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Student Loan Refinancing: How To Avoid Predatory Lending

March 8, 2019

No one wants to get scammed, but it can be hard to feel confident about whether you’re working with a reputable source or not. In an era when we have access to so many different options and there are countless financial entities available at our fingertips, there are definitely some things to keep in mind so that you don’t end up getting a raw deal.  It’s not uncommon if you’re interested in student loan refinancing, or have been approached by a company to want to see if they’re legit before you move forward. Here are some tips on how to avoid being a victim of predatory lending.

 

Check your sources.

It’s not uncommon to find random financing offers around the internet. Maybe you read about it on Reddit, saw a social media post, or even direct mail. Companies regularly send postcards and mailers to try to get your attention. The marketing material can look pretty convincing, too! Don’t let a slick landing page or a nice mailer fool you. You generally want to find suggestions from sources you trust, like a financial expert, or trusted online sources. A good resource would be the Better Business Bureau. You can see online complaints, information about the company, and all provided by an unbiased source. A second site that provides unbiased online reviews is Trustpilot. Websites with unbiased reviews and legitimate accreditation or backing can be an ideal source to verify credibility.

 

Never trust dishonest marketing.

It may sound extreme, but we’ve heard of examples where someone was approached by an entity that attempted to look like the government. These scare tactics are used frequently enough by scammy companies for one reason – they work. These companies use this scare tactic because when you think the government is trying to get in touch and you’re in trouble, you answer! These options work similarly to the IRS scams that are always happening with the IRS calling your phone, but in reality, the IRS doesn’t actually call anyone. If the company tried to look like a government program and later you find out they’re not, drop them. A legitimate company won’t send fake notices or use a misleading URL in order to get your business.

 

Listen to the old adage.

If it’s too good to be true, it probably is. There’s a reason that this simple advice is so often passed down. Really amazing offers are rare. If something sounds like there’s no way they could offer you such incredible terms or that great of a deal, there is likely fine print that’s missing. Fact check the offer and look for comparable data. Your alarm bells should go off if you’re looking at a company whose reputation is dubious. This especially proves true if they’re claiming to get you unheard of service or savings.

 

Requirements to Refinance Student Loans

 

What do I owe you?

There are lots of scams across all kinds of industries. One of the most common is when a person tries to get you to pay something up front with the promise of services to come. Lending is no different. If you have to pay a fee or anything before you can see the offer, chances are that this is a scam. Companies often will offer to facilitate student loan discharge for someone with a permanent disability. The process of applying for student loan discharge if you have a qualifying disability is free. Any company offering to do it for a hefty up-front fee is scamming you!

 

Avoid anyone who is too aggressive.

Sometimes a company will aggressively pursue potential borrowers and push them to select a consolidation option that’s not in the borrower’s best financial interest. They might be a legitimate company but will leave out crucial details in order to sign you up. A good general rule of thumb is to be aware of the interest rate and terms. Understand how a lower payment can extend the life of your loans, thus increasing the overall amount due. Always get all the details, so you know the financial implications of your decision.

 

Give it a gut check.

Sometimes your intuition is your best tool. If something doesn’t feel right, don’t be afraid to hit pause until you can find more information. Be wary of any company that’s asking for too much personal information before you are sure that they’re legit. Keep an eye out for things that just don’t seem right, like misspellings or a digital presence that seems fishy. You should never be faulted or made to feel bad for giving yourself time to look into the details and read everything over. If you feel like you’re being hurried through or your questions aren’t being answered stop and take a breather to do a gut check. All of your concerns should be addressed with ample information so that you feel confident about the process and decision. If that’s not what you’re experiencing, you should back away.

 

Use your village.

There are lots of reputable companies out there, and it’s pretty easy to find them by reading unbiased reviews. Do your research and continue learning more about how their process will help you. Use resources available to you to vet companies before you reach out. If you utilize the resources available to you, you’ll be less likely to encounter an unreputable company on the prowl.

You should never be badgered or threatened.

No reputable company is going to make threats against you or repeatedly harass you to sign up. As a consumer, you have certain protections and any company that violates these should be investigated. If you’re facing this treatment from any lender, would like to see more information on various types of financial products and your rights, visit the FDIC website.

 

 

Check Out Our Guide to Student Loan Refinancing

 

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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.

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2019-12-09
This Week in Student Loans: December 9

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:

Department of Education Proposes That New Entity Handle Student Loan Debt

On Tuesday of this week, the Trump administration and Department of Education (DOE) Secretary Betsy DeVos proposed that a new, independent entity manage the federal student loan portfolio, rather than the Department of Education’s Office of Federal Student Aid. Devos proposed the move at a conference this week, calling for a “stand-alone government corporation, run by a professional, expert and apolitical board of governors.”

