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The Complete Guide to What it was like to Refinance my Federal Student Loans

Debt Repayment, Law School, Lawyering

Hi, I’m Brittany. I went to law school and all I got was a LOT of student loan debt.

A Guide to How I Refinanced My Federal Student Loans

OK, maybe I also got a decent amount of scholarships, work-study, a law degree, and made a lot of friends too. I spent those three years wondering why the heck I decided I was going to be a lawyer when I was 10 years old. And I spent about 4 years after law school absolutely miserable with my decision to become a lawyer. (Is that you? I wrote a post about how I stopped hating my career, and I do enjoy being a lawyer these days. There’s hope, I promise.) None of that makes looking at my student loan balances any easier.

The Back Story

One thing I still hate is the fact that I accrue roughly $20 a day in interest. I graduated from law school in 2010, when the economy sucked, most of my classmates didn’t have jobs lined up at graduation, and I had to move to a town in the middle of nowhere for my clerkship. I have been on income based repayment since graduation, and until 2016 my payments didn’t cover all of the interest. At graduation, and if I switched between payment plans, the interest capitalized, and now my “principal” balance is about $20,000 more than the principal I took out for school. All told since the last time it capitalized, I have accrued 10,000 more in interest that prevents me from paying any principal until it’s paid off.

In 2014 I began aggressively paying off my debt using the snowball method. In 1 year and 10 months, I paid off about $11,000 in credit cards and about $12,000 on my car (not including the interest that accrued during that time). In September 2016, I switched my focus to my bar exam student loan, and paid the $8,997 left on that loan in 6 months. Then, I saw how long it was going to take me to make even a meaningful difference in my federal loans. It would be almost a year before I’d even make a dent in the accrued interest.

If you’re not haunted by your student loans, there’s no judgment here. I know many people who make the minimum payments on theirs and just aren’t worried about it. But I feel suffocated by mine. When I was making about half of what I make now, I would wake up worried about them. When I was paying off the maxed out credit cards that carried me through law school and the recession, I would sometimes cry about them. Honestly, I cried last September on the phone with my loan servicer. It was the first month of my increased income-based repayment, I’d just paid off all of my credit cards, and I thought for sure I’d make a principal payment with the $841 they took out of my checking account. Nope. The cycle of the last 7 years continued – I still felt like I’d never get out of debt.

When I first started paying off my debt, I made $25/month in extra payments because that’s all I had. When I increased my income, I gave myself one paycheck to replace some of my wardrobe and buy a flight home to see my family. Then, I immediately switched my snowball payment to $300 a paycheck. I’ve lived like I was broke for the last 2 1/2 years, just so that I could see the light at the end of the tunnel before I was in my mid-fifties.

You may wonder why am I telling you personal information that people may think is taboo to share? Because there aren’t a lot of resources out there. I wanted to share my experience in order to help any of you who might be considering refinancing your federal student loans or just wondering how to cope with debt and student loans.

I am a first generation college student, who had no real financial skills and definitely didn’t understand the impact of compounding interest. I knew I wanted to be a lawyer when I grew up, lawyers take out student loans, and lawyers make a lot of money so it isn’t hard to pay them back (HA! If only that last part were true!). I also had to do a ton of research on my own into what it meant to refinance, the risks and rewards, and what companies were reputable. I found help in podcasts, other websites, the FAQ section of bank websites, and asking my friends on Facebook if they’ve tried refinancing or what they did with large accrued interest balances; but online there were not many real, human stories from people like me. I hope to save other people the time and give an insight into what it’s like from a real person’s perspective.

I am not a financial planner of any kind, so make sure to take your own financial situation and needs into account when deciding whether or not to refinance your loans. It may be the right time for you to refinance, may be too early for you to refinance, or may not be in your best interest to refinance your federal student loans at all. Take the time you need to make sure you come to the decision that is truly right for you!

A Complete Guide to How I Refinanced My Federal Student Loans, from a human perspective.

Referral and affiliate links are used in this post. That means that if you click these links and make a purchase or close on a loan, WMSB or I receives a small commission or referral fee. You will not be charged anything more because of it. Your support helps keep this blog running, and makes my student loan balances happy!

