Why am I finally refinancing my student loans?
It feels so good to be finally saying “F@#* off, Fedloan!” Since I started payments in 2012, I’ve found working with Fedloan to be such a pain in the S5 (yeah, that’s a dermatome joke). Although they have more recently been on the receiving end of a lot of scrutiny, and have announced that they will stop serving federal student loans, I can’t wait to move on from working with them, or any other federal loan servicer. So, why am I, nearly 10 years into practice and paying on my student loans, refinancing my student loans? Should you consider doing the same?
Well, the short answer is that I stand to earn $30,000 in loan repayment from my employer if I make the switch away from federal loans! Here is the breakdown of my options, knowing that I have approximately $35,000 left in student loans:
A) Stay the course with FEDLOAN
Up until recently, I’ve been shooting to get approved for the Public Service Loan Forgiveness (PSLF) plan, which meant jumping through the hoops necessary to meet their requirements for consideration. Well, my wife and I decided to get off of that train, or at least we decided that we could not count on this troubled program, so we decided it was in our best interest (pun intended here) to take control and start to pay off our student loan debt. Well, we crushed most of it quickly, paying about $200,000 in student loan debt within 2 years, getting us down to my current amount of $35,000 when the pandemic hit and federal loans were put in forbearance. We’ve used this payment pause to invest and save, anticipating a payoff ASAP when the repayment starts anew.
Well, we’ve committed so much extra money towards our loans that PSLF doesn’t even make sense anymore, so that option isn’t great. We could, as early as tomorrow, pay off my loans and move on, but we recently realized that that plan actually leaves $30,000 on the table, which brought us to option B.
B) Refinance, ride it out, and reap the rewards
As part of my compensation package, my employer will give $10,000 towards student loans for up to 5 consecutive years. So, at this point, I stand to get another $30,000 from them, just by staying at the job that I really enjoy. So, by refinancing, I get to substantially drop my interest rate (Fedloan = 6.8% –> SoFi = 2.95%) and make lower payments with taking on a private loan. We gamed out the numbers, and with lower monthly payments at that lower interest rate, we will likely pay about $4000 in interest, while becoming eligible for all of that employer $30,000 in the next 2.5 years. I know, that’s a lot of numbers to digest, but here’s the basic math:
CURRENT STUDENT DEBT: $35,000
EXPECTED INTEREST PAID @ 2.95% over 2.5 years: $4000
EMPLOYER LOAN REPAYMENT: $30,000 (approximately $24,000 after taxes)
NET GAIN (after taxes): $20,000
Who the heck would want to leave $20,000 on the table??!! I don’t plan on leaving my job, so literally, I can get that money to just stay the course. It’s a no-brainer. The added benefits are that we don’t have to drastically cut down on our emergency fund, which means reallocating much of that to investments, bringing us closer to financial independence. Plus, let’s not forget, I get the privilege of breaking up with Fedloan and saying “No thanks” to whatever iteration is coming next in the federal loan servicing game.
Should you refinance your student loans? Now is a wonderful time to consider that, given that the forbearance ends on January 31st, 2022. For some, the gift of 20 PSLF-qualifying months without having paid anything is enough to incentivize staying on that course. For others, it’ll make more sense to take more control of your student loan debt, lowering your interest rate and formulating a game plan that makes the most sense for your financial situation.
If you are even considering refinancing student loans, you should check out StudentLoanAdvice.com to do some research and shop around for the best interest rates and cash rewards available to you! This resource is a part of the well-read and well-respected The White Coat Investor company.
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