After graduating college and coming to terms with my student loan debt I figured I should share what I learned about paying them back. To be upfront I am going to be discussing two student loan refinancing companies that will give me (and you) a bonus if you happen to use either one of them. There are many different banks and companies that offer refinancing and you should definitely shop around and find what works best for your situation. I'm only discussing companies that I've directly taken loans from so I can give a realistic representation of what they offer.
Assess Your Situation
First off, document all your individual loans. Look back on your financial aid statements for each semester so you have an exact record of all the federal loans that were issued to you. Do the same for any private student loans you took out. For each loan make sure you have the date it was disbursed, the principal (original amount of the loan), the interest rate, whether the loan is subsidized, and the date the first payment needs to be made.
With that information calculate how much interest will accrue on each loan. Once you combine the interest accrued with the total principal you'll have the total balance for all your student loans.
Decide Which Loans to Refinance
This is where all those banks and loan companies come into play. You need to go and see what interest rate you'll get when you refinance. I shopped around a ton of places and LendKey gave me the lowest fixed interest rate. However, it turns out they didn't refinance ParentPlus loans because they weren't technically in my name. I ended up getting my ParentPlus loans refinanced with SoFi. Once you get your rate go back to the list of loans you've taken out and see how many of them have interest rates above the rate you were quoted from one of the companies (this will be referred to as the refi-rate). Those will be on your list to refinance.
If you have a good job out of college that pays well and you feel is relatively secure, refinancing all your loans above your quoted refi-rate may be a good option. If that isn't the case for you, federal loans might be ones you leave off the refinance list. There are benefits to those such as income-based repayment and potential forgiveness if you fall under the Public Service Loan Forgiveness program. Those benefits may be of great use to you until you find yourself on more stable financial footing. Regardless of your situation, most private student loans don't have such benefits and if your refi-rate is lower than the interest rate on those loans then you will still be better off refinancing.
Term and Rate Type
You will be asked to select a term of repayment and a fixed or variable interest rate. The terms start at 5 years and go to 20 years in 5 year increments. The longer your term, the higher your interest rate. Fixed rates also start out higher than variable: you pay a premium to shield yourself of the risk of interest rates increasing in the future.
While it's true that you'll pay much more over the life of a 20 year loan than a 5 year loan you may consider the longer term loan for its lower monthly payments. There are no prepayment penalties so you can still pay more than the required monthly payment each month and still pay off the loan early. The advantage here is that you're on the hook for less each month so if your circumstances change you can go back to paying only the required amount. The disadvantage is that your interest rate will be slightly higher for the longer term. Choose what fits yours needs.
Gather Documents and Apply
You will need:
Assess Your Situation
First off, document all your individual loans. Look back on your financial aid statements for each semester so you have an exact record of all the federal loans that were issued to you. Do the same for any private student loans you took out. For each loan make sure you have the date it was disbursed, the principal (original amount of the loan), the interest rate, whether the loan is subsidized, and the date the first payment needs to be made.
With that information calculate how much interest will accrue on each loan. Once you combine the interest accrued with the total principal you'll have the total balance for all your student loans.
Decide Which Loans to Refinance
This is where all those banks and loan companies come into play. You need to go and see what interest rate you'll get when you refinance. I shopped around a ton of places and LendKey gave me the lowest fixed interest rate. However, it turns out they didn't refinance ParentPlus loans because they weren't technically in my name. I ended up getting my ParentPlus loans refinanced with SoFi. Once you get your rate go back to the list of loans you've taken out and see how many of them have interest rates above the rate you were quoted from one of the companies (this will be referred to as the refi-rate). Those will be on your list to refinance.
If you have a good job out of college that pays well and you feel is relatively secure, refinancing all your loans above your quoted refi-rate may be a good option. If that isn't the case for you, federal loans might be ones you leave off the refinance list. There are benefits to those such as income-based repayment and potential forgiveness if you fall under the Public Service Loan Forgiveness program. Those benefits may be of great use to you until you find yourself on more stable financial footing. Regardless of your situation, most private student loans don't have such benefits and if your refi-rate is lower than the interest rate on those loans then you will still be better off refinancing.
Term and Rate Type
You will be asked to select a term of repayment and a fixed or variable interest rate. The terms start at 5 years and go to 20 years in 5 year increments. The longer your term, the higher your interest rate. Fixed rates also start out higher than variable: you pay a premium to shield yourself of the risk of interest rates increasing in the future.
While it's true that you'll pay much more over the life of a 20 year loan than a 5 year loan you may consider the longer term loan for its lower monthly payments. There are no prepayment penalties so you can still pay more than the required monthly payment each month and still pay off the loan early. The advantage here is that you're on the hook for less each month so if your circumstances change you can go back to paying only the required amount. The disadvantage is that your interest rate will be slightly higher for the longer term. Choose what fits yours needs.
Gather Documents and Apply
You will need:
- Government ID
- 2 Pay Stubs (SoFi verifies this electronically)
- Proof of Graduation (can usually verify electronically)
- Pay-off statements for each individual loan
If there's anything else required from you both SoFi and LendKey have friendly people call and try to get everything resolved quickly. They are pretty helpful and U.S. based for whatever that's worth. Once everything is approved you receive some final disclosure statements which you can sign electronically. Then they send the checks to your original loan providers and you now have all your loans in one place at a lower interest rate.
Start Paying!
Seeing a large chunk of your paycheck go to paying student loans isn't fun. For many of us however, it was the only way to pay for our college education and should have been a worthwhile investment. It's likely that you didn't end up consolidating all of your loans. I still have mine split between Federal, SoFi and LendKey. I'm paying the minimum monthly payment for LendKey and Federal and putting all available extra cash toward the SoFi as it's my highest interest rate group. Once I finish paying that off I'll shift all extra cash towards paying off my LendKey loan and move on to the lowest interest rate federal loans. That minimizes the total interest I pay over the life of my loans and the emotional scarring all this debt brings with it.
TLDR: Organize all your loans by interest rate. Check with lenders such as SoFi and LendKey to get an interest rate (refi-rate). Take all loans that are currently above the refi-rate you were quoted and apply to get them refinanced. Pay off the higher interest loans first.
Leave a comment if you have any other tips/suggestions or questions!
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