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Student Loan Refinancing: How To Avoid Predatory Lending

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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Glossary of Student Loan Refinancing Terms

There are so many terms that borrower’s encounter in the student loan application process, most borrowers may not be exactly sure what each means. If you’re getting ready to apply or just want to know what the documents are talking about, here’s our glossary of common student loan terms that you should know.

 

Adjusted Gross Income (AGI) and Gross Income

Gross income is the total income you earn in a year before deductions for federal or state taxes, credits, and so on. Adjusted gross income is the income you earn in a year which is eligible to be taxed after accounting for deductions. AGI is usually lower than your gross income and is what many institutions use to determine if you can get perks like loan tax benefits or financial aid, grants, etc. The easiest place to find these are on your official tax return.

 

Adverse Action Letter

When you apply for credit, insurance, a loan, or sometimes even employment, and are denied due to something negative on your credit report, the organization inquiring might be required to send you one of these. It explains why you were turned down and it’s important because it gives you a reason to see if something is wrong on your credit report.

 

Amortization

This term describes how the principal is paid over the course of a loan.  Most student loans are fully amortized, meaning that if all payments are made as scheduled over the life of the loan the principal balance will be fully repaid at the maturity date.  Other types of loans, including some types of mortgage loans, have a feature known as a balloon payment.  With a balloon payment, regularly scheduled payments do not fully repay the principal amount borrowed, so when the loan matures the final payment contains a larger, or balloon, payment of all remaining principal.

 

Annual Loan Limit

This is the maximum loan amount you can borrow for an academic year. Loan limits can vary by facts like grade level and loan type.

 

Award Letter

If you received financial aid, expect to see an award letter that explains the different types of aid for which you are eligible. The document will also include information about your loans, grants, or scholarships, and you’ll see a new one each year that you’re in school.

 

Borrower

The person who is responsible for paying back a student loan. You may not be the only one responsible, like if you signed with a cosigner, but the loan is for you and your academic fees and tuition. You’re the borrower.

 

Capitalized Interest

When unpaid interest gets added to the principal balance (increasing your overall balance and future interest), this is called capitalization. This is why it’s important to pay interest whenever possible. Capitalization might happen at the end of a grace period or deferment, or after forbearance, depending on whether it’s a federal or private loan. When a loan is consolidated or if it enters default, capitalization may occur.

 

Cosigner

If needed, borrowers can add a second person who shares responsibility for a student loan. This second person co-signs the loan and becomes partially responsible for repayment in the event that the primary borrower is not able to pay.

 

Consolidation Loan

Consolidation is when a new loan replaces your current student loans. People might do this to make payments easier to manage or to reduce the amount you owe each month or in total. There are lots of things to know about consolidation.

 

Default/Delinquent

A loan is considered delinquent when a scheduled payment is not made in a timely manner.  Delinquency can result in the imposition of late charges, collection calls or letters, and negative information being placed on a credit report.  Default is when the lender determines that the borrower has failed to honor the terms of the loan agreement in such a way that the lender is entitled to declare the entire loan balance due and payable, even if the loan has not yet reached its maturity date.  Serious delinquency is very often the reason for a loan being declared in default, but loan agreements typically provide that certain other events can trigger a default.  Before entering into a loan agreement, always read the loan agreement carefully and understand what can constitute a default under that loan.

 

Deferment

Students can usually postpone loan repayment if they meet certain criteria. This might be a pre-set time limit or can be when someone is in school and not able to make payments. Unsubsidized loans accrue interest while being deferred, but subsidized loans do not accrue interest while in deferment.

 

Disbursement

This is when your school receives funds like financial aid money or student loan funds. The institution then applies it to your bill for tuition and school-related fees. If you consolidate, the disbursement happens when money is sent to pay off your old loans.

 

Discharge

When some or all of your student loan debt is canceled, this is called discharge.

 

Entrance/Exit Interview or Counseling

Schools provide entrance or exit counseling to help students understand important financing topics like how to repay loans and stay in good standing with student loans. This can happen during enrollment as an entrance to the process, and after graduation as part of leaving the school system.

 

Expected Family Contribution (EFC)

This amount is an estimate based on how much money you, your spouse, and/or family can contribute to your tuition for the academic year. It’s calculated with information provided on your FAFSA and helps determine your financial need. Financial need is calculated as the cost of attendance minus your EFC. This determines your eligibility for aid including Stafford loans, Perkins loans, scholarships, and grants.

 

Fixed or Variable Interest Rate

If an interest rate cannot change over time, it is fixed. A variable interest rate can change over the life of the loan.  Variable rates can move up or down based upon changes to an identified index, such a prime rate, a particular U.S. Treasury note, or LIBOR.  LIBOR stands for the London Interbank Offered Rate, and is an index commonly used with student loans.  Some variable rate loans may have a “cap” and/or a “floor.”  A cap is the maximum rate that can be applied to the loan, regardless of changes to the index.  A floor is just the opposite – the minimum rate for the loan regardless of changes to the index.

 

Forbearance

Forbearance is when you can postpone or reduce student loan payments, but interest continues to accrue and increase the total amount you owe.

 

Free Application for Federal Student Aid (FAFSA)

FAFSA is the application a student must complete to apply for any type of federal student aid including loans, grants, or scholarships.

 

Full-Time/Part-Time Enrollment

Whether you are enrolled or not, and your status as part-time or full-time can affect different aspects of student loan financing and repayment. Part-time is usually six credit hours and full-time is twelve, but this can vary.