If you’d like to see my student loan payoff progress reports, I’ve written about all of them here. I didn’t write through my credit card debt because I was too ashamed of it. Truly, it is terrifying to tell people about the student loans too, but it’s worth it to hold me accountable and hopefully help others. Here’s the complete guide to what it was like for me to refinance my federal law school student loans.

Should You Refinance Your Federal Loans?

Here are some questions I asked myself when I was debating whether or not to refinance:

  1. How is my credit?
  2. Do I have any hope of a qualifying non-profit/government/public interest/etc. job that will forgive my loans after 10 years of qualified employment and payments?
  3. How much interest will I pay over the remaining payments until I hit 25 years, when the loans will be forgiven? (Some plans are 20 years, depending on your payment plan selection and when you graduated.)
  4. What is my current interest rate?
  5. What is the current federal interest rate?
  6. Is my current job steady?
  7. What are the odds that I’ll need income based repayment in the future?
  8. What impact does income based repayment have on my minimum payment today?
  9. What programs does my school offer for loan assistance? Would refinancing cause me to lose the opportunity to participate?
  10. What protections do my federal loans offer that private loans don’t?
  11. What are the origination or other loan fees associated with private loan refinancing?
  12. What impact will continuing to pay my loans as they are now have on my future in 5 years? 10 years? 15 years? 25 years?
  13. What minimum payment can I afford today?
  14. What big changes do I expect to experience in the next 12 months and 5-10 years?

I put all of these questions into a printable so that you can work through them yourself. You may have additional questions that fit your experience or current needs. I left some lines blank to fill in your own questions or concerns.

A Complete Guide to How I Refinanced My Federal Student Loans, from a human perspective.

Click here to download the free PDF!

While I have qualifying public service loan forgiveness experience (clerking and as a public defender) and work in non-profit now, the particular type of law that I have practiced for the last couple of years is specifically exempt from public service loan forgiveness. I would need 8 more years of qualifying public service work to qualify for forgiveness. I really enjoy the type of law I do now and don’t intend to leave it. I also hope to pay off my loans in the next 10 years, so it would not make sense for me to keep my loans where they are, simply for the hope of forgiveness. Lastly, you need to remember that any balance forgiven under a non-PSLF repayment plan will impact your tax liability, and that liability wasn’t very appealing to me. Thanks, Kayla, for clarifying that Public Service Loan Forgiveness does NOT currently result in any tax liability on the part of the borrower.

If after you answer these questions, you see that refinancing provides little or no benefit to you, then you should not refinance. Things could change that will change your mind on this, but there’s no rush to refinance if its not in your absolute best interest. For example, when I did this analysis last year, it did not make sense for me to refinance. When I did this analysis this month, refinancing made perfect sense.

There are a few obvious reasons NOT to refinance your student loans:

  1. You’re on track to have your loans forgiven based on the type of work you do or some other factor.
  2. Your interest rate is lower than the current federal loan rate, or lower than the lowest rate offered by the student loan refinancing companies.
  3. You are on income based repayment and cannot afford more than you are paying now.
  4. You’re not on income based repayment and cannot afford more than you are paying now.
  5. Your current job is not stable or you are afraid you could be without income for a period of time in the future.
  6. Your credit is poor (although it doesn’t hurt to seek pre-approval with soft-hits to see if refinancing is a possibility).
  7. You actually don’t owe that much on your loans. Some companies will not refinance less than $5,000 or $10,000.

The Reasons I Decided to Refinance Were as Follows:

  1. I was not likely to qualify for public service loan forgiveness any time soon.
  2. I had paid off all of my other (non-house) debt and reevaluating my debt snowball allowed me to start saving while also still making meaningful debt payments.
  3. Because I’d paid off my other debt, my credit score had increased significantly.
  4. My current student loans are at 7.125% (after auto-pay discount), and I was pre-approved for a fixed rate range between 5.1% and 6.1% (after auto-pay discount) or variable rate range of even lower.
  5. I am focused on paying these off as soon as possible so that I can enjoy life without student loans, and therefore I am not interested in waiting 19 more years for the 25 year mark of balance forgiveness.
  6. I would pay roughly $100,000 more in interest waiting for the forgiveness date to come, while I would pay only about $32,000 more in interest if I paid my loans off in 10 years at the refinanced rate.
  7. When I looked at the amount of time it would take me to even start making principal payments on my loans, let alone pay them off, it made any payments I made on the federal loans at their current interest rate feel meaningless compared to how quickly I’d paid off my other debt. I do not want to lose momentum.
  8. And the second most important factor, after the numbers made sense, was that none of the student loan refinancing companies I applied with charge origination or other loan fees, and they all offer short term forbearance in the case of job loss or other income limiting event like serious injury.

