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What’s the Best Way to Repay Student Loans?

July 25, 2018
Updated February 7, 2020

 

While serving your student loan debt sentence, you’re likely searching for any and every way to ease the discomfort of burdensome monthly payments. Perhaps you’ve looked into some student loan repayment plans like income-driven repayment (IDR) programs, the most common option being the income-based repayment (IBR). (Find out more about IDRs)

 

Standard Repayment Plan

By default, federal loans start out on a 10-year Standard Repayment Plan that often result in a fairly high monthly payment. For example, if your income was $30,000 a year and your student loan debt totaled $34,722 with an interest rate of 3.900% your monthly payments would be $350. That can be tough for someone balancing rent/a mortgage, food and transportation costs.

 

Your income – $30,000
Student Loan Debt – $34,722
Interest Rate – 3.900%

 

Under Standard Repayment Plan

Monthly Payment= $350
Total Amount Paid =$41,988

 

These high monthly payments are why recent grads on an entry-level salary, seek relief through an IBR or IDR plan. This allows their credit score to stay intact. Also give borrowers some additional money to live their lives. This may sound great to anyone really struggling, but in the long run it can really end up costing, almost double your original loan amount.

 

Income Based Repayment

Income based repayment reduces your monthly student loan payments by placing a cap on how much you’ll pay. No matter how much your income may increase, payments on IBR plans are capped at 10% of your discretionary income (if loan money was received after July 1, 2014) or 15% if you received loan money before July 1, 2014. IBRs require you to recertify every year; your monthly payments are likely going to increase over the course of your repayment term. If you get a raise or switch jobs to a higher salary, your monthly payments are going to jump up right along with it.

 

Your income – $30,000
Student Loan Debt – $34,722
Interest Rate – 3.900%

 

Under Income-Based Repayment Plan

Monthly Payment= $98
Total Amount Paid =$48,523

 

The IBR “Forgiveness”

Most borrowers count on the remainder of their debt being forgiven after 25 years. However, understand that like laws do, there is a possibility that this can change. In addition, many borrowers don’t take into account the fact that it’s considered taxable income in the year of your release. Forgiveness comes with a price because you’re essentially trading student loan debt for a tax debt that’s due the same year you’re supposedly celebrating your student debt freedom.

 

How Income-Based Repayment really works

Without a doubt, income-based repayment is a successful method of lowering your monthly payments, but that’s about all it’s good for, unfortunately.

 

Not only are you more than doubling the number of years you’ll be sitting on debt row, you’re also accruing interest on all those extra years. What’s worse – the interest is then capitalized, meaning it’s added to the principal balance of your loan and you end up paying even more interest on the higher balance – in most cases significantly more than the original amount you borrowed in the first place.

 

Bottom line, if you’re struggling out of college to pay your loan and get on your feet, it may be a temporary solution for a year, or two. We’d never recommend IBR as your entire student loan payoff solution since most payments don’t even cover the interest being collected during that month.

 

Lower your monthly payments by refinancing

Refinancing your student loan debt is perhaps the most flexible way to manage your monthly payments. It allows you to consolidate your various loans into a single, easy-to-remember monthly payment, as well as choose whether you want a variable or fixed interest rate. You can even negotiate your repayment term for the optimal monthly payment.

 

Refinancing with a reputable lender like Education Loan Finance enables you to significantly lower your monthly payments and lock yourself in for the duration of your term. Our customers have reported that they are saving an average of $309 every month and should see an average of $20,936 in total savings after refinancing their student loans with Education Loan Finance.* (Find more ways to Pay Off Student Loans Faster)

 

Refinance vs. Income-Based Repayment

On the surface, IBRs certainly seem like an enticing option, but it’s crucial to know the long-term consequences associated. If the only goal is to lower your monthly payment, IBR is not only capable of achieving the task-at-hand but also readily available for nearly all federal loan borrowers.

 

Refinancing, on the other hand, is a much more intentional way of paying down student loan debt. It’s customizable for your budget and you can lock in your interest rate and know exactly how much you’ll pay every month for the life of your loan.

 

10 Facts About Student Loans That Will Save You Money

 


 

*Subject to credit approval. Terms and conditions apply. 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.