 

In-School Deferment

While in actively enrolled in school, you might be able to postpone your federal or private student loan payments until you graduate or drop below half time.

 

Loan Forgiveness

When you qualify for certain programs, you may be able to have the final balance of your loans forgiven after a certain period of time. There are specific criteria for eligibility and usually a detailed application process.

 

Master Promissory Note (MPN)

This document states the terms of repayment for your student loans and is the official document proving your commitment to repay the money you borrowed with interest. To receive federal loans, all borrowers must sign an MPN.

 

Principal Balance

The principal balance is the amount of money borrowed under the loan that you currently owe. It doesn’t include interest or fees that are either unpaid or yet to accrue.

 

Repayment Period

This amount of time is what you have to repay your student loans. Standard for Stafford loans is ten years, but this can be extended with reduced repayment plans. The longer you take to pay your loans, usually, the more you end up paying in interest. A repayment plan is the formal agreement you have with a servicer that details how you plan to repay your loans each month.

 

Repayment Terms

These terms represent all of your rights and responsibilities for the student loan, including what you’ll pay for monthly payments. Lenders are required to disclose repayment terms to you before you can commit to borrowing a loan.

 

Right to Cancel

Once an approved application has been accepted by the borrower, the federal Truth in Lending Act requires the lender to provide a Final Truth in Lending disclosure statement.  This final disclosure statement includes a three business day right to cancel, during which time the borrower can change their mind and cancel the loan.  To protect borrowers, the lender cannot disburse the loan proceeds until the right to cancel period has expired.

Servicer

The loan servicer handles your student loan billing like collecting payments and offering customer service between you and the lender.

 

Student Aid Report (SAR)

The SAR is a detailed list of all of the financial and personal information you submitted for your FAFSA, including financial info for your family. Your school receives a copy of this and you should receive one as well.

 

Subsidized and Unsubsidized Loans

While in school and during your grace period, the government pays the interest on your subsidized loans so you don’t have to. Federal loans that are not based on financial need are unsubsidized, meaning you’re responsible for paying the interest that accrues.

 

Top Tips for Finding the Right Student Loan Refinance Lender

Refinancing Your Student Loans With Confidence

You’re out of school and thinking through your financial life more clearly, you’ve hopefully looked into refinancing student loans. Whether you’re looking for a lower monthly payment, lower interest rate, or even if you just want to consolidate multiple loans into one. Refinancing is a great way to get some serious traction on the long journey to being student loan debt-free.

With dozens of lenders enticing you with the ‘lowest interest rates’ on the market, how do you know which one to trust?

When a lender says they can offer you a lower rate, perhaps you suspiciously scan the room for conspirators hiding in the shadows waiting to stab you in the back. Sound dramatic? It happens to thousands of unknowing borrowers every day. “Et tu, Brute?”

The Street Cred of Credit Ratings

It is important to find a student loan refinance company that has credibility in the marketplace and you can trust. Fortunately, credit rating agencies who evaluate the creditworthiness of a student lending company and its operations can provide an independent assessment of the lender. A credit rating agency conveys the creditworthiness of a company and its debt financing with a letter grade. The grading system is similar to the way your credit score numerically reflects your own borrowing history.

Credit ratings are awarded by independent rating agencies, like Standard and Poor’s and DBRS. Rating agencies are hired to analyze a lender’s financing and operations. Since the rating agency’s reputation is on the line, they scrutinize every possible detail of a lending company. These agencies can be quite difficult to impress.

AAA is the highest rating a lending company can be awarded, and subsequent ratings drop in value (and confidence) – AAA, AA+, AA, AA-, A+, A, A-, BBB+, BBB, and so on, all the way to lowest rating – D..

‘AAA’ Straight Out of the Gate

Because of the premier quality of an AAA rating, it frequently takes a lender several years to earn. But we, at Education Loan Finance, recently became the first student loan refinancing lender to receive the AAA rating with our inaugural financing in the market.

This recognition from both Standard & Poor’s and DBRS (two of the nation’s top rating agencies) is a testament to the stability of our platform and the high quality of service and products we offer.

We believe that knowledge is power, and providing you with comprehensive refinancing and consolidation options enables you to step forward on your financial journey with confidence. That is why we created a state-of-the-art loan application platform and a customer service delivery model (through our Personal Loan Advisors) that provides you with personalized service throughout the refinancing process.

High Credit Rating Means Lower Interest Rates

Our AAA credit rating means that we attract responsible borrowers and bring a high credit quality to the market. We take pride in our ability to save our borrowers an average of $280 per month and more than $26K over the life of their loan*.

Empowering a Brighter Future

We want to help you make educated financial decisions and offer practical advice for achieving balance in life, business, and finances. In just a few minutes, you can find out how much we can save you per month, as well as explore repayment terms and interest rates that best fit your budget.

 

10 Facts About Student Loans That Will Save You Money

* Member Lifetime Savings – Average member lifetime saving calculation of $26,215.92 total savings is based on information provided by Education Loan Finance customers who refinanced their student loans between 08/16/2016 and 10/07/2017. While these amounts represent average amounts saved, actual amounts saved will vary depending upon a number of factors.

 

Refinancing vs. Student Loan Grace Period

April showers bring May flowers, but what do May flowers bring? Millions of college grads who will enter the workforce with an average of $37K worth of student loan debt. Fortunately, the government has your back (at least for six months, anyway) in the form of the student loan grace period. But before you lower your poolside lounge chair down a couple notches and nap through the sunny afternoon, take note of the late summer storm brewing on the horizon.

