In this post I will walk through my student loan refinance and payoff strategies over the last few years
Re-Finance Round 1
As I mentioned in my previous post (Student Loans – Part 2 – Suffering), I had a frustrating experience with my first student loan re-finance attempt. I had a decent chunk of my student loans with Sallie Mae already so I contacted them about a consolidation/re-finance. Going to list my goals out below:
- Make 1 payment to 1 servicer each month
- Previously making payments to 4
- Have a clear view of my overall loan situation
- Overall balance
- Amount applied to interest/principal
- 1 Tax form at end of year
- Lower my interest rate
- Average interest rate was 6.38%
They broke my loans out into 2 groups, Private and Department of Education loans (was already making payments to Sallie Mae for Dept. of Education Loans). I was informed early on that they would not give me a lower interest rate but I still felt it was worth it to only pay one provider and have a clear view of my situation without manually intervening. After about a month and a half, I was notified that my loans were “consolidated” with Sallie Mae and I could make payments through their website.
Wow, was I disappointed when I logged in. I still had 2 separate payments on 2 different days of the month, one was for Dept. of Education, one for Private. At least I was down to 1 provider……….
To twist the knife a little further, they did not combine my total balance for my Private loans and use a weighted interest rate average. They took 1 payment and split it proportionally across 3 mini-loans. I had to go in and look at these individual pieces to see how interest/principal was being applied.
Recap: I was making 2 payments to 1 servicer (Fail), I had to check mini-loans within a larger loan to see how my loan was progressing (Fail), Lower my interest rate (Fail)
Granted, my situation was improved, but it was not what I wanted and did not accomplish the primary goal…..Saving MONEY and TIME
Everyone once and awhile you will find yourself with some un-expected money, it is very tempting to take it and go buy something you would normally not buy…..new fishing gear, clothing, new smoker, house decorations (alternating between my wife and my recent purchases)….. but you know there is a better home for that money. Take at lease a portion, if not the whole amount and make an extra principal only payment! I have used tax returns, bonuses, employee referral bonuses, and cash gifts to help pay my balance down.
It sucks, but to make you feel a little bit better about doing it find a “How much interest will I pay” calculator on google and see how much money you will save in interest by making an extra interest only payment.
Slowly increasing Payments
This is probably the best way to get rid of your student loans (or any loan) a lot quicker, saving you thousands in interest. As I mentioned in a previous article, I was not making very good money right after college and was barely able to cover the payments. As my salary increased, I increased my payment on my student loans, not the full amount but would add half of my monthly raise to the balance (usually around $100 a month). Make sure to check with your lender that any extra payments will be applied to the principal balance, they can be sneaky.
This method also works on saving money, will write about that in a later post.
Between bulk payments and slowly increasing my monthly payment, I was under 50K in student loans after 4 years….. still not in a good situation but I was a lot better off.
Student Loan Refinance Round 2
My high interest rate was still bothering me every month and after reading an article on another financial blog, I found out about Sofi. Sofi (Social Finance, Inc) does student loan refinances (among other types of loans) for students that meet certain criteria (I will provide a link at the end of the post). I immediately noticed this sentence “Refinance and consolidate federal and private loans” and promptly started filling out my application.
The initial application process is pretty easy, provide general background information, enter your loan balance, school and employment information and that is enough to get started.
After you enter the above information, you will get your rate, if you continue with the application you will be able to select the loan length, then submit documents from your current servicer with payoff information. I had a hard time getting payoff information on the Sallie Mae site, so I had to call and request it (not immediately available) and they e-mailed my information over. After I signed my acceptance packet (electronically) with all my information the process started and I didn’t really have to do anything, SoFi took care of the rest. Their website is solid and provides status updates on you application (something I am used to calling in for) and after about 3 weeks my old servicer was paid off.
The best part…… a brand new interest rate of 3.85% (with auto-pay)
I chose a variable rate, and the 5 year repayment plan (get the lowest interest rate with this combination). If you are currently on a longer repayment plan, you can probably move down to the 5 year and still afford the payments due to the lower interest rate.
Loan amount at time of refinance: $44,437
Sallie Mae monthly payment: $978.11
Sofi monthly payment after refinance: $820.40
Important to note, my repayment plan on Sallie Mae was technically longer than 5 years, but I had pumped up my monthly payments to drop my balance further.
Interest on Sallie Mae loan $6,560.83
Interest on Sofi loan making minimum payments: $4,457.19
My payment was cheaper, and I would still save $2,103.34 in interest
Current Student Loan Payment Plan
I am 6 months into my Sofi repayment plan and couldn’t be happier, my interest rate has fluctuated slightly but still has not went above 4.05% with the auto pay discount.
Since I was already used to paying close to a $1000 a month I decided to keep paying that amount and burn this down even faster. with that extra $180 a month dropping off my principal it will only take me 4 years and 1 month to pay off my loans (actually shorter because I have made a few extra bulk principal payments).
Interest on Sofi loan making $1,000 payments: $3,582
From my original $44,337 loan, I will save $2,978,.83 (again this will be slightly more since I have made some bulk payments and will continue to do so).
There is some risk in selecting a variable loan and the above numbers will definitely be different when everything is done. I am very comfortable with the risk since it is such a drastic difference and even if my loan slowly creeps back up to or above 6.38% it would not offset the savings I am experiencing up front. If you are not comfortable with a variable rate, I recommend looking into SoFi’s fixed rate loans.
FAQ page is on the bottom
I know there are other student loan refinance companies similar to SoFi, however I do not have any experience with them so I am not going to list them in this article
Start an application on SoFi and see if you can get a lower interest rate! Has anyone else used SoFi or another refinance company and had a similar success? Do you do anything else to speed up your student loan repayment? For those of you that have already paid them off, what do you do with the extra money?