College Students and Recent Grads

MagnifyMoney.com Study: College Students Face High Interest Rates on Student Credit Cards

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Paying with credit card

It is that time of year: millions of students will be heading to college. For many students, this will be the first time that they will be the targets of banks’ marketing departments.

While the CARD Act changed how lenders can offer college students credit cards, young adults are still able to acquire these potentially expensive products. A study of college student credit cards by MagnifyMoney.com shows that a student new to credit is likely to pay an average APR of 21.4%. And taking out cash is even more expensive, with an average APR of 24.1%.

  • We reviewed the Top 50 banks in the US by deposits
  • We reviewed credit cards specifically targeting students and actively marketed on the banks’ websites
  • All credit cards, with the exception of Capital One Journey, offer a range of Purchase APRs. CapitalOne offers a single, flat APR of 19.8%
  • For credit cards that offer a range of APRs, the average range is nine percentage points
  • The lowest possible APR is 10.99%, offered by Bank of America on the BankAmericard Credit Card for Students

Note: Bank of America charges higher APRs on student products that earn rewards. A no rewards card has a range of 10.99% – 20.99%. The cash rewards card has a range of 12.99% – 22.99%. The travel rewards card has a range of 14.99% – 22.99%. Remember: rewards can be very expensive!

  • The highest possible APR is 23.99%, offered by Citi (both the ThankYou Preferred for College Students and Dividend Platinum Select Visa for College Students)
  • If your student credit card is your first credit product, then you will likely have no score. No score means you are the highest risk, and it is highly likely that you will receive the highest price point. The average of the highest price points is 21.4%

If a student charges $1,000 on a credit card and only pays the minimum due at the average rate of 21.4%, it will take 7.6 years to pay back the debt. And the total amount repaid would be $1,941.

Noticeably absent from the list of banks offering credit cards that target students are American Express and Chase. Chase recently exited the business, recognizing that earning interest rates more than 20% on students still in college didn’t feel right.

The CARD Act restricted, but certainly did not eliminate, credit cards that target students. In 2012, applications for student credit cards were at 43.5% of 2007 levels. The CARD Act put the following restrictions into place:

  • No pre-approved offers to people under 21, without consent
  • If you are under 21, you need to prove that you have income (a part-time job, for example), or have a cosigner older than 21
  • Credit card companies can no longer give out free gifts on campus to induce people into signing up for a credit card. No more frisbees or beer mugs

However, there are still plenty of student credit card offers out there. While they don’t give out frisbees, they do offer sign-on bonuses. Citi, for example, gives you 2,500 Thank You points if you spend $500 within 3 months of opening the card. We find that worse than the free frisbee. Before, they would incent you to open a card. Now they are incenting you to spend on the card!

While credit cards can be a great way to build your credit while in college, they can turn into expensive traps that send you down a dangerous path.

The only reason you should apply for a student credit card is to build your credit score. And follow these three tips:

1.Your statement balance should never be more than 30% of your limit. High utilization, early in your credit history, can have a meaningful negative impact. So, just make one to two purchases a month on the card.

2.Pay your balance in full. Credit cards are expensive, and you should not use them to borrow.

3.Never use a credit card for a cash advance. It may seem like easy money, but you will be paying for it.

Have questions for us? Get in touch via TwitterFacebook, email info@magnifymoney.com or in the comment section below!

TAGS: , , , , ,

College Students and Recent Grads, Pay Down My Debt

19 Options to Refinance Student Loans – Get Your Lowest Rate

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

19 Options to Refinance Student Loans - Get Your Lowest Rate

Updated: September 27, 2016

Are you tired of paying a high interest rate on your student loan debt? Are you looking for ways to refinance your student loans at a lower interest rate, but don’t know where to turn? We have created the most complete list of lenders currently willing to refinance student loan debt.

You should always shop around for the best rate. Don’t worry about the impact on your credit score of applying to multiple lenders: so long as you complete all of your applications within 14 days, it will only count as one inquiry on your credit score. You can see the full list of 19+ lenders below, but we recommend you start here, and check rates from the top 4 national lenders offering the lowest interest rates. We update this list daily:

LenderTransparency ScoreMax TermFixed APRVariable APRMax Loan Amount 
SoFiA+

20


Years

3.50% - 7.74%


Fixed Rate

2.22% - 6.02%


Variable Rate

No Max


Undergrad/Grad
Max Loan
apply-now
earnestA+

20


Years

3.50% - 7.45%


Fixed Rate

2.22% - 5.82%


Variable Rate

No Max


Undergrad/Grad
Max Loan
apply-now
commonbondA+

20


Years

3.50% - 7.74%


Fixed Rate

2.22% - 6.02%


Variable Rate

No Max


Undergrad/Grad
Max Loan
apply-now
lendkeyA+

20


Years

3.25% - 8.22%


Fixed Rate

2.22% - 6.92%


Variable Rate

$125k / $175k


Undergrad/Grad
Max Loan
apply-now

We have also created:

But before you refinance, read on to see if you are ready to refinance your student loans.

Can I Get Approved?

Loan approval rules vary by lender. However, all of the lenders will want:

  • Proof that you can afford your payments. That means you have a job with income that is sufficient to cover your student loans and all of your other expenses.
  • Proof that you are a responsible borrower, with a demonstrated record of on-time payments. For some lenders, that means that they use the traditional FICO, requiring a good score. For other lenders, they may just have some basic rules, like no missed payments, or a certain number of on-time payments required to prove that you are responsible.

If you are in financial difficulty and can’t afford your monthly payments, a refinance is not the solution. Instead, you should look at options to avoid a default on student loan debt.

This is particularly important if you have Federal loans.

Don’t refinance Federal loans unless you are very comfortable with your ability to repay. Think hard about the chances you won’t be able to make payments for a few months. Once you refinance, you may lose flexible Federal payment options that can help you if you genuinely can’t afford the payments you have today. Check the Federal loan repayment estimator to make sure you see all the Federal options you have right now.

If you can afford your monthly payment, but you have been a sloppy payer, then you will likely need to demonstrate responsibility before applying for a refinance.

But, if you can afford your current monthly payment and have been responsible with those payments, then a refinance could be possible and help you pay the debt off sooner.

Is it worth it? 

Like any form of debt, your goal with a student loan should be to pay as low an interest rate as possible. Other than a mortgage, you will likely never have a debt as large as your student loan.

If you are able to reduce the interest rate by re-financing, then you should consider the transaction. However, make sure you include the following in any decision:

Is there an origination fee?

Many lenders have no fee, which is great news. If there is an origination fee, you need to make sure that it is worth paying. If you plan on paying off your loan very quickly, then you may not want to pay a fee. But, if you are going to be paying your loan for a long time, a fee may be worth paying.

Is the interest rate fixed or variable?

Variable interest rates will almost always be lower than fixed interest rates. But there is a reason: you end up taking all of the interest rate risk. We are currently at all-time low interest rates. So, we know that interest rates will go up, we just don’t know when.

This is a judgment call. Just remember, when rates go up, so do your payments. And, in a higher rate environment, you will not be able to refinance to a better option (because all rates will be going up).

We typically recommend fixing the rate as much as possible, unless you know that you can pay off your debt during a short time period. If you think it will take you 20 years to pay off your loan, you don’t want to bet on the next 20 years of interest rates. But, if you think you will pay it off in five years, you may want to take the bet. Some providers with variable rates will cap them, which can help temper some of the risk.

Places to Consider a Refinance

If you go to other sites they may claim to compare several student loan offers in one step. Just beware that they might only show you deals that pay them a referral fee, so you could miss out on lenders ready to give you better terms. Below is what we believe is the most comprehensive list of current student loan refinancing lenders.

You should take the time to shop around. FICO says there is little to no impact on your credit score for rate shopping as many providers as you’d like in a single shopping period (which can be between 14-30 days, depending upon the version of FICO). So set aside a day and apply to as many as you feel comfortable with to get a sense of who is ready to give you the best terms.

Here are more details on the 5 lenders offering the lowest interest rates:

1. SoFi*: Variable Rates from 2.22% and Fixed Rates from 3.50% (with AutoPay)

sofiSoFi (read our full SoFi review) was one of the first lenders to start offering student loan refinancing products. More MagnifyMoney readers have chosen SoFi than any other lender. Although SoFi initially targeted a very select group of universities (it started with Stanford), now almost anyone can apply, including if you graduated from a trade school. The only requirement is that you graduated from a Title IV school. You need to have a degree, a good job and good income in order to  qualify. SoFi wants to be more than just a lender. If you lose your job, SoFi will  help you find a new one. If you need a mortgage for a first home, they are there  to help. And, surprisingly, they also want to get you a date. SoFi is famous for  hosting parties for customers across the country, and creating a dating app to  match borrowers with each other.