It’s grace, you just have to pay for it

It’s true that you are NOT required to make repayments on your federal loans for six months. What you may not know is that, in most cases, interest still accrues during this grace period. Furthermore, you may not be aware of how much you could save by taking advantage of early repayment rather than the grace period.

An article on studentloanhero.com puts it this way:

“Let’s say you have $30,000 in student loans at 6% interest. Make just one extra payment of $500 dollars this summer and you could cut $1,120 in interest from the lifetime cost of your loan. If you really want to get serious about putting extra payments towards your student loans, contribute $1,500 before payments become due and reduce the time it takes to pay off your debt by two years – plus earn $3,188.29 in interest savings.”

If you consider how much interest is going out the window, it’s important to remember you are, in a sense, paying for that six-month buffer. By putting in a couple weeks’ worth of work, you can stretch your hard-earned summer dollars quite a long way and reel in the length of time you’ll have to stare at your student loan debt out of the corner of your eye.

Steps to repaying your student loan debt

Regardless of whether or not you choose to take ‘advantage’ of the grace period, you will eventually have to start making payments. An excellent article on cnbc.com outlines the steps you might consider in order to avoid common mistakes many recent grads make.

1)    Know your loans

2)    Update your contact info

3)    Monitor your cash flow

4)    Register for autopay

5)    See if your employer will chip in

6)    Consider consolidating or refinancing

We encourage you to read the article and explore the options therein, but we implore you to seriously consider Step #6 by refinancing your student loans (maybe even bump it up to, let’s say – Step #1 or #2 because it actually encompasses the others). It’s free and will help you in virtually every sense – a low, fixed interest rate with a single monthly payment and a repayment term that best fits your budget. The only way refinancing could be considered a disservice is if you’re planning to hang your hat on one of the federal loan forgiveness or repayment programs, as refinancing will automatically forgo many of those options. Though, if you do your research on those programs, avoiding them might be the most graceful step you can take.

Borrow Smart, Save Smarter

Refinancing with a reputable lender like Education Loan Finance can save borrowers an average of $280* per month and more than $26K over the life of their loans. The smartest move you can make after school would be to lock yourself into historically low-interest rates while simultaneously paying down your loan balance over the summer. Besides, you can still relax by the pool (on the weekends, of course), only instead of avoiding the impending storm of student loan debt, you can daydream of being free from the burden of student loans years before the rest of your graduating class.

 

 

* Member Lifetime Savings – Average member lifetime saving calculation of $26,215.92 total savings is based on information provided by Education Loan Finance customers who refinanced their student loans between 08/16/2016 and 10/07/2017. While these amounts represent average amounts saved, actual amounts saved will vary depending upon a number of factors.

Top Tips for Finding the Perfect Lender to Refinance Your Student Loans

Taking out student loans is an investment in your future, just like buying a house, contributing to a 401K, or building a portfolio of stocks and bonds. Whereas housing and stock markets alike can crash seemingly without warning, however, a college degree delivers, more often than not. According to the College Board’s “Education Pays” report, a college student that is behind employed peers in terms of wages while paying for a bachelor’s degree will recoup these losses by age 34 and begin to surpass those same peers.

In other words, you’ve done good by going to college, and the result is that you are now paying your bills and student loans while also saving for your future. Still, you can’t help but notice all the media hype over the benefits of student loan refinancing, or the great offers from companies like Education Loan Finance that could help you to save money over the life of your student loans.

If you’re going to refinance in order to reduce your interest rates, monthly payments or overall payout on student loans, you have to be just as smart as you were when choosing a profitable major. You need to ask the right questions to find the perfect lender. Here are the top questions to help you get to the bottom of which lender is your best choice when it comes to refinancing student loans.

Do I qualify for refinancing?

This is question numero uno. If a lender won’t work with you for some reason or another, you’ll have to go back to the drawing board. As a college student paying down debt, though, you might find yourself in a great position to refinance.

Potential factors affecting your ability to refinance include:

  • Credit score
  • Credit history
  • Debt-to-income ratio
  • Monthly salary/annual income

Not every lender will use the same factors in determining eligibility. While some rely primarily on credit score and history, others now weigh minimum income requirements more heavily. The good news is, if you earn a good income, you’re working to reduce debt and you’ve built up a solid credit score (680+) and clean credit history, you’re probably in a great position to refinance with just about any lender you approach, allowing you the opportunity to shop around and pick the lender you prefer.

What are the benefits?

There are a lot of potential benefits to refinancing student loans, but when you do it right, the biggest benefit is saving money. Once you’ve qualified for refinancing, it’s time to look for the best terms, and this could include comparing:

  • Interest rates
  • Variable/fixed rates
  • Monthly payments
  • Loan duration
  • Overall payout

With the right terms, you could reduce your debt and save money on every front. This, in turn, could mean paying off debt faster, improving your credit score, reducing stress and generally feeling pretty awesome about your excellent life choices. You might be able to buy your first home or start a business sooner than you hoped. Maybe you can start putting money into retirement accounts and taking advantage of compound interest early in life. Sound refinancing opens doors. Hashtag winning, anyone?

What’s the deal with fixed vs. variable rates?

