The weight of student loan debt is extraordinary…suffocating.
It seems like you already put in the hard work of passing all the classes and earning your degree, not to mention the battle of finding a legit job, yet now month after month, you’re still paying hundreds of dollars for that education.
And there’s no end in sight.
I’ve been there too. That hopeless place of feeling overwhelmed by debt–it’s not a fun place to be.
But, if you use that hopeless place as motivation to get yourself out of debt as fast as possible, and do whatever it takes to move on from this chapter of your life, it does get better.
Note: This post may contain affiliate links. Please read my full disclosure for more information.
Life After Paying Off Debt
After feeling like I would honestly never be able to pay off my undergraduate and graduate school loans, I did it. In less than three years. To this day, it’s one of my proudest accomplishments and most gratifying feelings.
That annoying debt is GONE.
I saved $30,000 (in interest charges) by paying off my debt early, which is definitely something to celebrate. (Yay!)
But my strategy for paying off student loans wasn’t perfect. I have one big regret.
The Debt Mistake That Cost Me Thousands Of Dollars
At the time, I didn’t know much about refinancing. I knew my interest rate was higher than I wanted (6.8%), but I didn’t know of any options to get a lower rate.
I was just starting to learn the bare minimum about all that money that was being taken from my paycheck in taxes, that retirement was something you had to save for, and how to buy a house with a mortgage loan.
But one day, I asked a teller at my local bank about getting a lower interest rate for my student loans (which were over $42,000). The look and chuckle I received was a little embarrassing, as she told me they definitely had no options for me. I had no assets, and they were not willing to give me a personal loan that large with a better interest rate.
To be honest, the bank teller’s response caught me off guard, and I felt foolish for even asking. I never spent another second looking into refinancing. I thought I was just stuck with the nearly 7% interest rate I was paying.
Now that I am free from my student loans, I realize a lot of people are in the same struggling boat I was in. So I wrote a book about how I annihilated that debt–and how you can too– (it’s called Pay Your Student Loans Fast). While researching for the book, a friend of mine with undergraduate and law school debt (wooftah!) told me how he used and recommended SoFi to get a much lower interest rate.
I had never heard of it before. Was there an even smarter way to pay off your student loans fast that I didn’t know about?!
I did some research and seriously wished I had known about options to refinance student loans with companies like SoFi a few years ago.
I did the math, and it would have saved me thousands of dollars! (Cringe.)
Now with refinancing, you have to be careful about fine print and fees. For federal loans, you may lose perks like income-based repayment plans and student loan forgiveness eligibility (neither of which I am a big fan of). And you’ll want to make sure the fees (if there are any) do not cost you more than you’ll be saving with the lower interest rate.
Refinancing is not for everyone, but with a little time investment for researching or talking to a financial advisor, you might just realize like I did that a new loan could save you thousands too.
SoFi reportedly has no fees. You get options for the length of repayment plan you want to be on. Plus, their advertised interest rate is less than half the interest rate I paid.
So, my biggest mistake when it comes to paying off my student loans is not refinancing.
I let the one quick “No” I received from my local bank teller deter me from looking any further. I paid the loans off, but I’m all about working smarter…not harder…and had I used SoFi, I would have saved thousands more. And saving thousands to me definitely fits in the working smarter, not harder file!
So, How Does Refinancing Work?
Refinancing means you finance your loans, typically with a new loan at a lower interest rate. You wouldn’t want to refinance your loans if it meant getting a higher interest rate. That will cost you more in fees and interest charges. Not smart.
With a lower interest rate, your monthly bills should be lower. If you pay the same amount you were paying before refinancing, more of your payment will go toward principal. Thus, this would lower your balance of amount you owe and allow you to pay off your loan faster.
Student Loan Refinancing Example
Here’s an example with the average student loan debt, which in the U.S. right now is around $30,000.
Let’s say you borrowed $30,000 for your college education. Your loan is at 6.8% interest, and you’re on the standard repayment plan of 10 years.
Standard Repayment Plan:
If you pay your minimum payments (no more, no less), you will pay about $345 per month for 120 months (10 years). The total amount you’d repay for your education would be $41,774. That number is calculated by $30,000 (loan) + $11,774 (interest) = $41,774 total.
Standard Repayment Plan + $100 Extra Per Month
Most people who want to get out of debt faster know they need to pay more than the minimum in order to pay it off faster. So, let’s say you decide you are going to pay an extra $100 per month toward your student debt, making your monthly payment $445. The numbers shake out like this:
Your loan would be paid off in 86 payments (versus 120). You’d repay your $30,000 (loan) + $7,897 (interest) = $37,897 total.
In other words, if you can scrape up an extra $100 per month to put toward your debt, you could save $3,876 in interest and 2.8 years of making payments. Not bad! That’s working smarter.
But it could get even better.
Standard Repayment Plan + $100 Extra Per Month + Refinancing
If you are already committed to making monthly payments of $445 and you refinance through a company like SoFi to get a reduced interest rate around 3%, you could pay off that original $30,000 loan even faster.
Let me demonstrate:
You borrowed $30,000. Your interest is now 3%. Your standard repayment amount would only be $290 (due to lower interest), but you’re too smart and you tightened your budget enough to pay $445 per month.
With this method, it’d only cost you $30,000 (loan) + $2,897 (interest) = $32,897 total. In other words, by refinancing your student loan and payment a little extra, you would save 3.8 years of payments AND save $8,877! Seriously, almost nine-thousand-dollars!
Now that’s working the smartest!
Work Smarter, Not Harder
So, while I’m still super pumped that I eliminated my student loans fast, and I’m not losing sleep over this missed opportunity, if I had to do it again (yuck, gross thought), I would definitely look into refinancing. Looking at the big picture and how much money I can save is motivating for me, and refinancing for a lower interest rate is definitely one way you could pay less for your college debt.
I have not looked into any other refinancing companies even though I know there are others out there. I recommend SoFi as a starting point for refinancing companies to look into because it’s the only one I personally know someone who has refinanced and had a really good experience with them.
I’m sure there are other good companies out there, so if you’ve had a good experience refinancing your loans for a lower rate with someone else, send me a message and let me know! You know I love to hear about ways to be smarter with money.
Whatever you do today, let your light shine,
P.S. The prepayment calculator I use to figure out these numbers can be found here and if you’re interested in how refinancing could help you pay off your student loans faster, you can start looking at SoFi here.