My Student Loan Refinance (Part 3)

I don’t know what information is pertinent or not pertinent to anyone who follows my blog so I will try to be as complete and succinct as possible here. I will refer (link) back to this post when I make reference to my refinance in the future.

Amount refinanced: $89,064.00
Rate: 3.500%
Minimum Payment: $636.76
Loan term: 15-year fixed (180 months)
Lender: Pentagon Federal Credit Union (PenFed)
FICO (at time of application): 794*
Loans included in refinance (amounts as of 11/1/2021):

AccountDebtDebt (7/1/19)Min. PaymentInterest Rate
Private Student Loan 2-$6,595.87-$8,271.15$93.305.090%
Federal Student Loan 1-$21,440.37-$20,583.34$0.006.800%
Federal Student Loan 2-$13,946.84-$13,457.55$0.005.310%
Federal Student Loan 3-$11,184.47-$10,737.40$0.006.800%
Federal Student Loan 4-$7,748.09-$7,518.58$0.004.450%
Federal Student Loan 5-$5,561.12-$5,520.10$0.004.450%
Federal Student Loan 6-$3,147.30-$2,849.21$0.005.600%
Federal Student Loan 7-$2,863.10-$2,649.80$0.004.660%
Federal Student Loan 8-$2,457.12-$2,538.91$0.006.800%
Federal Student Loan 9-$2,307.18-$2,047.30$0.006.800%
Federal Student Loan 10-$2,003.02-$1,813.31$0.005.600%
Federal Student Loan 11-$1,639.01-$1,573.49$0.006.800%
Federal Student Loan 12-$1,144.25-$1,035.88$0.005.600%
University Student Loan 1-$3,428.11-$4,581.00$60.418.000%
University Student Loan 2-$3,090.59-$3,629.38$0.000.000%
University Student Loan 3-$317.64-$1,031.21$30.008.000%
University Student Loan 4-$124.59-$857.81$30.008.000%

Only a couple of things to note… First, there is a small discrepancy between the loan amount and the loan balances. This is pretty common and any overpayment will be credited to me by PenFed or refunded to me by the servicer/lender in the form of a check. And second, PSL4 was not included in my refinance which is why it does not appear on the chart above. The amount remaining on PSL4 is so small at this point that it makes far more sense for me to pay it off with the current servicer AES. It will appear separately from my refinanced loan on my student loan balances update for December 1st.

And that is it.

Fun holiday story: My father has login credentials for the private student loans that were serviced by AES. When he first logged into the account two-and-a-half years ago (the start of this blog) the balance was $30,000.00+. I didn’t realize he still checked the account until he mentioned during the Thanksgiving holiday that he saw the balance was now only $6,500.00 (he must have checked it in mid-October). I whipped out my phone and opened the app to show him that the balance was now much lower than that. He seemed very proud of me. That felt good. Not good enough to tell him about all of it but…maybe one day.

*I was…er…less than pleased with how I timed my application for this loan. I had recently applied for a Costco credit card and had taken a “new credit inquiry” FICO score ding. At the time I applied for the credit card, my FICO score was 812. Had I known I was going to be applying for the refinance, I would have waited to apply for the credit card. PenFed’s lowest advertised interest rate for refinanced student loans is 2.89% fixed (they do not offer a discount for automatic payments). While 3.500% is a much, much better rate than I had previously, I wondered if I would have gotten an even lower rate had a timed my application a bit better…

My Student Loan Refinance (Part 2)

When I began my student loan refinance search, it was really difficult to find information or reviews that weren’t from a lender (SoFi’s marketing game is strong) or from a financial technology company (e.g. Credible, NerdWallet, BankRate). While these are both good sources, the information they provide is generally pretty generic until you submit an application (which is usually a soft credit pull initially) AND they are both financially invested in you completing a refinance. I was looking for more of a Yelp nitty-gritty, “This is what happened to me, YMMV…” sort of review. To that end, I have decided to make my contribution to the student loan refinance interwebs here.

Lender Search/Decision – Pentagon Federal Credit Union (PenFed)

I began my search by using one of the financial technology companies listed above to do a preliminary search for student loan refinance lenders. As I have stated previously, my top refinance priority was securing a much lower fixed interest rate. A second priority was securing a monthly payment that was manageable should I no longer have a full-time position. Ultimately, my search yielded PenFed as the best option for my refinance. If your priority is guaranteed forbearance in case of economic hardship, in-school deferment, discharge of loans in case of death or permanent disability, or if you are not a citizen of the United States, there are better lender options. In a low-interest-rate environment, PenFed is also probably not the best option for someone who is risk-tolerant of a variable rate as PenFed does not offer them. Something else I liked about PenFed is that they are both the lender AND the servicer which means no more third-party services (by forever Heartland ECSI!). While I have had good experiences with third-party services that have relatively responsive, easy-to-use, and up-to-date platforms, I have found that this is the exception more than it is the rule. And while you would expect the amount that you interact with your student loan servicer to be pretty rare, on those times you do have to interact with them, it’s because something bad has happened and you don’t want poor customer service contributing to what are already heightened emotions.