You may have noticed that among your myriad student loans are lurking some variable rates. As a college grad, you probably understand the difference between the terms “fixed” and “variable,” so you know why the former is generally preferable. Variable-rate loans fluctuate, which is pretty great during economic downturn because your interest rates and payments go down.

Right now is not the best time to hold variable-rate loans because the prime is on the rise. Not only did it increase to 4% earlier this year, but June saw another jump, up to 4.25%. In other words, get thee to a lender to see about refinancing.

Are there penalties for early repayment?

According to the office of Federal Student Aid, the federal loans you take for college incur no penalties for early repayment. Can you keep the same benefits when you refinance? You’ll need to make sure the lender you choose allows you to make extra payments toward the principle of the loan, as opposed to paying off fees and accrued interest first. This way you’ll be sure to enjoy the rewards of your responsible financial behavior, and actually reduce debt and pay your loan down faster.

Are there further discounts available?

You might already know that you should ask about available discounts when comparing insurance policies, but did you know you can also get discounts through loan refinancing? You might not save the same amount as with a greatly reduced interest rate, but every little bit helps.

Some lenders will reduce your rate by a small percentage (say 0.25%) if you select an automatic payment method. You might also be eligible for discounts related to good behavior like on-time, consecutive payments. Or you could get bonuses for referrals. If there are discounts to be had, you definitely want to know about them, and the best way is to ask.

Are there further perks for refinancing student loans?

You want more than monetary savings when you refinance? You got it. Some lenders are finding ways to sweeten the deal with extras like unemployment protection, career coaching, entrepreneurship programs and more. Often, these bonuses are in the best interest of both lenders and borrowers.

For example, pausing loan payments during hardships like job loss can give borrowers the opportunity to get back on their feet and resume payments faster, and helping borrowers with career and entrepreneurship opportunities can lead to increased earnings and perhaps future loans. It looks like lenders are starting to see the value of long-term relationships with college grads.

Should I refinance or consolidate?

Why not do both? When you refinance and consolidate at the same time, you stand to reduce interest rates and payments, but you could also increase convenience by turning a dozen monthly payments into a single bill.

Before your refinance your student loans, you need to choose a lender that’s going to offer you the best terms and the most benefits. With a list of targeted questions in mind, you can find the perfect lender for the job. It could just be the beginning of a beautiful friendship.

Misconceptions about Student Loan Forgiveness

When students start college, they are probably more concerned about how they’re going to cover the cost of tuition and classes than how they’re going to pay off student loans down the line. One problem at a time, right?

Of course, there are also students that carefully consider the loans they take out, the schools they attend, and their intended profession, all in an effort to reduce the costs of their education as much as possible.

For some students, a major part of their plans for eliminating education debt includes qualifying for student loan forgiveness. The premise behind these programs often assumes that college graduates make payments on their loans for a specified amount of time until certain qualifications are met to erase the remainder of the debt. While these programs can be rewarding for the borrowers who are eligible, there are, however, many misconceptions and potential pitfalls associated with banking on student loan forgiveness that could end up costing graduates in the long run. Here are a few common misconceptions cleared up.

Misconception #1: Everyone is Eligible for Loan Forgiveness

Although there are several instances in which students may become eligible for student loan forgiveness programs, you should not automatically assume that this is a possibility for you. For starters, loan forgiveness programs (as well as loan discharge or cancellation) generally apply to specific loans, specific professions, and/or specific sets of circumstances, according to the Office of Federal Student Aid.

Direct Loans, FFEL (Federal Family Education Loan) Program Loans, and Perkins Loans may all qualify for forgiveness, discharge, or cancellation, but only in certain circumstances, such as:

  • Public service loan forgiveness
  • Teacher loan forgiveness
  • Perkins Loan cancellation and discharge
  • Total and permanent disability discharge
  • Discharge due to death
  • Closed school discharge
  • Unpaid refund discharge
  • False certification of student eligibility or unauthorized payment discharge
  • Borrower defense discharge
  • Discharge in bankruptcy

It’s important to understand that these reasons may not apply to every type of loan, and some of them apply to very specific sets of circumstances. For example, the borrower defense discharge specifically relates to students seeking loan forgiveness because a school they attended misled them or engaged in other misconduct or violation of applicable state laws. This clearly doesn’t apply to every student, every school, or every loan.

Furthermore, you have to fill out an application for loan forgiveness, discharge, or cancellation and receive approval. Until then, you must continue to make payments in good faith, unless you are able to defer payments or you are granted forbearance in the meantime, according to the Office of Federal Student Aid.

If you want to find out if you qualify for student loan forgiveness, you need to do some research. It’s a good idea to check with lenders, with your school, and with the U.S. Department of Education, or more specifically, the Office of Federal Student Aid.

Misconception #2: Public Service Professions Are Automatically Eligible

According to the Office of Federal Student Aid, “The Public Service Loan Forgiveness (PSLF) Program forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.” In addition, the Teacher Loan Forgiveness Program allows for forgiveness of Direct Subsidized Loans, Direct Unsubsidized Loans, Subsidized Federal Stafford Loans, and Unsubsidized Federal Stafford Loans and cancellation of Federal Perkins Loans.

However, there are several criteria attached to these forms of forgiveness. Simply becoming a teacher, a government employee, an employee of a non-profit organization, or a member of the Peace Corps doesn’t mean you automatically qualify for student loan forgiveness.