Go to site

2. Earnest*: Variable Rates from 2.22% and Fixed Rates from 3.50% (with AutoPay)

EarnestEarnest (read our full Earnest review) offers fixed interest rates starting at 3.50% and variable rates starting at 2.20%. Unlike any of the other lenders, you can switch between fixed and variable rates throughout the life of your loan. You can do that one time every six months until the loan is paid off. That means you can take advantage of the low variable interest rates now, and then lock in a higher fixed rate later. You can choose your own monthly payment, based upon what you can afford (to the penny). Earnest also offers bi-weekly payments and “skip a payment” if you run into difficulty.

Go to site

3. CommonBond*: Variable Rates from 2.22% and Fixed Rates from 3.50% (with AutoPay)

CommonBondCommonBond (read our full CommonBond review) started out lending exclusively to graduate students. They initially targeted doctors with more than $100,000 of debt. Over time, CommonBond has expanded and now offers student loan refinancing options to graduates of almost any university (graduate and undergraduate). In addition (and we think this is pretty cool), CommonBond will fund the education of someone in need in an emerging market for every loan that closes. So not only will you save money, but someone in need will get access to an education.

Go to site

4. LendKey*: Variable Rates from 2.22% and Fixed Rates from 3.25% (with AutoPay)

lendkeyLendKey (read our full LendKey review) works with community banks and credit unions across the country. Although you apply with LendKey, your loan will be with a community bank. If you like the idea of working with a credit union or community bank, LendKey could be a great option. Over the past year, LendKey has become increasingly competitive on pricing, and frequently has a better rate than some of the more famous marketplace lenders.

Go to site

In addition to the Top 4 (ranked by interest rate), there are many more lenders offering to refinance student loans. Below is a listing of all providers we have found so far. This list includes credit unions that may have limited membership. We will continue to update this list as we find more lenders. This list is ordered alphabetically:

  • Alliant Credit Union: In order to qualify, you need to have a bachelor’s degree. The minimum credit score is 680, and you need two years of employment and a minimum income of $40,000. Interest rates start as low as 3.75%. Anyone can join this credit union by making a $10 donation to Foster Care for Success.
  • Citizens Bank: To get the best deal, you should have at least a bachelor’s degree. They will look at your credit history, and want to make sure that at least the last three payments on your student loans have been made on time. If you don’t have your degree, you need to have made the last 12 payments (principal and interest) on time. You must make at least $24,000 per year. They offer fixed rates starting at 4.74% and variable rates start from 2.19%.
  • College Avenue: College Avenue offers fixed rates starting at 4.74% and variable at 2.50%, and only offers 15 year terms.
  • CommonWealth One Federal Credit Union: Variable interest rates start at 3.36%. You can borrow up to $75,000 and need to be a member of the credit union in order to qualify.
  • Credit Union Student Choice: This is a tool offered by credit unions. The criteria and pricing vary by credit union. The credit unions have restricted membership, but you can find out if you qualify on this site.
  • DRB Student Loan*: They will refinance undergraduate, Parent PLUS and graduate loans including MBA, Law, Medical/Dental (Post Residency), Physician Assistant, Advanced Degree Nursing, Anesthetist, Pharmacist, Engineering, Computer Science and more degrees. Variable rates as low as 3.64% and 4.20% fixed.
  • Eastman Credit Union: They don’t share much of their criteria publicly. Fixed rates start at 6.5% and you must be a member of the credit union. Credit union membership is not available to everyone.
  • Education Success Loans: You must be out of school for at least 30 months, and you must have a degree. You also need a good credit score, with on-time payment behavior. Variable and fixed loan options are available, with rates starting at 4.99%.
  • EdVest: They offer refinancing options for private loans used to finance attendance at a Title IV, degree-granting institution. If the loan balance is below $100,000 you need to make at least $30,000 a year. If your balance is above $100,000 you need to make at least $50,000. Variable rates start at 3.180%, and fixed rates start at 4.740%.
  • First Republic Eagle Gold. It’s hard to beat these rates – starting at 1.95% fixed and 1.87% variable. But you need to go in person to a First Republic branch to complete your account opening. They are located in San Francisco, Palo Alto, Los Angeles, Santa Barbara, Newport Beach, San Diego, Portland (Oregon), Boston, Palm Beach (Florida), Greenwich, and New York City. Loans must be $60,000 – $300,000 and you need a 750 or higher credit score with 24 months experience in your current industry.
  • IHelp: This service will find a community bank. Community banks can actually be expensive. You need to have 2 years of good credit history, with a DTI (debt-to-income) of less than 45% and annual income of at least $24,000. Fixed rates are available, starting at 4.65% fixed, and 3.21% variable.
  • Mayo Employees Credit Union: You need at least $2,000 of monthly income and a good credit history. Variable rates are available, starting at 5.15% and you would need to join the credit union.
  • Navy Federal Credit Union: This credit union offers limited membership. For men and women who serve, the credit union can offer excellent rates and specialized underwriting. Variable interest rates start at 2.89%.
  • RISLA: You need at least a 680 credit score, and can find fixed interest rates starting at 4.49% if you use a co-signer.
  • UW Credit Union: $25,000 minimum income required, with at least 5 years of credit history and a good repayment record. Fixed and variable interest rates are available, with variable rates starting at 2.23% and fixed rates starting at 4.04%. You need to join the credit union in order to refinance your loans.
  • Wells Fargo: As a traditional lender, Wells Fargo will look at credit score and debt burden. They offer both fixed and variable loans, with variable rates starting at 3.74% and fixed rates starting at 6.24%. Wells Fargo does not have a tradition of being a low cost lender.

You can also compare all of these loan options in one chart with our comparison tool. It lists the rates, loan amounts, and kinds of loans each lender is willing to refinance. You can also email us with any questions at info@magnifymoney.com.

Don’t forget to follow us on Twitter @Magnify_Money and on Facebook.

Screen Shot 2014-12-04 at 11.24.05 AM

 

*We’ll receive a referral fee if you click on offers with this symbol. This does not impact our rankings or recommendations. You can learn more about how our site is financed here.

TAGS: , ,

College Students and Recent Grads, Life Events, News, Strategies to Save

How 4 Students Took a Gap Year Without Breaking the Bank

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

 

Planning the Perfect Gap Year Doesn’t Have to Break the Bank

The gap year — taking a year off from formal education to travel, participate in social projects, or gain work experience — is growing in popularity among American students. Just ask Malia Obama. The first daughter announced back in May that she would be taking a gap year before attending Harvard University.

She’s among those contributing to a 22% increase in American students taking part in the practice already common among students in Europe and Australia, according to the American Gap Association. Some families spend hundreds of dollars on gap-year consultants.

Like Harvard, many higher education institutions encourage students to take gap years. The reason: a push toward experiential learning. Schools increasingly see value in the life experience, maturity, and other skills that gappers return with.

“We have more information in the palm of our hands than ever. So why are we teaching [students] information? They don’t need information,” said American Gap Association Executive Director Ethan Knight. “They need experience to know what to do with that information.”

Jamie Hand, 23, a senior at Middlebury College in Vermont, echoes the sentiment. She said her gap-year trip to São Luís, Brazil with Rotary Youth Exchange allowed her to “take a break from this rat race that I felt like I was in.” At the time, she was 18 years old and wanted to take time off before beginning her freshman year. Though she already had a high school diploma under her belt, the program involved taking classes at a local high school in Franklin, W. Va.

“It felt like I was taking this big breath and I was free to excel but I didn’t have to excel,” said Hand. “It was one of the times when I learned the most in my life [because] I didn’t have to.”

bike_ride_in_brasilia

The Cost of a Gap Year

Gap years may seem like a privilege only available to families wealthy enough to finance them. It’s true that some gap-year programs can easily cost more than a year’s worth of college tuition. Families pay over $35,000 — close to the average cost of a four-year degree these days — to participate in the “Global Gap Year,” a program offered by Thinking Beyond Borders, which offers gap-year and study-abroad programs. During their global year abroad, students split their time between homestays on three different continents. But the gap-year experience isn’t just for the super-rich. MagnifyMoney caught up with some current and previous gappers to find out how they made it work.

