Read this article if you’re looking to refinance your student loans but aren’t sure which borrower benefits you actually need.
Estimated read time 10 minutes.
Refinancing your student loans can slash your interest rates and save you thousands and even tens of thousands of dollars in interest. For those who qualify it’s a no-brainer. You can keep making the same monthly payment and see each payment get you closer to your debt free dream. There are a multitude of student loan refinancing companies out there. So how do you decide which company best suits your repayment style? This article will discuss the various borrower benefits offered by refinancing companies and describe the folks who need them.
Loan Forgiveness Upon Death
This is a borrower benefit attached to all federal student loans. Essentially if the borrower dies the remaining loan balance is forgiven. That means no one can go after your estate or living family members to get the money to repay the balance. Some refinancing companies offer this benefit while others will collect the money from your co-signers or estate. Most refinancing companies have insurance and will go to their insurance rather than dragging the money out of your living relatives.
Do you need to refinance with a company that offers loan forgiveness in the event of borrower death?
If you don’t carry enough life insurance to cover the cost of your funeral and end of life expenses (other debts) plus the cost of your student loan debt you should choose a company that offers the benefit of loan forgiveness upon borrower death. If something tragic were to happen to you it would make an awful situation worse by leaving your family to repay your debt.
Companies that offer loan forgiveness upon borrower death are: Earnest, DRB, RISLA, CollegeAve, SoFi, EdvestinU, and Citizens Bank.
Companies that don’t offer loan forgiveness upon borrower death or offer restricted loan forgiveness upon borrower death are ELFI, CommonBond, iHELP, and LendKey.
Flexible Monthly Payments
Federal loans carry many different repayment plan options. This gives borrowers maximal flexibility to adjust their payments to their financial situation. When refinancing student loans repayment plans are eliminated and you are left with the monthly payment and term of your loan as decided in your contract. Some refinancing companies offer the opportunity to reassess your monthly payment and change it if needed while others remain rigid and adhere to the terms of your loan.
Do you need to worry about the flexibility of your monthly student loan payment?
If you have unpredictable income you may be better off choosing a company that offers more flexibility. It should also be noted that unpredictable income is a reason to consider keeping federal loans instead of refinancing because federal loans offer the most gracious repayment plans and periods of forbearance for financial hardship.
Companies that offer the option to change your monthly payment are: RISLA, Earnest, and iHELP.
Periods of Deferment and Forbearance
Deferment is pausing monthly payments generally without the accrual of interest while forbearance is the ability to pause monthly payments while interest accrues. Generally when refinancing companies offer the ability to pause payments interest continues to accrue on the loan. Education related forbearance and deferment are attached to all federal loans. That means if you enroll at least half-time you’re able to pause payments on your student loans (interest accrues on unsubsidized loans).
Do you need to worry about being able to pause your monthly payments?
If you’re considering returning to school in a way that decreases your monthly income (i.e you stop working or drop down to part time) you need to be sure to refinance with a company that offers this benefit. It will come at a cost as interest will accrue in most cases throughout the period of paused payments.
Companies that offer the ability to pause payments for education are: Earnest, SoFi, CommonBond, Citizens Bank,
Companies that offer the ability to pause payments in the case of financial hardship are: Earnest, SoFi, CommonBond,iHELP, EdvestinU, Citizens Bank
What are the benefits you’ve got to have in order to refinance your student loans? Let me know in the comments below or on the Repayable Facebook page.
The links to the refinancing companies in this article are affiliate links. That means if you follow this link and choose to refinance your loan we will both get money. I want you to choose the company that makes the most sense for you and gives you the best interest rate while also meeting your benefit needs as a borrower.
Refinancing student loans is a great way to make your money work for you by paying less interest. A lower interest rate means more of your payment goes to principal. This strategy gets you out of debt faster with no additional financial sacrifice on your part. So what’s the catch? It seems like it’s too good to be true, but it’s not, as long as you do your homework.
Remember, student loan debt is a 1.4 trillion dollar market. The companies that offer refinancing have a lot of money to make, even at interest rates lower than your federal rates. Refinancing companies also cherry-pick the best borrowers so they can take the least risk and earn the most money. The business model makes sense and fits the market.
Of the multitude of companies vying for your debt, how do you bring the best to the top? I propose emailing each refinancing company’s customer service department and asking the following questions.
How does your company protect my financial information and identity?
This question is there for your own peace of mind. You provide a lot of sensitive personal identity and financial information to these companies so you want to make sure they are diligent about keeping that information protected.
