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The State of Student Loan Debt in America Today

October 24, 2018

Education is an investment in one’s future. It opens doors to greater possibilities. It empowers people to reach their full potential. But for many, college has become an anchor instead of a sail. Crushing student loan debt can hinder a graduate’s ability to focus on the future. Some must choose careers based on salary instead of passion, just so they can handle loan payments. The constant need to earn more money stunts employee loyalty and justifies job-hopping. Even after refinancing student loans, debt still delays graduates from buying homes and starting families.

 

It’s not just an unfortunate few saddled with student debt. Consider the following statistics:

 

  • More than 44 million Americans currently carry student loan debt.
  • The total combined debt is nearly $1.5 trillion. That’s more than the total amount of credit card debt owed.
  • Student loan debt is equivalent to 7.6 percent of the U.S. GDP in 2017. To put it another way, retiring the full amount of student loan debt would take 7.6 percent of the value all the goods and services generated in the U.S. economy for a full year.
  • The average debtor owes $39,400 in student loans. That’s equal to 70 percent of the median household income in the United States, which is $56,516, according to the 2015 U.S. Census.
  • On average, student debt is far greater than the annual salary of a new college graduate. According to the latest Bureau of Labor Statistics, the average American ages 20 to 24 earns just over $28,000 annually. It’s slightly better — $38,400 — for Americans between the ages of 25 and 34. However, that’s still less than the average overall student loan debt.
  • According to a 2017 PricewaterhouseCoopers survey, 40 percent of millennial employees have a student loan. Over 80 percent of them say student loans have a moderate or significant impact on their ability to meet financial goals.

 

New doctors carry an extreme amount of medical school student loan debt. About 75 percent of new doctors in the U.S. graduated with debt in 2017. The average amount is now close to $190,000.

 

This explains why New York University will now grant all medical students free tuition. That is approximately $55,000 a year per student.

 

“We thought it was a moral imperative because it’s very difficult for medical students to incur the debt burden of medical school, as well as the additional time burden of training,” Dr. Robert Grossman, dean of NYU School of Medicine, told ABC News.

 

According to the report, student loan debt can “scare away” students from a career in medicine. It may also prevent graduates from pursuing a lower-paying specialty like pediatrics.

 

Clearly, there is no quick fix for student loan debt. However, several public and private programs can ease the burden. These initiatives continue to grow as more employers recognize the value of offering financial benefits, such as student loan repayment assistance.

 

Common student loan assistance programs include:

 

  • The Public Service Loan Forgiveness Program is a federal program designed to forgive student loan debt for employees of certain public and nonprofit jobs.
  • The Federal Perkins Loan Cancellation and Discharge forgives a certain percentage of student loan debt after every year of service. There are a number of ways to qualify for this program.
  • Both the Pay-As-You-Earn (PAYE) and the Income-Based Repayment (IBR) programs set repayment cap amounts based on income and family size. They also forgive remaining debt after a set number of years of qualifying payments.
  • Student loan forgiveness programs designed specific careers such as teachers, nurses, and lawyers.

 

Public programs may be a great fit for some. But for others, they may actually end up costing more over time. When considering a deferment or forbearance program, make sure you are not accruing additional interest. If so, this will then be capitalized and added to your original principal balance. Programs like IBR can be misleading. They can set graduates up to make payments only towards the interest rate accruing that month. This means they never actually apply to the principal balance of the loan. And it keeps the loan balance the same over time even though payments have been made towards the loan.

 

Before choosing a program, graduates should crunch the short-term and long-term numbers. It’s easy to get caught up in a program’s immediate impact. After all, you may only need a little breathing room in your budget. However, it’s this lack of knowledge surrounding these programs that is fueling the student loan debt crisis.

 

In response, more private employers are adding student loan and tuition assistance programs to their benefits packages.

 

“Employer-sponsored third-party student loan repayment assistance programs are projected to grow quickly in the future,” according to a Consumer Financial Protection Bureau (CFPB) report on student loan repayment assistance programs.

 

According to a January 2017 WorldatWork survey:

  • 4 percent of employers surveyed offer student loan debt repayment assistance.
  • 11 percent offer employee scholarships and student aid.
  • 23 percent have scholarships available for employees’ children.
  • 14 percent offer college savings plans as part of their benefits package.
  • 87 percent offer tuition reimbursement to current employees for career development opportunities.

