A few short years ago, I was stuck in a deep tunnel of student loan debt with no light to be seen at the end. Though I faithfully made (very large) payments every month, I never seemed to get anywhere on my principal balances.
One day, I realized that if I didn’t do something, I was going to be in student loan debt for the rest of my life. So I took a leap and refinanced all of my loans into one large loan. By doing so — and making a few other tweaks — I was able to get out of student loan debt nine years early … and for $41,000 less.
Here’s how I accomplished it and why you should take that leap much sooner than I did.
How It Happened
Though I am a finance writer now (and working toward my CFP® designation), I once planned to be a doctor. So when I was offered a scholarship from a private university with an exceptional pre-med program (Sic ‘em, Bears!), I jumped at the opportunity even though that funding only covered a portion of my actual obligation.
My parents couldn’t afford to cover the difference between the scholarships and my tuition/living expenses, but student loans made it all possible. Eager, 18-year-old me never even thought twice about signing on those Sallie Mae dotted lines and then doing so again and again as each semester’s bill came due.
I truly never understood the impact that those loans would have on the next 15 years of my life.
By the time I walked the stage for my bachelor’s degree, I had accumulated just over $79,000 in deferred student loan debt. And now that I graduated — and decided to pivot away from medical school — it was time to begin paying all of that back.
Tip: Finding extra money to pay down debt is easier when you know exactly where your dollars are going. Use Personal Capital’s free tools to get your finances in order. Read more about how it works in our Personal Capital review.
Decades’ Worth of Student Loan Debt
A handful of my student loans had been federally-backed, including some Stafford and Perkins loans. My sweet stepdad paid those off; as generous as his offer was, though, it still left me with a lot of private student loan debt and a hefty monthly payment.
I began making payments on each of those remaining loans — nine individual accounts, to be exact — to the total tune of $678 a month. As a 20-something just beginning her career (not as a doctor), this was admittedly pretty painful.
I got married, had two children, started a small business, and bought a home, all while being burdened by that enormous payment month after month. After all, what choice did I have? Sallie Mae (and then Navient) owned my soul.
About six years after I graduated from college, I sat down with each of those loan accounts and did some math. After nearly 70 payments, I had contributed over $47,000 toward my student loan debt. Imagine my shock and horror, then, to learn that only $19,000 of that had even gone toward principal balances.
All of the rest went toward interest.
I suddenly realized that something had to be done. If I continued making payments on those loans, I would eventually climb my way out of debt, but how much time and money would that cost me in the end?
Refinancing had always seemed like a complicated, daunting process. But now that I realized just how much money was thrown away over the years, it was time to bite the bullet and just do it.
How I Saved $41,000 on my Student Loans
You’ve already read the title of this article, so I’ll go ahead and throw out the punch line: the decisions I made wound up saving me a total of $41,000 over my remaining student loan repayment. I also saved myself from nine additional years of student loan debt in the process.
How did I do it? Well, refinancing was by far the most impactful part, saving me tens of thousands of dollars off the bat. I also implemented two other money-saving strategies, though, that didn’t put any additional strain on my finances.
Here’s a look at what I did and how I did it:
I Refinanced My Private Loans
Like many college borrowers, I graduated with a handful of private student loans. Each had its own balance and interest rate, and some even have different due dates … it was a mess.
Because these were private loans, the interest rates were much higher than if they’d been federally-backed loans: I was currently paying between 10% and 12% on those remaining balances! That needed to change.
I spent about a week shopping around with various student loan refinance lenders to find the best rates and terms possible. This included applying through student loan lender marketplaces, such as Credible, and with individual lenders like SoFi.
Once I found the best offer, finalizing my loan was easy. I sent along the required documentation, signed my loan agreement, set up auto-pay, and I was officially refinanced!
I’ll be honest, the process was much easier than I had expected. Applying with various lenders took me about two hours; once I chose my perfect loan, everything was finalized within two days.
In the end, I refinanced just over $44,000 in remaining private student loan debt. If I had continued making payments as scheduled — with the interest rates I had before — this debt would have cost me about $88,000 total. It would have also taken me another 14 years to make that last payment.