Are there any application fees or fees for early repayment?
Don’t pay these fees, ever. If a refinancing company has either of these, cross them off your list of options.
What borrower benefits does your company offer?
This is the goldmine of information. Many companies will have this information somewhere on their website but it’s helpful to get a succinct list. These benefits can be the tie breaker for companies offering similar refinancing rates.
After I refinance my student loans with you, will your company sell my loan to another company?
This question is important because you want your loan to stay with the same servicer so you get the same benefits you vetted them for in the first place.
What happens to my loan if I die?
Federal student loans are discharged (aka forgiven) if you die. However, that isn’t always the case with private lenders or refinancing companies. If you have a co-signer it’s likely they will have to repay your debt and perhaps the total bill all at once. This answer determines a lot of your financial planning. Essentially, if your debt will not be discharged upon your death you need a term life insurance policy to cover the balance.
An important note, if you or someone you know is in a crisis, whether or not you are thinking about killing yourself, please call the National Suicide Prevention Lifeline at 1-800-273-TALK (8255).
How are extra payments allocated?
You want to know if your extra payments are allocated to principal only or if they’re allocated to principal and interest. This isn’t so much a deal breaker as it is information you need during repayment. Some companies will have continuously accruing interest and your extra payments will first be applied to the interest that has accrued since your last payment.
What happens if I need to adjust my monthly payments?
This question gives you a sense of the companies flexibility with monthly payments. It’s important to know the steps you need to take in order to adjust payments in case that scenario arises. Many companies offer the ability to change your monthly payments if you need to. If you anticipate inconsistent monthly income this is a crucial question.
If market interest rates improve, can I re-refinance through your company for a better rate?
If the market interest rates improve dramatically it’s nice to have the option to lower your rate to match. On the flip side, if you choose a variable interest rate it’s nice to know if you can change to a fixed rate if the market interest rate starts to jump up. Follow-up questions to go with this include: “What are the requirements for re-refinancing and how do I do that?” and “Is there a fee for re-refinancing?”
Student loan refinancing seems to good to be true. I mean how can anyone legitimately slash your interest rate and save you thousands of dollars?! It has to be a scam… right? Nope, it’s not a scam you can refinance with reputable companies and save yourself thousands of dollars, but how do you make sure you don’t goof up? Read on for four traps to avoid and four ways to get the best refinance.
*All Earnest links are my personal link. If you refinance with Earnest using the link we both get $200. I didn’t choose Earnest for the $200 referral. I chose them because they met my personal standards and gave me the best interest rate.
1. Avoid refinancing if you’re hoping to take advantage of loan forgiveness options.
A refinanced loan is a private loan. Existing loan forgiveness options are for federal loans so you would eliminate your eligibility.
2. Avoid extending your repayment period when you refinance.
Refinancing student loans is a way to repay your debt faster and more efficiently by decreasing your interest rate. Don’t use it to stretch out your repayment period or your mitigating those benefits.
3. Avoid any company with application fees, loan transfer fees, or fees for early repayment.
There are many good companies that don’t have these so don’t settle for any company that does. Your money is yours, keep it.
4. Avoid losing the borrower benefits you still need.
What borrower benefits do you need? If you’re thinking about going back to school refinancing might not be the best option because it doesn’t allow the same amount of flexibility in terms of payment deferment as federal loans. Some companies will defer loans for up to 18 months.
Get the best student loan refinancing.
1. Check out the eligibility requirements of the company.
Most lenders offer refinancing for both federal and private loans. Many lenders have minimum credit score requirements, annual income requirements, and minimum lending amounts. Some have maximum lending amounts. Find at least two or three companies whose eligibility criteria you meet.
2. Compare borrower benefits.
Choose two or three companies with the borrower benefits that matter most to you. Benefits to consider include unemployment protection, entrepreneur program (SoFi), refinancing and ability to change monthly payments (Earnest has the most flexibility), and a company that doesn’t sell your loans.
3. Choose the refinancing term and monthly payment amount that are best for you.
Some companies (like Earnest) offer ultimate flexibility in choosing monthly payment amounts. Others have set terms of repayment so you’ll want to pick the term and monthly payment that make the most sense for your financial picture.
4. Submit your application & choose the company that gives you the lowest interest rate.
You already did the vetting of each company on the front end. All that’s left for you to decide is which interest rate is lowest.
