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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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2020-02-21
This Week in Student Loans: February 21

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:

30,000 borrowers are being charged for student loans that were already discharged

30,000 borrowers of student loans from a private lender thought their loans would be discharged when they declared bankruptcy years ago – however the lender disagreed, and they are continuing to be charged. The borrowers are now suing the U.S. Bankruptcy court for the Eastern District of New York.  

Source: Yahoo Finance

 

USC announces new tuition-free plan

The University of Southern California (USC) recently announced two major changes to its financial aid plan, one of which makes attendance tuition-free for applicants whose family's household income falls at or below $80,000. Owning a home will also not be counted in the calculation to determine a student's financial need.  

Source: Forbes

 

Younger employees want help paying down student debt

A recent report from consumer research firm Hearts and Wallets revealed that younger workers would rather have employers assist them with repaying student loans than help them save for retirement. Two-thirds of workers of ages 21 to 27 said companies should help them pay down student debt, while just 27% said companies should help them save for retirement.  

Source: Investment News

 

49% of Americans expect to live paycheck to paycheck this year

A new survey revealed that a whopping 49% of Americans expect to live paycheck to paycheck through each month of this year. It also revealed that 53% don't have an emergency fund that covers at least three months of expenses. Despite the negative sentiment, 91% did say they wanted to develop better money habits in 2020.  

Source: Forbes

    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.

2020-02-18
Current LIBOR Rate Update: February 2020

This blog provides the most current LIBOR rate data as of February 10, 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, February 10, 2020, the 1 month LIBOR rate is 1.66%. If the lender sets their margin at 3%, your new rate would be 4.66% (1.67% + 3.00%=4.66%). The chart below displays fluctuations in the 1 month LIBOR rate over the past year.

  Chart displaying current 1 month LIBOR rate as of February 10, 2020.

(Source: macrotrends.net)

   

Current 3 Month LIBOR Rate - January 2020

As of Monday, February 10, 2020, the 3 month LIBOR rate is 1.71%. If the lender sets their margin at 3%, your new rate would be 4.71% (1.71% + 3.00%=4.71%). The chart below displays fluctuations in the 3 month LIBOR rate over the past year.

  Chart displaying current 3 month LIBOR rate as of February 10, 2020. (Source: macrotrends.net)  

Current 6 Month LIBOR Rate - January 2020

As of Monday, February 10, 2020, the 3 month LIBOR rate is 1.72%. If the lender sets their margin at 3%, your new rate would be 4.72% (1.72% + 3.00%=4.72%). The chart below displays fluctuations in the 6 month LIBOR rate over the past year.

  Chart displaying current 6 month LIBOR rate as of February 10, 2020. (Source: macrotrends.net)  

Current 1 Year LIBOR Rate - January 2020

As of Monday, February 10, 2020, the 1 year LIBOR rate is 1.80%. If the lender sets their margin at 3%, your new rate would be 4.80% (1.80% + 3.00%=4.80%). The chart below displays fluctuations in the 1 year LIBOR rate over the past year.

  Chart displaying current 1 year LIBOR rate as of February 10, 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.

2020-02-14
We’re In Love with These 7 ELFI Customer Reviews

Whether you're spending time with the girls for 'Galentine's Day' or spending the holiday with that special someone, today is a day to share some love with those you care about!   At ELFI, we show our love to our customers through top-notch customer service paired with low rates and flexible terms for refinancing their student loans – and sometimes they show us love back through great TrustPilot reviews. In light of Valentine's Day, we're sharing 7 ELFI customer reviews that we're simply in love with!  

All reviews below were given by real Education Loan Finance customers on TrustPilot. Results may vary.

 

Review #1:

“Loved the personal loan advisor experience … When she called me and left me a voicemail, she sounded like a friend, not a scary loan robot, and it really put me at ease through the process.”
No one likes a scary loan robot! It's great to see that our personal loan advisors help put our customers at ease through the refinancing process by giving them guidance, answering questions, and keeping them informed of updates along the way!    

Review #2:

"I wish I'd done this sooner! The refinance process was fairly straightforward and easy to manage, and having the added benefit of a loan advisor was super helpful. The rates are competitive and they have plenty of options for every person."
We hear "I wish I'd done this sooner" pretty often from customers, but it's always nice to see how happy they are once they've made the decision to refinance. If you still have a significant amount of student loan debt, it's probably not too late to refinance!  

Review #3:

"Promote this woman!! Candace was so knowledgeable, prompt, and helpful during every step of the process- made the experience seamless."
So much enthusiasm from this customer! They don't need to worry – we take great pride in the service given by our personal loan advisors and we love
showing people how great they are. They truly do make the refinancing process as seamless as possible.  

Review #4:

"Did not expect to be assigned to an actual representative so good on elfi for that.. Further.. I can tell that Ivan knows what he's doing. He's professional, with prompt responses. It's one thing to put a representative in place, but another for that person to actually provide value. Sometimes with companies, you don't even know who to contact to begin with, let alone, the company reaching out to you first, with a representative who's coherent and professional."
This means so much to us! We aimed to reshape the student loan refinancing industry by offering every customer with a single personal loan advisor that can understand their situation and guide them through the process... Receiving reviews like this truly make us blush because it shows that our process works!  

Review #5:

"Andrea was incredibly helpful! It was nice to have someone take the time to answer all of my questions, provide explanations and keep me apprised of next steps. Refinancing was a breeze...thanks ELFI and Andrea!"
Kudos to Andrea for making refinancing a simple process for this customer! Regardless of your lender, there are always going to be several steps involved in the refinancing process – but having someone there to show you the path ahead really makes it a breeze.  

Review #6:

"Great rates and very helpful customer service. Didier walked me through the process and made it very easy to me to get my loans set up quickly and painlessly. I highly recommend ELFI to anyone looking to refinance their student loans. I compared payment options to several other companies, and Education Loan Finance by far had the best options. I was able to reduce my monthly payments and now I will be paying off my loans in 7 years, rather than 10. Five stars!"
This customer cut three years off of their repayment term by refinancing with ELFI, and they sure seemed happy about it!  

Review #7:

"I’ve been afraid to refinance for years. ELFI was rated well on NerdWallet so I decided to apply. They actually made it easy to understand what I needed to refinance, how the process works etc. I also had someone assigned to help me and answer any questions. I’m so happy to have my loan with a company designed for the modern age who is actually transparent and helpful."
Shucks! This customer was putting off refinancing for years, and we couldn't be happier to be their refi match made in heaven. Our transparent process and personalized customer service really made the difference here!     What else can we say? We love our customers, and these reviews show us that the feeling is mutual. Our average TrustPilot rating currently stands at 4.9/5 stars, with over 800 reviews! Don't just take our word for it – check our all of our reviews here.   Interested in finding your student loan refinancing match in ELFI? Our personal loan advisors are just a call, text, or email away. One of our PLAs will be dedicated to you from the moment you apply and will work with you each step of the way to ensure your ELFI refinanced loan is the optimal fit for you. Contact us to get started!*   Oh, and Happy Valentine's Day from ELFI!  
  *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.