 

A similar employee benefits survey by the Society of Human Resource Management showed that the number of employers offering student loan repayment programs increased from 3 percent in 2015 to 4 percent in 2017.

 

In general, the larger the company, the more likely it is to offer employees student aid benefits. Companies can use these programs as a recruiting tool to attract recent graduates.

 

Still, experts agree there’s much more that needs to be done.

 

Summarized the CFPB: “Recognizing that significant student debt can have a domino effect on consumers’ financial lives and overall financial wellness, reports suggest an increased interest by both large and small employers in exploring benefits to help their employees pay down student debt or help manage their employees’ student debt stress.” Most of these initiatives are steps in the right direction. However, there is still a long road to recovery ahead for those affected by the student loan debt crisis.

 

This guest post was authored by Colin Nabity. Colin Nabity is the Chief Executive Officer of LeverageRx, a digital lending and insurance company for healthcare professionals. Through software technology, LeverageRx helps healthcare professionals find better rates on disability insurance, medical malpractice insurance, student loan refinancing and mortgage loans.

 

9 Signs It’s Time to Refinance Student Loan Debt

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2020-03-30
Should You Save for Your Child’s College Fund or Pay Your Student Loans?

As you start to grow your family, you may be wondering whether you should continue to aggressively pay down your student loans or start saving for your little bundle of joy’s college fund. Do you immediately set up a 529 to start saving for their college expenses? Or should you focus on paying your student loans before saving for your kid’s college? Here is some information to consider before you decide.   For the 2018-2019 school year, families spent an average of $26,226 on college. With tuition rates and the cost of living increasing, higher education can be an expensive endeavor to undertake. In 2019, 64% of families planned to pay for college by saving, according to Sallie Mae’s “How America Pays for College 2019 Study”   With all this in mind, you may think it’s a good idea to start saving for your child to attend college when they are a newborn. Perhaps the heavy burden of your student loans is something you want your child to avoid. However, it’s important to consider some factors:  

Do you have a healthy retirement account?

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

What do your other debt payments look like?

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

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

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

Options to Consider 

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

Ways to Save on College Costs

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

Bottom Line 

The ability to help your child pay for future educational expenses can be a great feeling. But before you take on this endeavor, you’ll want to be sure that your financial situation is stable enough. Armed with this information, you can make an informed decision for how you can successfully pay off your student loans and save for your child’s college expenses.  
  *Subject to credit approval. Terms and conditions apply.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.
2020-03-25
Current LIBOR Rate Update: March 2020

This blog provides the most current LIBOR rate data as of March 17, 2020, along with a brief overview of the meaning of LIBOR and how it applies to variable-rate student loans. For more information on how LIBOR affects variable rate loans, read our blog, LIBOR: What It Means for Student Loans.

 

What is LIBOR?

The London Interbank Offered Rate (LIBOR) is a money market interest rate that is considered to be the standard in the interbank Eurodollar market. In short, it is the rate at which international banks are willing to offer Eurodollar deposits to one another. Many variable rate loans and lines of credit, such as mortgages, credit cards, and student loans, base their interest rates on the LIBOR rate.

 

How LIBOR Affects Variable Rate Student Loans

If you have variable-rate student loans, changes to the LIBOR impact the interest rate you’ll pay on the loan throughout your repayment. Private student loans, including refinanced student loans, have interest rates that are tied to an index, such as LIBOR. But that’s not the rate you’ll pay. The lender also adds a margin that is based on your credit – the better your credit, the lower the margin. By adding the LIBOR rate to the margin along with any other fees or charges that may be included, you can determine your annual percentage rate (APR), which is the full cost a lender charges you per year for funds expressed as a percentage. Your APR is the actual amount you pay.

 

LIBOR Maturities

There are seven different maturities for LIBOR, including overnight, one week, one month, two months, three months, six months, and twelve months. The most commonly quoted rate is the three-month U.S. dollar rate. Some student loan companies, including ELFI, adjust their interest rates every quarter based on the three-month LIBOR rate.

