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Student loans remain a point of great financial suffering for millions of Americans, and the numbers are staggering. According to EducationData.org, student loan debt totals $1.75 trillion and is growing six times faster than the economy. 43.2 million people have student loans while the average debt burden is $39,351 each. The average repayment time is 20 years.
While the majority of student loans are funded through the federal government, I unfortunately did not qualify for public student loans because my parents “same money”. For this reason, my only option was to fund my education with private student loans from a bank. Unfortunately, my 19-year-old didn’t understand what I was doing. I graduated from Arizona State University with $72,669 in debt, and I don’t know how I’m going to pay it.
But when the student loan crisis began to swell, a new wave of fintech companies and financial institutions began offering the ability to refinance student loans. Even though I was buried in student loan debt, I was able to speed up the process of paying off my loan by refinancing several times. I estimate I can pay off my student loans by the end of 2022 – just seven years after graduating.
Here’s how I refinanced my student loans six times and how it helped me pay off my debts faster.
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Why do I refinance my student loans six times
Refinancing student loans basically does two things: It can combine your student loans into one short payment and give you a lower interest rate — with the latter potentially saving you a lot of money.
It’s important to know that this solution isn’t right for everyone, especially if you already have a low interest rate through public loans or likely qualify for student loan forgiveness. If you refinance your government loans, you will lose protections such as loan forgiveness or forgiveness in the event of death or permanent disability.
But if your rates are high, or you are unable to qualify for federal loans, you may want to consider and refinance private student loans as I did.
In many cases, student loan refinancing costs nothing. In addition, the process is very simple: once the application is submitted and approved, the new lender will send money to the existing lender for the entire loan amount. From there, you start paying the new lender the new interest rate.
My Student Loan Refinance Journey
Let’s start from the beginning: I attended college prep for two years to save money that my parents were able to fully fund. But for the second half of undergraduates, my parents signed off on my student loans.
From August 2013 to August 2015, I was actively enrolled in the school and not focused on my student loan balance, which, looking back, I should have set aside some money for.
In December 2015, I started my first job after graduating from college with a modest salary, and I couldn’t make a dent in the scale. In fact, the balance actually grew to $78,449, because my interest rate was around 7%. It was such a terrible feeling when I knew I wasn’t making any progress. So I decided to research some options and found out quickly Student loan refinance.
Student loan reference #1
In July 2016, I discovered SoFi because it was one of the fintech startups to embrace student loan refinancing. I decided to refinance my loans and found the process very simple. I managed to bring my interest rate down to 5.34% with a balance of $78,449. In addition, I was able to refinance without my parents’ help due to my strong credit history.
Ironically, months later, I was offered a job with SoFi. While working there, they offered student loan repayment benefits as they paid $200 per month for the base balance.
However, between July 2016 and June 2018, I was still pursuing my career and trying my best to increase my salary. However, I’ve been making bad financial decisions at the same time as buying a new car when I can’t afford it. So paying off my student loan was a slow start to say the least.
Student loan reference #2
In June 2018, my student loan balance was $73,976, which was still higher than the original principal amount I borrowed. But when I found a lower interest rate of 4.7% with my College Ave student loans, I decided to refinance a second time.
That same month, I got married, which allowed both of us to work hard to pay off my loans together.
Student loan reference #3
For a year, we spent as much money as we could comfortably do being a young couple. But in July 2019, I decided to refinance for the third time with PenFed Credit Union. At the time, my outstanding balance was $57,933 and the new interest rate was 4%.
At this point, I should have thought I would have made more money investing in the S&P 500 Index Fund than paying off my student loans. But there is something to be said for being debt free, and continuing to lower the interest rate has become an exciting idea.
Student loan reference #4
About eight months later in February 2020, just before the pandemic closed, I received a letter in the mail from First Republic Bank, offering an astonishingly low interest rate of 2.2%. The refinancing process was somewhat stricter with strict underwriting policies, but I was able to secure the loan. At this point, my student loan balance was $44,300. My monthly payments were a bit high at around $800 a month, but accumulating interest on just $50 made it well worth it.
Student loan reference #5
In the early months of the pandemic, my wife and I moved in with my in-laws for a variety of reasons, but we were able to get serious benefit from paying off my student loans because we didn’t pay the rent.