Like I said above, when I considered the option of refinancing last year, it did not make sense. I still owed debt on credit cards and my bar exam loan. My credit rating was good, but it wasn’t excellent. I didn’t have a lot of wiggle room in my debt payoff amounts because based on the snowball method, all of my extra money was going other places. Some companies were still charging origination fees and as far as I knew at the time, none offered forbearance. I also was hoping that maybe the area of law I practiced would become qualified for PSLF, but with the changing of the political climate in 2017, I have now given up any hope of that happening. Today, it made sense to refinance, but it was still kind of scary. Over the last 10 years I’ve only ever heard that private loans were bad. So I also had to come to terms with what made the most sense for my financial situation vs. what the state of loans were back when I started law school.

I am a firm believer in making financial choices that make sense on paper, and feel OK emotionally. The first car I ever bought was a 2002 Jeep Liberty. I loved that car so much that I paid full sticker price, traded in my 30 MPG car for $800 (the Jeep got 14 MPG), and took on a 13% interest rate loan. I was 21, and thought I was going to throw up. I learned an important lesson that day and for the years until I traded it in (at a loss) and bought my more responsible, 37 MPG Ford Focus – if a financial decision makes me want to throw up because it feels bad, not because it feels exciting: don’t do it. Once I did all of the math on my student loans and figured out the answers for myself, the only thing that made me want to throw up was the in-my-face realization of exactly how much money law school was going to cost me if I DIDN’T refinance.

Companies that Refinance Student Loans

I began researching companies a few months ago, and of course had heard of the big name lender, SoFi, for years. I have been getting student loan refinance letters from various companies as well, but always threw those ones away.

I restarted the research into the variety of options of student loan refinance companies in March, and settled on three banks to apply for. I only chose three because I wanted to feel confident in the places I applied at, and I also didn’t want to wait for a bunch of applications to come back. Each bank did a soft pull on my credit to give a pre-approved rate. I did more research and learned that student loan refinance is like most other loan applications, if you apply at several places within a short period of time, it will only count as one hit on your credit.

The three banks I chose were: SoFi, Earnest and Darien Rowayton Bank (DRB). There are additional options out there, that might also work for you, and you may want to apply to more or less than three banks. Next, I’ll explain what I found important about choosing a company, and then details specific to these three companies.

There are a bunch of companies that refinance federal student loans now, so it’s important to know a few things.

First, most don’t charge an origination fee, and many now have forbearance in case of job or income loss. If the company charges an origination fee of any kind, or doesn’t offer forbearance, I wouldn’t suggest refinancing with that company.

Second, you can choose which loans to refinance. So if you have some undergrad loans with really low rates, and the rest of your loans meet the minimum balance at that lender, you don’t have to refi those ones. This is different than federal loan consolidation. When I consolidated my student loans with the Feds, they consolidated them all and then averaged the interest rate. I think this could be a big perk for refinancing for some people.

Third, waiting for your rates to come back may become suspenseful. Once I bit the bullet to refinance, I couldn’t wait! I refreshed my e-mail over and over, even when I knew my SoFi application updates would be texted to me.

Ultimate Guide to Real Life Refinancing Federal Student Loans

The Back Story on the Three Banks Where I Applied

SoFi has been around the longest, and has a great reputation. It also offers job hunting services and local happy hours. A friend of mine just refinanced her bar exam loan with SoFi, and sent me a snapchat this weekend that they sent her a ton of swag! I knew they offered swag, but didn’t realize you’d get some right away. Not only is there the fun perk of swag and happy hours, SoFi is also very focused on helping people maintain a high career standard and has a super high repayment rate, which it credits to its dedication to finding borrowers jobs if they lose one.