 

Current 1 Month LIBOR Rate - January 2020

As of Monday, March 17, 2020, the 1 month LIBOR rate is 0.75%. If the lender sets their margin at 3%, your new rate would be 3.75% (0.75% + 3.00%=3.75%). The chart below displays fluctuations in the 1 month LIBOR rate over the past year.

 

(Source: macrotrends.net)

   

Current 3 Month LIBOR Rate - January 2020

As of Monday, March 17, 2020, the 3 month LIBOR rate is 1.05%%. If the lender sets their margin at 3%, your new rate would be 4.05% (1.05% + 3.00%=4.05%). The chart below displays fluctuations in the 3 month LIBOR rate over the past year.

  (Source: macrotrends.net)  

Current 6 Month LIBOR Rate - January 2020

As of Monday, March 17, 2020, the 6 month LIBOR rate is 0.91%%. If the lender sets their margin at 3%, your new rate would be 3.91% (0.91% + 3.00%=3.91%). The chart below displays fluctuations in the 6 month LIBOR rate over the past year.

  (Source: macrotrends.net)  

Current 1 Year LIBOR Rate - January 2020

As of Monday, March 17, 2020, the 1 year LIBOR rate is 0.86%. If the lender sets their margin at 3%, your new rate would be 3.86% (0.86% + 3.00%=3.86%). The chart below displays fluctuations in the 1 year LIBOR rate over the past year.

  (Source: macrotrends.net)  

Understanding LIBOR

If you are planning to refinance your student loans or take out a personal loan or line of credit, understanding how the LIBOR rate works can help you choose between a fixed or variable-rate loan. Keep in mind that ELFI has some of the lowest student loan refinancing rates available, and you can prequalify in minutes without affecting your credit score.* Keep up with the ELFI blog for monthly updates on the current 1 month, 3 month, 6 month, and 1 year LIBOR rate data.

 
 

*Subject to credit approval. Terms and conditions apply.

 

Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.

2020-03-20
A Lawyer’s Guide to Student Loan Refinancing

When Matt Sembach, an assistant public defender, graduated from law school, he had a mix of both private and federal student loans — some with interest rates as high as 10.75%.    

By Kat Tretina

Kat Tretina is a freelance writer based in Orlando, Florida. Her work has been featured in publications like The Huffington Post, Entrepreneur, and more. She is focused on helping people pay down their debt and boost their income.

  “In terms of law school, I took out an estimated $135,000,” he said. “When I graduated from law school, I owed about $147,000. The $147,000.00 figure is higher than the amount that I actually took out because my big loan was unsubsidized and the interest was accruing while I was still in law school.”   Sembach’s situation isn’t unusual. According to the
AccessLex Institute, the vast majority of law school graduates borrow money to pay for school. On average, they leave school with $142,870 in student loan debt.    While attorneys take on a significant amount of debt, their earning potential is immense. The National Association for Law Placement reported that the overall median first-year salary in private practice was $155,000 in 2019, a $20,000 increase from 2017.    With large balances but six-figure incomes, lawyers are good candidates for student loan refinancing, especially if you have high-interest student loans.   

When refinancing law school debt makes sense

When you refinance your law school debt, you take out a loan from a lender like Education Loan Finance for the amount of your current debt. The new loan has different terms, including interest rate and length of repayment.    While refinancing isn’t for everyone, it’s a good idea in the following scenarios:   

1. You have high-interest student loans

As Sembach found out, graduate, professional, and bar exam loans can have extremely high interest rates. Over time, those high rates can cause your loan balance to balloon, adding thousands to your loan cost.    When you refinance your debt, you can qualify for a lower interest rate and save money over the life of your loan.   

2. You want to pay off your loans early

If you refinance your loans and qualify for a lower interest rate, more of your monthly payment will go toward the principal rather than interest charges. If you keep making the same payment that you had before you refinanced, you can pay off your loan months or even years early.   

3. You want to simplify your payments

If you’re like most graduates, you had to take out a number of different loans to pay for school.    “When I graduated law school, I had 10 to 15 different loans that I needed to consolidate,” said Sembach.    Unfortunately, that’s very common. Graduates often have several loans to manage, with multiple payment due dates and loan servicers to remember.    By refinancing your debt, you consolidate your loan together. After that, you have just one loan and one payment to handle.   

