When Refinancing Your Student Loans Isn’t Helpful

When Refinancing Your Student Loans Isn’t Helpful

by | Apr 30, 2018 | Refinancing

Read this if you’ve heard a lot of buzz about student loan refinancing but don’t think it’s right for you. Refinancing isn’t for everyone so if you think it’s not for you, you’re probably right. Estimated read time 4 min.

When you already have Federal loans with a low fixed interest rate.

If you have federal student loans that already carry a low fixed interest rate refinancing won’t offer you much.

For example if you have interest rates between 3-4% it’s unlikely refinancing is going to significantly reduce that rate.

The real benefit of refinancing is the reduced interest rate and the thousands of dollars that can save borrowers. Refinancing comes with a tradeoff of less payment flexibility, the loss of loan forgiveness options, and sometimes other federal loan benefits.

If you’re not saving money by getting a significantly lower interest rate, student loan refinancing isn’t helpful and there are still negative tradeoffs.

When you’re considering loan forgiveness.

Refinanced student loans are private student loans. Private student loans aren’t eligible for federal loan forgiveness programs like Public Service Loan Forgiveness (PSLF), Teacher Loan Forgiveness, or Income Driven Loan Forgiveness.

If you refinance your federal loans you can no longer get your student loans forgiven.  

If you’re considering loan forgiveness at all, student loan refinancing isn’t helpful and cancels any hopes of loan forgiveness.

Caveat: If you have private student loans already, you can definitely consider refinancing those loans. Your private student loans are already ineligible for loan forgiveness so you may be able to lower their interest rate by refinancing.

When you don’t have consistent income.

Payment flexibility is one of the things you lose when you refinance a federal student loan. Payment flexibility varies by refinancing company but none are as flexible as the federal repayment plan options.

If you don’t have consistent income refinancing your student loans isn’t helpful because if you experience income instability there aren’t flexible income-driven repayment plans to fall back on.

When you’re struggling to make your monthly payments on Federal loans.

If you’re struggling to make your monthly payments with your Federal loans it may be tempting to look at refinancing as a way to lengthen your repayment term and lower your monthly payments.

Federal repayment plans are your best choice in this situation. You can arrange an income-driven repayment plan and pay as little as $0 per month based on your income. All the while qualifying for income-driven student loan forgiveness.

If you’re struggling to make your monthly payments on Federal student loans, refinancing isn’t helpful because you lose many important borrower protections that keep you out of default.

What do you think?

Have you been enamored by the appeal of student loan refinancing only to decide it’s not very helpful for your situation? I’d love to hear about it. Leave me a comment below or on the Repayable Facebook Page.

Ask Jeni: Are Loan Forgiveness Phone Calls Real?

Ask Jeni: Are Loan Forgiveness Phone Calls Real?

by | Apr 24, 2018 | Ask Jeni

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.

 

How do I know if I am eligible for any sort of loan forgiveness? I get calls often about this and assume they are fake – but I’d like to know if any sort of program is out there that I am eligible for and where I can find information on this.

 

You are 100% right, any calls you get about loan forgiveness are fake. They’re scams trying to steal your money and information 🙁 The US Dept of Education doesn’t call borrowers to sign up for loan forgiveness.

 

The first place to start with loan forgiveness is by answering a few questions.

 

What type of student loans do you have? Federal or Private?

Private loans aren’t eligible for student loan forgiveness.

 

What do you do for employment and who do you work for?

There are loan forgiveness programs based on the type of work you do (such as Teacher Loan Forgiveness) and who you work for (any 501c3 employer).

 

If none of those situations apply and you have federal student loans, you may be eligible for income-driven loan forgiveness. You must be enrolled in an income-driven repayment plan and make payments for 20-25 years. After that point in time your remaining balance will be forgiven (however it is taxable as income).

 

I definitely understand not wanting to miss out on an amazing opportunity if it exists, but like you said the loan forgiveness calls are too good to be true.

Student Loan Debt is a Solvable Problem

Student Loan Debt is a Solvable Problem

by | Apr 23, 2018 | Think Pieces

Read this if you’re ready to defy the expectations of the student loan debt narrative. Let’s build your #debtfreedream and secure it for future borrowers. Estimated read time 10 minutes.

 

The Problem

 

Student loan debt in America is a staggering $1.4 trillion strong. Student loan debt is second only to mortgage debt and easily outpaces other consumer debt like credit card debt and auto loans.

 

Over 42 million borrowers have student loan debt and about 10% of those borrowers have defaulted on their student loans because they’re struggling to repay that debt. Replace the faces of hopeful young adults seeking opportunity through education, unsure if their wages will be garnished, desperate to escape debt and falling victim to loan forgiveness scams.

 

Whoever started it, it doesn’t matter. Because, after today, you are going to be a part of the solution.

