Our top picks of timely offers from our partnersMore details
Student loans continue to be a large financial pain-point for millions of Americans, and the numbers are staggering. According to EducationData.org, total student loan debt is valued at $1.75 trillion and is growing six times faster than the economy. 43.2 million people have student loans while the average debt load being $39,351 each. The average repayment time is 20 years.
While the majority of student loans are funded through the federal government, I unfortunately was not eligible for public student loans because my parents made "too much money". Because of this, my only option was to fund my education with private student loans from a bank. Unfortunately, 19-year-old me didn't understand what I was getting myself into. I graduated from Arizona State University with $72,669 in debt, and no idea how I was going to pay it back.
But as the student loan crisis began to balloon, a new wave of fintech companies and financial institutions began offering the ability to refinance your student loans. Even though I was buried in student loan debt I was able to fast-track my loan paydown by refinancing multiple times. I estimate I'll have paid off my student loans by the end of 2022 — only seven years after graduating.
Here's how I refinanced my student loans six times and how that helped me pay off my debt quicker.
Our best selections in your inbox. Shopping recommendations that help upgrade your life, delivered weekly. Sign-up here.
Refinancing your student loans essentially does two things: It can consolidate your student loans into one concise payment and gives you the potential to lower your interest rate — with the latter potentially saving you lots of money.
It's important to know that this solution isn't right for everyone, especially if you already have a low interest rate through public loans or are potentially eligible for student loan forgiveness. If you refinance your government loans, you'll lose protections like loan discharge or forgiveness in the case of death or permanent disability.
But if your rate is high, or you're unable to qualify for federal loans, you may want to consider private student loans and refinancing them like I did.
In many cases it doesn't cost anything to refinance student loans. Plus, the process is quite simple: Once you apply and are approved, the new lender will send the current lender the funds for the full amount of the loan. And from there, you begin paying the new lender at your new interest rate.
Let's start from the beginning: I attended two years of junior college to save money which my parents were able to finance this completely. But for the second half of undergrad my parents co-signed on my student loans.
From Aug. 2013 to Aug. 2015, I was actively enrolled in school and not focused on my student loan balance, which looking back, I should have been putting some money towards it.
In Dec. 2015, I started my first job out of college with a modest salary, and was hardly able to make a dent in the balance. In fact, the balance actually grew to $78,449, because my interest rate was nearly 7%. This was a terrible feeling to know I wasn't making any progress. So I decided to research some options and quickly found out about student loan refinancing.
Student Loan Refi #1
In July 2016, I found out about SoFi as they were one of the emerging fintech companies to embrace student loan refinancing. I decided to refinance my loans and found the process incredibly simple. I was able to lower my interest rate to 5.34% with my balance at $78,449. Additionally, I was able to refinance without my parents assistance because of my solid credit history.
And ironically enough, months later, I was offered a job with SoFi. While working there, they offered student loan repayment benefits where they paid $200 each month towards the principal balance.
However, between July 2016 and June 2018, I was still navigating my career and trying my best to increase my salary. However, I was simultaneously making poor financial decisions like purchasing a new car when I couldn't afford it. So my student loan payoff was off to a sluggish start to say the least.
Student Loan Refi #2
In June 2018, my student loan balance was at $73,976, which was still above the original principal I borrowed. But when I found a lower interest rate of 4.7% with College Ave Student Loans, I decided to refinance for a second time.
And in the same month, I got married, which allowed both of us to work hard at paying down my loans together.
Student Loan Refi #3
For a year, we dumped as much money as we could comfortably do being a young married couple. But in July 2019, I decided to refinance for a third time with PenFed Credit Union. At the time, my outstanding balance was $57,933, and my new interest rate was 4%.
At this point, I should have considered that I would have made more money investing in an S&P 500 index fund than paying off my student loans. But there is something to be said about being debt-free, and continuing to lower my interest rate became an exciting thought.
Student Loan Refi #4
About eight months later in Feb. 2020, right before the pandemic shutdowns, I received a letter in the mail from First Republic Bank, offering a mind-blowingly low interest rate of 2.2%. The refinancing process was a bit more stringent with its strict underwriting policies, but I was able to secure the loan. At this point, my student loan balance was $44,300. My monthly payment was a bit high at nearly $800 per month, but only accruing $50 a month in interest made it worth it.