Go the DIY Route

Brandon Stubbs, 18, motivated by his interest in Southeast Asian archaeology, decided to defer his acceptance to Brown University for a year to travel to Malaysia for two months this fall.

Rather than paying for a trip through a travel agency, which could easily have cost several thousand dollars, he did some research on his own. Stubbs found a hostel in Johor Bahru, where he will be able to work in exchange for room and board.

To save on airfare, he booked a round-trip ticket to Malaysia for just $500 with StudentUniverse, a site that offers cheaper fares to students. When he’s not working, Stubbs plans to spend his free time sightseeing and exploring the city.

imgp9570

“I’m most excited to explore an entire different area of the world,” said Stubbs, who said he grew up enthralled by the exotic locales in movies like Indiana Jones.

When he returns to the U.S. from Malaysia in November, Stubbs’ gap year will continue with a stop in New Orleans. He plans to take time off for the holidays and then move to the Big Easy, where he’ll work at a hostel in exchange for room and board.

“I feel like taking a gap year will sort of increase my momentum. High school wasn’t an easy experience mentally,” said Stubbs. “I feel like in a year I’ll be rejuvenated and ready to jump back into my studies.”

Get College Credit for the Program

A great way to save money and kill two birds with one stone during a gap year is to earn college course credits along the way. Some schools offer course credit to students who take gap years. Students may even be able to use financial aid dollars toward their gap-year experience.

Some schools have specialized programs or fellowships for gappers like UNC Chapel Hill’s fellowship, or Princeton University with its Bridge Year. Others, like Elon University, offer their own version of an experiential learning program for first-year students.

There are even some gap-year programs that will not only give you a stipend, but contribute to the cost of your college education like those offered through AmeriCorps or City Year.

Work Now, Play Later

Breaking up a gap year into smaller trips or working for part of the year can help to reduce overall costs. If you budget well, the money you earn could fund your travels.

Jericho, Vt., student Asher Small, 19, who will begin his first semester at Brown University this fall, also worked at a ski resort in Utah for part of his gap year.

“It was kind of like a dream job because I love to ski,” said Small. In addition to his $8/hour wages, the resort subsidized his room and board, leaving him with just $300 to cover each month.

Small worked at the ski resort for four months. Before making his way back home, he took a road trip through Southern Utah and California and participated in a 10-day meditation course retreat. To save on lodging, he used couchsurfing.com, a service that connects benevolent hosts with houseguests. He estimates he ended up saving about $2,000 from his work at the resort after the trip.

Working or interning during a gap year can also be a great way to build skills or experience for the subject you’re interested in majoring in once you get to school. Some programs will pay you for work abroad or offer perks like free room and board as an incentive. For example, if you have a green thumb, you could volunteer to work at an organic farm or winery through a program like World Wide Opportunities on Organic Farms during your gap year in exchange for food and accommodation.

Before he went to Utah, Small spent the first half of his gap year in Desab, Haiti, with Volunteers For Peace, a nonprofit volunteer organization. There, Small taught an English class to local residents. The trip cost him about $1,500 in total, which he paid with funds he saved from past summer jobs.

Work Now, Play Later

Stay Close to Home

Keeping your gap-year experience stateside can be an easy way to minimize travel expenses, reducing the overall costs of a gap year. Staying in the U.S. doesn’t mean you’ll have any less of a cross-cultural experience.

Start Saving Early

Knight recommends planning your gap year at least six months from the date you want to travel, so you’ll have ample time to save up.

Stubbs worked all four years of high school as a junior college tutor and as a camp counselor at a music camp. Doing so helped him to save about $3,000 to spend on his trip to Malaysia and Louisiana.

Small worked over the summers prior to his gap year as well. Those funds helped him with his trip to Haiti.

Tap into Your Savings

If your parents have been saving up for college, you may be able to use some of that money to finance a gap-year program, although it may mean sacrificing going to a more expensive college.

Gabe Katzman, 24, was considering the University of Maryland, where he would pay in-state tuition, and other, more expensive out-of-state institutions at the time he was planning his gap year in Israel.

His parents presented him with the option to use some of his college savings to fund the trip, which cost about $16,000 to $17,000. Because the cost was close to a year’s worth of tuition at the pricey out-of-state school, his parents told him they could only help him finance his gap year if he decided to stay in state.

Ask for Free Money: Grants, Scholarships, Trusts, and Charities

Find an organization, trust, or charity that’s aligned with the focus of your trip and ask if they have any grants or scholarships that you can apply for and that would be applicable toward your gap year.

Local associations, businesses, schools, and charities such as the Rotary Club or Lions Clubs International award grants, or scholarships may even be able to sponsor students who meet certain criteria and goals.

When Katzman decided he wanted to spend 9 months in Israel with Habonim Dror’s Workshop, a gap-year program run through his childhood camp, Habonim Dror Camp Moshava, the first thing he did was look for scholarships and grants to help him cover the $16,000 the trip would cost.

Ask for Free Money: Grants, Scholarships, Trusts, and Charities

“I talked to my synagogue,” said Katzman. “I knew that if I connected with the synagogue they [would support me].” In the end, they gave him about $3,000.

Katzman then asked other organizations including one called Masa, an Israeli organization that advocates interning and volunteering in Israel, adding another $1,000 to his fundraising goal. Next, he went to the Jewish Community Center of Greater Washington.

After he got some funding through community organizations, Katzman turned to his family and friends to help out.

“I talked to all of my family. Instead of a Hanukkah or birthday present, I asked them to give me money for the trip,” said Katzman.

The rest of the funds came from his own savings from working as a lifeguard and camp counselor while in high school.

Get Creative

Katzman and the group he went to Israel with saved money by pooling their resources.

“We were living a socialist lifestyle with a group of 23. We had a shared bank account that we all put money into. Some of us put $2,000 and some put just what they could,” said Katzman.

The shared account allowed them to prioritize the group’s experience as opposed to the individual and kept them out of “a situation where someone felt excluded because they couldn’t afford it,” said Katzman.

Two of the members in Katzman’s group were co-treasurers of the shared account and managed the group’s budget. If some or all of the group’s members went out to eat or someone in the group needed to replace a pair of shoes, the money to pay for it came from the shared account. At the end of the trip, they had a little left over to donate back to the camp.

Stubbs, who already has his room and board covered with the hostel, also plays the trumpet. He plans to finance some of his living expenses while in Malaysia this fall and New Orleans in the spring with money earned from street performing or “busking.”

Some Final Advice: You have to want it.

“Sometimes coming up with the money for something like this can be really discouraging because it’s really expensive,” said Katzman.

But setting aside time for a gap year was well worth the added cost and effort. After he graduated from college, Katzman decided to move to Haifa, Israel, full-time, where he is working part-time to lead this year’s Habonim Dror gappers and taking Hebrew classes.

“I grew more in one year than I think the average college student would have grown,” he added. “It affected what I did in college, it affected my choices during college and afterward [when I decided to] live here.”

Katzman

TAGS: , , , , ,

College Students and Recent Grads, Pay Down My Debt

How This California Couple Paid Off $100,000 of Debt in 2 Years

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Student Loan Debt
Illustration by Kelsey Wroten

When 31-year-old Priscilla Jones completed her MFA in film in 2011, she was left with a total of $96,000 of student loan debt from both her undergraduate and graduate studies. (She requested that we change her name for privacy reasons). Over the next three years, thanks to compounding interest charges, the original amount ballooned to $118,000. On her current payment plan, it would take another 15 years to pay off all her debt.

Rather than dragging the process out, she and her husband (we’ll call him Nathan), decided to aggressively pay down her debt. Over the next 22 months, they paid off $100,000 of the original loan balance — all while raising a young child in Los Angeles.

Here’s how they did it:

Making a pact

While Nathan, 41, was fully aware of Priscilla’s debt load when they got married in 2011, it wasn’t until 2014 — on Valentine’s Day, to be exact — when the couple opened the hood on Priscilla’s student loans to uncover what was lurking underneath.

“For the first few years of our marriage, we just couldn’t afford to buckle down to pay them off, so we didn’t really take a close look,” says Nathan.