 

We’ve got a problem with funding

 

Public post-secondary learning is funded both by the federal government as well as state governments. Historically (from 1987-2012), states contributed about 65% more funding than federal government. In the wake of The Great Recession, state spending on higher education has been cut sharply while federal money (primarily in the form of Pell Grants) has steadily increased.

 

In 2013, federal spending on major higher education programs totaled $75.6 billion and state spending amounted to $72.7 billion.

 

Here’s an example from my state; Wisconsin’s per-student funding is 25% below 2008 levels and tuition has increased $1,485. If you want to know how your state stacks up you can find out.

 

I pulled the above statistics from The Center on Budget and Policy Priorities. They have links to each state (minus the three who increased funding) so you can examine the change in higher education funding in your state. I encourage you to check out your state’s funding at http://www.cbpp.org/research/state-by-state-fact-sheets-higher-education-cuts-jeopardize-students-and-states-economic

 

You may think it doesn’t matter where the money comes from as long as the money comes. The thing is, funding sources matter a lot. Over 70% of state funding is used for general appropriations, giving colleges flexibility in spending. On the other hand, the increased supply of Federal funding is primarily due to Pell Grants. That means colleges increase tuition to cover the loss of state funding and supplement their operation.

 

We need multifaceted solutions

 

Solving this problem is going to require many different solutions. Because the problem has a multitude of moving parts and is widespread one individual solution won’t fix it. For example, let’s say we funded public education fully. The future would look great, but today’s borrowers would still be stuck with their student loan debt and likely a higher tax bill to pay for those currently going through the system.

 

It’s a noble option but without careful planning it could worsen the student loan debt burden for those currently repaying.

 

We need to develop solutions within each industry that are unique yet complementary. Solutions that don’t replicate work and overlap dollars but produce synergistic results with their combined efforts.

 

Colleges

One of the lowest cost solutions colleges can implement right now is to promote transparent outcome-driven data. Decreasing cost is only one side of the equation. Increasing the value of an education also gives students a better financial outcome.

Colleges need to collect and report three major outcomes by degree program: median student loan debt, job placement rate, Median starting, 5 year, and 10 year salaries.

These outcomes give potential students the information they need to analyze the financial impact of their education. Right now most decisions are being made without this information. So the decision about how to spend 4-8 years of your life and tens of thousands of dollars is often based on an educated guess rather than real data.

Easily accessible outcomes data allows buyers in the market to purchase supply from colleges that meet their financial needs. Outcomes data also encourages colleges to eliminate non-profitable degrees that fail to attract borrowers.

 

Government

The government can make policy changes that massively impact the student loan debt problem. Here are a few examples.

Mandatory tuition freezes for institutions eligible for federal funding. The idea is that an institution would freeze a student’s tuition for the duration of their education (within reason). Freezing tuition allows a borrower to know ahead of times the total cost of their education rather than having to guess about tuition hikes. This could have the negative consequence of colleges charging much more than they need up front to account for future needs while unable to hike tuition.

The government could provide fixed low-interest rate student loans specifically for tuition and fees. Federal loans aren’t based on credit-worthiness and this would likely cost the government money. However,  by limiting this to only the cost of tuition and fees the government could reduce the risk of excessive borrowing.

A low fixed interest rate will also provide a little more cushion from the disastrous impact of compounding interest, keeping interest from being a significant contributor to a borrower’s debt load.

Stop cutting state-level funding for higher education. Education represents the third highest spending category for states, behind elementary and secondary education and Medicaid. That means cuts to this spending save states big in the short term. In the long term, when colleges hike tuition in response to budget cuts, the cost of the budget savings gets moved onto the shoulders of students and the future work force.

This is something we can all demand of our state legislators. We can access them at our State Capitols, tweet them, stop in their local offices when they’re out of session. Tell them our concerns and give them a horse in the race. State legislation can be driven effectively by grassroots movements. Your legislators need to know how you expect them to allocate state funding.

 

Employers

Employers benefit from the education of their workforce. Many of them know it and are willing to pay for that benefit. However, we can continue to encourage employer engagement in solving the student loan debt problem.

Offer employer-sponsored student loan repayment as a benefit. Some fields require college education (much of healthcare, engineering, teaching) so it makes sense that the employer will offer a benefit that will target many employees. The idea is to create a match for student loan payments, similar to a retirement account.

This isn’t a tax deductible benefit yet, but if enough employers seek to offer it as a benefit and demand policy change to accommodate it, this benefit can join the tax deductible benefits of health insurance and retirement contributions. Making this a pre-tax benefit would give this solution maximum reach.

You are the necessary catalyst

 

The last set of stakeholders we need to solve the problem are borrowers. That’s you and me. The people in the thick of things, repaying their debt, dealing with the financial consequences, and striving for a better future.

