by Repayable | Feb 19, 2018 | Loan Forgiveness, Refinancing
Read this if you want to be able to spot a student loan scam from a mile away. Estimated read time 5 min.
The FTC estimates that repayers have lost over $95 million to student loan scams. Scam student loan companies trick people into thinking they can provide the student loan debt relief the repayer so desperately desires. Then the fraudster walks away with the money and giving borrowers nothing in return.
Student loan scams are modeled after real & legitimate student loan options. So today’s post is going to highlight four popular types of scams along with the legitimate options so you can avoid student loan scams.
Student loan forgiveness scams
These scams promise to get your loans cancelled or forgiven if you pay the company a fee. There are two important things to know to keep you away from this one. #1 There’s no loan forgiveness for private loans. #2 Federal student loans can only be cancelled in very specific situations (death, permanent disability, and school closing). All other loan forgiveness options take time and have no fees associated with them whatsoever.
What you should do instead:
Apply for federal loan forgiveness directly online the applications for these can be completed on the federal student aid website for free! You can learn about different types of forgiveness in this post (link loan forgiveness post)
Lower your monthly payment scam
This scam promises to negotiate with your loan servicer or lender on your behalf to get your monthly payments lowered. Some of these scams and steal your information and money and give you nothing. Some companies are ripping you off at best. Basically these companies offer to take your money and work with the loan servicer to negotiate a reduced payment amount. The thing is your loan servicer doesn’t have to do anything different and often they don’t. Meanwhile, the company you’re paying will take your money but not make your monthly student loan payments, putting you into default.
What you should do instead:
Contact your loan servicer directly. Applications for federal income-based repayment plans are free and can be easily completed online. Your payments can be as low as $0 per month.
Refinancing/Consolidation scams
These scams promise to consolidate your student loans to a lower interest rate. Refinancing and consolidation are both legitimate options but unfortunately there are also scam companies that have cropped up. You should never pay any type of fee for refinancing or consolidating your loans. There are no processing fees, application fees, or any other kind of fee. This process is free. If there’s a fee, it’s a scam.
What you should do instead
If you want to consolidate your federal student loans you can complete the free application here. If you want to refinance your student loans check out this post on the best refinancing companies. All the companies listed are legitimate refinancing companies.
Get your student loans out of default scams
This scam promises that if you pay them some amount of money (typically a few hundred dollars) they will get your student loans back in good standing. Most of these companies will just take your money and run. They don’t do anything to get your loans out of default.
What you should do instead:
Call your loan servicer and work to rehabilitate or consolidate your federal loans. Loan rehabilitation and consolidation are free and don’t require an upfront payment. A new monthly payment will be set up and you must make these payments on time to get your loan back in good standing.
Resources
Avoiding Student Loan Scams (Federal Student Aid)
Department of Ed’s Trusted Collections Agencies
Department of Education Default Resolution Services 1-800-621-3115
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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 15, 2018 | Refinancing
Today’s post is going to share the financial criteria that make you an ideal candidate for refinancing.
Estimated read time 4 minutes.
Oh student loan refinancing you’re so sexy. You promise to slash my interest rate and save me thousands of dollars. I can see the backpacking trip across Europe I can buy with that savings now. But behind that allure I wonder What are you hiding? Where’s the catch?
Here’s the catch. Refinancing is the best option for those with substantial financial security. And I’m not just talking about the ability to pay your bills every month. I’m talking standard adult level financial security. The kind that looks at your assets (hah! what assets, my education?) and liabilities (all your other debts) and your earning power and monthly cash flow.
Read on to see if you’re financially secure enough to refinance your student loans.
You have a high and predictable income.
How high? That’s a tricky question but essentially the higher the better. Refinancing companies are cherry picking safe investments so the higher your income the more likely you are to repay your debt. Think about this, the average income of someone refinancing through Earnest was over $130,000.