That’s your quick and dirty guide to refinancing. If you avoid the four traps and follow the four steps to get the best student loan refinancing you’ve got your bases covered. Let me know what’s stopping you from refinancing in the comments below or on the Repayable Facebook Page.
Repayable is out now and has an entire chapter dedicated to refinancing that will serve as your definitive guide. Order your copy today and being the path to student loan liberation!
“Hello, my name is Jeni and I have a mountain of student loan debt.” “Hello Jeni.” reply the millions of millennials drowning in debt.
I know my education was an investment in my future and this post isn’t here to whine about the high cost or to dictate what ought to change about rising costs and increasing debt. Today’s post is here to show you how to break free from student loan interest rates that are bankrupting you.
Let me take you back to January 2016 when I was filing my taxes. It was my first entire year making pharmacist pay and really taking it to my student loans. Ha! I’ll show you student loans! I shouted victoriously as I chucked thousands of dollars per month at the formidable loans. As I filed on Turbo Tax I pulled up my 1098-E and this is what I saw.
Do you see how much interest I paid Navient in 2015? Nearly $14,000 !?! Oh well I thought to myself At least the government is going to owe me a bunch of my tax money back… Haha oh how delusional was I? Turns out there’s an $80,000 cutoff for individual income. If you make over that, you can’t deduct your student loan interest… Now I was livid.
I was gonna find a way to fight this injustice. My federal loans were sitting pretty at 6.55% interest. I spent so much money on this debt and still owed six figures!
So I started looking around at refinancing options. They all seemed kinda sketchy and unreliable to me. I checked out a few options which had specific terms of repayment, fees for transferring loans, and early repayment fees all for a measly 1% interest rate discount and just weren’t worth it for me.
Then a friend (thanks Travis!) recommended I check out SoFi. Which I immediately did. I put in my income information and got quoted at about 5.4% for a fixed rate and about 4% for a variable rate… Now I was on to something. While these were lower rates they still weren’t good enough to entice me.
Then it happened. I was listening to Grammar Girl (one of my fav podcasts!) and she started talking about student loan refinancing through Earnest. So I decided to check it out and it’s the best financial decision I’ve made in a long time!
(Use these links and we both get $200 when you refinance)
Step One: Get an Estimate
You want to make sure that refinancing makes sense for you so go to earnest.com using this link (so we both get $200). And right away on the home screen click the 2 min get your rate box.
When you click the button you’ll have to fill out this form with identifying information (name address), income information, student loan balance, assets, rent/mortgage, college information (name of college, degree, and graduation date). You’ll also have to create an account using your email address and provide your social security number so they can do a soft check of your credit (soft means it won’t show up on a credit report).
After that you click “get your rate”. Soon you’ll have an estimated interest rate. Mine was 3.36% variable and 4.7% fixed.
Step Two: Ask Their Friendly Customer Service Anything
So, you’ve got your rate estimate and have decided that it makes sense for your to refinance. But now you’ve got a million questions… well at least I did. I immediately contacted their customer service via email. Amazingly they responded to me that day! And multiple times. I exchanged at least 10 emails with a variety of questions about early repayment, penalities, transfer fees, how to make extra payments, fixed vs variable interest rates.
Step Three: Fill Out Your Profile
There are four main areas of your profile (aka your loan application). In your profile you will provide information about your education, employment, finances, and personal (DOB, address, etc). I was required to upload a picture of my driver’s license but otherwise it was super easy.
**A quick note for any other pharmacy folks out there. I had to do something non-intuitive when entering my education. I only completed two years of pharmacy pre-requisites in undergrad and never obtained a degree because I got into pharmacy school right away. That meant I had to list the University of Iowa as a bachelor’s degree and then select “transferred” instead of completed. Then select the University of Iowa again and enter my Pharm.D. If you get stuck just open up a chat or send a quick email. The customer service at Earnest helped me figure out why I couldn’t enter my education and solved the problem for me.
Step Four: Submit Your Application and Wait for Approval
Earnest will turn your application around quickly. For me it took just over 24 hours. They gave me final rate estimates for fixed vs variable and then it was time to decide to move forward with refinancing.
