Paying off over $80,000 of student loan debt in less than three years is quite the accomplishment.
My wife and I did just that during the three years after she graduated from college.
It wasn’t easy, but we made it happen.
We cut our expenses back as far as we could and found ways to earn extra income.
We then took the extra money earned or saved and used it to pay off each loan one by one.
Unfortunately, we made one major mistake at the very beginning of our journey to pay off the debt.
That mistake could have cost us thousands of dollars in interest or a few extra months of student loan payments.
First, I’ll share the mistake we made. Then we’ll take a look at how things have changed. Finally, I’ll show how you may be able to avoid making the same mistake we did.
We Didn’t Refinance Her Student Loan Debt
Today, it is fairly common knowledge you can refinance your student loan debt. In fact, there are companies that exist specifically to tackle the issue of refinancing student loan debt. Unfortunately, that wasn’t the case in 2011.
When my wife graduated from college, we looked hard to find someone to refinance her student loan debt. Unfortunately, we only found a couple of lenders that would be willing and they had interest rates that were just as bad as her student loans were at the time.
We were majorly bummed out because some of her student loans had crazy high interest rates.
Her largest student loan had an interest rate of 8.125 percent when we started publicly posting student loan debt updates in December 2012. Prior to December 2012, that particular student loan had an interest rate of over 10 percent at times.
Her other student loans either had a 6.8 percent fixed rate or lower, variable interest rates.
Why We Wanted To Refinance
To be clear, we didn’t want to refinance my wife’s student loans to obtain a lower payment. We didn’t want to stretch out her payments over a longer time period, either.
We wanted to refinance her student loan debt to pay less money in interest each month so we could pay the loans off faster.
If we were able to refinance her higher interest rate student loans and lower the rate paid by even two percent, we would have saved a huge amount of interest.
I estimate we would have saved thousands of dollars over the three years it took us to pay off the debt. That’s some pretty serious money.
That likely would have moved up our debt pay off date by a few months and left us a few thousand dollars richer today.
You Can Easily Refinance Student Loan Debt Today
Lucky for people with student loan debt today, there are many companies willing to refinance your student loan debt. Companies like SoFi, CommonBond and Earnest are all willing to refinance student loan debt if you meet their requirements.
Depending on the terms of the loans you took initially took out, you stand to save a significant amount of money. Of course, you’ll have to run the numbers to see if refinancing is worth it for you.
You May Want To Refinance For Many Reasons
Not everyone refinances because they’re hellbent on paying off their student loan debt as fast as possible like we were. In fact, the main reason we wanted the debt gone was because the initial payments were over $700 per month.
Refinancing your student loan debt can achieve a number of goals.
- It can lower the interest rates you pay, saving you money even if you pay off your student loan debt according to the original schedule of payments.
- Refinancing can lower your payments, allowing you freedom to take the necessary actions to get through a financial rough patch.
- It can even consolidate multiple loans into a single payment to make it easier to make your payments every month.
No matter your reason for refinancing, make sure that you’ll achieve your goal before you pull the trigger. You’ll also want to watch out for the following pitfalls.
Reasons You May Not Want To Refinance
Refinancing student loans isn’t always a good idea. If you’re student loans are federal student loans, it may by an awful idea.
Federal student loans offer many protections that private student loans do not. When you refinance, your new student loans will become private student loans that no longer have the protections.
- If you’re still in school, some private loans still require you to make payments while you attend.
- You will no longer have access to income based repayment options (IBR).
- You could lose forbearance and deferment options.
- If you’re working toward a loan forgiveness program, you likely won’t qualify for the same program after refinancing.
- Depending on the private refinance loan you choose, you may switch from a fixed interest rate to a variable interest rate that could rise over time.
- Some private loans even have prepayment penalties for paying your loans off ahead of schedule.
Do Your Homework – Make The Decision That Makes Sense For You
Refinancing your student loans isn’t a decision that should be made lightly. While it would have made perfect sense for my wife and I to refinance her student loans, it may not make sense for your situation.
That said, don’t just say it won’t work for you.
Take the time to investigate your student loan refinance options and see if it will help you to achieve your financial goals.
If the numbers make sense, investigate to make sure you aren’t losing any federal student loan benefits that you plan on using in the future.
At least you have easy options to look into for student loan refinancing unlike my wife and I. Take advantage and then make the right decision for you after gathering all of the facts.
Worst case, you lose a few minutes investigating your options. Best case, you save thousands of dollars.
Have you ever refinanced student loans? If so, let us know about your experience and how much you saved in the comments below.