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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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Man refinancing his student loans to a longer term
2020-09-23
Should You Refinance Student Loans to a Longer Term?

If your student loan payments are becoming overwhelming, it could be time to consider refinancing. When you refinance your student loans, you’ll not only have the option of consolidating multiple loans into one monthly payment; you’ll also have the chance to change your student loan repayment term.   When you take out private loans, you have the option of choosing to repay them over a short period of time or a longer period. We’ve compiled the pros and cons of both, as well as some situations in which a longer student loan repayment term might be the right fit for you.  

Is it time to refinance your student loans?

Refinancing your student loans is a great way to lower your interest rate and earn financial freedom more quickly. You can refinance both private and federal loans, and if you’re tracking a multitude of payment dates and timelines, consolidating your loans through refinancing can be a great way to simplify your financial life and work toward becoming debt-free.   You can refinance your loans as many times as you’d like, so even if you’ve already refinanced once, it never hurts to explore new lenders! Now is an especially good time to refinance your student loans, as interest rates have recently dropped as a result of the COVID-19 pandemic. As of September 18, 2020, student loan refinancing rates are as low as 2.39% for variable interest rate loans and 2.79% for fixed interest rate loans.   If you think now is the right time to refinance your student loans but you’re not sure, keep reading for more insights. We’re here to support your journey toward financial freedom and applaud your researching smart money moves!  

Signs it might be time to refinance your student loans:

  • You think you could earn a better interest rate. If interest rates recently dropped or your credit score has gone up, research your options to see if refinancing could be the right choice for you.
  • You have mostly private student loans. If your loans are through private lenders, now could be the time to consider refinancing, as you won’t risk losing any federal benefits.
  • You need more financial flexibility. If your student loan payments are keeping you from accomplishing other financial goals, refinancing could help by lowering your interest rate and extending your student loan repayment term. To learn more about the pros and cons of a long student loan repayment term, read on.
 

What happens when you change your student loan term?

A student loan repayment term calculates how long you have to pay back your loans in full. ELFI, for example, offers varying repayment terms for student loan refinancing.   When you consolidate and refinance your student loans, you’ll have the opportunity to change your student loan repayment term. This is especially useful if you’ve taken out several loans with different amounts and timelines.  

Choosing a longer term for your student loans

Opting for a longer student loan repayment term means you will pay more in interest over time. Each monthly student loan payment, however, will have a lower balance than if you had opted for a short repayment term.   If you're looking to accomplish several financial goals, like saving for a down payment on a house or purchasing a new car, lengthening your student loan repayment term may give you the flexibility you need to work toward those goals. Be advised, however, that if you do opt for a long student loan repayment term, the total amount you’ll pay in interest will go up. At the end of the day, the right student loan repayment term for you depends primarily on your long-term financial goals.

It might be time to refinance your student loans to a longer term if:

  • You want the financial flexibility of a lower monthly student loan payment
  • You’re expecting a drop in income and need to lower your monthly expenses
  • You’re having difficulties keeping up with your current student loan payments
 

What about shortening my student loan repayment term?

If none of the above scenarios apply to you and your most pressing question is “how can I pay off my student loans faster?” then a short student loan repayment term could be right for you.   Unlike a long student loan repayment term, you’ll make larger monthly payments but will pay less in total interest. Opting for a short student loan repayment term is the right choice for borrowers who have the financial flexibility to make larger monthly payments for a short period of time.   Learn more about short student loan repayment terms in our recent blog, “Choosing the Right Student Loan Repayment Term.”  

Refinancing student loans with ELFI

Ready to explore your student loan refinancing options with ELFI? Great! We’re excited to help. In addition to potentially lowering your interest rate and choosing a new student loan repayment term, when you refinance with ELFI, you’ll also work directly with a Personal Loan Advisor who will help provide a seamless, personalized refinancing experience.   Don’t take our word for it. Check out recent customer reviews on Trustpilot! If you’re ready to explore potential interest rates by refinancing with ELFI, check out our Student Loan Refinance Calculator.*  
  *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.
Man contemplating which student loans to refinance in 2020
2020-09-10
Which Student Loans Should You Refinance in 2020?