For example, in order to qualify for loan forgiveness under the Teacher Loan Forgiveness Program, teachers must work for five “complete and consecutive” years at a qualifying institution that serves low-income families, as well as meeting other criteria. Even so, teachers may only be eligible to receive forgiveness for a portion of loans, and this doesn’t include PLUS or private student loans.

Misconception #3: Once I’m Approved for Loan Forgiveness, It Can’t be Rescinded

Unfortunately, it’s not entirely uncommon for professionals that thought they were eligible for student loan forgiveness to find out they were wrong. According to a report issued by The New York Times, a legal filing by the U.S. Department of Education in March suggests that approvals issued by FedLoan, the administrator of the PSLF Program, may be subject to rescindment. This particular case has led to at least one lawsuit so far, but it’s not the only reason why graduates may find that forgiveness they were counting on is beyond reach.

As noted above, qualifying students must not only have the correct loan type to be eligible for forgiveness under the PSLF Program, but they must also meet criteria for qualifying employment and qualifying payments (and payment plans). After all that, borrowers still have to apply and continue to meet qualifications until such time as they’re approved. In other words, there are a lot of hoops to jump through, and a lot of ways to make mistakes that could make you ineligible for loan forgiveness.

Misconception #4: If I’m Not Eligible for Forgiveness, I’m Stuck Paying My Loans

This is partially true. If it turns out you’re not eligible for any form of forgiveness for your student loans, for whatever reason, you’re still responsible to repay the money you borrowed. Even filing for bankruptcy won’t automatically discharge student loan debt. Of course, when you’re in good shape financially and perfectly capable of paying loans, you will be required to do so. Unfortunately by the time that borrowers learn that they are no longer eligible for student loan forgiveness, they have often already accrued higher interest costs resulting from making smaller payments in the early stages of repayment.

The good news is that you have options to reduce your debt if loan forgiveness is not on the table. Once you have established a reliable income and credit history, you can, for example, explore the possibility of refinancing your student loans. This course of action gives you the opportunity to consolidate loans, reduce interest rates, and potentially reduce monthly and overall payments in the process. Whether you refinance your education debt or not, you can also cut down on the overall interest costs and time spent in repayment on your loans by making more than the minimum payments each month.

Even if you do everything you can to secure a path to loan forgiveness after a set number of years of faithful payments, you may at some point discover that forgiveness isn’t an option for you. Naturally, the earlier you can confirm your situation, the better. If you aren’t eligible for loan forgiveness, it’s best to explore other options early on so that you can save as much as possible through refinancing.

Top 10 Ways to Pay Off Student Loans Faster

Once you’ve graduated, found a great job, and started to pay off student loans, you might begin to wonder if there are ways to pay down your loans faster and perhaps save some money on interest payments.  Or you might start thinking about this while you’re still in college.  Here are several options to explore if you want to pay off student loans more quickly.

  1. Don’t take loans you don’t need. Loans could be a necessary part of the collegiate landscape, but you do have some choices to make when it comes to the amount of loans you take.  Some students attend less expensive colleges and work part-time jobs to avoid taking loans, while others skip work entirely and use student loans to pay for everything from tuition and books to living expenses.  If you want to reduce the amount of time you spend paying loans after graduation, one way to accomplish your goal is to limit the loans you take during your time in college.
  2. Read and understand all terms. Here’s an excellent lesson for adulthood: never sign anything you haven’t read.  Don’t agree to anything until you’ve take the time to read and understand what you’re getting into, and if you don’t understand it, ask parents, lenders, or college counselors to explain the terms.

Is a loan fixed or variable?  When does interest begin to accrue?  What are the terms for repayment (interest rate, monthly payments, length of loan, etc.)?  Knowing the fine points of your loans can help you later on when you’re trying to figure out ways to pay them off faster and potentially reduce overall costs.

  1. Set a budget. You’ve got a good job, you’re earning decent money, and you have disposable income, thanks to your college education.  This doesn’t give you carte blanche to spend like it’s going out of style.

You did the responsible thing and earned a college degree.  Continuing to make wise financial decisions will help you to pay off student loans faster.  Start by setting a budget and living frugally while you still owe money.  With a plan to repay loans and an appropriate budget in place, you have the best chance to whittle down your loan balance as quickly as possible.

  1. Start paying as soon as possible. If you’re lucky enough to enjoy some kind of grace period before loans begin to accrue interest, as with Subsidized Stafford Loans or Perkins Loans, for example, take advantage by paying as much as you can.  Even if your loans are unsubsidized and accruing interest without actually having payments due, anything you’re able to pay back while you’re in school or during your grace period will result in less interest building up over time.
  2. Pay more than the minimum. The minimum payment is merely a suggestion, insomuch as you can always pay more toward the principal (although not less).  What happens when you pay more than the minimum required monthly payment?  You not only pay down your loan more quickly, but the faster you pay the principal, the less overall interest you accrue, lowering your total cost.
  3. Avoid additional debt. The Credit Card Accountability Responsibility and Disclosure Act of 2009 established restrictions on how credit card companies could market to minors and students, ostensibly to stop young and naïve individuals from being lured by seductive marketing and ending up with potentially damaging long-term credit card debt.  This won’t protect you once you graduate and credit card offers start rolling in.

It’s all too easy to go wild with credit cards, never fully realizing that every transaction is like taking a loan.  Credit cards are not cash-in-hand – they’re debt, plain and simple.  Don’t make the mistake of digging yourself into a hole you can’t get out of.