4. You want to reduce your monthly payments

If your payments are currently too expensive, refinancing may provide you with some relief. When you refinance your debt, you can extend your repayment term. For example, if you are currently on a 10-year repayment plan, you could opt for a 20-year repayment plan. You’ll pay more in interest charges with a longer term, but your monthly payments will be much more affordable.   

5. You aren’t eligible for loan forgiveness

While student loan refinancing can be an effective tool for managing your debt, one of its biggest drawbacks is that you lose out on federal benefits when you refinance federal student loans. If you’re a public defender or work for a legal aid organization, you could be eligible for loan forgiveness through Public Service Loan Forgiveness (PSLF). But if you refinance your loans, you’ll lose your eligibility.    However, lawyers who work in private practice or who have loans from private student loan lenders don’t qualify for PSLF. In that case, refinancing can make good financial sense.   

How to refinance your loans

Refinancing law school debt is surprisingly easy. Just follow these three simple steps:   

1. Check the eligibility requirements

Before refinancing, make sure you meet the lender’s eligibility requirements and collect the necessary documentation to speed up the process. With ELFI, you must meet the following criteria: 
  • You must be a U.S. citizen or permanent resident
  • You must have at least $15,000 in student loans
  • You must have a bachelor’s degree or higher
  • You must have a credit score of 680 or higher
  • You must have an income of $35,000 or higher
  • Your credit history must be at least 36 months old
  • Your degree must be granted by an approved post-secondary institution
If you don’t meet the criteria on your own, you may still be able to get a loan by adding a co-signer to your application. A co-signer is usually a parent, relative, or friend who applies for a loan with you and is responsible for making the payments if you fall behind. Adding a co-signer increases your chances of qualifying for a loan and securing a lower interest rate.   

2. Get a rate quote 

Before submitting your application, get a rate quote. With ELFI’s Find My Rate tool, you can get an interest rate estimate and view loan terms without affecting your credit score.* Once you find a loan that works for you, you can proceed with the application process.   

3. Submit your application

To complete the application, you should be prepared to enter personal information about yourself, including your name, address, Social Security number, employer information, and income.    You’ll also need to submit documentation, including: 
  • A copy of a government-issued ID, such as a driver’s license
  • Proof of income, like a W-2 or recent tax return
  • Bank account information if you’re signing up for automatic payments
  • Current billing statement or payoff letter for each current student loan
 

Alternatives to student loan refinancing

Refinancing can help you save money and pay off your debt early, but it’s not a great solution for all attorneys. If you don’t think that student loan refinancing is right for you, there are other ways to manage your debt more effectively.   

1. Apply for PSLF

One option is to pursue loan forgiveness through PSLF. For many borrowers, like Sembach, PSLF can be a powerful debt relief tool. Previously, Sembach worked in private practice. But he switched career tracks to take advantage of PSLF.    “I pursued PSLF to help get rid of the debt,” he said. “I took a $10,000 pay cut when I left private practice to become a public defender, but I took the pay cut because of PSLF.”   To qualify for PSLF, you must have federal student loans and work for a qualifying non-profit organization or government agency for at least 10 years. During that time, you must make 120 qualifying monthly payments. If you meet those requirements, your remaining loan balance will be forgiven tax-free.   

2. Apply for an income-driven repayment plan

If you can’t afford your monthly payments and you have federal student loans, you may be able to reduce your payments by applying for an income-driven repayment (IDR) plan. Under an IDR plan, your loan servicer extends your repayment term and sets your monthly payment at a percentage of your discretionary income.    You can apply for an IDR plan online or by contacting your loan servicer over the phone.   

3. See if you qualify for repayment assistance

Some states try to attract talented attorneys by offering student loan repayment assistance programs. They will repay some or all of your student loans in exchange for a service commitment.    For example, attorneys in Vermont who work for certain civil legal aid organizations can qualify for up to $5,000 per year in student loan repayment assistance from the Vermont Bar Foundation.   The American Bar Foundation hosts a database of student loan repayment assistance programs available all over the nation. You can search the database to find programs you may be eligible for near you.    

Repaying your student loans

As a lawyer, you likely have a significant amount of student loans. While your loan balance can be a burden, student loan refinancing can help you save money and lower your monthly payments.     To find out how much you can save by refinancing law school debt, use the 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.