 

When asked why they believe the federal student loan portfolio should be managed outside of the DOE, Devos claimed that the DOE was never set up by Congress to be a bank, but claims that’s effectively what they are.

 

In order to make this happen, laws would have to be passed that would separate the Office of Federal Student Aid from the DOE in order for it to be a stand-alone entity.

 

Source: Yahoo News

 

Lawmakers Call for Investigation of Federal Loan Discharge Program for Disabled Borrowers

With plenty of heat surrounding allegations against the U.S. government’s Public Service Loan Forgiveness Program for not making the qualification requirements clear, a new federal program is under fire from lawmakers this week – this one meant to forgive student loans of borrowers with “significant, permanent disabilities.” An NPR report recently revealed that the program wasn’t helping a large portion of borrowers who were eligible.

 

This loan discharge program is specifically meant to help individuals who have the most severe type of disability: Medical Improvement Not Expected (MINE). The Education Department finds eligible borrowers by comparing federal student loan records with the Social Security Administration records, then sends a letter to these disabled individuals and requires them to apply in order to have their loans discharged. The controversy lies in that that many of these borrowers are unable to apply or may not be aware of the notice they received. The NPR report revealed that only 36% of eligible borrowers have had their student loans discharged.

 

Source: NPR

 

Trump Calls on Aides for Plan to Tackle Student Debt

With Democrats such as Elizabeth Warren making bold claims for tackling student debt in the US, President Trump has called on his administration to put together a “blueprint” for how they will manage the student debt crisis. The Washington Post claims that Trump is calling for this plan as a method to combat “anxieties that Democrats such as Warren will tap into populist impulses that propelled his 2016 victory,” and that “he will need policies beyond his signature areas of immigration and trade to counter them.”

 

Source: The Washington Post

 

Rand Paul Wants You to Use Your 401k to Pay Off Student Loans

Senator Rand Paul (R-KY) recently proposed a legislative act that would allow individuals to use pre-tax money from their 401k to pay off student loans, or even pay for college. The HELPER Act (Higher Education Loan Payment and Enhanced Retirement), is an initiative by Paul to “reshape the way people save for higher education, driven through tax and savings incentives,” says Forbes writer Zack Friedman.

 

Key takeaways from the act would include the ability to withdraw $5,250 from your 401(k) or IRA annually to pay off debt or pay for college, the ability to pay tuition and expenses for a dependent or spouse, tax-free employer-sponsored student loan and tuition plans, and a removal of the cap on student loan interest reduction.

 

Source: Forbes

 
 

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.

2019-12-05
Student Loan Interest vs. Other Interest Types

By Caroline Farhat  

If you have student loans, you’ve probably been told at one point that it’s “good” debt. But what does that really mean? Is any debt actually good or is it all bad? Is the interest you pay on your student loans better than the interest you pay on your auto loan? 

 

As you accumulate more assets, you’ll encounter many different types of interest. It’s helpful to know how each type of interest differs so that you know exactly what you’re getting into when you borrow money. 

What is Student Loan Interest?

Student loan interest is essentially the cost you pay for borrowing the money. When you pay interest, you will be paying back the amount of money you borrowed plus the cost to borrow the money (the interest). The higher the interest rate, the more money you will have to pay in addition to the amount you borrowed. The amount you borrow is called the principal and the cost to borrow the money is called the interest. Interest is charged on both federal student loans and private student loans until the loan is paid in full. When you make a payment on a loan the interest is paid first, any amount of the payment over the interest is applied to the principal and lowers the balance of the loan. The types of rates and how interest is calculated are based on the type of student loan.  

 

Federal Student Loans: The Difference Between Subsidized and Unsubsidized

Federal student loans have fixed interest rates that are set by the government. They remain the same throughout the life of the loan. Also, federal student loan interest rates may be lower than auto loans or personal loans. Federal student loans have two different types of interest: subsidized interest and unsubsidized interest. A subsidized interest loan means the government pays the interest on the loan while you are in school or during deferment (a grace period from federal student loan payments granted for certain situations), which means the balance of the loan does not increase. Once you are out of school or the deferment period ends, you will be responsible for paying the interest on the loan. An unsubsidized federal student loan means the interest starts accruing from the day the loan is first disbursed. Although you may not be required to make payments on the loan while you are in school, you will end up with a loan balance higher than you initially borrowed. The interest on a federal student loan is calculated using the simple interest formula. Here is how to calculate the simple interest formula:

 

The principal (the amount of money you borrowed) X the interest rate = The amount of interest you will pay each year for the loan

 

Private Student Loans: The 411 on Fixed and Variable Interest Rates

Private student loans can have a variable interest rate or a fixed interest rate. A variable interest rate is based on the current market and economy and can change over the life of the loan. A fixed interest rate remains the same throughout the life of the loan. It’s important to note that rates can vary widely based on the student loan lender, which is why it is so important to do your research and only sign with a reputable company. The interest rate you receive on a private student loan is also based on certain financial factors, including your credit score. 

