by Repayable | Feb 5, 2018 | #Millenniallife, Money Matters
Read this if you can’t seem to get a straight answer out of anyone when it comes to tackling your student loan debt and investing. Estimated read time 7 min.
What’s the dilemma?
Everyone knows they’re supposed to invest and save for their future. Over time investments provide a rate of return that compounds on itself year after year and will continue to grow even if you stop making contributions. Investing makes your money work for you.
The best investment strategy involves having enough money invested that you can live the lifestyle you want off the compounding interest indefinitely. Yep that’s right, you can invest enough money that you can withdraw money each month without actually losing anything from your originally invested amount.
Indefinite compounding interest sounds awesome and all but what are borrowers to do when we have mountains of student loan debt holding us back from financial freedom?
How can we pay for our current existence without robbing our future?
Let’s focus on retirement.
We probably can’t all agree on the degree to which you’ve got to “live your life now” or “save for a rainy day” . However I think many of us can agree that we don’t want to be forced to work forever because we can’t afford to stop working. To prevent that difficult future, we’re going to focus on investing for retirement.There are two general types of retirement accounts.
Employer sponsored accounts, 401(k) and 403(b) are accounts where your contributions are matched by an employer. The contributions of the employer often take time to fully “vest”. That means if you were to leave your employer you would leave some or all of the employer contributions behind depending on the vesting strategy.
IRA’s are accounts that don’t have an employer match. IRA’s also have significantly lower contribution limits, $5,500 a year if you’re under 50.
Don’t leave money on the table.
The most straightforward approach to saving for retirement while repaying your student loans is to pick a strategy that gives you the most free money. That means if you have access to an employer-sponsored retirement plan you should contribute enough to get the maximum match.
For my 401(k) that means I contribute 5% of my income to get a 4% match from my employer. If I contribute anything less than that I’m leaving money on the table and if I contribute more I’m relying only on the market rate of return to see growth.
Know your goals.
Ok so you contribute enough to get the max match from your employer but you still have extra money after these contributions are made. Now what? Should you apply that income to paying down your debt more quickly to save interest or should you invest that money in retirement?
Common wisdom says this If your student loan interest rate is below the rate of return of the market (6-7%) invest the extra money instead of putting it toward student loan debt. I think common wisdom is wrong. Next week’s post is going to take a deep dive into how you can actually calculate the impact this choice has on your net worth. There’s also going to be a worksheet you can plug your own financial information into so you can objectively end your personal debate once and for all!
Knowing your goals is more about deciding what you want for your finances. Does your student loan debt give you a sense of fear or restriction? Does it keep you in a job you hate? If it does then perhaps for quality of life you’re better off eliminating that debt as quickly as possible.
Some folks aren’t stressed out by their debt and want to start putting their money to work as quickly as possible. If that’s you then perhaps you are better served by investing your extra income and taking a longer approach to student loan repayment.
Strategies for either approach.
If you want to get out of debt quickly. You should contribute enough to your 401(k) or 403(b) to get the full match from your employer and then put all extra income toward your student loan debt. Once you’re out of student loan debt, shift your mindset and contribute the same amount toward your retirement accounts.
If you want to maximize your investing. You should contribute all your extra money to your retirement accounts. Depending on your income level and the type of accounts you have you may want to max out the 401(k) before contributing to the IRA or the reverse may be true. Either way make sure to get the full amount of your employer match.
Once you’ve maxed out retirement account contributions. That’s $33,500 annually for most borrowers. You’ll need to find additional options for investing such as a brokerage account. There are many options but one company I like is Ellevest which strives to close the gender investing gap. Yes we not only make less than men but we also earn less from investing in our lifetimes too! Ellevest is a robo-advisor that matches you with a portfolio that suits your financial goals and can re-balance your portfolio when needed. They also send alerts when you’re off track to achieve your goal and advice with how to get back on track.
What do you think?
What’s your approach to repaying your student loans and investing? Do you want to pay off quickly and minimally invest or do you want to maximally invest and take your time to repay your loans? Let me know in the comments below or on the Repayable Facebook Page!