Earnest is definitely the coolest. It allows borrowers to change their payment plans every six months, so long as you’ve made six months of on-time payments. This includes switching between variable and fixed interest rates. You can also tell Earnest, down to the penny, how much you want to pay each month and it will adjust your term and interest rate accordingly. Also appealing is the ability to schedule bi-weekly payments instead of just monthly payments. That’s the main way I’ve paid off a ton of debt recently and it makes a huge difference in interest. My current servicer makes it terribly difficult to make multiple payments in one month, so this option was a huge selling point for me. I also know many people in real life and through blogging/social media who refinanced with Earnest and sing its praises all the time.

The problem with Earnest right now is that it’s too popular. As of April 2017, Earnest is 30-45 days out on applications. I ended up withdrawing my application because I couldn’t wait for the rate and risk losing the good rate I got from DRB, which was lower than the pre-approved Earnest rate. If you can wait the extra time for the application to process, I would recommend Earnest without hesitation.

Darien Rowayton Bank (DRB) is the bank I closed on in the end. If you’ve been around for awhile, you may know Alicia who is my financial accountability partner and shares some of her stories on the blog from time to time. She had an awesome experience with DRB and strongly recommended I check it out.

It is a smaller bank that does more than just student loans, so they don’t have the fancy student loan customer service. There aren’t any happy hours or swag bags, and there aren’t fancy payment options like Earnest. That wasn’t as important to me once I saw the difference that only a few tenths of a percentage in interest makes on six figures, plus considered the fact that I could just work with a recruiter if I wanted recruitment services, and I already schedule out my payments through my bank. I later learned that DRB either services the loan itself, or runs through MOHELA. I currently have MOHELA as my loan servicer and aside from the annoyance in payment frequency/ease targeted payments, it’s been the best servicer of my loans since 2010.

I did reach out to DRB’s customer service after the loan finalized, in order to make sure Alicia received her referral bonus. They were super helpful, prompt and kind. I figured that bodes well for the future. So far, my only complaint is the unfortunate acronym of its name, but maybe that will make some fun student loan repayment jokes in the future.

In order to keep track of all of the different information on the loan companies, I put together a really basic spreadsheet of what I learned about each company, and what pre-approved interest rate I was given. One thing I liked about DRB was that they gave the actual interest rate, not the one with the auto-pay discount. That seemed more transparent to me. By the time I’d gotten to DRB, I’d also decided that I would be doing a 15 year loan term. That’s why I didn’t list out additional information on their options, despite the fact that DRB also offers a variety of options. Likewise, I did not keep track of any of the longer term rates for 20-25 year payments because my goal was to pay off the loans sooner, not on the same time frame.

A Complete Guide to How I Refinanced My Federal Student Loans, from a human perspective.

You’ll notice that the longer term you select, the higher your interest rate will be. I am not sure what impact the loan amount has on this figure as well, but I would have to imagine I’d be less risky if I had less than 6 figures of debt.

What Happened After the Official Applications were Submitted

Each application required the standard information, like my personal details, proof of income, my driver’s license, etc. All companies allowed me to send the documents with a iPhone photo – no scanner required! They really couldn’t make it any easier. However, each company wants something slightly different as well. For example, Earnest requests links to all of your financial accounts. DRB wanted proof that I passed the bar exam.

DRB

The day after I submitted my DRB application, they followed up and requested information that I passed the bar in the state where I practice. I had submitted information for my Nevada bar license since it was the first one, but they wanted to see that I was licensed where I live too. That made sense after I thought about it.

The day after that, DRB approved my application. I was shocked that it was so quick! I also appreciated that I could choose my payment terms after approval. This way, I could see exactly what I’d be dealing with. At this point, I could chose a variable or fixed rate loan, and 5, 7, 10, 15 or more years to pay. DRB communicated entirely via e-mail.

SoFi

SoFi’s average response time right now is four days. It requires that you choose your term up front, so I selected a 15 year, fixed interest rate loan. A day or two after I applied, SoFi also needed additional information, although now I don’t remember what it was. SoFi communicates via e-mail and text, which was nice. It took 8 days for SoFi to supply a final approval on my loan. During that time I googled as many combinations of, “how long for SoFi to approve a student loan” that I could think of, with no real answer. Patience is not one of my virtues.