Step Five: Choose Your Payment Amount
One of the coolest things about Earnest is it’s flexibility. After you’re approved you can see the effect of changing your monthly payment on interest and duration of repayment. There’s a cool slider that you move to change your monthly payment and it will show you the estimated interest rate along with the time ’til payoff. It’s a super handy real-time way to see the financial impact of increasing or decreasing your monthly payment amount. Not my slider below, though I wish it was… add a zero on the end of the payment amount and that’s what mine looked like 🙂
Step Five: Choose Fixed or Variable Interest Rate
This can be a personal decision and may be based on your personal risk tolerance. There’s a handy FAQ which has a ton of helpful information about the application process. There is a specific FAQ about choosing variable vs fixed rate which I found very helpful. Essentially it tells you that the variable interest rate is determined by the 1-month LIBOR index (see link for historical rates). I’ll walk you through my thought process behind choosing a variable rate but you should make the decision that’s best for you.
I plan to repay my student loans by the end of 2018 (lofty goal I know since I have ~$98K left). The LIBOR index has been <1% since late 2008. It continues to approach 0%. Interest rates like these are based on inflation. Which right now is also very low. So in terms of market stability I think the risk of my variable interest rate shooting up to the capped 9.95% is low.
My variable interest rate is 3.36% vs 4.7% fixed rate. So that means every month on a variable rate I’ll have to pay about $275 in interest and if I choose the fixed rate I would pay about $385. As more time passes I will save more money so if the variable rate increases it would have to increase a lot for me to have made an unwise choice. Another thing I considered was in order for refinancing to have been a bad choice my variable interest rate would have to nearly double…
Final Steps: Link Your Accounts,Upload Statements, Sign
Your last steps will be entering the account and a routing number for the checking account your monthly payments will be made from. Then you enter your existing loan servicers and determine the 10-day payoff amounts for your loans. Then you upload your most recent loan statement, even screenshots are good enough as long as they have current balance, interest rate, account number, and date.
Then if everything looks good to you all that’s left is to review the terms of your loan agreement, electronically sign the document, and submit it.
That’s it! You just halved your student loan interest rates! Way to take control of your financial security 🙂 Tell me what you’re going to do with the thousands of dollars you no longer have to spend on interest in the comments below or in the Millennial Maxims Facebook Group.
In today’s post I talk about how I paid off $132,000 of student loan debt. I share the exact amount I paid and the six year history that got me here.
Estimated read time ~ 10 minutes, estimated watch time ~6 minutes at 1.5x.
How it all started.
I took out $118,000 for 6 years of public in state school to get my Pharm.D. which I graduated with in May 2013. My federal student loans had an average interest rate of about 6.5%. After graduation I had $10,700 of capitalized interest added on to my debt.
May 2013 Student Loan Balance: $128,700
Repayment during residency was tough.
I made small income-driven payments as a pharmacy resident because that was really all I could afford on a resident stipend. Despite these payments, I couldn’t keep up with the interest and had $3,300 of capitalized interest added on to my debt. My highest point of student loan debt was $132,000 in July of 2014.
July 2014 Post-residency Balance:
$132,000
When I finished residency in late June of 2014 and finally started making pharmacist salary I really started trying to wipe out my student loans with a vengeance. The fact that I had paid about $4,000 toward my student loans during residency but my loans went up by $3,300 really frustrated me. So I knew the secret was to make high payments, pay extra, and work fast.
All in all in the calendar year of 2013 I paid $2,600 toward my student loans. And in the calendar year of 2014 I paid $12,741.50. During the calendar years that I was a student & resident I paid a total of $15,341.50 toward my student loans. Unfortunately because of capitalized interest I had accrued $19,591.49 of interest…. sigh.
My first year making real pharmacist salary.
Moving on to 2015. In my eyes I was finally making bank as a pharmacist. Earnings are all relative, to this day I feel loaded compared to resident salary and working two jobs as a student to scrape by. I went to school for so long and paid so much to make good money and I’m so grateful I’m able to earn such a comfortable living. Anyway, making good money meant I could really go after my student loans with serious effort.
In the calendar year of 2015 I paid $24,548.32 toward my student loans. And it felt like a lot of money. Of those payments, $7,409.80 went to interest. So if you combine 2015 with the previous years, I paid $39,889.82 toward my student loans, and $27,001.29 went to interest.
2015 Student Loan Payments:
$24,548.32
Despite the fact that I had paid nearly $40,000 over the past 2.5 years since graduation I had only reduced my principal by less than $10,000 ($9,888.53 to be exact). I was frustrated & beaten down but knew there was only one way out and that was forward.
The tax deduction that started it all.
In 2016 I remember filing my 2015 taxes, and submitting the tax form to claim the interest deduction on my student loans. I wasn’t a particularly savvy borrower and didn’t know a whole lot about the deduction, other than I filled in the box on TurboTax. But this year, when I filled in the box, I got a wakeup call.
