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Student Loan Refinancing

So I’ve Refinanced My Student Loans – Now What?

November 29, 2019

By Caroline Farhat

 

Congratulations! You just made the big step of refinancing your student loans. Your wallet is fatter and you’ve likely shaved off thousands of dollars from what you will have to pay on your student loans. That’s a huge achievement that will positively impact your financial life.

 

You may be tempted to use your new found moolah on brunches and vacations, but don’t start spending lavishly quite yet. While present you may be saying “yes!” to fancy dinners, future you would really benefit from spending this extra cash in a smarter way. If you’re feeling financially empowered, you’ll love these five financial tips for what to do after you refinance to maximize your money.

 

1. Reexamine (or create) your budget

Any time you have a change in your financial situation, such as a raise or a new recurring bill, it’s important to evaluate your current budget. If you don’t already have a budget, getting a little extra money each month can be a great motivator to start one. We’re fans of the zero-based budget system. With zero-based budgeting, you allocate each dollar you make to a specific expense or goal so it can help curb unnecessary expenses you may regret later. For example, say you bring in $4,000 a month after taxes. You spend $3,000 on fixed expenses such as rent, utilities, and food. Your monthly payment for student loans is $600, leaving you with $400 extra each month. Under zero-based budgeting, you would allocate the extra $400 to other goals (such as contributing to a savings account) or wants (such as a travel budget). Once you have figured out exactly where each dollar will go, you should set up an automatic transfer to a savings account so that you never get tempted to spend money that you should be saving.

 

Of course, budgets aren’t one size fits all. If you have a method that works for you, then use that! The important things to know and keep track of are:

  1. How much money you have (after taxes and health insurance payments)
  2. Your essential fixed expenses (such as housing, utilities, food, student loan payments)
  3. Your non-essential fixed expenses (such as gym memberships, Netflix, etc.)
  4. Your long-term financial goals (buying a house, saving for a child, retirement)
  5. Your short-term financial goals (dining out, travel)

 

2. Start or pad your emergency savings account

If you don’t have at least three months of living expenses saved up, you need to start right now. We don’t want to set off alarm bells, but an emergency savings account is the number one thing everyone needs to have on their financial to do list. Depending on your situation, you may benefit from stashing away six to nine months of living expenses, but start with at least three months and build from there. Be sure to have this money easily available, so put it in a savings or checking account that does not incur any fees or penalties for withdrawing money. For example, you do not want to put your emergency savings in a CD, even if it will yield you a higher interest rate, because getting your money out can be a costly and sometimes time-intensive process. That said, find a savings account that will pay you interest so you don’t lose all your earning power on that money.

 

3. Pay down other high-interest debt

After you have a healthy savings account, paying off high-interest debt should be your next priority. Just like how refinancing your student loans helped you save money in the long run, paying off debt with high interest rates such as credit card debt or a personal loan will help you shave off hundreds or possibly even thousands of dollars that you would have to make in interest if you just paid the minimum monthly payment. Even putting an extra hundred dollars a month to this debt can pay off big time in the future. Additionally, lowering your debt load can help bolster your credit score, especially if you are carrying a lot of credit card debt. Your debt-to-income ratio is critical if you want to get a mortgage or other big-ticket items so paying down high-interest debt can only work to your advantage.

 

4. Contribute to your retirement

Say you have a healthy emergency savings, you’ve paid off all of your credit cards, and you have enough to cover your living expenses with a little bit of extra fun money. First, congrats! That’s a big feat and you’re killing it with your finances!

 

Set your future self up for success is by starting or increasing your contribution to a retirement account such as a 401(k) or IRA. Retirement accounts benefit from compounding interest so the sooner you start, the better. Plus, many employers have matching programs that help you pad your retirement account. Remember the free money you can make from a high-interest savings account? This is similar, but your future self will be the one to reap the benefits.

 

5. Treat yourself, responsibly

If you have refinanced your student loans, it’s safe to say that you’re clearly on top of your financial game. Let’s be real — there will always be a list of things you can and should do with your money. But it shouldn’t all be about the work. You deserve to treat yourself! Just be sure to do it responsibly. Should you suddenly move into a budget-busting luxury penthouse apartment? Probably not. But you absolutely should treat yourself to that nice dinner or new pair of sneakers you’ve been eyeing. The keys to a successful financial life are staying informed and staying balanced. Just like any other goal, providing little rewards along your journey can help you stay motivated. So take this as our encouragement to enjoy yourself! Just do it responsibly with an eye on your financial independence.