Earnest

A few days before the SoFi answer came back, I did a live chat with Earnest to see if it really was 30 days out on my application. Because I saw how much lower my official approved rate was with DRB compared to Earnest’s pre-approved rate, I knew that no matter how much I really wanted to refinance with Earnest, I couldn’t justify the time to wait for the application to come back (remember, my federal loans accrue interest at ~$20/day), or the cool payment features. I actually felt really bad about this for some reason. I’d heard so many amazing things about this company over the last year that it was disappointing to not be able to complete the process with Earnest.

Final Decision

After I received my SoFi rate quote, I contacted Earnest and withdrew my application. After the .25% autopay discount on interest, I ended up with a 15 year loan at DRB at 5.1%, and SoFi for 6.1%. These figures were almost exactly the same as my pre-approved rates, which impressed me. I could have selected a 10 year loan at DRB at 4.9%, or 7 years at even less, but I didn’t want to commit myself to a high payment just in case. I anticipate major personal life changes in the next few years and don’t want to overcommit myself to something I can afford now, but might prevent me from enjoying life in the future. I then rejected the paperwork with SoFi and requested they withdraw my application as well.

I knew it would take a little while for the loan to pay off my federal loans, and I did not want to waste any more time. I immediately finalized the DRB paperwork. Luckily, I had my laptop with me. I don’t know if you can finalize the paperwork on a mobile device. It was very similar to the paperwork I processed when I bought my house, and I e-signed all of that on my iPad, so I don’t see why you couldn’t. Finalizing the paperwork only took long enough to read a few pages of disclosures and hit the e-sign buttons.

What My Loans Looked Like After the Loan Funded and Closed

It was about two weeks between finalizing the paperwork and funding the loans. I originally had two separate loans, one Subsidized and one Unsubsidized. Now, the loans are combined as one total loan amount. The only real impact that I see from this is that now I’ll have to set my own mental milestones, vs. throwing my money at the smaller subsidized loan to continue in the spirit of the Snowball Method.

DRB funded my loan on the exact day they said they would. I received a detailed e-mail from them, letting me know I would find out in the next 7-10 days if my loan would be serviced by them, or MOHELA. The next morning, I woke up with an e-mail from MOHELA letting me know they’d be servicing the loan. I would have liked to see DRB’s loan dashboards, but I’m pleased with this because MOHELA has been servicing my loans for years and has provided wonderful customer service, prompt answers and kindness (see above, when I cried last year about my inability to make principal payments due to accrued interest discovery). The only issue I see, is when I was applying at DRB, I signed up for auto-pay. But MOHELA didn’t transfer that information. So if this happens to you, make sure to go to the alternate loan servicer and set up autopay so that you receive the discounted interest rate as soon as possible.

I will also send a letter directing the order of priority for my payments, and for MOHELA to not adjust my payment due date based on extra payments. But I will wait a month or two to do that, just to see how the default goes. For now, I’m just waiting for the payment from DRB to MOHELA to clear to pay off the balance of the federal loans. Because I refinanced really soon after getting the payoff letter, the amount should be fully covered. You’ll have to keep an eye on yours after refinancing because if the refi doesn’t cover the balance, you’ll be responsible to pay the rest of it. With daily interest, that’s possible!

So that’s it! From start to finish, that’s what it was like to refinance my law school federal student loans. Feel free to ask me any questions or leave any comments! For now, I’m really excited to see what it feels like to make a principal payment on this bad boy for the FIRST TIME EVER!

A Complete Guide to How I Refinanced My Federal Student Loans, from a human perspective.

I’m as excited as this unintentionally heart shaped firework from last fourth of July!

If you’re interested in watching how real life student loan repayment looks with over six figures of debt, I encourage you to return for my student loan payoff progress reports, which post around the 10th of each month! You can also sign up to receive every WMSB post in your in-box using the form below.

I am not a financial planner of any kind, so make sure to take your own financial situation and needs into account when deciding whether or not to refinance your loans. It may be the right time for you to refinance, may be too early for you to refinance, or may not be in your best interest to refinance your federal student loans at all. Take the time you need to make sure you come to the decision that is truly right for you!

If you’ve refinanced your student loans, I’d love to hear about your experience in the comments. How did it go? Were you glad you did it? Are you unhappy you did? Did you pay off your loans earlier than expected because of it? Tell us all about it!

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