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by Repayable | Jan 22, 2018 | Money Matters, Refinancing
This post is about why I got a lower interest rate the second time I refinanced my student loans. This post is a reminder that if you didn’t get the best interest rate the first time you refinanced you can work on a few key areas and try again in a year or two.
Estimated read time ~4 min.
*Links to refinancing companies in this post are referral links which means I may get a referral bonus if you refinance your student loan through one of them. All the links (except CommonBond) also offer you a referral bonus when you use it! All the companies I link to are companies I have researched and trust or have used myself.*
I first refinanced $99,000 in June of 2016 and got a variable rate offer of 3.36%, my fixed rate offers were all over 1% higher so I decided to take a chance on the variable rate. Over the course of the next year the rate crept up to 4.1% so I decided it was time to refinance again.
Start looking into refinancing again if your variable interest rate has crept up significantly and you’re currently a better refinancing candidate.
I used the rate estimators on all the refinancing company websites I was familiar with. That narrowed my playing field to three refinancing companies based on interest rates alone, Earnest, ELFI, and CommonBond. Unfortunately SoFi’s estimates were at least 1% higher than the rest. So I submitted formal applications to these three companies.
Use the rate estimators on multiple refinancing company websites to decide where to submit formal applications so you get the best interest rate.
After submitting formal applications I got approved for refinancing by all three companies and now had some leverage. At that time my loan was serviced through Earnest and when I was obtaining required documentation from them for the formal applications they told me to contact them if I got a more competitive rate. ELFI gave me the most competitive interest rate so I contacted Earnest to see what they could do. At first they said they couldn’t match the interest rate but later that day I was contacted and they offered to match the ELFI’s rate and I was able to refinance for a 3.37% fixed rate over a 5 year term.
If you’re already working with a refinancing company you like, use market competition to lower your interest rate.
So how did I get a lower interest rate just over a year later? It wasn’t because the market improved, in fact it had gotten slightly worse as evidenced by my increasing variable interest rate.
The second time I refinanced I owed $26,000 less on my student loan principal and owed less on my auto loan. I also had a slightly higher increase in my full-time salary. All this means my debt-to-income ratio looked much better than it did the year prior.
Over time your debt-to-income ratio will get better as you pay down your debt and as you increase your income.
By the second time I refinanced I had more assets too. My employer-sponsored 401K performed well and I continued to contribute and get my employer match so had an additional $20,000 in that account. Building my savings account was a big focus in 2017 so that account also had more cash.
Grow your assets. Making consistent contributions can increase your assets by tens of thousands of dollars.
Finally my credit score continued to improve based on responsible credit use and the age of my credit history. By the time I refinanced the second time my credit score was 783 which was around 50 points better than before. One thing that often plagues us young folks is the relative age of our credit history. I was a late comer when it came to credit cards so my history now is only about 7 years old. It’s not terrible but it’s also not even close to as long a history as say my parents have.
Continue responsible use of credit cards to improve your credit score. Keep your oldest account open if you have relatively “young” credit history.
Have you refinanced your student loans a second time? Are you considering refinancing for the first time? Let me know in the comments below or on the Repayable Facebook Page!
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by Repayable | Jan 2, 2018 | Ask Jeni, Money Matters
Ask Jeni is brought to you in partnership with tuition.io, a company dedicated to helping the best companies free their employees from student loan debt.
I’ve heard about two different ways to pay for my loans called avalanche and snowball. How do I decide which one to use? Which one would save me more money?
Avalanche and snowball methods are two different approaches for repaying your debt that guide which loans you apply extra payments to based on loan size and interest rate.
If you have only one loan these principles don’t apply. If you are only making the minimum payment each month, the loan servicer directs how that payment is divided among your existing loans.
The avalanche method is the strategy of applying your extra payment to the highest interest loan first so you can pay the least amount of interest.
The snowball method is about applying your extra payment to the smallest loans first, regardless of their interest rates, so you can build on that momentum to tackle larger loans.
From a purely numerical standpoint the avalanche method will save you more money.