When you handle your credit cards responsibly and use them sparingly, you can continue to build credit while paying off your student loans, as well as pay down loans faster with the money you’re not paying to credit card companies in interest.

  1. Take applicable deductions. Currently, the IRS offers students and graduates paying student loans the opportunity to take advantage of the American Opportunity Tax Credit (AOTC), which was made permanent in 2015 under the Protecting Americans Against Tax Hikes (PATH) Act.  Depending on your circumstances, you could receive a tax credit of up to $2,500.  For more information and to find out if you qualify, you can locate your local taxpayer assistance center through the IRS website here.
  2. Look into loan forgiveness. Loan forgiveness is a complex process, but there are a number of ways in which you could become eligible to receive forgiveness, discharge, or cancellation of student loans, as spelled out by the Office of Federal Student Aid.  Generally speaking, you have to meet criteria related to:
  • Loan type
  • Repayment plan
  • Payment schedule
  • Employment type (such as teaching or public service jobs)

Forgiveness, discharge, or cancellation of student loans could also be related to:

  • School closure
  • False certification of student eligibility
  • Unauthorized payment discharge
  • Identity theft
  • Borrower defense to repayment
  • Total and permanent disability
  • Death

Your ability to take advantage of opportunities for student loan forgiveness is entirely dependent on your circumstances, and you may need help navigating these tricky waters.  Borrowers expecting their loans to be forgiven often make lower payments early on, which could result in even larger interest payments if they later find that they are ineligible for the program.  It’s a good idea to speak with your lender, your school, your employer, or a representative of the Office of Federal Student aid to find out if you qualify and what steps you should take to seek loan forgiveness.

  1. Look for jobs that offer education reimbursement. Some employers offer opportunities for education reimbursement as part of a benefits package.  You should always ask if this is offered before selecting a job and find out exactly what the terms are and what criteria must be met in order to take advantage of such offers. Even if your previous student loans are not covered, you may be able to find jobs that offer reimbursement for future graduate school expenses.
  2. Refinance. Reducing your student loan debt is a great way to help you pay loans off faster, and refinancing could allow you to consolidate student loans, lock in low, fixed rates, reduce monthly minimum payments and/or the term (length) of your loan, and pay less overall. When you originally took out your student loans, you were likely given a standard interest rate assigned to all student borrowers regardless of their financial situation. However, qualifying for more favorable rates and terms through refinancing may depend on several criteria, including your income, credit score, loan amounts, and so on.  Be sure to research the pros and cons of refinancing with a private lender, but if you have a reliable income and solid credit history, you might discover that you’re eligible for terms that reward you for your responsible financial habits. You might as well find out if refinancing your student loans could help free up additional money that you could apply to other areas in your budget!

How to Spot and Steer Clear of Student Loan Consolidation Scams

With around 44 million Americans owing $1.3 trillion in student loan debt, it’s not surprising that many are struggling with repaying their student loans. In fact, around 8 million borrowers went into student loan default in 2016 alone. With so many people feeling overwhelmed by their student loans and desperate to find ways to reduce their debt, it’s not surprising that scammers are taking advantage of the situation.

 

You’ve likely heard from student loan scammers – either through email, via an online advertisement, or by phone. They often advertise as Obama Student Loan Consolidation or Forgiveness Programs and offer to do things like get rid of your federal student loans, consolidate them for you, and reduce or eliminate your payments.

 

The government has started to crack down on the scammers – who often take lump sums or monthly fees from desperate borrowers. Many scammers promise things that they can’t deliver like a guaranteed 50% to 70% loan reduction with consolidation. Then they never actually do anything or they take your credit card information and your Social Security number and defraud you even more or steal your identity.

 

3 Things to Watch Out For

It’s important to know that you don’t need a company to help you consolidate your federal student loans via the Direct Consolidation program – it’s something you can easily do for free. While there are legitimate companies who help you evaluate whether or not student loan consolidation is right for you, and help you do the paperwork – the process is not that complicated and you’re likely better off doing it yourself.

 

If you do want to have a company help you with the process, there are a few red flags that will help you spot scammers. For example, if a company says that you should stop making payments on your loans and that you should send your student loan payment to them instead of to your student loan servicer, they are likely a scammer.

 

Companies who contact you via a robocall or who claim to be working with the Department of Education or to be offering services as part of the Obama Student Loan Program are also likely to be scammers. Legitimate companies cannot claim to be working with the Department of Education and do not use robocalls to contact you.

 

Finally, companies that ask for monthly fees or payment upfront are likely not legitimate. Legitimate companies that help you consolidate your federal student loans will not accept payment until they perform a service – though some will take the money and put it in a holding account until they’re able to help you consolidate your student loans successfully.

 

What is the Direct Consolidation Loan Program?

The Direct Consolidation program doesn’t wipe out your federal loans or reduce the amount you owe – as some scammers claim. Instead, it combines your loans into one loan which might make it easier to repay depending on your particular circumstances. It doesn’t lower your interest rate, but rather takes all of your federal student loans and puts them together into one loan with a new interest rate that is the weighted average of your previous loans with up to an additional 0.125% tacked on.

 

Federal Direct Consolidation makes sense for many borrowers as it allows them the ease of repaying just one loan, can allow them to extend the term length on their loans in order to reduce their monthly payments, and is necessary for borrowers to qualify for the Public Service Loan Forgiveness program.

 

Another benefit of the student loan consolidation is that it allows you to more easily rehabilitate any loans that you have that are in default.