 

You can start by figuring out the best solution for your own debt. You’ve really got three options to choose from:

Refinancing, best for high earners with, good cash flow, reliable employment, excellent credit, and job security.

Loan Forgiveness, best for borrowers unable to afford their current debt and willing to wait a while to see it disappear.

Optimizing your Repayment Plan, best for borrowers who need flexibility and don’t want to give up federal benefits.

 

I’m always here to help you make that choice so feel free to send me an email jeni@repayable.org and I’ll get back to you. I respond to every email I get.

 

Once you understand your own debt it’s time for you to help others understand theirs. Teach your co-workers, your classmates, your students how to approach student loan debt.

It starts today, when you claim the power of your education and find smart strategies for your debt. Today you work with other repayers to engage stakeholders and command their participation in solutions. Today we relentlessly chip away at the cost of college. Today we boldly apply the assets of our education to overcoming it’s problems.

We are the generation that will strive and toil to repay our own debt. And we refuse to do this in vain because we will not resign the future to the endless tuition hikes of the past. That trend stops with us.

We will free ourselves from debt and create a future where no one has crippling debt because they pursued opportunity through education.

We will systematically compel progress until one-by-one each barrier is eliminated and education is accessible to those who seek it’s opportunity.

 

It starts with you, you are the hero of your debt free dream.

Ask Jeni: Are Loan Forgiveness Phone Calls Real?

Ask Jeni: The Best Strategy for Extra Payments

by | Apr 16, 2018 | Ask Jeni

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 have 5 loans with different interest rates through Great lakes. I have set it up so that extra payments go to the loans with the highest interest rates. Is this a good strategy or should I set it up so that the extra payments are spread out over all 5 loans?

Great question! You’re making the right choice. Your extra payments should definitely go to your highest interest loan first. That’s the most efficient use of your extra payment and will save you the most money.

 

On the Great Lakes website they define their standard process for excess payments to your account. They apply excess payments first to any accrued interest (interest since your last payment) then apply the remainder to your highest interest loan first. It looks like Great Lakes will indicate on your account that you are “paid ahead” even though they’re applying your extra payments to principal.
Great Lakes also indicates that you can set up a custom allocation.
Here’s the link to the FAQ on the Great Lakes website with more details.  https://mygreatlakes.org/educate/knowledge-center/how-payments-are-applied.html
Essentially, unless you’ve elected a custom allocation your extra payments should be being applied in the way that will save you the most money!
Exploring America’s Disdain for Student Loan Borrowers

Exploring America’s Disdain for Student Loan Borrowers

by | Apr 16, 2018 | #Millenniallife, Advocacy, Mindset

“Whatever happens around you, don’t take it personally… Nothing other people do is because of you. It is because of themselves.”
― Miguel Ruiz, The Four Agreements: A Practical Guide to Personal Freedom

You’ve probably noticed that if you bring up your student loan debt, people start to get visibly uncomfortable. If you start to get specific about your student loan debt some people will get nasty. Pretty soon you’ll hear things like “I bet you didn’t spend all that money on your education.” “My generation worked to pay for school, today’s kids don’t want to work.”

You know what these thoughts represent? The uncomfortable reality that college is more expensive now than ever.

The American Dream is built on the idea that any individual can have a picturesque life if they are willing to work for it. The American dream is built on meritocracy. My generation is invalidating meritocracy because of one unshakable reality, student loan debt.

The historic school of thought that you can “work to pay for college” doesn’t apply for many. Here’s the data driven statistic that stops that myth dead.

Today a student at a four year public institution has to work 51 hours per week at minimum wage to afford tuition and fees plus room and board. In 1980 a student had to work 22 hours per week at minimum wage to afford the same thing.

Sources 1,2,3

That’s an increase of 29 hours each week!

My assumption is that many of the folks saying their generation “had the work ethic to pay for school” have worked 40 hours a week for the duration of their careers. Yet if previous generations believe today’s students should “work to pay for school” then they’re mandating an additional 11 hours per week above the standard 40 hour work week and expecting students to put in those extra hours on top of a full-time schedule of classes.

Objectively, the student loan burden just doesn’t add up to an issue of work ethic, and that makes people uncomfortable. I mean shit, if America can’t blame the work ethic of a generation for suffocating student loan debt there might be a problem to deal with. If America accepts these statistics, we have to own the fact that we’re bankrupting future generations trying to obtain the American Dream through education.

Rather than face the problem head on, America pulls out more tools in the accusatory arsenal to shift blame.

“Well I’m sure you didn’t use all that money to pay for college.” becomes a handy weapon. Perhaps the spring break a borrower took at the age of 20 explains why they can’t buy a house at 30. If America can shame borrowers enough that will silence the problem.

