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Using Your Tax Return to Tackle Your Student Loan Debt

March 14, 2018

Let’s be honest, the only remotely fun part of taxes is playing the guessing game on how many greenbacks Uncle Sam is going to mail you this spring. There are about a million and one ways to spend your return, and no one can tell you which is best. It’s your money; use it how you need it, eh Mr. Wentworth? But before you blow it on pinwheels, paddle ball, and a couple cases of light beer, let’s first make sure you’re getting the maximum return. The government is very much in favor of you increasing your knowledge for the purpose of earning (cough, cough… spending) more money in the future.  As such, they offer a variety of tax breaks that can be applied in certain situations of your student debt. Surprisingly, only 30% of student loan debtors take advantage of Uncle Sam’s tax breaks each year. You may not be eligible for all of them, but it certainly doesn’t hurt to know your options.

 

Tax Deduction Vs. Credit

Just to clarify, deductions reduce your taxable income, while tax credits reduce the amount you owe in taxes. Unfortunately, you’re only eligible for tax credits if you’re still enrolled in school, which is why it’s often utilized by parents who are currently helping fund their child’s education. If you missed the boat on tax credits, keep it in the back of your mind for twenty years or so. It’ll come in handy when your kids are looking into undergrad programs.

 

If you’ve already graduated and are starting to repay your student loans, the government offers a Student Loan Interest Deduction that will reimburse you for a portion of the interest payments you make – up to $2,500 per year deducted from your taxable income. If you find yourself in the 25% tax bracket, that’s up to $625 back in your pocket every year. Better yet, that’s $625 towards the principal of your student loan debt… more on that in a moment. As long as you make less than $80,000 per year, you could be eligible for at least some part of this benefit. The amount of savings is completely determined by the amount of interest you paid last year, so be on the lookout for a letter from your lender and be sure to report that amount along with your taxes.

 

Proper Withholding

Part of financial responsibility is being intentional with your money. You should be aware that you can have some control over how much refund you get at tax time. Talk to your employer and revisit your W-4. Pull up your last couple of tax refunds and adjust this year’s withholdings according to your present financial situation and aspirations. If you seem to spend every dime of your take-home pay then ask to withhold more each pay period and Uncle Sam will hold that money for you. Then he’ll give you a larger refund from your tax return. Withhold less and you take home more money each month, but your tax refund will be smaller or nonexistent. Just be sure to invest that money toward your future and not on instant gratification. You’re a hard worker and you’re smart; you wouldn’t be where you are if you weren’t both of those things. Just make sure you apply those same characteristics to your money.

 

Maximize your return by investing in yourself

You’re a hard worker and you’re smart; you wouldn’t be where you are if you weren’t both of those things. Just make sure you apply those same characteristics to your money.

 

That being said, take the full refund and apply it to whichever debt has the highest rates, be it student loans or credit card debt. Oftentimes, student loans have the lowest interest rates, so if you’re quasi-drowning in credit card debt, you can stretch your dollar by paying down that credit card principal first. That way you can minimize the number of those hard-earned greenbacks that go towards paying someone else to allow you to borrow money from them.

 

If you have manageable credit card debt and are looking for ways to excavate your sizeable student loan debt, your tax refund could come in like a wrecking ball (Lord knows we can’t count on Miley Cyrus). NOTE: any time you want to make extra payments towards your student loans, it’s imperative that you explicitly instruct your lenders to put that money towards the principal of the loan. Many less-than-reputable lenders have crafty fine print that will put that money towards the interest, essentially tearing your dollar in half.

 

We know it can be tempting to spend your refund on something more fun than paying down debt, so perhaps there’s a healthy compromise to both treat yourself to a shopping spree and simultaneously treat yourself to less debt. Whatever you do, don’t confuse your tax return with your holiday bonus check. That’s your money that you already worked for; you were just graciously allowing Uncle Sam to hold onto for a few months and now he is RETURNING it to you.

 

Refinance Your Student Loan Debt with Education Loan Finance

If you want to put a serious dent in your student loan debt, consider refinancing for a lower interest rate. Borrowers who refinance with a reputable lender like Education Loan Finance. Customers have reported that they are saving an average of $309 every month and an average of $20,936 in total savings after refinancing their student loans with Education Loan Finance.* It may be difficult to imagine a life without student loan debt, but with a bit of discipline and a little help from Uncle Sam, you just might get some pep in your step for your walk to the land of the financially free. Calculate your savings here.