Here’s an example to highlight the differences. John Doe has three student loans. He has an extra $150 each month to pay down his student loans.
| $5,000 |
4.54 % |
| $15,000 |
6.8% |
| $25,000 |
5.5% |
Under the Avalanche method John Doe would apply his extra payments to his $15,000 loan first because it has the highest interest, followed by the $25,000 loan, and finishing with the $5,000 loan.
Under the Snowball method he would apply his extra payments to the $5,000 loan first because it’s the smallest, followed by the $15,000 loan, and finishing with the $25,000 loan.
If your primary concern is to save the most money, apply your extra payments to the highest interest loans first.
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by Repayable | Dec 4, 2017 | #Millenniallife, Loan Forgiveness, Money Matters
Photo by Glenn Carstens-Peters on Unsplash
Some repayers are in deep student loan debt and forgiveness provides the only light at the end of a very long repayment tunnel. Today’s post is going to lay out the right things to do and the things you want to avoid doing when you’re trying to get Public Service Loan Forgiveness (PSLF).
If you’re after PSLF success this article is for you. Estimated read time 4 minutes.
Do
- Know the specifics of PSLF. You must maintain full time employment by an eligible employer and make 120 payments on eligible loans for forgiveness.
- Submit the Employment Certification form annually and when you change employers.
- Keep making your monthly payments under an income-driven repayment plan and keep your loan in good standing.
Don’t
- Consolidate your Direct Loans if you’ve been making payments for awhile. If you consolidate, the 120 payments will start all over with your new Direct Consolidated Loan.
- Refinance your loans. Federal student loans are the only type of loans that qualify for PSLF.
- Stop working for an eligible employer until you’ve received loan forgiveness, even if you’ve made 120 payments. If you move to a private sector job after meeting the PSLF eligibility requirements but before you apply for loan forgiveness, you will not be eligible for forgiveness since you must be working for a qualifying employer at the time you apply for and receive forgiveness.
Two important steps to take right now.
- Submit your Employment Certification form. If you don’t hear back from the Department of Education or Federal Loan Servicing after a month call FedLoan Servicing at 1-855-265-4038
- Figure out how many qualifying payments you have made and how many you have left to go. If you haven’t submitted an Employer Certification form yet this you can count the number of payments you’ve made since your grace period ended and subtract from 120. If you’ve already submitted your Employer Certification form you can find out how many qualifying payments you’ve made by logging in to your FedLoan account and viewing your loan details or by looking on your most recent billing statement.
Resources
Employment Certification Form
Public Service Loan Forgiveness Basics
Public Service Loan Forgiveness FAQ
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by Repayable | Nov 27, 2017 | #Millenniallife, Mindset, Money Matters
Student loan stereotypes are often held as truths near and dear to the hearts of non borrowers. Today’s post is here to crush those stereotypes into oblivion with widely available data packaged up in a usable form. Why? Because if folks run around believing stereotypes instead of reality it makes solving student loan debt much harder.
Cheers to the facts so you can slay the student loan stereotypes. Estimated read time < 5 minutes.
5. You have debt because you didn’t work during college.
- In 2015 43% of full-time college students and 78% of part-time college students worked.
- In 1980 the inflation-adjusted minimum wage was $9.83/hour. Currently the minimum wage in Wisconsin is $7.25/hour.
The buying power of minimum wage has significantly decreased since 1980.
4. You borrowed mostly for booze and spring break.
- According to a 2016 Student Loan Hero survey 79.8% of students said they did not use student loans to pay for things other than educational expenses, such as vacations, dining at restaurants, or entertainment.
- The 20% of students who used their student loans for other expenses were more likely to use the money to pay for cell phone bills and car payments than for vacations and alcohol.
Eighty percent of students said they did not use student loans to pay for things other than educational expenses.
3. You should’ve gotten scholarships to pay for college.
- Annually the private sector offers around $3 billion dollars in private scholarships.
- There is around $14.6 billion available in Pell Grants and another $20 billion in institutional grants.
- This fall approximately 20.4 million students attended college. That’s an average available amount of around $2,000 per student per year if all college students split up the available funding.
If the available grant and scholarship dollars were divided among all college students, each student would get around $2,000 per year.