PenFed Criteria
Something else that I liked about PenFed is that they are direct and specific about their lending criteria. I found that some lenders said really nebulous things like, “well will take into consideration your whole financial picture.” I wholeheartedly support lenders moving beyond a FICO score, and other “traditional measures” of creditworthiness, to increase lending opportunities for consumers; especially to the extent that it increases opportunities for credit in underserved markets. That being said, if traditional measures are still a part of that decision calculus, then I think lenders should be upfront about what those requirements are so that consumers are not wasting their time. Here I would share that 1) PenFed’s minimum FICO score is 670, 2) the applicant must be a U.S. citizen, and 3) their income minimum is $42,000.00 without a co-signer. Another quirk is that because PenFed is a credit union, you must become a member of the credit union. Application is pretty easy and you qualify with an electronic application that is a part of your loan verification documents and a $5.00 deposit into a savings account.

Application Process
This was perhaps the most confusing aspect of the student loan refinance process with PenFed for me. The process itself, in terms of document request and upload, was pretty simple, what was confusing was figuring out the different actors and how they fit into the process…you know, since I was suddenly getting emails about three different entities and three different websites. For anyone who should search for this…

– PenFed (Pentagon Federal Credit Union) – Lender/Servicer – PenFed is the lender and the servicer which means they are the bank that is making the lending decision and to whom you will make monthly payments on the loan.

– Purefy – “Purefy is a student loan comparison site, and it also originates refinanced student loans and parent loans via a partnership with Pentagon Federal Credit Union.” I didn’t use Purefy to search for student loans and as far as I can tell, the only two student loan companies for which they offer a comparison are PenFed and SoFi (I assume no one would be shocked to learn that they ultimately rate PenFed as the better option). Thus, I was surprised when I received an email from Purefy following my initial application. That being said, my experience with them was pretty great. Throughout the process, I had a couple of questions, and Dallas, my customer service representative, responded to me almost immediately. If you are approved for a loan with PenFed then Purefy exits the banking relationship once the loan is approved, documents are uploaded, and the loan is funded. If you are not approved, it seems like they are open to an ongoing relationship to help you become a PenFed customer.

– CampusDoor (Campus Door Holdings Inc.) – CampusDoor is just the loan processor. Their website is where you upload verification documents; their website is also where you can view updates and respond to any additional requests for information.

Experience Thus Far
It is cliche but…so far, so good. I was able to create an account on the PenFed website four business days after my loan was approved. It took a bit longer than I would have liked for my loans to be paid off (14 business days) but the former servicers of loans I included in this refinance were pretty terrible…which was a small reason I wanted to re-fi and end my relationships with them. Thus, I am unwilling to lay blame for the delay at the feet of PenFed. My federal loans did end up going to another servicer (yea…ugh…I can’t talk about it) but thankfully they all ended up at one servicer. I am once again grateful that I did this now as opposed to in January because the interest pause on federal loans means I don’t have to do any magical math to figure out what my current student loan balance is.

Alright, that was a far deeper dive than most folks needed but it is my contribution to the personal finance interwebs. Part 3, my last and final post about my student loan refinance will be much briefer and will just be information about the loan itself.

My Student Loan Refinance (Part I)

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.

I got pre-approved!

I know, I know. I was supposed to be waiting on refinancing until December. Well…Granite State Management & Resources (my federal student loan servicers) contacted me yesterday to tell me that my student loans were going to be transferred to a new servicer on November 10th. For whatever reason, receiving that email resulted in me completing a refinance application. In a later post, I will talk about how and why I chose the lender I did, but for now, I just wanted to share that I applied. The refinancing process is annoying and stressful, and dealing with my previous student loan servicers (particularly, Heartland ECSI) makes me so glad to be moving on to greener pastures. My new lender, and their in-house refinancing team, have been pretty great and I am really excited about the transition…I’m sure I’m far more excited than most people are about refinancing their student loans. While I will write more, a LOT more, later, I will leave you a snapshot for now…

When to refinance? (Part I)

I had hoped to procrastinate put off refinancing considerations until at least December but the time has come…

Just prior to the start of this blog, I tried to refinance all of my private, non-federal student loan debt. At the time, my student loans were in the $120Ks and I was turned down because my debt-to-income (DTI) ratio was too high. After licking my wounds and snacking through my disappointment, I went on to reduce my student loan debt by $30,000.00 over two years. While some of this success can be attributed to frugal living and hustling, the interest rate forbearance on federal student loans, due to the ongoing COVID-19 pandemic, played a significant role. $75,441.87 of my remaining student loan debt is in federal student loans and prior to the interest rate forbearance my loans gain $400.00 each month in interest.

