Refinance Sooner Rather Than Later

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Paying off student loans is a battle.  It’s a battle fought against multiple enemies while running a marathon.  Sounds difficult, but it takes consistent work and sacrifice for new professionals to become debt free.

In any battle, you need a good strategy and weapons.  Ideally, Matrix amount of weapons:

One weapon I should have used sooner is student loan refinancing.  In my case, it saved me a lot of money.  And if you have a nice chunk of student debt, it can save you a lot of money too.

How much?  Let’s take a look.

Simple case study

Let’s look at the case of a medical school graduate with a run of the mill $100,000 of student loan debt.  To keep things simple let’s assume this is one giant loan with an interest rate of 7% and a 25 year payoff.

And let’s also assume this particular graduate is a big spender and has no extra money to put towards student loan payments.  (I’m going to have a talk with him later about priorities)

With help from this handy student loan calculator, here’s how much this graduate will owe with these initial terms:

Original loan: $100,000

Interest rate: 7%

Minimum monthly payment: $706.78

Total interest paid: $112,033.35

This doc would have to pay a total of $212,033.35 on a $100,000 loan!  That’s one expensive education.  He would have to shell out over $700 every month for 25 years.  That does not sound like a good time.

Now let’s see how he would have fared if the student loan was refinanced at a lower rate of 4.5%, which is pretty average nowadays for a fixed rate according to SoFi:

Original loan: $100,000

Interest rate: 4.5%

Minimum monthly payment: $555.83

Total interest paid: $66,750.38

Through a simple student loan refinance, our doctor lowered his monthly payment by over $150 and reduced his total interest payments by more than $45,000!

Why in the world would anybody not want to take this deal????!!!!

Even if you’re eligible for a government program like income based repayment, these types of programs will almost always have you paying more in total interest payments.  I would much rather get my student loans refinanced to the lowest interest rate possible and then pay them off quick.

Very Easy Process

I graduated optometry school in 2009.  Doesn’t seem like a long time ago, but when it comes to student loan refinancing, it’s an eternity!  There were very few companies around and the process usually required physical paperwork.  Smartphones were not even a big deal back then so that should tell you something.

Today, there are so many companies that will refinance your student loans.  I continue to get emails and letters from these companies.  And many of these companies are very good.

There are two companies in particular who I feel are the best.  They are SoFi and Earnest.

I have personally refinanced student loans with both of these companies and they are listed #1 and #2 on the popular comparison website Magnify Money.

Refinancing with these companies is done completely online and is very streamlined and simple.  I walk you through the experience in a previous post here.  It’s easy enough to open an account and poke around just to see how easy the process really is.

Honestly, unless you’re getting total student loan forgiveness, there is no reason anyone with student debt should forgo the refinancing option.  It costs nothing to get some quotes and more likely than not, you will find an option to lower your interest rate.

Conclusion

Paying off student loans isn’t complicated.  Consolidate your loans if that makes sense from an interest rate point of view.  If not, pay off your highest interest rate loan with reckless abandon while paying the minimum payments on the rest.  Then move on to the next highest rate loan.  Rinse and repeat.

To make this easy process even more effective, refinance your high rate loans.  This will accelerate your loan payoff process and get you debt free even quicker.

Getting your student loans refinanced early in your career will provide the most bang for your buck.  This is the time your balance will be highest which means higher potential interest payments.

Being debt free requires resilience and consistency.  And a little help from others never hurt:

Check out your rate with SoFi.  You will receive a $100 bonus if approved for a refinance.

Also, check out Earnest.  You will receive a $200 bonus if you are approved for a student loan refinance.

My advice is to get a quote from both companies and see what the best deal would be.  Both companies use different underwriting methods so you don’t know what you can get unless you try!