 

For example, ELFI customers who refinanced student loans report saving an average of $309 every month¹. If you currently have private student loans, you can check out our student loan refinance calculator to get an estimated rate and monthly payment for both fixed and variable options.² Whether you’ve taken out federal student loans or private student loans throughout your college journey, consolidating and refinancing could score you some significant savings.

 

Interest On Other Common Loans

If you’re in full adulting mode, odds are you have or are considering getting an auto loan or mortgage. Just like your student loans, these financial products come with interest as well. 

 

Interest rates on car loans can be variable or fixed rates and the rate you receive is based on factors such as your credit score and financial health. There are two ways interest is calculated on car loans: simple or precomputed. For simple interest, the interest is calculated based on the balance of the loan. If you pay extra on your car loan, the principal will be reduced and in the long run, you will be saving money in interest (woohoo). If you have a precomputed interest loan on a car, it will be calculated on the total amount of the loan in advance. This means that even if you make extra payments, you will not save any money on the interest over time. One big difference to note between student loan interest and auto loan interest is how it can affect your taxes. With student loans, the interest you pay may be a tax deduction you can take depending on your income and the amount of interest you have paid. With an auto loan, there is no such benefit.    

 

Interest on a house loan, otherwise known as a mortgage, is calculated similar to a simple interest car loan. An interest rate on a mortgage may be variable or fixed depending on which type of loan you choose. There are two major types of mortgage loans: 

  1. Principal and interest loans - You pay back the interest and the principal (the amount of money you borrowed) at the same time. This is the most common type of mortgage.
  2. Interest-only loans - This is when, for a certain period of time, payments towards the loan only go towards paying off the interest on the loan.
 

Mortgage loans are amortized, like some student loans, which means your payment goes towards more interest upfront. Then as the balance decreases, you pay less interest and the payment goes towards paying down the principal. Also, just as with some student loans, some of the interest you pay on your mortgage may be tax-deductible. 

 

Understanding Interest Can Pay Off

It’s important to understand the different types of interests and loans when determining which debt to focus on paying off first. Being strategic about how and when you pay off your debt can save you hundreds and even thousands of dollars. A good rule of thumb is to pay off the debt with the highest interest rate and then focus on your interest rate debt. Of course, if you have the option to refinance, explore that first and then develop your debt reduction plan.

 
 

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.

 

²Subject to credit approval. Terms and conditions apply. Variable rates may increase after closing.

  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.
2019-12-04
Tips for Starting Your Student Loan Repayment Journey

Once you graduate from college, leave college, or drop below half-time enrollment, it’s time to start thinking about when your student loan repayment period kicks in. Understanding the repayment process for your student loans is very important for a number of reasons – for one, if you don’t pay, your interest will accrue. Second, if you don’t pay, it will affect your credit score, which can hinder your ability to buy a home, buy a car, qualify for credit cards, take out a personal loan, or refinance your student loans.   If you graduated this past spring, your student loan repayment period will likely start around this time of year (if they haven’t kicked in already). Follow these tips to master student loan repayment and get yourself to a strong financial start after college.  

Know How to Access Your Loan Information

A good first step is to acquire your loan information. This can typically be accessed via an online login. Monitoring your loan information will be essential during the course of repayment. If you took out Federal Student Loans, you can likely access your info at https://myfedloan.org/. If you took out private student loans, check with your lender for how to access your information. Tracking your loans will give you a gage on the status of each loan, the balance you owe, as well as interest rates for each loan. By understanding the status of your loans, you can make more informed decisions about how you want to prioritize repayment, what type of repayment plan you want to choose, or even whether you want to consolidate or refinance your student loans.   