 

See How the Tax Reform Could Impact Your Student Loan Debt

 

*Average savings calculations are based on information provided by SouthEast Bank/ Education Loan Finance customers who refinanced their student loans between 8/16/2016 and 10/25/2018. While these amounts represent reported average amounts saved, actual amounts saved will vary depending upon a number of factors.

Education Loan Finance cannot give tax advice and readers should consult a tax advisor about their specific circumstances.

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Young woman reading student loan news
2020-05-22
This Week in Student Loans: May 22

Please note: Education Loan Finance does not endorse or take positions on any political matters that are mentioned. Our weekly summary is for informational purposes only and is solely intended to bring relevant news to our readers.

  This week in student loans:
what you need to know about student loan debt relief

What you need to know about debt relief on student loans

As there have obviously been some major changes in the world of student loans recent, the Washington Post covers many frequently asked questions in this article, from the details of the Heroes Act to how the new changes affect a variety of borrowers.  

Source: Washington Post

 

college's loan default rate

Why a college's student loan default rate matters

With the extended deadline for "decision day" approaching, this US News & World Report brings to light how a college's default rate, or the average portion of students who default on their student loans, should matter to students who are choosing where to attend college.  

Source: US News & World Report

 

Donors provide students with debt relief

Anonymous donors paid off $8 million in student loans for first-generation grads

According to CBS News, a group of anonymous donors contributed a total of $8 million to pay off college loans for up to 400 first-generation college students who have overcome financial hardships, from homelessness to poverty. The donors are longtime supporters of Students Rising Above (SRA), a Bay Area nonprofit.  

Source: CBS News

 

Student Loan Debt Relief

More relief could be coming for student loan borrowers

While the CARES Act has already suspended federal student loan payments through September 30, 2020, a new bill known as the HEROES Act, passed by the House last Friday, would include additional relief for borrowers with both federal and private student loans, including potentially suspending federal student loans another year through September 30, 2021.  

Source: CNBC

    That wraps things up for this week! Follow us on FacebookInstagramTwitter, or LinkedIn for more news about student loans, refinancing, and achieving financial freedom.  
 

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.

Clock representing the time it takes to pay off student loans.
2020-05-21
How Long Does it Take to Pay Off Student Loans?

If you have student loan debt, do you know what your loan term is and how long your payments are expected to last? On average, college graduates think they will have their loans paid off in six years. Is this a realistic expectation to pay off loans that quickly? Here we will show you how long it actually takes people to pay off student loans. And if you are looking for ways to pay them off faster, we have some tips for that as well.     

Loan Terms

The loan term is how long it will take you to repay the loan if you only pay the amount owed each month and do not make any additional payments. For federal student loans, the average loan term on the standard repayment plan is 10 years. However, there are options to increase the loan term up to 30 years, depending on the amount of money owed and what payment plan you choose. Increasing the loan term will cause you to pay more interest over the lifetime of the loan, but may require a smaller payment compared to the standard repayment plan.    

Average Time to Repay Undergraduate Loans

Although the standard loan term is ten years, many people take much longer than that to repay student loans. The average time it takes to repay student loans depends on what degree you obtained, mainly because of the amount of loans taken out. However, it also depends on the income you are earning. If you work in a job that is in your degree field, you may be earning the average income in the sector and be able to pay off your loans in the average amount of time. However, if you are not working in your degree field and your salary is lower than the average salary for that degree, it may take more time to pay off.
  • The average amount of student loan debt for a person who finished some college, but did not obtain a degree is $10,000. The average amount of time it takes to repay the loans is just over 17 years.  
  • For a person who obtained an Associate degree, the average amount of debt is $19,600 and on average it will take just over 18 years to pay off the loans. 
  • For college graduates that earned a Bachelor’s degree they will repay an average of $29,900 in student loan debt and will take approximately 19 years and 7 months to repay the loans. 
 