With interest rates favorable to student loan borrowers, right now can be a great time to refinance. But not all loans are created equal. In fact, it may be better to wait to refinance certain types of loans. Keep reading to find out which student loans you should refinance in 2020.    By Caroline Farhat  

Refinancing Rates at All-Time Lows. Should You Refinance?

Refinancing interest rates for student loans are at an all-time low in history. This is due to the Federal Reserve lowering interest rates in response to the COVID-19 pandemic. When the Federal Reserve lowers interest rates, this impacts rates that lenders will use on loans that you borrow. This change affects private student loans with variable interest rates and any new loan that you want to take out, including refinancing rates. This makes it an ideal time to refinance if you have certain loans.      As of September 8, 2020, student loan refinancing rates are as low as 2.39% for a variable interest rate loan and 2.79% for a fixed interest rate loan. If you refinance now you could potentially be saving thousands of dollars over the loan term because you will be able to lock in a low interest rate. This will also save you on your monthly payment.   

Example of Savings When Refinancing

Here is an example of how much can be saved by lowering your interest rate:    If you have $60,000 in student loans and an interest rate of 9% with 10 years remaining on your loan term, your estimated monthly payment would be $760.00. If you took advantage of the low interest rates now and qualified for a fixed rate of 3.76% you could save as much as $159.00 per month and over $19,000 in interest over the remaining 10 years.    To find out your possible savings, use our
Student Loan Refinance Calculator* where you can put in your specific loan numbers to obtain an estimate of the amount of savings for your specific situation.   So now that you see how beneficial it can be to refinance student loans, which ones should you try to refinance in 2020?   

Considerations for Refinancing Federal Student Loans

Federal student loans are currently benefiting from the protections provided by the CARES Act and the subsequent Executive Order signed on August 8, 2020. The benefits provided include: 
  • 0% interest - Right now federal loans are not accruing any interest because of the lowered interest rate. This means the loans are not increasing and can actually be paid off faster if payments are made while the interest rate is 0%.
  • Administrative forbearance - This means no payments are due during forbearance. Payments are set to resume in January 2021. 
  • During the administrative forbearance, payments that you would have made during this time but are not required to make, still count towards forgiveness for loans in the Public Service Loan Forgiveness program. 
  All of these benefits are set through December 31, 2020, making it more ideal to wait until 2021 if you want to refinance any federal student loans. If you have federal loans and were to refinance them now, you would lose these federal benefits. During this time if you have a federal student loan it is best to use the money that you would normally be paying on your loans to save for an emergency fund, pay off other high interest debt, or use it to make a lump sum payment on your loans when payments resume.    

Best Student Loans to Refinance in 2020

The loans that would be best to refinance now in 2020 include:  

Private Student Loans

If you obtained private student loans in the early 2000s you could have an interest rate as high as 9%. Refinancing older student loans would greatly benefit from the much lower interest rates. Even if you have newer student loans with a lower interest rate than 9%, with rates so low you may be able to refinance with a shorter term length and still be able to see savings and cut time off your student loan.    Here is how that could work: with a student loan balance of $60,000 with 18 years remaining at 7% interest you would be paying approximately $489 per month. But if you refinance the loan and qualify for a rate of 4.07% you could save an estimated $43 per month, over $25,000 in interest, and cut your loan term down to 15 years. That’s saving you time and money on your student loans!  

Variable Interest Loans

If you have a variable interest rate loan, you may also be experiencing the benefits of the interest rates being lowered. However, just as rates can be lowered, they can be raised. If you want the security of knowing your rate cannot go up, now would be a good time to lock in a low fixed interest rate.    

Bottom Line

Refinancing is a great way to save money on your loans. Knowing the current student loan environment is helpful to determine the best financial move for you now. With the current CARES Act, refinancing only your private student loans and not your federal student loans may be the most financially savvy move you can make this year.  
  *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.
2020-09-04
Student Loan Refinance Rates Just Dropped Again. Should You Refinance?

If you have student loan debt and are looking for ways to save money, you’re in luck because right now is a great time to consider refinancing your loans. Currently, refinancing rates are at an all-time historic low. As of September 3, 2020, interest rates for refinancing student loans are currently as low as 2.79% for a fixed rate. Compared this to the early 2000s when private student loan rates were as high as 9% and you can see that now is the time to take advantage of the opportunity to see significant savings. Before you decide on refinancing your student loans, it’s best to consider the pros and cons.  