With my new loan, however, I was able to choose a five-year repayment term, getting me out of debt nine years sooner. If I made all of my payments as scheduled, this new loan would cost me just under $49,000 in the end, only about $4,500 of which went toward interest.
To summarize, refinancing my student debt allowed me to:
- Consolidate all of my loans into one easy account with a single monthly payment
- Lower that monthly payment by a few dollars
- Drop my interest rates (which had been as high as 12.00%) down to 3.29% fixed
- Knock nine years from my repayment schedule
- Trim off about $39,000 in interest
If your jaw hit the floor over those numbers, imagine how I felt. My only regret about refinancing is that I didn’t do it years earlier to save even more.
But I wasn’t done.
I Cut Expenses and Used the Savings to Pay Faster
As happy as I was with those refi numbers, they only motivated me to do even more. So I decided to also attack my household expenses and put any extra savings I could find toward my student loan balance.
For us, this meant cutting the cord. By replacing our cable service with streaming services and on-demand subscriptions, we were able to save $76 each month. (And I’ll be honest, we haven’t really missed cable ever since.)
Then, I tackled our monthly cell phone bill. Since we had been with the same provider for nearly a decade, I called and asked what they could do to lower our payments. They switched us to a brand new plan, added some loyalty discounts, and boom: another $57 saved each month, just for asking.
Between the two bills, I was able to find another $133 a month that I could put toward my student loans. All said and done, those extra principal payments saved me another $800+ in additional interest.
Adjusted My Payoff Approach
My last approach is a great idea for anyone with student loans, personal loans, and even home mortgages, as long as your lender allows you to do so. It just involves making bi-weekly payments instead of monthly ones.
Rather than paying $668 each month on my new student loan, I chose to make $334 payments every two weeks. My lender applied those payments as soon as they were cleared, which helped to lower my principal balance just a few days earlier.
While the savings weren’t dramatic, it did trim a bit of interest off the total loan each month. This repayment method saved me even more, however, because it tricked me into making an extra payment each year.
When you pay every two weeks instead of once a month, you’ll actually send in 26 biweekly payments. This equates to 13 full payments a year … but since they are spread out, you don’t feel the pinch of that extra contribution. Your loan balance feels the impact, however, and will save you both time and interest as a result.
I will be making my final student loan payment in a few short months, nearly a decade sooner than originally scheduled. While my educational debt has been a very expensive lesson, I’m so glad that I decided to take charge of my loans before another day went by.
Before refinancing my high-interest student loan debt, I wasted tens of thousands of dollars in interest. By setting aside my fear and hesitation, though, I was able to save myself what would have been another $40,200 in future interest, and get out of debt nearly nine years early.
Want to Get Started? These Tools Can Help
Credible is a great place to started searching if you’re ready to refinance your student loan. Credible can show you several options from various lenders so you can easily compare rates. Read more about it in our Credible review.
Earnest is a private lender offering student loan refinancing with an added bonus of payment flexibility. Earnest offers borrowers over 180 repayment term options. You’re sure to find the right refinancing loan to fit your budget here. Read our review here.
Ascent is a private lender offering non-cosigned, future income-based loans. Ascent doesn’t offer student loan refinancing but we mention them because if you’re in need of another student loan in the future, you’ll want to check them out to see what they can offer you. Read more about Ascent in our review.
Things to Keep in Mind
If you have federal student loan debt, refinancing is something you need to think long and hard about. That’s because federally-backed loans usually come with lower interest rates, which you may not be able to beat with a private refinance.
More importantly, though, federal student loans come with certain borrower protections, such as deferment and forbearance. They may also offer qualifying borrowers the opportunity to have their loans forgiven if they work in certain industries or as public servants.
Additionally, in times of hardship — like the current coronavirus pandemic — the government has the ability to pause federal loan repayment and even drop interest rates to zero. If you refinance those federal loans into a private loan, you will lose all of these protections and features.
With that said, if you currently have private student loan debt, a refinance loan is at least worth considering. At a minimum, it can allow you to consolidate your balances into one easy account with one simple interest rate, and even remove a cosigner from the loan.
In some cases, though, you may be able to save yourself thousands of dollars and years of debt repayment. And if you’re like me, that could change your life.