In July 2020, my wife and I told my father-in-law that we were planning to move to Florida, and begin the process of buying a home. One way to get approved for a mortgage with good terms was to cancel the student loan debt on my credit report.
He paid the remaining $25,000 to First Republic, and my wife and I would start the process of paying him back at 0% interest. We jokingly called it ‘Scott Bank’. However, we have a high monthly payment of $1000.
I know this option isn’t available to everyone, and I was very lucky to get a “zero percent” interest rate.
Looking back, I should have stayed with a 2.2% First Republic interest rate, but just four years ago, I was losing sleep over student debt. And now, I finally had the upper hand, so crushing her became my goal.
Student loan reference #6
Unfortunately, in March of 2021, my wife and I divorced. So at this point, I had to find a way to pay my now ex-husband’s dad money.
Ironically, First Republic Bank canceled the student loan refinancing product, offering a personal line of credit with an interest rate of 2.25%. Again, it was a rigorous underwriting process, but I was able to get approval in August 2021 for $13,000 in remaining student debt. Although this was technically higher than the 2.2% interest rate I had on the student loan refinance product, I was also able to consolidate my auto loan, which had an interest rate of 5.62%, under the line of credit. So savings on this loan easily makes up the difference in the 0.05% interest increase.
The final results
So after a long repayment journey, I will not seek to refinance my student loans for the seventh time. I’m going into 2022 with $9,500 in student debt, and we’ll have until August 2028 to pay it off. And with the interest fee of about $20 a month on my student loans, I’m less nervous about paying it off. My goal is to pay them in 2022, but if that doesn’t happen, that’s fine.
However, I’m glad I started prioritizing investing in 2018, because despite the bumps in the road, I have a portfolio that will grow with compound interest and become a good nest egg for retirement. The gains from my investments far outweigh the small amount of interest I pay each month.
Pros and Cons of Refinancing Your Student Loans
There are several factors to consider if you are interested in refinancing your student loans.
- Student loan forgiveness: If you currently hold public student loans, you are eligible for Student Loan Forgiveness Programs (such as the PSLF) or other forgiveness measures approved by the federal government. If you refinance with a private lender, you waive all of these rights. For example, during the pandemic, federal student loan borrowers were able to pause their payments, while private student loan borrowers were widely expected to continue to pay them back.
Offers student loan forgiveness from the Biden administration
During President-elect Biden’s campaign, he clearly wanted all federal student borrowers to receive $10,000 in student loan forgiveness. While that hasn’t happened, nearly $13 billion in debt has been forgiven through the programs listed here.
- organisation: When you take out general loans, you are assigned to one of a handful of loan providers. Unfortunately, you could end up with many loans taken out in your name, which was frustrating for general student borrowers. By refinancing, you will get one consolidated loan.
- Outlay: While refinancing a home comes with a fee, refinancing your student loans shouldn’t. Be aware of any fees the lender may charge you.
- Ability to lower interest rates: With federal student loans, you don’t have the ability to lower your interest rate. By giving up the possibility of student loan forgiveness, you can go to the private student loan market and shop for a better rate.
- Tax cuts: If you itemize your taxes, you may want to consider the tax credit you can get for the interest paid on your student loan. However, you should not keep your student loans for the sake of the discount. Currently, the maximum discount is a modest $2,500.
Refinancing student loans was one of the best financial decisions I’ve ever made. If I had stayed with my original provider, Wells Fargo, and continued to pay 7% interest at the peak balance, I would have paid $21,000 in interest if I had kept the same seven-year loan term. Realistically, I would have taken 10 years to pay off my debt if I wanted to keep the monthly payments manageable, bringing the accrued interest close to $31,000.
Although my path wasn’t traditional, I estimate I paid nearly $10,000 in student loan interest over seven years — saving me more than $20,000 in interest. And the best part is that Every refinance was completely free Since there are no fees to pay. And I’ve never neglected investing in the future along the way.
This is my personal experience, and it may not be the best path for everyone, but being bold in paying off student loan debt and finding the best financial products for your needs is an important tenet of your personal finance journey.
Finally, there is an argument for putting your student loans on autopilot once you achieve a low enough interest rate and invest the money you saved. But waking up knowing you don’t have any outstanding debts can be an even bigger feeling.
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Editorial note: The opinions, analyses, reviews or recommendations in this article are those of the editorial board alone, and have not been reviewed, approved or otherwise endorsed by any third party.