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Top 10 Ways to Pay Off Student Loans Faster

May 5, 2020

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.

 

3. 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.

 

4. 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.

 

5. 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.

 

6. 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.

 

7. 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.

 

8. 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.

 

9. 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.

 

10. Refinance your student loans.

Refinancing your student loan debt is a great way to help you pay loans off faster.* 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!

 


 

*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.

 

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Current LIBOR Rate
2020-09-24
Current LIBOR Rate Update: September 2020

This blog provides the most current LIBOR rate data as of September 3, 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 – September 2020

As of September 3, 2020, the 1 month LIBOR rate is 0.16%. If the lender sets their margin at 3%, your new rate would be 3.16% (0.16% + 3.00%=3.16%). The chart below displays fluctuations in the 1 month LIBOR rate over time.

  Chart Showing Current 1 Month LIBOR Rate for September 2020

(Source: macrotrends.net)

 

Current 3 Month LIBOR Rate – September 2020

As of September 3, 2020, the 3 month LIBOR rate is 0.25%. If the lender sets their margin at 3%, your new rate would be 3.25% (0.25% + 3.00%=3.25%). The chart below displays fluctuations in the 3 month LIBOR rate over time.

  Chart Showing Current 3 Month LIBOR Rate for September 2020

(Source: macrotrends.net)

 

Current 6 Month LIBOR Rate – September 2020

As of September 3, 2020, the 6 month LIBOR rate is 0.29%. If the lender sets their margin at 3%, your new rate would be 3.29% (0.29% + 3.00%=3.29%). The chart below displays fluctuations in the 6 month LIBOR rate over time.

  Chart Showing Current 6 Month LIBOR Rate for September 2020

(Source: macrotrends.net)

 

Current 1 Year LIBOR Rate – September 2020

As of September 3, 2020, 2020, the 1 year LIBOR rate is 0.43%. If the lender sets their margin at 3%, your new rate would be 3.43% (0.43% + 3.00%=3.43%). The chart below displays fluctuations in the 1 year LIBOR rate over time.

  Chart Showing Current 1 Year LIBOR Rate for September 2020

(Source: macrotrends.net)

 

Understanding LIBOR

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

 
 

*Subject to credit approval. Terms and conditions apply.

 

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

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

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

Is it time to refinance your student loans?

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

Signs it might be time to refinance your student loans:

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

What happens when you change your student loan term?

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

Choosing a longer term for your student loans

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

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

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

What about shortening my student loan repayment term?

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

Refinancing student loans with ELFI

Ready to explore your student loan refinancing options with ELFI? Great! We’re excited to help. In addition to potentially lowering your interest rate and choosing a new student loan repayment term, when you refinance with ELFI, you’ll also work directly with a Personal Loan Advisor who will help provide a seamless, personalized refinancing experience.   Don’t take our word for it. Check out recent customer reviews on Trustpilot! If you’re ready to explore potential interest rates by refinancing with ELFI, check out our Student Loan Refinance Calculator.*  
  *Subject to credit approval. Terms and conditions apply.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no­­­ control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.
Dad with Parent PLUS loans hugging daughter
2020-09-16
Should You Refinance Private Parent Loans in 2020?   

Are you a parent who took on student loans for your child to attend school? If so, you are not alone. As of 2019, over 3.4 million people have Parent PLUS loans. The payment of the loans may become burdensome as the desire to save and enjoy retirement approaches. If extra money in your budget could help, Parent PLUS loan borrowers may want to take advantage of the current low rates and refinance the student loans they took on for their children.  

Types of Parent Loans

Before you decide whether refinancing is beneficial for you, it’s helpful to know what types of loans you have. Parents may have private parent loans that are borrowed through a private lender such as a bank, or Parent PLUS loans that are borrowed through the federal government. Parent PLUS loans are also known as Direct PLUS loans. Here’s a breakdown of how the two types of parent loans differ:
  • Interest Rates: Typically private parent loans will have a lower interest rate than Parent PLUS loans. Parent PLUS loans can have an interest rate as high as 7.06% in recent years, whereas private parent loans can have an interest rate of around 4%.
  • Loan Terms: Private parent loans can also have a fixed or variable interest rate and have a loan term from 5 to 25 years. Parent PLUS loans have a fixed interest rate and an origination fee. The loan term can last from 10 to 25 years.
  • Additional Benefits: Since the Parent PLUS loan is through the federal government it is eligible for an income-contingent repayment plan, meaning the payment is based on your income and family size.
 

Current Benefits for Parent Loan Borrowers

Currently, Parent PLUS loans are eligible for benefits through the federal government due to the CARES Act passed by Congress on March 27, 2020, in response to the COVID-19 pandemic. The benefits are set to expire on September 30, 2020, however, an executive order was issued on August 8, 2020, directing the benefits to continue through December 31, 2020. The protections provided by the CARES Act, and continued through the executive order, for Parent PLUS loans include:
  • The interest rate on the loan is temporarily reduced to 0%. No interest will be accruing on the loan during this time. However, interest will begin accruing again at the previous interest rate on January 1, 2021.
  • Administrative forbearance - This provides for a temporary suspension of payments during this time. Payments are set to resume in January 2021. This means you can save money to make a lump sum payment on your Parent PLUS loan when payments resume. Alternatively, you can use the money as an emergency fund if payments become difficult to make.
  • Stopped collections - Any defaulted loans would no longer be subject to collections during this time period.
 

How to Know Whether You Should Refinance

With these benefits currently in place, it is fiscally responsible to take advantage of the federal protections provided for Parent PLUS loans rather than refinancing at this time.  However, private parent loans are not eligible for any federal protections, making them prime candidates for refinancing. Currently, interest rates for refinancing are at an all-time low because of the Federal Reserve lowering interest rates in response to the pandemic. This makes it a great time to take advantage of these low interest rates for private parent loans.   Refinancing rates for private parent loans are as low as 2.39% for a variable interest rate and 2.79% for a fixed interest rate as of September 14, 2020. This new rate could lead to significant savings depending on your current balance, rate and loan term. At ELFI, you can prequalify to see what rate you would be eligible for. You can also use our Student Loan Refinance Calculator to get an estimate of your savings based on a range of interest rates.*   Not only does refinancing private parent loans save you money monthly by securing a lower interest rate, but refinancing to a lower interest rate also saves you in interest costs over the loan term. In addition, the other benefits of refinancing private parent loans are:
  • Combining multiple private and federal Parent PLUS loans into one loan with one payment
  • Changing the loan term length by either shortening it to save on interest costs or lengthening it to lower your monthly payments
  If refinancing sounds right for you, it’s important to know the eligibility requirements. These will make you more likely to qualify for the best rate at ELFI:
  • A strong credit history, with a minimum credit score of 680
  • Steady employment with a minimum income of at least $35,000
  When you refinance student loans at ELFI there is never an application fee or origination fee. You will also never pay a prepayment penalty.

Bottom Line

Although interest rates are at a record low, it is advantageous to benefit from the current Parent PLUS loan protections for the time being. Then, in 2021, you can take advantage of the low interest rates if you choose to refinance. If you have a private parent loan, now is a great time to lock in a lower interest rate and start saving some money.  
  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.   *Subject to credit approval. Terms and conditions apply.