in interest over the life of the loan. Refinancing can also be beneficial to shorten the length of time it takes to pay off your loans and save even more in interest costs. This can be done by obtaining a new loan with a shorter term than your current remaining loan length. Although refinancing to a shorter term length will increase your monthly payment, if you are able to afford the new payment it can be a great financial move for your future. You will be paying your loans off sooner and saving more in interest.     For example:  If you have $30,000 in student loans with a standard 10 year repayment plan and 7% interest rate, your payment would be $348 per month. If you refinance to a 7 year loan and qualify for a 6.48% interest rate, your payment would only increase by $62.00 per month and your loans would be paid off 3 years earlier. You would also save $4,403 in interest!   If you did not want to increase your monthly payment you could still utilize the benefits of refinancing by keeping the same loan term and qualifying for a lower interest rate than your current rate. With the same example as above, if you refinance to a 10 year term loan with a lower interest rate it would still save you $573.00 in interest. Qualifying for an even lower interest rate could save you up to $5,590 in interest.     To see your potential savings, use our student loan refinancing calculator.*   

Make Extra Payments 

No matter what payment plan you have for your student loans, making extra payments can be a beneficial way to shorten the amount of time it takes to pay off your loans, including saving you in interest costs.    

Conclusion

Tackling student loan debt may seem daunting at times, but payments don’t last forever. If it’s your goal to pay your loans off as quickly as possible, hopefully using some of these tips will help you reach that goal. Knowing the average time it takes to pay off loans will allow you to set realistic expectations for your financial goals.   
  *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.
Chart of rates over time
2020-05-18
Current LIBOR Rate Update: May 2020

This blog provides the most current LIBOR rate data as of May 7, 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 - May 2020

As of May 7, 2020, the 1 month LIBOR rate is 0.20%. If the lender sets their margin at 3%, your new rate would be 3.20% (0.20% + 3.00%=3.20%). The chart below displays fluctuations in the 1 month LIBOR rate over time.

 

(Source: macrotrends.net)

   

Current 3 Month LIBOR Rate - May 2020

As of May 7, 2020, the 3 month LIBOR rate is 0.43%. If the lender sets their margin at 3%, your new rate would be 3.43% (0.43% + 3.00%=3.43%). The chart below displays fluctuations in the 3 month LIBOR rate over time.

  Chart of 3 Month LIBOR for May 2020 (Source: macrotrends.net)  

Current 6 Month LIBOR Rate - May 2020

As of May 7, 2020, the 6 month LIBOR rate is 0.69%. If the lender sets their margin at 3%, your new rate would be 3.69% (0.69% + 3.00%=3.69%). The chart below displays fluctuations in the 6 month LIBOR rate over time.

  Chart of 6 Month LIBOR May 2020 (Source: macrotrends.net)  

Current 1 Year LIBOR Rate - May 2020

As of May 7, 2020, the 1 year LIBOR rate is 0.78%. If the lender sets their margin at 3%, your new rate would be 3.78% (0.78% + 3.00%=3.78%). The chart below displays fluctuations in the 1 year LIBOR rate over time.

  Chart of 1 Year LIBOR May 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.