The catalyst for examining Priscilla’s loans? In less than two months, one of the largest loans Priscilla carried — a total of $88,000 — would come out of forbearance. The additional loan payment would triple their monthly bill from $300 to $900. Two weeks later, they decided to dump their savings accounts, putting $24,000 toward her largest debt.

And then they made a pact: They would do everything they could to pay off the loans within three years.

Working overtime

On top of working a full-time job in operations at a tech startup, Priscilla took side jobs, working an additional 20 to 30 hours a week. She kept $600 a month from her salary for personal spending and used the rest to pay off her student loans. She and Nathan made sure to keep $5,000 to $10,000 in an emergency fund at all times.

Bonuses and promotions

They lived off of Nathan’s salary in management at a tech startup, and Nathan’s work bonuses went straight toward paying off the debt. When Nathan started his current job in 2012, he earned $53,000, including bonuses. His company soon saw tremendous growth. As a result, Nathan quickly ascended the ranks, and his income spiked dramatically. The couple’s combined salary in 2014 was $170k and $160k in 2015, and every penny they could pinch went toward their debt load.

“We think of ourselves as being very fortunate,” says Nathan. “But even if my income hadn’t grown as it did, we would’ve used the same mindset and tactics to pay off our loans. Instead of it taking three years, it would’ve taken 10.”

Never ‘act your wage’

Although they were in a high income bracket, no one would have guessed as much by looking at their spending habits. They lived as frugally as possible to focus on paying off the student loans. They stayed in the two-bedroom, two-bathroom apartment in Venice that Nathan had locked down at a low rate during the recession. They drove two beat-up cars that were paid off in full and had good gas mileage.

“We really had to examine our needs versus wants,” says Priscilla. While they’ve never been big spenders, and value community and experiences, they had to put some of their wants on hold. For instance, Nathan, who loves to invest, contributed just the minimum toward his employer’s 401(k) to qualify for the full matching contribution. Priscilla curbed any frivolous spending on clothes. They also put off getting new carpet and furniture, both of which needed desperately to be replaced.

They shopped at the Dollar Store, didn’t buy clothes that required dry cleaning, and refrained from traveling for pleasure. They paid as many bills as they could on their credit cards, which were paid in full each month. Any reward points they racked up went toward gift cards for restaurants and movies. A rare dinner out would be at El Pollo Loco or In-N-Out Burger.

“We turned it into a game, and had fun with it,” explains Priscilla. For instance, the couple placed a chalkboard in their kitchen and wrote on it the outstanding debt amounts and interest rates, along with specific dates for hitting their goals.

The ‘avalanche’ method

To prioritize which debts would be paid off first, they decided to use the ‘debt avalanche’ method. They aggressively knocked off the loan with the highest interest rate first, then worked their way down. They would challenge each other to save as much as they could toward paying off the loan. “Working together to pay off debt helped us bond,” adds Nathan.

“To stay motivated, we would obsessively calculate how much interest we were paying each day,” says Priscilla. “At one point we were paying $37 a day in interest alone.”

Taking time to celebrate

When they reached a debt payoff total of $100,000 in February 2015, they decided to ease up on their loan repayments. To celebrate, they rented a limo and had a night out on the town. They also finally were able to give their apartment a facelift. “We no longer have to move furniture around to hide the holes in the carpet anymore,” Priscilla says.

In September of this year, the couple made their final loan repayment and are completely debt- free.

They say that it’s essential to maintain perspective when paying off student debt.
“Remember, you’re not dying,” Nathan says. “Just focus on paying it off, and your debt will get crushed.”

TAGS: ,

College Students and Recent Grads, Reviews, Student Loan ReFi

LendKey Student Loan Refinance Review

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

LendKey Student Loan Refinance Review

Updated September 7, 2016

Could you imagine trying to find the best student loan refinancing rate from community banks and credit unions on your own? How would you do it? Would you call every bank and credit union and ask for help? What a nightmare.

LendKey has relationships with 300+ community banks and credit unions all over the United States. LendKey* can issue loans to residents in any of the 50 states. This keeps you from having to pound the pavement by your lonesome. LendKey’s website will show you the best rate for refinancing your student loans.

Since 2007, LendKey has been a one stop shop for student loan refinancing. It also offers other types of loans. But for the sake of this review we’ll be focusing on how LendKey takes care of graduates looking to improve their debt situation. Fixed APRs range from 3.25% – 8.22%. Variable rates start as low as 2.22%.

Who can benefit from using LendKey? Anyone hoping to refinance their student loans should consider LendKey. It is easy to apply:

Lendkey

Apply Now

 

If you’re on the fence about refinancing, here are some of the benefits to be gained:

Lower Payments

Refinance your way to a more manageable monthly payment.

Lower Rates

Spend less on interest by getting a lower rate than the aggregate of all individual student loans.

Simplified Finances

Making payments on multiple loans to multiple institutions at different times of the month can be quite the hassle. It’s much easier to remember just one payment. Many lenders even let you consolidate both private and federal loans.

Different Repayment Options

Different lenders offer different repayment options. It’s wise to explore all the options to determine what makes the most sense for your particular situation.

Pros of Using LendKey

A Unified Application Process

This is hugely important. With LendKey, you’re not shuffled through tons of screens on different domains – all using different logons and different (confusing!) user interfaces. Within 5 minutes, a person can navigate through LendKey’s application process. This means after 5 minutes, you can see how much you can save by refinancing. You can even choose what loan you want.

Cosigner Release Available

Yes, you can secure a low interest rate and then cut loose your cosigner. Once you prove you are responsible – LendKey no longer needs a cosigner tied to your account. This may help convince a cosigner to work with you initially. They won’t need to be on the hook for long. Once you’ve made 12 full and consecutive on-time payments, your cosigner may be released. LendKey does a credit check and examines your income to see if you are free to go it alone.

No Origination Fee

This is helpful since it means you are free to shop around without feeling committed.

Further Interest Rate Reduction

1% interest rate reduction once 10% of the loan principal is repaid during the full repayment period. This is subject to the floor rate.

0.25% ACH Interest Rate Reduction

Many lenders reduce interest rates by a quarter percent for borrowers who agree to automatic payments.

Federal and Private Loans Can Be Consolidated Together

However, you lose some federal benefits in doing so. Things like free insurance (provided with federal loans if you are killed or severely disabled), public service forgiveness and military service forgiveness as well as income-based repayment plans. Grace periods will likely be omitted when writing the new consolidated loan.

Over 40,000 Borrowers Serviced

As of January 2016, 40,000 people have used LendKey’s services.

Excellent Customer Support

According to cuStudentLoans (which LendKey owns so take this with a grain of salt), 97% of customers are satisfied. Customer support comes out of New York and Ohio. Phone support is available each day from 9AM to 8PM EST.

For what it’s worth, I called into support 5 times at random. The support I received from the sales team was really great. Even the gentleman with only 6 months of experience was quite knowledgeable.

Eligible Schools

This list of eligible schools is 2,200 and growing. Chances are your school is on the list. However, LendKey doesn’t encourage students to submit eligibility requests as other student loan refinancers do.

Return Policy

Yes, you can ‘return’ your loan. LendKey offers a 30 day no-fee return policy to allow you to cancel the loan within 30 days of disbursement without fees or interest. That’s pretty incredible.

Cons

LendKey Doesn’t Give You the Complete Picture

LendKey doesn’t help a lot with stacking institutions against each other. I suppose this is meant to not to play favorites. However, it would be nice to be able to read about each institution within the LendKey interface. I’d still advise opening up another tab to research the banks you are considering.

The Fine Print You May Miss

Since LendKey is a loan matchmaker, there isn’t a lot of fine print on the site. This means a person still needs to review the fine print of each institution before finalizing his or her loan as mentioned before. LendKey does a fantastic job of getting you 90% of the way. But that last 10% of fine print is between you and your lending institution. Read through everything before signing up for a new loan.

I read the Better Business Bureau complaint log for LendKey. There are only 11 complaints in the past 3 years. SoFi (a competitor) has 18 and another competitor, Earnest, has no complaints. These complaints were mostly small misunderstandings between the LendKey support team and the borrowers.

The Application Process

There are four steps to the simple application process. Step 1 is for estimating monthly payments for a private student loan. It’s simple. You identify the amount you’d like to borrow and fill in a radio button indicating your credit is fair, good, or excellent. The last part is where you enter which state you live in. This is because many programs are state specific. Step 1 takes 1 minute.