 

Private Student Loan Consolidation

Consolidating student loans is essentially paying off multiple student loans with one loan. The problem with the Direct Consolidation program is it only allows you to consolidate your federal loans and not your private student loans. Private student loan refinancing allows you to consolidate both federal and private student loans – although if you consolidate federal student loans you lose some of the alternative repayment options and benefits that federal loans offer.

 

There are many companies currently offering private student loan consolidation and refinance. Many of these companies are start-ups, but there are some like Education Loan Finance which have over three decades of experience in the student loan industry. Education Loan Finance is affiliated with SouthEast Bank and offers student loan consolidation options for borrowers who would like to lower their monthly payments, pay a lower interest rate, and get more flexible terms on their federal and private loans.

 

All borrowers who are struggling should look into private student loan consolidation as it can save borrowers a significant amount of money as they can reduce their interest rate or greatly reduce their monthly payments by extending the term length of their loans.

 

By Andy Rombach, LendEDU

Get Ready: Student Loan Rates Are on the Rise

Attending college is a privilege, but it’s one that every student has the right to enjoy. Of course, it doesn’t come for free, and depending on the college or university you select, it’s hardly cheap.

If you don’t have the cash in your coffers to pay for higher education, don’t despair. There are a variety of ways to secure the funds you need for schooling. Since many students can’t rely on scholarships or enough help from parents to pay for school, however, student loans are among the most common means of paying for a college education.

According to the office of Federal Student Aid, which administers FAFSA (Free Application for Federal Student Aid), more than 13 million students take advantage of federal funding each year, amounting to over $150 billion in grants, loans, and work-study opportunities to help them pay for tuition and other expenses. While some can get by on grants, parental assistance, and their own income, especially when they save money by living at home during college, millions of students rely on loans to make it to graduation.

Of course, students that take out loans will eventually have to repay them, which is why it’s important to be aware of student loan rates, and the fact that they can change annually. Since students have to reapply for student aid each year, this means your loan rates could go up, as they’re set to do in July of this year.

Student Loan Rates Over the Past Decade

According to the office of Federal Student Aid, the fixed interest rate for Direct Subsidized and Direct Unsubsidized Loans for undergraduates during the most recent school year (the period starting on or after 7/1/16 and before 7/1/17) was 3.76%. However, it wasn’t always this amount. The interest rates for federal student loans were determined each year by Congress (until 2013), and over the past ten years, rates for Direct Subsidized Loans for undergrad students have fluctuated quite a bit:

• 6.8% between 2006 and 2008
• 6.0% between 2008 and 2009
• 5.6% between 2009 and 2010
• 4.5% between 2010 and 2011
• 3.4% between 2011 and 2013
• 3.86% between 2013 and 2014
• 4.66% between 2014 and 2015
• 4.29% between 2015 and 2016

As you can see, there were years in which the student loan rates didn’t change at all, while some years the rates went down. Over the last ten years, the decreases and increases seem to coincide with economic factors such as the Great Recession.

According to a 2014 report released by the Economic Studies department at the Brookings Institute, there were, at the time, 7 million student loan borrowers in default, and that doesn’t even include those behind on payments in general. In addition, student loan debt became the second largest source of household debt following mortgage loans. Still, students continued to borrow, perhaps in the hopes that earning a degree would help them to secure a livable wage, despite economic woes and unemployment during the recession.

The result was what some deemed a student debt crisis, or alternately, a repayment crisis, and this is perhaps why Congress elected to lower fixed rates for some student loans during the recession and why President Obama expanded eligibility for the income-based, Pay As You Earn Program that helps borrowers that are trying to pay, despite financial distress.

Once the economy began to recover, however, student loan rates started to rise, as evidenced by increases in the 2013-14 and 2014-15 academic years. Rates took a slight dip again from 4.66% in the 2014-15 academic year to 4.29% in the 2015-16 school year, and then to 3.76% in the 2016-17 academic year. These fluctuations were based on the yields of 10-year U.S. Treasury Bonds, as they have been since 2013, and they will be moving into the future. This is why we’re going to see a rate hike in the coming year.

Student Loans Moving Forward

Based on the results of the May 10th auction of 10-year Treasury Bonds, interest rates on student loans will increase in the coming academic year, affecting loans taken out on or after July 1, 2017 and before July 1, 2018. Undergraduates taking out federal Direct Loans will see an increase to 4.45%, up just over 2/3 of a percent from last year.

This might not seem like a huge leap, and the upcoming fixed rate is still lower than it was seven of the last ten years, but it could make a big difference over the life of the average student loan repayment plan. The Nerd Wallet Student Loan Calculator shows that a 10-year loan of $20,000 at the 2016-17 interest rate of 3.76% will result in $4,026.02 in interest payments over the life of the loan (assuming regular monthly payments of $200.22). When you bump the rate up to 4.45% for the upcoming academic year, monthly payments go up just six bucks and change (to $206.80), but the cost in interest payments over the course of a 10-year loan swells to $4,815.41, an increase of $789.39.

Even so, students might not be terribly concerned about adding under a thousand dollars to the price tag. However, some students require far more than $20,000 a year in student loans, and if increases continue, each year could tack more onto already-high costs for the privilege of attending college.

What are students to do? There’s nothing you can do to lower federal interest rates, but you can find ways to cut costs, take fewer loans, and eventually, consolidate and refinance student loans.