Student Loan Refi #5
In the first months of the pandemic, my wife and I moved in with my in-laws for several reasons, but we were able to take advantage of seriously paying down my student loans since we weren't paying rent.
In July 2020, my wife and I told my father-in-law that we were planning to move to Florida, and begin the process of purchasing a home. And one of the ways to get approved for a mortgage with good terms was to eliminate the student loan debt on my credit report.
He paid off the remaining $25,000 to First Republic, and my wife and I would begin the repayment process to him with 0% interest. We jokingly called him the 'Bank of Scott.' However, we did have a high $1,000 per month payment.
I know this option isn't available to everyone, and I was very fortunate to get a "zero percent" interest rate.
Looking back, I should have stayed with the 2.2% interest rate from First Republic, but a mere four years ago, I was losing sleep over my student debt. And now, I finally had the upper hand, so squashing it became my goal.
Student Loan Refi #6
Unfortunately, in Mar. 2021, my wife and I divorced. So at this point, I had to figure out a way to pay off my now former father-in-law.
Ironically, First Republic Bank eliminated their student loan refinance product, and introduced a Personal Line of Credit product with a 2.25% interest rate. Again, it was a strict underwriting process but I was able to get approved in Aug. 2021 for $13,000 in remaining student debt. While this was technically higher than the 2.2% interest rate I had on the Student Loan Refinance product, I was also able to consolidate my car loan, which had a 5.62% interest rate, under the line of credit. So the savings on that loan easily makes up the difference for the 0.05% interest increase.
The final results
So after a long pay-off journey, I will not seek refinancing my student loans for a seventh time. I entered 2022 with $9,500 in student debt, and have already knocked it down under the $7,000 mark — and continuing to invest in my Roth IRA and 401(k). With interest charges at roughly $20 per month on my student loans, I'm much less stressed about paying them off. My goal is to pay them off by my birthday (Nov. 8), but if that doesn't happen, that's perfectly okay.
However, I'm glad I started prioritizing investing in 2018, because despite the bumps in the road, I have a portfolio that will grow with compound interest and become a nice nest-egg for retirement. And the gains from my investments far outweigh the small amount of interest I pay each month.
There are several factors to consider if you're interested in refinancing your student loans.
- Student loan forgiveness: If you currently hold public student loans, you're eligible for student loan forgiveness programs (such as PSLF) or other forgiveness measures passed by the federal government. If you refinance with a private lender, you are waiving all of those rights. For example, during the pandemic, federal student loan borrowers have been able to put their payments on pause, while private student loan borrowers were widely expected to continue repayment.
- Organization: When you take out public loans, you're assigned to one of a handful of loan servicers. Unfortunately, you could end up with several loans taken out in your name, which has been a frustration for public student loan borrowers. By refinancing, you will have one consolidated loan.
- Fees: While refinancing a home comes with fees, refinancing your student loans should not. Be aware of any fees your lender may charge you.
- Ability to lower interest rates: With federal student loans, you have no ability to lower your interest rate. By foregoing the potential for student loan forgiveness, you can go into the private student loan marketplace and shop around for a better rate.
- Tax deductions: If you itemize your taxes, you may want to consider the tax deduction you can receive for student loan interest paid. However, you shouldn't keep your student loans for the sake of a deduction. Currently, the maximum deduction is a modest $2,500.
Refinancing my student loans was one of the best financial decisions I've ever made. If I had stayed with my original provider, Wells Fargo, and continued to pay 7% interest at the peak balance, I would have paid $21,000 in interest if I kept the same seven-year loan repayment term. Realistically, it would have taken me 10 years to repay my debt if I wanted to keep the monthly payments manageable, making the accrued interest nearly $31,000.
While my path was not conventional, I estimate I'll have paid roughly $10,000 in student loan interest over the seven-year span — saving me over $20,000 in interest. And the best part is that each refinance was completely free as there were never fees to pay. And I never neglected investing for the future along the way.
This is my personal experience, and it may not be the best path for everyone, but being aggressive about paying down student loan debt and finding the best financial products for your needs is an important tenet in your personal finance journey.
Finally, there is an argument for putting your student loans on autopilot once you achieve a low enough interest rate and investing the money you saved. But waking up knowing you don't have any outstanding debt can be an even greater feeling.