Step 2 takes 2 minutes. This is the step where you compare the rates and offers available to you. Choose what works best for your unique situation.

Step 3 again only takes 1 minute. This is the actual application. As mentioned earlier in this article, this process is done through the LendKey interface. And don’t worry, information inputted into LendKey is safe (privacy policy).

Step 4 takes 10 minutes. This is the step where a person verifies identity, school, and income (screenshots/pictures work so there’s no hassle with scanning!). You will know if you are approved during this step.

As with any company, there are competitors. Here are two worthy rivals also worth considering:

Alternatives to LendKey

SoFi

SoFi stands out with a job placement programs, free wealth management for borrowers and even a dating app. More importantly, SoFi has low interest rates, with variable rates starting at 2.22% and fixed rates starting at 3.50%.

SoFi logo

Apply Now

Earnest

If you have a low credit score but have potential to earn a good income, Earnest will treat you well. Earnest looks beyond a simple credit score. The application process examines employment history, future earning potential and overall financial situation.

Earnest seems to take a very personal approach to each customer. A customer states an amount they can pay each month and Earnest will give them a loan, accordingly. Earnest also lets borrowers skip a payment each year. This could come in handy if money gets tight around the holidays. Just keep in mind, this can increase your future payments to compensate for the missed on.

Fixed interest rates start at 3.50% and variable interest rates start at 2.22%.

However, Earnest isn’t available for all US residents.

Earnest

Apply Now

Final Thoughts

LendKey runs a fantastic student loan refinancing division. The company offers many, many customizable options with very few downsides. With no application fee, it’s worth seeing what this student loan refinancing powerhouse can do for you.

Lendkey

Apply Now

Customize Student Loan Offers with Magnify Tool

 *We’ll receive a referral fee if you click on offers with this symbol. This does not impact our rankings or recommendations. You can learn more about how our site is financed here.

TAGS: ,

College Students and Recent Grads, Pay Down My Debt, Reviews

CommonBond Student Loan Refinance Loan Review

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

CommonBond Grad Student Loan Refinance Loan Review

Updated September 7, 2016

CommonBond was founded by three Wharton MBAs who felt the sting of student loans after they graduated. The founders decided to provide a better solution for graduates, as they thought the student loan system was broken and in need of reform. As a result, they strive to make the refinance (and borrowing) process as simple and straightforward for graduates as possible.

CommonBond* began by servicing students from just one school, and has rapidly expanded. Today, CommonBond loans are available to graduates of over 2,000 schools nationwide. Although the business started servicing only students with graduate degrees, today CommonBond is also available to refinance undergraduate degrees as well.

As you might be able to tell by the name, CommonBond thinks of its community as family. There is a network of alumni and professionals within the community that want to help borrowers. This alone sets it apart from other lenders, as members often meet for events.

While these are all great things, we know you’re more interested in how CommonBond might be able to help you make your student loans more affordable. Let’s take a look at what terms and rates they offer, eligibility requirements, and how they compare against other lenders.

Refinance Terms Offered

CommonBond offers low variable and fixed rate loans. Variable rates range from 2.22% – 6.02% APR, and fixed rates range from 3.50% – 7.74% APR.

Note that these rates take a 0.25% auto pay discount into consideration.

There is no maximum loan amount. CommonBond will lend what you can afford to repay. CommonBond offers fixed and variable rates with terms of 5, 10, 15, and 20 years.

The hybrid loan is only offered on a 10 year term – the first 5 years will have a fixed rate, and the 5 years after that will have a variable rate.

CommonBond has a great chart listing repayment examples based off of borrowing $10,000, which can be found on its rates and terms page.

To pull an example from that, if you borrow $10,000 at a fixed 4.74% APR on a 10 year term, your monthly payment will be $104.80. The total amount you will pay over the 10 year period will be $12,575.90.

The Pros and Cons

CommonBond is available to graduates of 2,000 universities. While that is a very long list, not all colleges and universities are included.

One pro to consider is the hybrid loan option available. It might seem a little confusing at first – why would someone want a variable rate down the road?

If you’re confident you’ll be able to make extra payments on your loan and pay it off before the 5 years are up, you might be better off going with the hybrid option (if you can get a better interest rate on it).

This is because you’ll end up paying less over the life of the loan with a lower interest rate. If you were offered a 10 year loan with a fixed rate of 6.49% APR, and a hybrid loan with a beginning rate of 5.64%, the hybrid option would be the better deal if you’re intent on paying it off quickly.

What You Need to Qualify

CommonBond doesn’t list many eligibility requirements on its website, aside from the following:

  • You must be a U.S. citizen or permanent resident
  • You must have graduated

CommonBond doesn’t specify a minimum credit score needed, but based on the requirements of other lenders, we recommend having a score of 660+, though you should be aiming for 700+. The good news is CommonBond lets you apply with a cosigner in case your credit isn’t good enough.

Documents and Information Needed to Apply

CommonBond’s application process is very simple – it says it takes as little as 2 minutes to complete. Initially, you’ll be asked for basic information such as your name, address, and school.

Once you complete this part, CommonBond will perform a soft credit pull to estimate your rates and terms.

If you want to move forward with the rates and terms offered, you’ll be required to submit documentation and a hard credit inquiry will be conducted. CommonBond lists the following as required:

  • Pay stubs or tax returns (proof of employment)
  • Diploma or transcript (proof of graduation)
  • Student loan bank statement
  • ID, utility bills, lease agreement (proof of residency)

CommonBond also notes it can take up to 5 business days to verify documents submitted, so the loan doesn’t happen instantaneously.

Once your documents are approved, you electronically sign for the loan, and CommonBond will begin the process of paying off your previous lenders. It notes this can take up to two weeks from the time the loan is accepted.

Who Benefits the Most from Refinancing Student Loans with CommonBond?

Borrowers who are looking to refinance a large amount of student loan debt will benefit the most from refinancing with them.

Common Bond

Apply Now

*referral link

Keeping an Eye on the Fine Print

CommonBond does not have a prepayment penalty, and there are no origination fees nor application fees associated with refinancing.

As with other lenders, there is a late payment fee. This is 5% of the unpaid amount of the payment due, or $10, whichever is less.

If a payment fails to go through, you’ll be charged a $15 fee.

It’s also noted that failure to make payments may result in the loss of the 0.25% interest rate deduction from auto pay.

Transparency Score

Getting in touch with a representative is simple and there is a chat and call option right on the homepage. Some lenders have this hidden at the bottom, or they don’t offer a chat option at all.

CommonBond also lets borrowers know they can shop around within a 30 day period to lessen the impact on their credit.

It does not list its late fees on its website, unlike other lenders. However, after making a chat inquiry, the question was answered promptly.

CommonBond does offer a cosigner release and is ranked with a A+ transparency score.

Alternative Student Loan Refinancing Lenders

The student loan refinancing market continues to get more competitive, and it makes sense to shop around for the best deal.

One of the market leaders is SoFi. It’s always worth taking a look to see if SoFi* offers a better interest rate.

The two lenders are very similar – CommonBond offers “CommonBridge,” a service that helps you find a new job in the event you lose yours. SoFi offers a similar service called Unemployment Protection.

SoFi’s variable rates are currently 2.22% – 6.02% APR with autopay, and its fixed rates are currently 3.50% – 7.74% APR, which is in line with what CommonBond is offering.

SoFi also doesn’t have a limit on how much you can refinance with them.

SoFi logo

Apply Now

 *referral link

Another lender to consider is Earnest. There is no maximum loan amount, and Earnest has a very slick application process. Interest rates start as low as 2.22% (variable) and 3.50% (fixed).

Screen-Shot-2015-05-20-at-10.49.24-AM_03ab2da494aed402ec5c46e48c2c262a

Apply Now

*referral link

Lastly, you could check out LendKey. It offers student loan refinancing through credit unions and community banks, but only offers variable rates in most states and fixed rates in a select few. The maximum amount to refinance with an undergraduate degree is $125,000, and the maximum amount to refinance with a graduate degree is $175,000.

All three of these options provide forbearance in case of economic hardship and offer similar loan options (5, 10, 15 year terms).

Lendkey

Apply Now

*referral link

Don’t Forget to Shop Around

As CommonBond initially conducts a soft pull on your credit, you’re free to continue to shop around for the best rates if you’re not happy with the rates it can provide. As the lender states on its website, if you apply for loans within a 30 day period, your credit won’t be affected as much.