 

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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2020-09-25
3 Financial Goals to Achieve Before Marriage – And Some That Can Wait

Marriage is both a personal and financial turning point that opens up a new world of financial opportunities and struggles. However, with proper planning, you can minimize the challenges and make the most of financial opportunities. Check out these financial goals to achieve before marriage, as well as a couple of others that you’ve still got time to work toward:  

Financial Goals to Achieve Before Marriage

The Emergency Fund

For many couples, the COVID-19 pandemic has made the importance of emergency funds exceptionally clear. Especially as you enter into your first few years of marriage, it’s important to build a strong financial foundation so you’re prepared for unexpected expenses, from home repairs to medical bills.
Financial hardship is a leading cause of divorce, and in these uncertain times, an emergency fund can help to weather the storm.   In addition, an emergency fund provides a way to ease financial anxiety and distress even when times aren’t tough. When you know you’re prepared with emergency savings, there’s no need to panic if the unexpected happens.  

Setting a Monthly Budget

Even if you aren’t getting married, creating a budget is a great financial step, and is something you should do right away. Work with your partner to outline your regular expenses, as well as any expenses that may arise in your first year of marriage. Make sure you provide yourself with some flexibility in your savings and begin building an emergency fund if you haven’t already.   There are several useful tools that can help you keep track of your budget, including apps like Mint. You can also employ a budgeting strategy to keep your saving and spending on track. Several popular budgeting methods include the 50/20/30 rule, the Zero based budget and the cash envelope system. Not only will a budget be good for your finances, but it will be good for your marriage, as well.  

Setting Goals for the Future

Yes, setting goals is a goal. You and your future spouse should lay out financial goals before getting married. It’s important to be on the same page when it comes to debt repayment, housing plans, savings goals and other major financial milestones. Plus, it’s good to know what your spouse is looking for, and a good plan helps to avoid financial stress that can really harm a marriage.  

More Flexible Financial Goals

Making a Down Payment

While it’s great to start saving for a down payment before marriage, it’s not necessary to be entirely ready to buy a home before tying the knot. Especially if you’ve already established good money management habits, you can always continue working toward this financial goal as a married couple.   Even if you don’t have the money for a down payment right away, you can easily establish a strategy to save toward a down payment. Experts recommend planning on putting a minimum of 10% down for your down payment and the more you can save, the better. Stay focused and keep saving. You’ll have that down payment in no time.  

Becoming Debt-Free

Some couples choose to pay their student debt off before getting married, however, student debt is another financial goal you can afford to wait on, especially if you consider refinancing. After your wedding, you may choose to prioritize other expenses that come with building a life together, like a new car or home, before tackling the remainder of your student debt.   That said, you certainly don’t want to forget about your student loans. By refinancing your student loans, you could earn greater financial flexibility by lowering your interest rate or changing your student loan repayment term. Refinancing can provide you with the options you need to achieve financial goals with your new spouse.  

Tips for Tackling Student Debt

As a general rule, it’s best to first tackle whichever debt is incurring the most interest. Debts with high interest rates can easily spiral out of control, and while it may not be essential to totally eliminate your student debt before your marriage, it is advisable to develop a plan to do so.   The good news is, you can employ several strategies to make paying off debt a less intimidating ordeal. Two of the most popular repayment strategies are the debt snowball and the debt avalanche. These two plans take opposite approaches. While the debt avalanche calls for dealing with the highest interest debt first, the debt snowball calls for dealing with the lowest amount of debt first and using the momentum to pay off debts one by one. The right method for you depends on your situation, but both can be incredibly effective if used correctly. Again, it’s worth noting that it isn’t necessary to have your debt entirely paid off before getting married, but you should develop a plan for paying it off before you say “I do.”   A marriage is a big change, but it doesn’t have to be stressful. By taking the time to have fun and create a few financial goals, you’ll set yourself up for success even before tying the knot.  If you’re getting married soon, you also might be interested in budgeting for your wedding. Check out our guide here.  
  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.
person making pros and cons list for refinancing private student loans
2020-09-25
10 Pros and Cons of Refinancing Private Student Loans

This year we have seen record low refinancing rates for student loans. If you have private student loans and have been thinking about whether you should refinance them, we hope this post will help you make a decision. We will run through the essentials and the pros and cons of refinancing your private student loans.  