Refinancing companies also want to see predictable income, meaning they favor people who are employed and have a steady paycheck coming in. For your own sake you also need to have predictable income because a refinanced loan is a private loan and can lose much of the payment flexibility offered by federal loans.
You have a good to excellent credit score.
Most refinancing companies only refinance student loans for borrowers with credit scores over 680, some go down to 660. The better your credit score the better your interest rate.
You have some assets.
This doesn’t just mean something like a house. This includes your savings account and investment accounts such as a 401K or IRA. The more money you have in assets, the better you look to refinancing companies.
You’re ready to pay off your debt.
Refinancing shouldn’t be used to stretch out the length of your repayment term. A federal loan is more flexible and forgiving when it comes to unplanned financial problems. If you feel like you need a lower monthly payment, choosing a different federal repayment plan is a better option.
If you have high interest private loans refinancing could be a good option because a lower interest rate could lower your monthly payments without extending the duration of your repayment.
Still interested in refinancing?
If you’ve answered these questions positively, you should start looking into refinancing. Every day you wait you’re racking up interest. Get started with these articles. If you’re not quite sure if refinancing is right for you send me an email jeni@repayable.org and we’ll talk through your student loans and find a repayment strategy that works for you.
Is Student Loan Refinancing Right For You?
How to Choose the Refinancing Benefits You Need
The Top Student Loan Refinancing Companies
How to Find the Best Refinancing Rates Fast
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by Repayable | Dec 18, 2017 | #Millenniallife, Refinancing
Today’s post is all about how I paid off $67,000 of my student loans over three years and how I plan to repay the remaining $65,000 in two years.
This post is for you if you want to see where I went wrong and how I sped up my repayment trajectory. Estimated read time ~8 min.
We’re going to get right into the meat of my repayment. If you want my origin story, get to know me.
The peak of my student loan debt was in July 2014 after I finished pharmacy residency and I owed $132,000 in federal student loans. That was an increase from when I graduated the year before despite the fact that I had paid over $6,000. Then and there I decided my strategy would be to get out of student loan debt as fast as possible.
So with the full-time salary of a real pharmacist I changed my payment plan to the 10 year standard repayment plan and went to town making as many extra payments as a I could. I kept up this strategy until March of 2016 when I filed my taxes.
I had paid nearly $14,000 in interest and couldn’t get the student loan interest deduction because I was over the individual income limit of $80,000.
I will never forget that feeling. I was so angry, I wouldn’t be above that income level without my student loan debt. I could never have gone to college, let alone obtain a high cost professional degree without that debt. It felt like I was being punished for using education to increase my socioeconomic status. If my family was wealthier I wouldn’t have as much debt and wouldn’t be paying this much interest on my loans.
Because I lifted myself into another tax bracket through education and borrowing money to obtain that education, I was being taxed twice.
First my $14,000 in interest was going to the federal government because these were federal loans. Second the federal government had already collected their 28% from the income I used to pay for that interest. The federal government was double-dipping and now they refused to allow me to get a measly $625 (the amount returned if you deduct the max of $2,500 in interest) of it back?! Fuck that.
This injustice I felt started to weigh on me and nag at me. I just couldn’t let it go. Something is wrong with the way we treat student loan borrowers in this country and it hit home. I couldn’t believe I was stuck paying 6.8% interest on these damn loans when I could get an auto loan for 2.54%. Our system was backwards. I was never going to make any progress on my debt this way.
Even though I had paid over $30,000 that year I saw my debt decrease by only $16,000.
How could I get ahead? I saw myself falling behind peers with lower amounts of student loans that they had been able to repay in 1-2 years. They were maxing out their 401K and IRA contributions while I was only contributing enough to my 401K to get the full employer match.
And then I saw, plain as day, the meaning of the rich get richer. I saw my fate laid out before me. I lifted myself comfortably into the middle class but that was exactly where I would stay. I had always wanted to be free from my student loan debt but now I felt suffocated.