Since CommonBond does have strict underwriting criteria, you should continue to shop around and don’t be discouraged if you are not approved. The market continues to get more competitive, and a number of good options are out there.

Customize Your Student Loan Offers with MagnifyMoney Comparison Tool

 

*We’ll receive a referral fee if you click on offers with this symbol. This does not impact our rankings or recommendations. You can learn more about how our site is financed here.

 

TAGS: , ,

College Students and Recent Grads

8 Student Loan Repayment Options if You Join the Military

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Student Loan Repayment Options

Several military programs offer scholarships and grants in exchange for your prior military service, or a promise of service in the future. But, what if you already have a degree and are working to pay off your student loans? You may want to consider one of the military’s student loan repayment programs.

In 2013, CNN reported on Thomas McGregor, an attorney who enlisted in the Army to help pay off his $108,000 student loan debt. Between his income and a loan-assistance program, he was student loan free within four years.

Military service isn’t for everyone, and you should seriously consider the potential impact of signing up for a multi-year commitment. It was a good fit for McGregor, who decided to stay on after his three-year service ended. However, he was deployed to Iraq and Afghanistan, and some of his friends were injured or died in combat.

If you decide joining the military is a good choice for you and are paying down student loans, the loan assistance programs could guide your decision to choose one branch over another. While the different programs sometimes share similar names, the qualifications, requirements, and award amounts can vary from one branch’s program to another.

Make sure the loan-repayment guarantee is in your contract before enlisting and double-check your loan’s eligibility for repayment through the program. For example, a program may pay off some types of federal student loans, but not state or private loans. Restrictions also apply based on which position you enlist in, your length of service, and whether or not you have prior military experience. In some cases, the loan payments count as income for tax purposes.

The military’s loan repayment programs and offers can change based on government funding and a branch’s need for new recruits. You can find an overview of the programs below, and you should follow-up with a local recruiter to clarify specifics and find out whether or not you’ll qualify.

Air Force

  • JAG Corps Student Loan Repayment ProgramEligible attorneys can receive up to $65,000 in student loan repayments, payable over three years following the completion of your first year of service. The payments can go towards undergraduate, graduate, or law school loans and payments will go directly to your lender. If you stay on past four years, then you can qualify for a $60,000 in cash bonuses: $20,000 for two more years of service and another $40,000 for four more. That’s not specifically earmarked for your loans, but you can use them to pay off your debt. That would be $125,000 over 8 years, in addition to your salary and other benefits.

Army

  • Healthcare Loan Repayment ProgramsThe Army offers special pay and incentives to doctors, nurses, dentists, veterinarians, psychologists, and other healthcare professionals. Depending on your profession and specialty, you may be eligible for up to $120,000 in student loan repayments over three years of active-duty service in addition to salary, bonuses and special pay. Reserve-duty servicemembers may receive up to $50,000 for three years of service for loans.
  • College Loan Repayment ProgramThe Army also offers some highly qualified Military Occupational Specialists (MOSs) student loan assistance if they enlist for at least three years of service. At the end of each of the three years, you’ll receive the greater of $1,500 or 33.33 percent of your outstanding principal loan balance, less taxes. There’s a maximum potential payout of $65,000.

Army National Guard and Reserves 

  • College Loan Repayment Program The Army National Guard and Army Reserves have similar student loan payments for some highly qualified Military Occupational Specialists (MOSs). You could receive the greater of $1,500 or 15 percent of your outstanding loan principal at the end of each year of service, up to a maximum of $20,000. To qualify, you must enlist and serve for at least six years. Parent PLUS loans can be covered. 

Coast Guard

  • College Student Pre-Commissioning Initiative Student Loan Repayment ProgramThe Coast Guard offers recent college graduates who are 19- to 27-year-olds up to $10,000 per year, for six years, in student loan aid. The program requires candidates to complete a series of trainings, including basic training and leadership training, and enlist for five years as a commissioned officer. There are some interesting catches: you can’t have more than two dependents and if you’re single, you can’t have sole or primary custody of dependents. Online degrees also don’t qualify.

Navy

  • Health Professions Loan Repayment ProgramThe Navy pays select health care professionals up to $40,000, minus approximately 25% for federal income tax, in student loan payments each year in exchange for agreeing to continue, or begin, active duty service. The hefty tax portion will be taken out prior to sending the payment along to your lender.
  • College Loan Repayment Program Pays up to $65,000 in student loan payments if you’re serving in your first enlistment.

National Guard

  • Student Loan Repayment ProgramYou could receive the greater of $500 or 15 percent of your initially disbursed loan amount each year, with a maximum $50,000 payout and minimum six-year service agreement. You must have at least one disbursed Title IV federal loan.

Public Service Loan Forgiveness

The Public Service Loan Forgiveness (PSLF) program isn’t military specific, instead it’s a federal loan-forgiveness program contingent on your employment with a qualified government or non-profit organization. Only federal student loan that are part of the Direct Loan program qualify for PSLF. However, you may be able to consolidate non-qualifying federal loans (such as a Perkins loan) into a qualified Direct Consolidation Loan.

With PSLF, your remaining loan balance will be forgiven after you make 120 qualifying monthly payments (10 years’ worth) while employed full-time. The 120 payments don’t need to be consecutive, and some, or all, of the employment, could be within the military. You currently won’t have to pay income taxes on the forgiven amount.

Additional Military Benefits

In addition to the loan repayment programs, your federal student loans may be eligible for a capped 6-percent interest rate during active duty, and up to five years of no interest if you’re serving in qualified hostile areas. You may also be able to postpone payments during active duty, but the loans will still accrue interest.

Bottom line

The military’s student loan forgiveness programs may be able to help repay your loans, but don’t take the decision to enlist lightly. Other employers offer loan repayment programs, and potentially less-dangerous jobs qualify for the PSLF. If you do decide to enlist, compare the loan repayment programs and be sure to get the loan repayment included in your contract.

TAGS: , ,

College Students and Recent Grads, Life Events

3 Big Money Mistakes Your Freshman is Likely to Make

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

3 Big Money Mistakes Your Freshman is Likely to Make

College is a time for adventure, growth and learning, but it can also be a time for silly financial mistakes if your freshman isn’t careful. This will likely be the first time your kid is out in the world on her own, so it makes sense that she’ll want to try new things. But her actions might come with some serious and long-lasting financial consequences unless you can help point her in the right direction first.

Here are three mistakes college freshmen often make when it comes to their finances — and how you can help your child avoid them.

1. They choose a college without considering the price tag

While it’s true that going to a good college is important these days, that doesn’t necessarily mean that your kid needs to go to the most expensive college to score his dream job after school. If your kid has always dreamed of going to a specific, but expensive, school, sit down with him at least a year or two out of applying to talk about how he’ll pay for it. The U.S. government recently launched the College Scorecard, where you can easily search for a school and see how its students fare financially after graduation. It might change his mind if he sees most students graduate from his dream school with tons of student loan debt. If your kid is willing to be a little flexible, you might want to point him towards one of these 20 most rewarding colleges for student loan borrowers, which ranks the best schools for generating the highest income after accounting for loan expenses.

2. They apply for credit cards before they learn how to use them

Luckily it’s gotten much harder for banks and credit card companies to market credit cards to students on college campuses. But the temptation to apply for credit will still be there. The second your kid applies for a credit card, she starts building a credit history that will follow her for at least the next seven years. A smart way to give her experience with some supervision is to add her as an authorized user on your credit card account. You can keep track of her spending habits and she can start building credit while she’s still in school. But don’t just pay the bill off each month without question. Talk to her about her credit score, what a credit report is for and how interest works. If you think it’s a good idea for your kid to dip her toe into the credit card world independently, consider starting her out with one of these best credit card options for college students. 

3. They never learn how to budget

The road to financial security starts with one simple building block: a budget. Unfortunately, budgeting isn’t something that comes naturally to everyone — especially for college freshman who may be trying to balance a job, classes, parties, and outings with friends. While your college kid probably won’t have a ton of disposable income to work with, it’s still a good idea to talk to him ahead of time about how to set up a budget, even when it’s just a limited amount of money he’ll be dealing with. If they can stick to a budget, they can also avoid costly mistakes like overdrawing their bank account, which can lead to all kinds of painful fees. During that conversation you can discuss the importance of an emergency savings account (because even college kids need an emergency savings account), how to divvy up income into necessary expenses and fun money, as well as how, once he graduates, he’ll likely need to put some extra money aside for retirement savings, as well.