 

 

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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.

young professional smiling after receiving a raise
2020-01-22
How to Use a Pay Raise Responsibly

Getting called into the boss’ office for the first time can feel a little reminiscent of getting called into the principal’s office. You immediately start sweating and wondering what you did wrong. But just like the principal's office, it's not always bad news. In fact, sometimes it's the best news of all: you just got a raise. Congrats! Take yourself out for a celebratory dinner and maybe even splurge on brunch this weekend. But come Monday morning, it's time to get down to business and determine how to use your raise.    You could just enjoy the extra cash coming into your checking account, yes. But, that little financial angel on your shoulder might also nag you about being smarter with that money. Unfortunately, most high school and college classes don’t teach us how to be responsible with our money. We learn all sorts of questionably-practical information like the Pythagorean Theorem but not how to file taxes or how to use a raise responsibly.    To cover that gap in information, we’re here with three actually practical suggestions to use that raise in a way both your principal and your boss would be proud of.   

3 Practical Tips to Use a Raise Responsibly

 

1. Boost Your Retirement Savings

If your employer has a 401(k) plan, you should already be allocating 3–5% of each paycheck toward a retirement account, especially if your employer offers a 401(k) match. This means they’ll contribute as much to your savings as you do, up to a certain amount. Many employers match contributions up to 6% of your salary, and this is, literally, free money. If you contribute 3% of your $50,000 salary, that's $1,500 a year from you and $1,500 a year from your employer for retirement savings.    When you get a raise, you should adjust your paycheck to dedicate a portion or the full amount of that raise to your 401(k) contributions. This is an easy way to save more without much thought or effort needed. If you do this right away, you don’t get used to the extra money, and you just continue living and paying bills as you did before the raise.    If you’re young, this type of contribution can be especially rewarding because of a concept called
compounding interest. This means the interest on your investment earns interest, not just the principal (or original) balance. If you invest $1,500 with a 10% interest rate, your balance would be $3,890 in 10 years. With a simple interest rate that only builds on the initial investment amount, your 10-year balance would be only $3,000.   

2. Pay Off Debts

Another savvy way to use your raise is to allocate a portion or the full amount to your debts. This can be credit card debt, student loan debt, or even repaying a personal loan from mom and dad. But debt isn’t necessarily a bad thing. Certain debts like student loans carry low interest rates so when you consider how to use your raise, consider that other accounts or investments with higher interest rates might make or save you more in the long run. For example, if your student loan has an interest rate of just 8%, it makes more sense to pay off a credit card with a 24.5% interest rate or invest in a stock with a 10% return rate.    >> Related: Should I Save or Pay Down Student Loan Debt?  

3. Allocate the Rest to An Emergency Fund

We alluded to this before, but you don’t have to put all your extra cash in one place. If you get a 5% raise, you can direct 4% toward your student loans and put even 1% in an emergency fund. You should build the emergency fund until you have at least six months of your salary in the account to help you cover bills and general living expenses in case you find yourself suddenly out of work. If six months seems unattainable, aim for at least one or two months to give you four to eight weeks to find work. This emergency fund can also come in handy if unexpected medical bills or car repairs pop up.    If you haven't been lucky enough to get a raise from your employer, or if you’re looking to boost your savings even more, you can give yourself a raise by refinancing student loans.    If you meet the eligibility requirements, student loan refinancing through companies like ELFI can get you a lower interest rate*, which means you could pay less each month and, subsequently, less over the life of the loan. Use the difference between your previous and current monthly payments as a raise. Then allocate that money to your retirement funds and toward paying off debts. ELFI customers reported saving an average of $309 every month and an average of $20,936 in total savings after refinancing student loans with Education Loan Finance.1 That’s a 7.4% raise, which is far above the predicted average 2020 cost-of-living raise of 1.6%. You can refinance both private and federal student loans.    Deciding how to use a raise responsibility is a big decision. Hopefully, with these tips, you can find ways to use those funds in a way that will give you even more play money in the future. The average raise is 4.6%, and with a little knowledge and discipline, you can turn 4.6% into thousands of dollars if you make the right choices on how to use a raise responsibly.  
  *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 8/16/2016 and 10/25/2018. 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.