If you’re lucky enough to get Direct Subsidized Loans, the federal government will pay the interest while you’re enrolled in school (at least half-time) and during a 6-month grace period following graduation (or after leaving school). After that, you will start accruing interest.

However, you always have the option to refinance student loans. As you earn money, pay down debt, and build a strong credit rating, you may find that you’re able to secure better and better rates on private loans. At some point, this could result in attractive refinancing options that lower rates and save you money over the life of your student loans.

Student Loan Facts 2018

For most people in the United States, the cost of going to college represents a huge financial burden. The Federal Student Aid Portfolio Summary, issued by the office of Federal Student Aid and quoting data provided by the National Student Loan Data System (NSLDS), states that as of Q3 2018 approximately 42.2 million people hold outstanding principal and interest balances on federal student loans. These loan types include Direct Loans, Perkins Loans and Federal Family Education Loans (FFEL).

 

It is important to know the facts about student loans before borrowing. The statistics overwhelmingly point to a growing debt problem. According to the Federal Reserve System, the amount of student loan debt increased by 5.6% in Q3 of 2018, when compared to Q3 of 2017. That may not sound like much until you discover this amount equates to roughly $83,482.32.

 

The facts do not get any easier to digest for college students in 2018. Whether they attend public or private universities, many students rely on loans for tuition and other expenses. If you are among the more than 42 million borrowers with outstanding student loan debt in the U.S., you might be interested in ways to save, such as through student loan refinancing.

 

Check Out Our Guide to Student Loan Refinancing

 

Here are some of the latest statistics to be aware of.

  • According to a report issued by the Federal Reserve System, student loans in the United States currently account for approximately $1.5 trillion in debt.
  • According to the Federal Reserve data, student loan balances increased in 2017 by about $1,490 billion or 5.8%.
  • The data also shows that there are about $84 billion dollars in default.
  • According to Student Debt Relief, there is about $106.5 billion borrowed for student loan debt each year.

A Closer Look at Student Loan Debt

 

As noted above, debt associated with federal student loans accounted for nearly $1.5 trillion as of Q3 2018. According to the Federal Student Aid Portfolio Summary.

 

Average Student Loan Debt Borrowed Per Year

Outstanding interest and principal balances for Q3 2018 are as follows:

  • Direct loans – 33.3 million borrowers, representing $1,116 billion
  • FFEL loans – 13.8 million borrowers, accounting for $288.6 billion
  • Perkins loans – 2.4 million borrowers with roughly $7.4 billion owed
  • Stafford subsidized loans – 29.1 million borrowers distributed among $274.2 billion, according to the office of Federal Student Aid Portfolio by Loan Type.
  • Stafford unsubsidized loans – 28 million borrowers, whose loans total $477.8 billion.

 

Debt management programs get a lot of attention these days. Given the student loan facts, you can see why. It’s important to note that a majority of student loans are in repayment.

 

The Direct Loan Portfolio by Repayment Plan report issued by the office of Federal Student Aid shows that several million borrowers with direct loans were in the process of repaying their loans as of Q3 2018, including

  • 10 Years Or Less – 11.12 million borrowers with a level repayment plan, owing about $205.1 billion
  • More Than 10 Years – 1.69 million borrowers with a level repayment plan, owing about $76.4 billion
  • Income-Based Repayment (IBR) Plans – about 2.85 million borrowers, owing about $168.5 billion

According to the Direct Loan Portfolio by Delinquency Status report from the office of Federal Student Aid, as of Q3 2018, approximately 3.35 million borrowers had loans in default, with loans totaling about $89.6 billion not yet being repaid. Of that default amount, a little under a million loans are so delinquent as to have been transferred to the Debt Management and Collections System (DMCS). According to this report, about 16.02 million borrowers with direct loans are current on payments, representing an estimated $570.5 billion in debt.

 

Federal vs. Private Student Loans

According to Student Debt Relief, students borrowed about $125.6 billion in non-federal and federal student loans in the 2010-11 academic year, a number that has fallen to $106.5 billion by the end of the 2016-17 academic year. The drop in money borrowed can possibly be attributed to fewer students attending college. In 2011 16.63 million students enrolled in college, but by 2016 that number had also fallen to 15.74 million in 2016. Fewer students enrolling in college could be the reason for the drop in money borrowed.

 

Debt vs. Type of School

According to the Federal Student Aid Portfolio Summary, of those who attended a Public institution 24.9 million students borrowed loans and 13.5 million students borrowed loans from a private institution in Q4 of 2018.

 

Student Loan Debt Trends

Student loans are not limited to undergraduates. An increasing number of individuals pursuing graduate and professional degrees are borrowing for graduate programs on top of what they already owe for undergrad degrees, according to statistics revealed in “The Graduate Student Debt Review,” published in 2014 by the New America Foundation Federal Education Budget Project.

 

If you combine undergraduate and graduate debt based on degree, the average MBA graduate owes $51,000, a Master of Education grad owes $50,879, a Master of Science grad owes $50,400, a Master of Arts grad owes $58,539, a Law grad owes $140,616, and a Medicine and Health Sciences grad owes $161,772.

 

The bottom line is, if you are borrowing, then know student loan facts. You can get all the details from lenders or the Federal Student Aid website, an office of the U.S. Department of Education. Finally, review the payment terms and repayment plan options for any student loan you’re considering, including student loan refinancing alternatives, so you can choose a loan that best suits your income bracket, finances, and lifestyle.

 

Signs It’s Time to Refinance Student Loan Debt

 

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