6 Benefits of Refinancing Private Student Loans

Private student loans are loans borrowed through banks, credit unions or other private lenders and can consist of original private loans or a loan that you already refinanced. When you refinance, there are many benefits you can experience. Here are the pros of refinancing your private student loans:  

1. Obtain a Lower Interest Rate

When you refinance a private loan, you are paying the loan off with the new loan you borrow.  The new loan can have a lower interest rate than the rate you previously had on your old loan. A lower interest rate can lead to thousands of dollars in savings depending on the amount of the loan, your old interest rate and your new rate. A lower rate can help reduce your monthly payment and save you money in interest cost over the loan term.  

2. Make Your Repayment More Manageable

If your monthly payment is becoming difficult to pay, refinancing is a good way to help make your payment more manageable. This can be done by obtaining a lower interest rate, as previously mentioned, that can help lower your payment. You can also lengthen the loan term when you refinance. When you extend the loan term it makes the monthly payment lower, but will increase the amount of interest charges you will pay.  

3. Pay Debt Off Faster

Ready to pay your loan off faster? This can be achieved through refinancing in multiple ways. If you have 10 years remaining on your loan term and
refinance to a 7 year loan term or shorter , you will have a higher payment but will have the loan paid off 3 years earlier. Another way to pay off your loan faster is if you refinance and obtain a lower interest rate, your payment will be lower monthly. But if you continue to pay your old monthly payment or more towards the new loan you will be able to knock out your debt quicker.  

4. Release a Cosigner

When you refinance your private student loan you can use the opportunity to release a cosigner from your previous loan. As long as you have a strong credit history and credit score, along with stable income, you can qualify for the new loan on your own. To qualify for the best interest rates available most lenders look for a credit score at least in the high 700s. At ELFI a minimum credit score of 680 is needed for refinancing.*  

5. Combine Multiple Loans

If you have multiple student loans, refinancing is a great way to simplify your finances. You are able to pay off all the previous loans and focus on paying off just one loan. It’s also easier to keep track of your due date so you never miss a payment. Having only one loan may also help keep you motivated on your debt paying journey instead of seeing multiple student loan debts you have to pay.  

6. Choose a Different Lender

If you are not happy with your current student loan lender, refinancing allows you to change to a different refinancing lender by refinancing with whichever lender is the best fit for you. So if you have questions about your loan but can never seem to get answers from your lender, refinancing can help you fix that. At ELFI we pride ourselves on providing a simple and easy process for refinancing along with award-winning customer service loan advisors.

However, just like there are benefits to refinancing private student loans, there are also some cons to consider.  

1. Lose Benefits with Your Current Lender

If you refinance your student loan with a different lender, you may lose benefits you have with your current lender. Some benefits that lenders may provide are an interest rate deduction for setting up auto-pay for your payment, forbearance options, or career coaching. Before you look to refinance with a different lender, weigh whether a new interest rate from a different lender outweighs any benefits you may be giving up.

2. Get a Higher Interest Rate

If you are refinancing to extend your loan term to make the payment more manageable, you may end up with a higher interest rate then the previous rate you had. This would make refinancing your loan more costly in the long term because of the additional interest you will end up paying. In order to avoid this, make sure to get personalized rate quotes from multiple lenders so you know your options and how it will affect your monthly payment and the total amount of interest you will pay.

3. Raise Monthly Payments

When you refinance you have the ability to choose a new loan term. Selecting a shorter loan term then the amount of time you had left on your loan can increase your monthly payments. Typically refinancing lenders provide loan terms of 5, 7, 10, 15, or 20 years. If you had 8 years remaining on the loan you want to refinance and select a loan term of 7 years you may see an increase in your monthly payment unless you are qualifying for a significantly lower interest rate.

4. May Extend Time to Repay

When selecting your loan term when you refinance, if you choose a longer loan term then the amount of time you had remaining on your loan, you will be stuck paying the debt off longer. However, this can be beneficial if you need to lower your payment to fit within your current budget. You can also combat this issue by paying more than the required monthly payment when you can afford it, to help pay the loan off quicker.

The Bottom Line

Every financial situation is unique so it’s best to determine what is right for your circumstances. When you weigh the pros and cons of refinancing private student loans, you will most likely find it is advantageous for you because of all the different potential benefits.  
  *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.
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.