I have been wanting to write this post for some time but have been procrastinating writing it because I knew it would take a while to write and because I didn’t want to jinx it. Well, as what should be the most nerve-wracking part of the payoff is over, I now think it’s okay to write…
If you will remember, I had tried to refinance my student loans shortly after starting this blog in August of 2019. Unfortunately, given my very high debt-to-income ratio and my relatively short tenure in my new role (I had just moved across the country to start working at University B), no lender would touch me. That led me to “self-refinance” my private loan with the highest interest rate using a credit card balance transfer. While all turned out well, I was wary of doing it again. Two and a half years and almost $40,000.00 in student loan debt paid off, lenders were now hounding me to refinance my student loans with them. Despite a lengthy post outlining the pros and cons of refinancing in early October, I was planning to put off refinancing until December or January so that I could enjoy 0% interest and no payments on my federal student loans for a couple more months. However, in the last week of October, I received an email from Granite State Management Services, my federal student loan servicer, letting me know that they would no longer be servicing federal student loans and would be transferring my student loans to a new servicer in exactly two weeks. I applied to refinance my student loans that very same day.
After I let you all know that I had applied to refinance my student loans, there was a mix of responses but all of them were constructive and helpful. I actually think responding to your question/concerns (and some I asked myself) is the fastest way to walk through my decision-making process so I will do that here.
1. Given how much of your remaining debt is federal student loan debt (~80% or $75K), why aren’t you waiting to see if you are eligible for any “relief” being deliberated by the Biden administration? – Unlike some blogger friends, I am not very optimistic that the Biden administration (or any other administration) will pass student loan debt relief because it’s not very politically popular. I think the pandemic has demonstrated that some of the most meaningful relief to all borrowers would be significantly lowering student interest rates but that never seems to be a plan anyone puts forth. Honestly, and this may shock folks given how much federal student loan debt I have, but I am generally not in favor of widespread student loan forgiveness for the majority of borrowers. (This does not include loan forgiveness plans tied to service for low-income earning roles). College degree holders earn on average $900,000.00 more than folks without college degrees over their lifetime. As someone who is concerned about income inequity, I don’t know how equitable it is to wipe out all debt for college degree holders. But that discussion is for another post…`
2. Why didn’t you wait until January to refinance when the payment/interest abatement on federal student loans is scheduled to end? – I was worried that the interest rates would be higher as a lot more folks considered refinancing and that all twelve of my federal student loans would not end up with the same servicer.
3. Why didn’t you just federally consolidate your student loans? – I thought about doing this as a way to keep the 0% interest rate and payment abatement on my federal student loans and ensure that I only ended up with one student loan servicer. However, I had some concern that my consolidation wouldn’t take place prior to my loans being transferred and I didn’t really want to go through the process of consolidating them only to have to refinance them a couple of months later.
4. Excellent questions and things to consider from Paula: “I would be very very careful about giving up the benefits of federal loans. Not only does the a) income based and graduated plans allow you to have lower payments if needed, think about the future. b) No in school deferrment? c) What if you need a car? d) Even if you want to pay more than the lowered payment, the fact is your credit report minimum payment is what creditors use to determine what you can afford. The fact that my minimum was listed as so low got me into a mortgage- which became suddenly absolutely necessary as my current apartment building got bought by a slumlord and became impossible. If I’d had that full payment listed as the minimum, it wouldn’t have happened. I’m not sure I could have even been approved for another rental unit.
Also… e) disability. God forbid, but if something happens the federal loans go away. f) Refinance and well.. I don’t think they legally have to care.” Again, all excellent points. Note: I have added the letters next to her points so that I can answer in the most organized way possible.
a) The payment was one of my biggest concerns going into the refinance. And while I will get to the details of the refinance itself in the second post about this, it is one of the reasons I chose a 15-year fixed loan despite the slightly lower interest rates for 5-year loans. The minimum payment for my refinanced loan is actually $260.00 less than the minimum payments on all of my loans (not including my federal loans as they didn’t require a payment) when I started this blog in July of 2019. Given that my income has grown and my student loan debt has significantly decreased, I am not as concerned about my minimum payment.
b) Many private student loan companies do have an option for in-school deferment. The most common is a maximum of 36-months after 12-months of on-time payments. However, the lender I chose does not have an in-school deferment option. Given my relatively low minimum payment (relatively to how much I have and could be paying) and some other things happening (I promise I will disclose more soon), this is not a significant concern for me at the moment. If it becomes a significant concern, I can always refinance with a different lender.
c) In December I decided to buy out my car lease. As my car is less than four years old, it is my hope that with good care that it will still be in decent shape by the time my loans are paid off in four years. The fact that I have a $5,000.00 emergency fund also eases concerns I have about immediate car expenses.
d) This is 100% true. I spoke to this above in response to point a) but I am less concerned about my minimum payment as it is pretty manageable and significantly less than my aggregate payments were in July 2019. Also, I am fortunate to have excellent credit (>800) and I suspect the refinance will actually help my credit even more as my federal student loans, which show as having balances larger than their original balances, will now be paid and leave me with one loan that will always be lower than it’s original balance.
e) This is a good point that most folks don’t consider. However, in the past, I have talked about my greatest fear being that my parents were burdened by my student loan debt should I become deceased or disabled. For that reason, I have both supplemental term insurance as well as long- and short-term disability insurance through my employer. If I died before my student loans were paid off or became significantly disabled, my estate would cover my outstanding loans. Private Student Loan 2 (PSL2) and Private Student Loan 4 (PSL4) are actually the last loans for which my parents are cosigners. PSL4 will be paid off in December (I’m calling my shot) and PSL2 being included in the refinance releases my mother as a co-signer.
f) You are again 100% correct. They don’t have to care…and many don’t. However, I refinanced with a credit union and they do seem to care.
Okay, enough for now. In my second post, which should be much shorter, I will dive more into the details of how I chose my new lender and what the refinance process was like. It is really hard to come by unsponsored reviews of refinance lenders so I want to leave something for anyone who looks for information about this lender in the future. In my final post of this three-part series, I will share the details of my new loan, including which loans I choose to include, so there isn’t any confusion in my student loan balances update posts.
Thank you to everyone who gave me feedback throughout this process. It is appreciated far more than you know.