Pros of Refinancing Now

When you refinance student loans, it means you are obtaining a new private student loan to pay off your old loan or multiple student loans. You can refinance private and federal student loans. The new loan may have a different term length than your previous loan and will have a different interest rate (presumably a lower one) and monthly payment. Here are some reasons refinancing now could be beneficial:    

Lock in a Low Rate 

If you refinance now, you will be able to take advantage of the low refinancing rates being offered. Having a low interest rate helps you save money in interest costs. This can also help you pay off your loan faster if you are able to pay more than the minimum payment and can put more towards the principal of the loan. To see just how much a lower interest rate can save you, check out this example:   If you have student loan debt in the amount of $50,000 with an interest rate of 7% and a loan term of 20 years, your monthly payment would be approximately $388.00. If you refinance and qualify for an interest rate of 4.65% with the same loan term your payment would be approximately $320.00 and you would save over $16,000 in interest costs over the length of the loan. A lower interest rate can result in huge savings!     

Save on Monthly Cost

  If your goal is to save some money, refinancing can definitely help accomplish that goal in most cases. If you qualify for a lower interest rate, with the right loan term you can save on the monthly cost of your student loans. Based on the example above, you would see a savings of over $60 per month. In certain instances where your new interest rate is significantly lower than your previous interest rate, you may be able to shorten the length of your loan term and still save in monthly costs. This will save you money and time on your student loan!      

Save on Interest over the Loan Term

  If you refinance to a lower interest rate you can literally save thousands of dollars over the life of the loan. These savings can be put towards other financial goals, setting you up for a stronger financial future. Your savings rate will depend on what your current interest rate is on your loan and the new rate you will qualify for. If you are interested to see how much your savings could be, use our
Student Loan Refinancing Calculator to get an idea of your savings.*   

Single Payment 

Refinancing is also beneficial to help simplify your finances. If you have multiple student loans that you are paying with different due dates, it can be difficult to keep up with all the different loans. When you refinance, you can essentially consolidate all or some of your student loans into one loan with one payment. This will make it easier to manage your finances. You will also be less likely to miss a due date and avoid having to pay late fees.     

Cons of Refinancing Now

Although there are numerous benefits for many student loan borrowers, there are some drawbacks to consider before deciding whether refinancing is right for you now.     

Lose Federal Borrower Protections

  When you refinance federal student loans, you will obtain a private student loan, which means you will not have access to any of the federal borrower protections currently being offered due to the COVID-19 pandemic. Therefore, if you refinance your federal student loans now you will lose the following protections: 
  • 0% interest: an executive order was signed on August 8, 2020 extending a 0% interest rate on federal student loans through December 31, 2020. This means no interest will be accruing on your federal loans through the end of the year. If you refinance now, interest will begin accruing on your new loan at your new rate.  
  • Administrative Forbearance: included in the executive order extending the 0% interest rate, the administrative forbearance was also extended through December 31, 2020 meaning no student loan payments will be due on most federal student loans until 2021. If you refinance now, payments will begin being due at the start of the loan, instead of resuming in 2021.  
  • Other federal borrower protections that are lost when you refinance include: 
  • Public Service Loan Forgiveness (PSLF): if you work for a qualifying employer and have qualifying loans that you are hoping will be discharged through PSLF, it would not be wise to refinance any federal loans. Private student loans are not eligible for this program.  
  • Deferment or Forbearance options are more flexible with federal student loans. 
 

Considerations to Make

If you are still unsure whether refinancing is a wise financial move for you, consider some of these options:
  • Only refinance any private student loans you have and not federal loans. That way you can take advantage of a low interest rate on some of your loans, but still keep the federal borrower protections on your federal loans.
  • Wait until 2021 to refinance when the federal protections of 0% interest and administrative forbearance will end, and rates may still be low. Although keep in mind rates can change and increase.
 

Bottom Line

Deciding whether to refinance your student loans now is a decision that should make wise financial sense for you. Ultimately any time you focus on your financial future and plan financial decisions, it is a step in the right financial direction!  
  *Subject to credit approval. Terms and conditions apply.