2. You borrowed so much because you went to a private college.
- In 1980 the inflation adjusted cost of tuition and fees + room and board at four year public institutions was $7,015.
- In 2015 the cost of tuition and fees + room and board at four year public institutions was $19,189.
The inflation-adjusted cost of tuition and fees plus room and board at four year public institutions has increased 274% since 1980.
1. You have student loan debt because you were irresponsible.
- The annual cost for tuition and fees plus room and board at a four year public institution is over $19,000.
- The minimum wage is $7.25/hour in Wisconsin.
- The amount of scholarship and grant money available if split evenly among borrowers is about $2,000.
- In 2017 if you work at minimum wage for 20 hours per week (+$6,963 after taxes), obtain scholarships and grant money annually (+$2,000) and attend a public 4 year institution (-$19,189) you won’t have enough money to pay for college let alone books, and other necessary expenses.
- Objectively speaking for the average student working part time and obtaining scholarships and grants is not enough to cover the actual costs of attending college. The shortfall is over $10,000 every single year. After four years that’s a $40,000 deficit yet the average student has only $30,000 in student loan debt. Students and their families are being creative and working hard to minimize the amount of debt they borrow for college.
Despite working and obtaining scholarships the estimated shortfall for four years at a public institution is $40,000.
Times have changed, this is the true picture of paying for college.
In 1980 you could work a minimum wage job for $3.10/hour and pay $3,499 each year to attend college. That means the college student had to work 22 hours per week at minimum wage to pay for their costs.
Today you could work a minimum wage job for $7.25/hour and pay $19,189 each year to attend college. That means the college student had to work 51 hours per week at minimum wage to pay for their costs.
Costs have gone up and the buying power of minimum wage has gone down. The burden of student loan debt is not a result of work ethic, partying, failing to apply for scholarships and grants, attending private college, or being irresponsible. The burden of student loan debt is a result of increasing costs.
You’re a smart repayer who knows their facts and doesn’t take crap from anyone. If you learned something new please give this post a share and help slay the stereotypes!
Resources
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by Repayable | Sep 11, 2017 | Money Matters, Refinancing
Image by: Mari Helin-Tuominen
Read this if you’re getting ready to refinance your student loans and want the process to go as quickly as possible. Estimated read time ~5 minutes.
Once you’ve figured out the benefits you need for refinancing, picked out the companies that offer those benefits, and chosen the three companies with the lowest interest rate estimates it’s time to submit formal applications.
Loan applications can be time consuming because they require a reasonable amount of supporting information. Here’s what you’ll need to get together for most refinancing companies. Prepping ahead means you can simply upload the documents and hit submit when you’re ready to apply!
1. Official identification
- This is typically a driver’s license, passport, or birth certificate
- Time-saving tip is to snap a pic of it with your cellphone for quick upload
2. Supporting income documents
- Recent pay stubs, often the last two paychecks or 30 days worth
- W2
- Time-saving tip is to go straight to the pay information on your employers website if they give you electronic access to your paystubs etc.
3. Documentation of assets
- 401k/IRA statements
- Bank statements
- Time-saving tip is to link your account information online if the refinancing company offers that option so you don’t have to provide statements
4. Documentation of other debts
- Loan balances and monthly payments for any other outstanding debt you may have like car loans, mortgage, and credit card debt
- Time-saving tip is to link up these online accounts to the refinancing company website to save time
5. Student Loan statements
- Most recent monthly statement that contains your name, account number, payoff amount, and payment mailing address
- 30 day payoff statement that contains your name, account number, payoff amount, and payment mailing address
6. A license to practice
- If you’re a licensed professional you may have to provide a copy of that license (i.e. pharmacist, physician, dentist, etc.) to the refinancing company to show that you’re eligible to practice in your state of employment
To Save Time Organize
- Put all this documentation in a folder you can quickly and easily access.
Here’s to a stress-free application process because you’ve got it together! When you refinance let me know how it goes. What did you do to expedite each application? Comment below or on the Repayable Facebook Page. Here’s to a better interest rate and feeling like a student loan refinancing champ!
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