Somehow this education that created so much opportunity started slamming doors shut in my financial future and I couldn’t stop it.
But then it hit me. I wasn’t going to just sit around complaining and mourning the loss of financial opportunities. I was going to find a better way.
About that time I went to coffee with a friend who is a generation or two ahead of me and works in banking. She told me there had to be a market offering better interest rates for borrowers like me who were high income high debt because the federal interest rates were terrible. I told her I thought all those companies were a scam and had huge fees. She shook her head and said she was really surprised there wasn’t a market for it.
After this conversation I decided I needed to do my due diligence and happened to hear advertisements for two student loan refinancing companies Earnest and SoFi on a couple of podcasts I listen to. Armed with these company names and referral links I checked them out and found that Earnest offered me a variable rate of 3.36% which was a full percentage point lower than SoFi’s variable rate and lower than either fixed rate.
OMG, my mind was blown. Turned out there were no fees to refinance, their customer service was great, and I was going to halve my interest rate!
So in June of 2016 I refinanced my remaining $99,000 of student loans.
I do want to caution anyone reading this that refinancing isn’t right for every borrower so you should check out these posts (Is Refinancing Right for You?, Choose the Benefits You Need, Avoid These Refinancing Mistakes) to make sure refinancing is right for you.
Then this year in 2017 my variable interest rate had crept up to 4.1% and I wanted to see what other rates were out there. This time, armed with many companies I started comparing rates. Turned out there were three competitive companies. Earnest, ELFI, and CommonBond. SoFi was unfortunately still 1% higher so I didn’t bother submitting a formal application to them.
All three companies approved my application and sent their offers. ELFI had the lowest rate. I sent my truth in lending document (TIL) to Earnest and they matched the rate. As of August 1, 2017 I have a 3.37% fixed interest rate and I’ll stay here until my loan is repaid.
I have $64,800 remaining of my original $132,000 in student loan debt and I can taste freedom!
I’m half way there in dollars but it won’t take me three years to repay the second half. I won’t be wasting $14,000 a year in interest ever again. Because I’m so close and can glimpse my #debtfreedream I’m going to tighten my spending and pick up the pace. I’m not going to skip extra payments for things like travel, Christmas shopping, etc. I’m going to plan ahead and save intentionally for those things.
I’ll be paying $3,000 a month toward my student loans every month until they’re completely gone.
What’s your story? I would love to hear it. Repayable is here to share the burden of student loan debt and find strategies to eliminate it for you and future borrowers. I’m no longer willing to accept that student loan debt is just going to keep getting worse. Are you?
Leave me a comment below, on the Repayable Facebook Page, on Instagram, or send me an email jeni@repayable.org . Cheers to kicking ass in 2018!
*All links to refinancing companies are referral links. That means typically we both get paid something if you refinance your loan using that link. This is one way I fund Repayable.
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by Repayable | Nov 13, 2017 | Refinancing
Photo credit: Raquel Martínez
Now that you’ve started getting rate quotes for refinancing your student loans you’ve probably noticed there are two different rates for each refinancing company. Each lender offers both a fixed interest rate and a variable interest rate. What’s the difference? And which one is better for you? Learn what you need to know to choose the best option for you. Estimated read time ~ 8 minutes.
Fixed Interest Rate
An interest rate that remains the same over the entire loan term and does not fluctuate based on market rates.
Practically speaking, fixed interest rates offer stability and eliminate any worry about skyrocketing interest rates. The trade off for stability is often a higher interest rate meaning you may pay more interest.
Best For:
- Borrowers who plan to take their time repaying their student loan debt.
- Borrowers who don’t like the idea of a changing interest rate.
- Borrowers who refinance during a period of rapid inflation.
- If the offered fixed rate is within 0.5% of the variable interest rate.
- If the fixed rate is the lower than the variable interest rate.