But alas, the pesky facts won’t be silenced.

“The average annual price tag for tuition and fees plus room and board at a public four year institution is over $17,000 yet students annually borrowed an average of $7,000 to pay for that expense.”

Sources 4,5

That means students are finding ways to come up with over $10,000 a year for higher education. This statistic doesn’t line up with wasted money on spring break and lavish spending as the source of our problem.

So what is it then that gives America such disdain for borrowers? It surely isn’t reality and objective data. If Americans based their comments on data we’d be saying things like “Today’s graduates are expected to pay more for college while making less money.” or “Despite limiting spending to only tuition and books plus room and board, today’s graduates will need to come up with $76,000 to pay for a four year degree at a public university.”

Higher education is one way to secure the American dream. Federal funding, like student loans, makes access to college widespread and less dependent on a family’s earnings. But the cost is upsetting Americans, because student loans have become an unshakable burden for some graduates and are impeding the way to the American dream through education.

There’s something about the promise of a college graduate. All across America twenty-somethings full of hope, ambition, ideas, and skills are heading into the world to change it. It’s inspiring! One of them could change life as we know it! They could cure cancer, they could genetically engineer a bacteria to metabolize plastic and eliminate plastic pollution, graduates’ possibilities are endless and it’s so refreshing.

The promise of America’s future is so reassuring because that means the mistakes of the past don’t have to persist indefinitely. We can right our wrongs.

This is where student loan debt comes in and produces fear. Instead of seeing bright-eyed, ambitious, problem-solving graduates with the world at their fingertips, America sees twenty-somethings unable to afford rent and moving in with their parents. America sees ambition being trampled as borrowers make decisions based on their debt that don’t line up with the traditional American dream. How can the future be better when it’s innovators are preoccupied with basic financial needs?

Who wants to buy a house while struggling to pay off a mortgage worth of student loans?

Who can create a better future while paying for the past?

Enter the American consciousness, gnawing away at historical beliefs that the dream can be attained through education. The headlines tell America that young people are financially worse off than previous generations. But how can that be? The same system that’s crushing today’s borrowers empowered our parents.

So America presumes the problem lies with borrowers today. America presumes the student loan debt problem is brought about by wrongdoing of the generation feeling stuck. America presumes that the lack of ambition is the cause of the student loan debt problem rather than the symptom.

And so the attacks begin, to relentlessly protect America’s worldview and belief that the American dream can truly be obtained by anyone who works for it. If millions of borrowers think they’re going to disrupt the American dream with a whiny ass lack of work ethic, think again.

America will viciously defend the view that our country fosters the success of unlikely heroes rather than breeding underdogs in the first place.

I’m a borrower who took out $118,000 in federal student loans to obtain my Pharm.D. Because of interest, I ended up with $132,000 of student loan debt. I share this story all the time and oh, how I know the comments people make. Despite working two jobs and volunteering, earning competitive scholarships, and working now in service to the health of my fellow Americans, any mention of my debt paints me as an incompetent burden on society. My six-figure debt and I are a barnacle on America’s ship disfiguring the facade and resisting progress.

But here’s the thing. Every borrower I know is so much more than debt. We give our time and money back to our communities, we work in life-saving, innovative, future-building, commerce-generating, problem-solving professions that keep our country thriving. And the majority of us are relentlessly working to solve our own damn student loan debt problem however we can.

So what do I say to a fearful America uncomfortable with our $1.4 trillion in student loan debt?

“You can believe what you want about my generation. You can call us lazy, entitled, slacktivists, whatever derogatory terms you want.

 

But my generation isn’t stopping.

 

We will find a way out of this. We will build our way out, we will upset the order of higher education and replace it with a system that enables achievement of dreams through education.

 

We will do this with your help, but if you fail to help us we will find a way to do it without you.

 

Our generation isn’t the enemy of yours, we refuse to pit ourselves against you. Together we will build the future America and we have boundless potential to build it into a country that powers dreams for us all.”

 

References

1. NCES table 330.10 Tuition and Fees + Room and Board at four year public institutions 1979-1980 & 2015-2016 https://nces.ed.gov/programs/digest/d16/tables/dt16_330.10.asp?current=yes
2. Minimum wage information US Department of Labor https://www.dol.gov/whd/minwage/chart.htm
3. Bureau of Labor Statistics CPI Inflation Calculator https://www.bls.gov/data/inflation_calculator.htm
3. NCES table 330.10 Tuition & Fees + Room and Board at four year public institutions 2012-2013 https://nces.ed.gov/programs/digest/d13/tables/dt13_330.10.asp
4. https://nces.ed.gov/pubs2013/2013165.pdf U.S. Department of Education, National Center for Education Statistics, 2011–12 National Postsecondary Student Aid Study (NPSAS:12).