TAGS: ,

College Students and Recent Grads, Life Events

10 Financial Moves to Make Before Your Child Goes to College

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Financial

Every parent I’ve ever talked to wants to be able to support their child’s college education. After all, you want to give your child all the opportunity in the world, and that’s exactly what college represents. But it’s a big expense and it’s growing. So how can you prepare to cover your child’s education while still paying your bills and saving for your own future?

Here are 10 financial moves to make before your child goes to college that will help your entire family build a better financial future.

1. Remember: Sometimes your needs come first

As much as you want to provide for your child, it’s important to take a step back and make sure you are on solid financial footing first.

The truth is that there are many routes to both obtaining and paying for a college education, from loans, to scholarships, to work-study, to less expensive schools.

But there is only one route to you having a secure financial future: your savings.

Putting yourself first not only ensures that you’ll be able to support yourself later on, but it ensures that your children won’t have to support you. So before you commit tens, or even hundreds, of thousands of dollars to your child’s college education, make sure your own financial needs are on the right track.

2. Get to the real goal

College is the default path, and for good reason. On average people with a college degree earn almost twice as much as those without one and are much less likely to be unemployed.

But before you assume that your child needs to go to the most prestigious (and expensive) college possible, take some time to think about what the real goal is here and if your child would flourish in the traditional four-year college setting. Perhaps a trade or technical school is the better fit.

Talk to your spouse or partner about the kinds of opportunities you’d like to provide. And talk to your child about the opportunities she wants for herself.

Figure out what you’re really working towards before making a huge financial commitment.

3. Evaluate your options

Once you know what you’re working towards, you can start to look at the options available to you.

When it comes to evaluating different colleges, you can look at cost. You can look at specialized programs. You can look at location, opportunity to travel, access to merit-based scholarships, and any other factors that are important to you.

You can also look at alternatives like taking a gap year, traveling, starting a small business, going to trade school, or self-directed or online education.

It’s important to be realistic about what many employers value, which is certainly a college education. But it’s also worth keeping an open mind about what truly matters for your child’s specific goals and evaluating all of your options.

4. Estimate your ‘Expected Family Contribution’

As you investigate the college route, you can start to get a sense of your expected family contribution.

This is the amount you will be expected to contribute to your child’s college education, with the cost above that amount presumably being covered by financial aid (which includes student loans).

You can estimate your expected family contribution here.

5. Decide how much you’re willing to contribute

Your expected family contribution is one thing. Deciding how much you can and are willing to fund is another. And there are a few factors that should go into that decision.

The first is what you can afford to pay. This involves the work you did in Step 1 to evaluate your progress towards other financial goals, as well as a look at your budget to see whether there’s any room to shift things around.

The second is being clear about the things you are willing to fund. In addition to tuition, there are books, room and board, food, fraternity/sorority dues, and other discretionary living expenses. Have a conversation that includes your child about how much those things cost and whose responsibility each expense will be.

The third factor is what you expect your child to contribute, which we’ll get into next.

The goal here is to be realistic about what you can afford and to be clear about what’s expected from all parties.

6. Make sure your kid has skin in the game

Given that you’re talking about your child’s future, it’s not unreasonable to expect your child to help pay for it. In fact, doing so may give him more ownership over the decisions being made, which could lead to better results.

There are many different ways for your child to help financially, from working in the years leading up to school, to working part-time during school, to applying for scholarships and grants. You don’t have to put it all on them, but involving them in the process can be beneficial for everyone.

7. Create and implement a savings plan

With your funding targets in mind, you’re ready to start saving.

The younger your child is, and the more likely it is that he or she will attend a traditional college, the more helpful a dedicated college savings account will be. That’s because the tax-deferral those accounts offer will have longer to work their magic. But if you live in a state that offers an income tax deduction for contributions, they can be helpful even in the years right before college.

Here’s a list of the top 529 plans in the country to help you decide: The 5 Best 529 Savings Plans Anyone Can Use.

And don’t forget that a regular investment account can offer a lot of flexibility. The money can be used for college if necessary, or you can hold onto it and use it for other goals.

8. Get up to speed on student loans

Student loans will almost certainly be an option, and there’s a good chance that they’ll end up as part of your strategy. That’s not necessarily a bad thing either. The value of a good education can be incredibly high, and taking on some debt in order to make it happen can be a smart move.

They key is to make sure it’s done purposefully and with a strong understanding of the consequences. Far too many students are graduating with far more student loan debt than they should have ever taken on, largely because of a lack of knowledge about what they were getting into.

So take some time to learn about the pros and cons of the options available to you, and make a decision based on what you can afford and what your child truly needs in order to get the education she wants. This article will give you a good start: How to Handle Student Loans in 4 Easy Steps.

9. Apply for scholarships and grants

It takes some work, but you may find that your child can qualify for a significant amount of money in scholarships and grants. This can not only reduce your financial burden, but it can also be a great way for your child to help financially without having to come up with a large amount of savings.

Students can start applying for college scholarships can be as early as middle school. At the latest, start preparing for applications in the first year of high school.

Here’s a guide to help you get started: 6 Ways to Find College Scholarships.

10. Plan ahead for your new budget

No matter how much you save, college years can be tough on your budget. That’s especially true if you’ll have two or more children in college at the same time.

If you can, make your best guess at what your budget will look like during those years and start living on it a year ahead of time. That will not only help you get used to the budget, but it will allow you to build some extra savings to help smooth out any bumps in the road.

TAGS: ,

College Students and Recent Grads

Best Ways to Deal With Medical School Student Loan Debt

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Medical School Student Loan Debt

Graduating from medical school and becoming a doctor is a significant commitment for both your time and money. Nearly 80% of medical students graduate with over $100,000 in student loans from their premed and medical education, according to the Association of American Medical Colleges (AAMC). The median debt balance for medical school graduates in 2015 was $183,000. In comparison, the average Class of 2014 graduate left school with just $28,950 in student loan debt.

To put $183,000 of federal student loans into perspective, after 3 years of forbearance during residency, a medical professional would need to make payments of $2,700 per month under the 10-year Standard Repayment Plan to pay the debt off.

Although the medical field is one that may boast a handsome salary, it’s also a profession that can require 11 to 15 years of study in undergraduate school, medical school and residency before a doctor is qualified for a position that pays well enough to accommodate such a high monthly loan payment.

If you’re not sure how to tackle the mountain of debt from your medical school education, read on for a few ways to handle repayment.

Request Student Loan Forbearance During Residency

The median medical residency stipend was less than $60,000 per year in 2015 based on the AAMC survey. So delaying payment with a forbearance while in medical training (as shown in the example above) can give you some relief until you’re hired for a permanent position that pays well.

In most cases, offering forbearance is at the discretion of a lender. However, a lender is required to accept your request for forbearance during a medical residency if you meet certain qualifications.

To be eligible for mandatory forbearance, you must:

  • Be accepted to an internship/residency program that requires a bachelor’s degree
  • Receive supervised training during the internship/residency
  • Be enrolled in a program that will lead to a degree or certificate from an institution of higher education, a hospital, or a healthcare facility that offers postgraduate training, or
  • Be enrolled in a program that’s required to lead your own practice

One thing to keep in mind is during forbearance, interest still accrues and will add to your loan balance if left unpaid.

Be careful, interest can grow quickly. Making interest-only payments during residency is one way you can still be proactive about repaying your medical school debt during a temporary break from scheduled payments.

Get to Know the Perks of Your Federal Loans

Federal student loans come with perks including options for income-driven repayment, forgiveness and deferment. These benefits are usually not offered by private loan servicers. It’s a good idea to hold off on refinancing federal loans with a private lender until you decide if you want to use any of the benefits.

We’ll talk about student loan refinancing next. First, here are three major features of federal student loans you should know about that can help you:

Income-Driven Repayment Programs

There are four income-driven plans:

Income-driven plans put a cap on your monthly payment based on your current income and family size. As your income increases, your student loan payment increases as well to make the repayment process more manageable.

Each of the repayment plans have fairly similar terms. In general, the plans allow you to make payments of 10% to 20% of your discretionary income. After making payments for 20 to 25 years, the unpaid balance on your loan is forgiven.