Variable Interest Rate
An interest rate that changes over the term of the loan based on a market benchmark rate (such as the LIBOR index).
Practically speaking, variable interest rates are often considerably lower than fixed interest rates and offer the borrower a chance to save big on interest. The trade off for a lower initial interest rate is instability. Your interest rate may rise above the level of your comparable fixed interest rate.
Best For:
- Borrowers who plan to repay their student loans in less than five years.
- Borrowers who won’t be kept awake at night by an increasing interest rate.
- Borrowers who refinance during a period of low inflation.
- If the variable interest rate is at least 1% less than the fixed rate.
Choose Your Best Option
- How much is your fixed rate and how much is your variable rate? If your variable interest rate is within 0.5% of your fixed interest rate, the security of a fixed rate likely outweighs the potential savings of a variable rate. If the fixed rate is lower than the variable rate the fixed rate is the obvious choice.
- How do you feel about your interest rate changing with the market? Your variable interest rate will change over time, there’s no doubt about it. In today’s market your variable rate will likely slowly increase over time. If that makes you feel sick, anxious, or like you’re going to lose sleep then a variable rate isn’t for you.
- How aggressively are you repaying your student loans? If you’re being super aggressive and repaying your student loans within the next 2-5 years a variable rate could make a lot of financial sense. You will start out with a lower interest rate when your debt is at it’s highest. That means your savings will be the biggest early on. Because you’re repaying quickly your debt will decrease quickly so even if your interest rate goes up it will accrue on a smaller amount of debt so it will take you a while to lose your initial savings. If you plan to take longer than five years a variable rate may not be the best for you.
- How stable is the market? Many variable interest rates are based on the LIBOR index which has been slowly increasing recently. The United States is still in a period of low inflation meaning it’s unlikely you will see your interest rates sky-rocket. If the market becomes unstable and inflation starts to shoot up a fixed rate provides much more security. Variable interest rates are often capped at around 8%.
What did you choose when you refinanced your student loans? Leave a comment below, on the Repayable Facebook page or send me an email jeni@repayable.org Cheers to your #debtfreedream and choosing the interest rate that makes sense for you!
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by Repayable | Sep 25, 2017 | Refinancing
Photo credit: Tim Gouw
Read this if you’re thinking about refinancing your student loans but are worried about the impact that could have on your credit score.
Estimated read time ~3 minutes.
Submitting formal applications for student loan refinancing shows up on your credit score. So what? How does refinancing actually impact your credit score? Read on to find out when refinancing can negatively impact your score.
The Basics of Your Credit Score
There are six main factors that determine your credit score; your on-time payments, credit usage, total accounts, average age of credit, derogatory marks, and credit inquiries.
Student loan refinancing applications count as credit inquiries and are factored in to your credit score and are reported for two years. What does this mean if you’re refinancing?
Where Student Loan Refinancing Comes In
Each formal student loan refinancing application will count as a credit inquiry.
Stick to rate estimators which run a soft credit check (which doesn’t affect your credit score) to shop for the lowest rates. When you’ve found the lowest rates select three or four companies to apply to and submit your applications in one batch.
Overall Impact
If you have a good-excellent credit score and use credit responsibly three or four inquiries from refinancing will have minimal impact on your credit score.
It is important to note that a rejected application for refinancing will also show up on your credit score. Plugging accurate information into the rate estimators found on refinancing company websites can help you understand if you’re qualified for refinancing.
In June I re-refinanced my student loans for a fixed rate of 3.37% through Earnest. I submitted formal applications to Earnest, CommonBond, and ElFi. My credit score has gone down by two points since then, which is an insignificant change.
If you’ve been avoiding refinancing because you’re worried it might tarnish your golden credit score, it’s time to take a closer look. The savings a low interest rate can land you are worth the minimal impact to your credit.
Have you refinanced? How did it impact your score? Let me know in the comments below or on the Repayable Facebook Page.
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