I couldn’t claim the deduction because I was above the individual income cap. I lost it, I screamed at my laptop as though my rage could melt this ridiculous limit out of tax law. The only reason I made above the individual income cap was because I busted my ass in school and took out six figures of student loan debt to become a pharmacist. The government was taking my money twice, first when they taxed my income, and second when they collected thousands of dollars of interest, I was furious.
I felt like was working hard and getting screwed. Come on! I had paid so much toward my student loans… for what? To see the balance decrease by under $10,000… there had to be a better way!
This frustration started my entire journey to becoming a savvy repayer and dedicating myself to developing student loan repayment expertise. Because of this incident, you’re reading this very blog!
It turns out there was a better way, but I wouldn’t discover that until later in 2016. So for now I continue making extra payments and trying to really tackle my student loans.
Time to lower my interest rate.
In 2016 I paid Navient $10,500 (just under $3,000 was interest) before I refinanced my remaining $99,000 of student loans with Earnest for a 3.36% variable interest rate. I found out about refinancing from a friend and started researching. Ultimately, I got estimates for a few different companies and then chose Earnest and a variable interest rate because it was significantly lower than the offered fixed rate (around 1.2% lower) and I knew that if it started to creep up I would refinance again.
If you’re reading this and thinking about refinancing be sure to start with the Student Loan Refinancing Strategy Guide. Refinancing was the right choice for me but might not be for you.
2016 Refinancing Details:
Balance: $99,000
Interest rate: 3.36% variable
So for the second half of 2016 after refinancing I paid $14,000 toward my student loans, but unfortunately don’t have documentation of the amount that went toward interest. My 2016 grand total was $24,500 toward my student loans.
2016 Student Loan Payments:
$24,500
The year of the fence.
In 2017 my boyfriend at the time (now fiance) bought a house, no homebuying for me since I still had a mortgage worth of student loan debt. We decided to fence in the yard for my dog Link, that meant some tree removal and the cost of a fence. We split the costs evenly but it was still thousands of dollars.
Look at that face!
I’m happy we spent the money on the fence. Link loves the yard and I love not having to let him out on a leash in whatever undesirable weather we’re having.
Link is really important to me, I love him dearly. It makes me so happy to play fetch with him in the yard and see him running around sniffing to his heart’s content. Money spent on the fence was money I couldn’t use to pay down my student loans. A worthwhile exchange for me, because that spending still gives me a lot of joy.
My variable interest rate had crept up to just over 4%. So in July 2017 I refinanced again, this time locking my remaining $73,000 in for a low fixed interest rate of 3.37%. But with all the money I spent on a fence, my student loan payments suffered a bit in 2017. I paid $24,000 toward my loans that year.
2017 Refinancing Details:
Balance: $73,000
Interest Rate: 3.37% fixed
Student Loan Payments: $24,000
2018 was the year of the rally.
I looked at my remaining balance and realized I could be out of debt before I turned 30. So I set a new goal and started ramping up my payments to make sure I paid my student loans off before August of 2019.
A few things really helped me tackle my debt in 2018. The first, was a new job with a significant salary increase. The second was the nearly 300 hours of PTO I cashed out when I switched jobs. That money helped me pay for my wedding and my student loans.
In 2018 I put $44,000 toward my student loans. I was paying the lowest amount of interest ever and the principal balance was dropping fast.
2018 Student Loan Payments:
$44,000
In 2019 I finished this thing!
So here we are in January of this year. I’m starting out with a student loan balance of just over $22,000 . After six years of repaying my student loans, I realize I’m finally going to pay them off!
I finished my student loan journey by paying $22,500 in 2019 toward my student loans and only $180 in interest. I made my last student loan payment ever July 3rd 2019. I’m finally free and I can’t believe it!
My freedom face on the 4th of July!
Just over six years after finishing pharmacy school I paid $154,585.55 on my student loans. For me, this repayment pace had some balance. I repaid my debt fairly quickly and sacrificed some things to do it but was also able to travel a little and spend money on what mattered most to me.
Where are you at in your repayment journey? Leave me a comment below or on the Repayable Facebook page. I love hearing from my fellow repayers. Student loan repayment is a long road and the time goes by better with company!
*A quick note about the numbers. Some of my student loan repayment history is incomplete. I don’t have complete records from the lenders during my entire repayment period, especially early on and in the middle when earnest was bought out by Navient. I relied on bank statements to see how much I paid over time, but couldn’t see the amount of interest and remaining loan balance.
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