Average Time to Repay Graduate Loans

Earning a graduate degree takes more time and, of course, more money. The average amount of student loan debt for graduate degrees is $66,000. However, certain degrees require much more than the average amount of loans and, therefore, more time to pay. 
  • Medical school - The average student loan debt for medical graduates in 2019 was $223,700. Because of the high salaries doctors are able to earn after residency it can take an average of 13 years to repay the student loans. 
  • MBA - If you earn an MBA the average student loan debt is $52,600 and can take 22 years and 10 months to repay.
  • Law degree - Obtaining a J.D. may cause you to rack up the average of $134,600 in student loans and it will take an average of 18 years to repay.  
  • Dentist - To become a dentist it will cost an average of $285,184 in student loans and may take 20-25 years to pay off the debt.  
  • Veterinarians - Attending veterinary school can cost an average of $183,014 in student loans. It may take veterinarians longer to repay their student loans than traditional medical colleagues because their average income is much lower at $93,830. It can take 20-25 years to repay the loans. 
 

How to Pay Student Loans Off Early

If seeing these averages makes you panic, don’t worry! Use them as motivation to pay your loans off faster. Here are some ways to accomplish that:   

Student Loan Refinancing 

Refinancing student loans is extremely advantageous for many borrowers because it can save you money on monthly payments and in interest over the life of the loan. Refinancing can also be beneficial to shorten the length of time it takes to pay off your loans and save even more in interest costs. This can be done by obtaining a new loan with a shorter term than your current remaining loan length. Although refinancing to a shorter term length will increase your monthly payment, if you are able to afford the new payment it can be a great financial move for your future. You will be paying your loans off sooner and saving more in interest.     For example:  If you have $30,000 in student loans with a standard 10 year repayment plan and 7% interest rate, your payment would be $348 per month. If you refinance to a 7 year loan and qualify for a 6.48% interest rate, your payment would only increase by $62.00 per month and your loans would be paid off 3 years earlier. You would also save $4,403 in interest!   If you did not want to increase your monthly payment you could still utilize the benefits of refinancing by keeping the same loan term and qualifying for a lower interest rate than your current rate. With the same example as above, if you refinance to a 10 year term loan with a lower interest rate it would still save you $573.00 in interest. Qualifying for an even lower interest rate could save you up to $5,590 in interest.     To see your potential savings, use our student loan refinancing calculator.*   

Make Extra Payments 

No matter what payment plan you have for your student loans, making extra payments can be a beneficial way to shorten the amount of time it takes to pay off your loans, including saving you in interest costs.    

Conclusion

Tackling student loan debt may seem daunting at times, but payments don’t last forever. If it’s your goal to pay your loans off as quickly as possible, hopefully using some of these tips will help you reach that goal. Knowing the average time it takes to pay off loans will allow you to set realistic expectations for your financial goals.   
  *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.
Chart of rates over time
2020-05-18
Current LIBOR Rate Update: May 2020

This blog provides the most current LIBOR rate data as of May 7, 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 - May 2020

As of May 7, 2020, the 1 month LIBOR rate is 0.20%. If the lender sets their margin at 3%, your new rate would be 3.20% (0.20% + 3.00%=3.20%). The chart below displays fluctuations in the 1 month LIBOR rate over time.

 

(Source: macrotrends.net)

   

Current 3 Month LIBOR Rate - May 2020

As of May 7, 2020, the 3 month 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 3 month LIBOR rate over time.

  Chart of 3 Month LIBOR for May 2020 (Source: macrotrends.net)  

Current 6 Month LIBOR Rate - May 2020

As of May 7, 2020, the 6 month LIBOR rate is 0.69%. If the lender sets their margin at 3%, your new rate would be 3.69% (0.69% + 3.00%=3.69%). The chart below displays fluctuations in the 6 month LIBOR rate over time.

  Chart of 6 Month LIBOR May 2020 (Source: macrotrends.net)  

Current 1 Year LIBOR Rate - May 2020

As of May 7, 2020, the 1 year LIBOR rate is 0.78%. If the lender sets their margin at 3%, your new rate would be 3.78% (0.78% + 3.00%=3.78%). The chart below displays fluctuations in the 1 year LIBOR rate over time.

  Chart of 1 Year LIBOR May 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.