Know When Your Payments Start

Immediately following graduation, you’ll likely have a grace period, or a period of time before your first payment is due. This can vary depending on the type of loan you have, and they can be different for each loan. Subsidized and Unsubsidized Federal loans have a six-month grace period. Perkins loans have a nine-month grace period. There is no grace period for PLUS loans; however, if you are a graduate or professional student PLUS borrower, you do not have to make any payments while you are enrolled at least half time and (for Direct PLUS loans first disbursed on or after July 1, 2008) for an additional 6 months after you graduate or drop below half-time enrollment. Private student loans will have differing grace periods so contact your loan servicer for more details. Knowing when your loan will be due is imperative to starting off on the right foot when it comes to your student loans.  

Weigh Repayment Options

When you take out federal student loans and your grace period is complete, you will automatically enter the Standard Repayment Plan. This plan allows you to pay off your debt within 10 years, with the monthly payment remaining the same over the life of the loan. If standard repayment doesn’t work for your budget, you may want to consider some other options, or perhaps even refinance your student loans. The federal student loan program offers the following Income-Based Repayment plans: 
  • Graduated Repayment Plan – Gives you a smaller payment amount in the beginning and gradually increases the payment amount every two years.
  • Extended Repayment Plan – Allows you to pay the least possible amount per month for 10 to 25 years.
  • Revised Pay As You Earn Repayment Plan or REPAYE Plan – Bases the monthly payment on you (and spouse’s) adjusted gross income, family size, and state of residence.
  • Pay As You Earn or PAYE – Monthly payments are based on your adjusted gross income and family size. You must be experiencing a financial hardship to qualify. You must also be considered a “new borrower” as of 10/1/2007 or after, or be someone who received an eligible Direct Loan disbursement on 10/1/2011 or after.
  • Income-Based Repayment or IBR – Monthly payments based on your adjusted gross income and family size. Must be experiencing a financial hardship to qualify.
  • Income-Contingent Repayment or ICR – Based on your monthly adjusted gross income and family size. Typically chosen if an individual can’t qualify for the Pay As You Earn Plan or Income-Based Repayment.Any changes to your income or your spouse’s income will affect your student loan payment. For example, if your salary increases, your student loan payment will as well. If you are married, both your income and your partner’s income are combined. Two combined incomes will increase your total income, likely increasing your monthly payment. 
  Keep in mind that each repayment option will have positives, negatives, as well as eligibility requirements. Research each option before making a decision, and consider contacting your loan servicer if you have questions or need more information.   

Automate Your Payments (If you can)

Setting up automatic payments will make student loan repayment less of a hassle, will avoid late payments, and may even score you an interest rate reduction. Just be sure you have enough money in your account month-to-month to endure the payments without overdrawing.   

Make Extra Payments

When you make your monthly payment, it will first apply to any late fees you have, then it will apply to interest. After these items are covered, the remaining payment will go toward your principal loan balance (the amount you actually borrowed). By paying down the principal, you reduce the amount of interest that you pay over the life of the loan. Applying extra income by making larger payments or double payments will reduce the total amount you’ll end up paying.   

Reach Out for Help if Necessary

If you’re having trouble making your monthly payments, particularly on your federal student loans, contact your loan servicer. They will work with you to find a repayment plan you can manage or help determine your eligibility for deferment or forbearance. If you stop making payments without getting a deferment or forbearance, you risk your loan going into default, which can have serious consequences to your credit.   

Weigh Refinancing & Consolidation Options

If you have multiple student loans that are all accruing interest at different rates, you may want to consider student loan refinancing or consolidation to make repayment more manageable. The federal student loan program offers student loan consolidation, in which they combine your loans into one loan with a weighted average interest rate, rounded up to the nearest 1/8th percent. You can also consolidate your federal and/or private student loan with a private lender through the process of refinancing. Refinancing your student loans is much like consolidation, however it offers the opportunity to start new repayment terms and possibly lower your interest rate. Keep in mind that refinancing with a private lender may cause you to lose access to certain federal student loan repayment options that are listed above.   

Look Into Loan Forgiveness

If you work in a public service position or for a non-profit, you may want to consider the Public Service Loan Forgiveness program or another loan forgiveness program offered by the federal government. Other options exist for volunteers, military recruits, medical personnel, etc. Some state, school, and private programs also offer loan forgiveness. Check with your school or loan servicer to see if you may qualify for student loan forgiveness.  

Earn Your Tax Benefits

If you are paying your student loans, you may be able to deduct the interest you pay on your student loans when filing your taxes. Deductions reduce your tax liability, saving you money and serving as a nice tradeoff for having to pay interest on your student loans.    Repayment of student loans can be a long, difficult journey – but by taking advantage of your resources and staying determined to pay off your debt, it is manageable. If you need more information on paying back your student loans or the options that are available to you, contact your loan servicer.  
  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.