Of all the plans, it’s most difficult to qualify for the IBR and PAYE plans. To qualify, the payment you would make on either the IBR or PAYE plan has to be less than the one you would make on the 10-year Standard Repayment Plan. (You can calculate payments for the Standard Repayment Plan vs. the IBR and PAYE plans with this calculator.)

In addition, for the PAYE plan you have to be a new borrower meaning your Direct Loan was disbursed on or after October 1, 2011. There’s a little less fine print on the ICR and REPAYE plans. You can find out if you qualify for one of these income-driven repayment programs here.

Using one of these income-driven repayment plans may be a better method of managing payments than forbearance during your medical residency or internship. As we mentioned previously, interest still accrues while your loans are in forbearance, which means your total balance will grow during that period. Even small payments through an income-driven plan can give you a jump-start on repaying your debt.

However, as a long-term solution, income-driven repayment plans have a major drawback. These plans extend the number of months it’ll take you to pay off your loans thus increasing the amount of interest you pay over time. Even if you hold out for 20 to 25 years to take advantage of loan forgiveness, having a large amount of debt with growing interest tagging along with you for a good portion of your career may impact your ability to reach other financial goals. Make sure you understand these implications before you prolong repaying your debt.

Public Service Loan Forgiveness (PSLF)

One instance where sticking with an income-driven payment plan can pay off is if you also participate in Public Service Loan Forgiveness. After you make 120 monthly student loan payments on an income-driven repayment plan while working full-time in public service, the remaining balance can be forgiven. This works out to be 10 years.

Employers you can work for to obtain Public Service Loan Forgiveness include:

  • Government agencies (including federal, state, local agencies, or entities)
  • Non-profit, tax-exempt organizations
  • AmeriCorps
  • Peace Corps
  • Private, non-profit organizations that provide:
    • Emergency management
    • Military service
    • Public safety
    • Early childhood education (including licensed or regulated health care)
    • Public service for individuals with disabilities and the elderly
    • Public health including nurses, nurse practitioners and full-time healthcare professionals

Labor unions, partisan political organizations, for-profit organizations and nonprofit organizations that are not tax-exempt will not qualify for PSLF.

You must also work full-time to be eligible which is at least 30 hours a week. All Direct Loans can be forgiven including Direct PLUS loans for parents. But, the parent has to be the one working in public service, not the graduate for their loans to be forgiven. You can learn more about the program here.

Temporary Deferment

Deferment may be a last resort option for federal student loans if you experience financial hardship or unemployment and need a solution sooner than later. Deferment is similar to forbearance and puts a temporary hold on your payments. However, when you defer a subsidized loan, you may get a break from paying your principal and the government may cover the interest for you.

Keep in mind, this is just a temporary solution. During deferment, you should develop a long-term strategy for repaying your student loan debt.

Refinance Private Student Loans (and Maybe Your Federal Ones)

If you’re locked into a private student loan with high or variable interest, refinancing is a way to lower your interest rate and potentially save yourself thousands of dollars through the life of your loan.

Refinancing your federal loans with a private lender will mean forfeiting those flexible repayment options we talked about before (PAYE, IRB, etc.). That’s because you are taking out a new private loan to pay off your federal loans. Choosing whether or not to refinance your federal loans isn’t a decision you should take lightly.

If you’re experiencing financial uncertainty or considering public service for loan forgiveness, stick with your federal student loans — at least for now. You are more likely to need the extra flexibility of those federal repayment options. If you have a stable job, high credit score, high income and predict continued financial security, forfeiting the benefits of your federal loans with a refinance is an option worth weighing.

Out of all of the federal student loans, the loans for graduate level studies have the highest interest rates and may be the best candidates for a refinance. Two other variables besides interest that will impact what you’ll save from refinancing are the loan term and payment schedule. Make sure you dig into each of these details to choose the loan that’ll save you the most.

Two examples of student loans are offered by SoFi and CommonBond.

  • SoFi provides student loan refinances with variable and fixed interest. Fixed interest rates range from 3.50% to 7.74% APR depending on your loan term. Variable rates start as low as 2.22%.
  • CommonBond is another student loan refinance provider with fixed interest from 3.50% to 7.74% APR depending on your loan term. Variable rates start as low as 2.22%.

Check for State Run Loan Repayment Programs

Some states are willing to offer student loan repayment programs to attract young new medical talent.

The Health Resources and Services Administration (HRSA) provides a federally-funded grant to states that operate State Loan Repayment Programs (SLRPs) for professionals in medical fields.

The purpose of this repayment program is to give loan assistance to health care providers that work in areas where there’s a shortage of health professionals. The type of work you have to do, time commitment and amount you’ll be awarded varies by state.

For example, in California, primary care, behavioral health, pharmacist and dental professionals may be granted up to $50,000 in exchange for 2 consecutive years of service.

In Oregon, primary care physicians, nurse practitioners, physician’s assistants, dentists, dental hygienists, social workers, counselors and psychologists can receive up to $35,000 per year. The commitment is 2 years of service.

Don’t expect to get free money without having to make a few promises in return. Many programs require workers to make a serious commitment to work there. For additional program details, check out this roundup of Loan Repayment Programs by state.

Research Other Service-Based Repayment Opportunities

In addition to the state programs, there more federally-funded service-based loan repayment opportunities that you may qualify to participate in.

Students to Service Loan Repayment Program

This program is for medical or dental students that are in their final year at an accredited medical school. (If you’ve already graduated, skip to the next opportunity). The National Health Service Corps (NHSC) provides the Student to Service Loan Repayment Program for students in their final year of school who commit to at least three years of primary care work in an underserved community or six years of half-time work after primary care residency. You can be awarded up to $120,000 tax-free. Funds are paid out annually in installments.

Eligibility

  • Enrolled, full-time student in the final year of medical school
  • Attending a fully accredited school and earning an eligible degree for the program
  • Will complete an accredited primary medical care residency in either:
    • Internal medicine
    • Family practice
    • Pediatrics
    • Obstetrics/gynecology
    • Geriatrics
    • Psychiatry

The NHSC may prioritize applicants who come from a disadvantaged background as determined by being identified as having a “disadvantaged background” due to environmental and/or economic factors by your school or you received a Federal Exceptional Financial Needs Scholarship. Priority will also be given to those who display what the NHSC defines as characteristics that indicate you’re more likely to continue working in a disadvantaged area after your service is complete. You can learn more here.

National Health Service Corps Loan Repayment Program

For practicing primary care, dental and mental health professionals, the National Health Service Corps (NHSC) offers up to $50,000 in exchange for a two-year commitment in an underserved area. You can find eligible underserved areas with open positions here. The funds for repayment of your student loans in this program are also income tax-free.

You can work full-time or part-time, but your hours will impact how much you’re rewarded for repayment. If you want to earn more to repay student loans, you can extend your time in the program beyond two years.

Eligibility

  • Must be a U.S. citizens or U.S. national
  • Be eligible, or currently hold, position as commissioned officer in the Regular Corps of the Public Health Service or be eligible for civilian service in the NHSC
  • Currently participate or be eligible to participate as a provider in the Medicare, Medicaid, and Children’s Health Insurance Programs
  • Have a fully-legal and unrestricted health professional license, certificate or registration in the relevant discipline.

You can learn more here.

National Institutes of Health Loan Repayment Programs

The National Institutes of Health (NIH) has a group of repayment programs for professionals in the biomedical and biobehavioral research fields. You can earn up to $35,000 per year to repay student loan debt by committing to research approved by the NIH.

The purpose of these programs is to entice professionals back into research over other higher paying careers. To qualify for an NIH loan repayment program, your student loan debt must total at least 20% of your base salary. You can learn more in our review of the program here.

Grab Free Tools to Help You Manage Payments

Several of the strategies above may reduce your medical school debt but you won’t be able to avoid it forever.

Developing a budget and cutting back in other areas can help you repay debt aggressively. The following tools can give you an extra push during this repayment process:

Mint.com is a money management tool that shows you an entire picture of your financial standing including your student loan debt all in one dashboard. You can use this tool to manage your monthly budget and track your spending.

The Repayment Estimator is on the Federal Student Aid website and estimates how much you’ll pay with different federal loan repayment plans. This is useful because it can give you an idea of which payment plan will be the one to benefit you the most based on your income and family status.

The burden of repaying student loan debt after you’ve already paid your dues to obtain medical qualifications can be a challenge. Fortunately, there are many opportunities to get relief from student loans after medical school. Take the time to explore all of these options to figure out what will work best for you.

TAGS: ,