As the Department of Education, and President Biden, have stated that there will be no additional extensions of the interest and payment forbearances, I have been going back and forth as to when I should again try to refinance my student loans. Up until last evening, I was thinking about January 2022. The last day of the federal interest and payment forbearance is January 31st. Waiting until January would allow me to take advantage of the remaining interest and payment abatement and give me enough time to pay off Private Student Loan 4 (PSL4); my student loan balance would also be under $90,000.00 which would be a much improved DTI ratio. However, while scrolling through articles last evening, I came across “Another student-loan company is shutting down its services, bringing total number of borrowers in limbo to nearly 10 million.” In this article I learned that both PHEAA, who manages the servicing of PSL4 through the American Education Service payment platform, and Granite State Management and Resources (GSMR), who is the servicer for ALL of my federal student loans, will not be renewing their service contracts with the federal government once they expire at the end of December. Yeah.

At first, I didn’t know how much this would change my plans. I planned to have PSL4 paid off in December so if I stuck to that goal, PHEAA bowing out wouldn’t affect me a great deal. However, GSMR not renewing it’s contract is a much bigger deal. GSMR has actually be a great student loan servicers and I have never had any of the problems that other folks have complained about with other servicers. Additionally, unlike the ECSI Heartland payment platform that is used to service my university student loans, the GSMR payment platform is really great and allows you to find all of the detailed information about your student loans that I love to obsess over and easily allocate targeted payments. However, beyond the inconvenience of losing a great servicer, I am most concerned about the possibility that my federal student loans, all 12 of them, might not end up with the same student loan servicer; I know this is a possibility because it was the case prior to my student loans all being serviced by GSMR. Not only was it incredibly annoying but it made a mess of my credit report as existing student loan lines were marked paid/closed and new ones were opened. Yeah.

I think I should
refinance. And if I refinance, I think I should refinance in December. I know what you are thinking: why the general uncertainty? Well, as soon as I refinance, I lose the benefit of the 0% interest rate on my federal student loans. And at $400.00/month, that adds up quite fast. Additionally, as the possibility of me returning to school full time in the near future is still a possibility, I also need to think carefully about giving up some of the benefits of federal student loans. One of those benefits is the graduated income repayment plan. While I had no interest in the long term benefits of the plan (such as loan forgiveness after years of program payments), I was heavily benefiting from the fact that I had no payment due while my income is so “low,” which has allowed me to allocate all of my additional income towards paying off my more expensive/precarious student loan debt. Once I refinance, I give up that benefit which means that in as little as 30 days from the date of refinance, I will have to begin making payments which could greatly impact my ability to pay off PSL4 and PSL2, both of which I had hoped to pay off prior to refinancing my federal and university loans.

Yeah…so much to consider. At the moment, I am leaning towards refinancing my student loans on December 1st. And maybe evening lumping in PSL2 with my federal and university student loans so that in January 2022 I am just making one payment.


HELP! To refinance or not to refinance?

So…should I refinance my federal student loans?

COVID-19 has meant many terrible things for the world, families, and individuals. And while it might be very mercenary to say it in this moment, one of the other things it has meant is a sharp economic downturn with interest rates at their lowest in two years. For that reason, despite saying I would not consider another student loan refinance until December of 2020 when I had expected to have paid off Private Loan 1, Private Loan 2, and have a better debt-to-income ratio, I am now considering it again…

So…should I refinance my federal student loans?

My current federal student loan profile is the following:


Using the Credible App, I sought to prequalify to see which rates I might be offered by lenders. Credible came back with the following offers, all offered by SoFi:

Rate 1: Fixed at 4.76%, monthly payment of $586.00, 15 year repayment term
Rate 2: Variable at 4.76%, monthly payment of $586.00, 15 year repayment term
Rate 3: Fixed at 5.22%, monthly payment of $502.00, 20 year repayment term
Rate 4: Variable at 5.22%, monthly payment of $502.00, 20 year repayment term

I would, without a doubt, save money on a refinance. The difference between a 4.76% and a 5.806% interest rate is significant. It becomes even more significant if you consider that 5.806% is not a weighted average and I have significantly more student loans at the higher 6.8% interest rate.

However, once you move federal student loans to a private lender, you lose all of the protections of a federal loan, which include in-school, unemployment, disability, and death protections. (Although, death is mitigated to some extent as my employer provides a free insurance policy in the amount of one year’s salary, and I pay $1.20 a month for $50,000 of additional insurance, which is more than enough to cover any outstanding obligations I currently have in the event of my untimely death).

So…should I refinance?

Private Student Loan 1 and Revised, Revised Goals

So in a recent post, I shared that I used the balance transfer method to transfer my Private Student Loan 1 balance to two of my credit cards, using a 0% interest for 12 months, balance transfer offer. I initiated that process this past Saturday and as of this morning, Wednesday, August 7th, I have transferred the funds in full to my student loan lender (I intentionally did not use the words “paid off” here as I didn’t payoff anything, I just reorganized my debt).

Private Loan 1 Balance (Paid to Student Loan Lender): -$9,817,69
Discover Card Balance: -$3,450.50
Citi Card Balance: -$6,695.00
Private Loan 1 Balance (After transfer to credit cards): -$10,145.50

If you read my post, you know that $295.50 of the balance increase resulted from the balance transfer fees. However, if you subtract $295.50 from the new balance, you would notice that there is still a small difference of $32.31. That difference was an overestimation on my part. Unfortunately, unlike a lot of lenders which allow you to get a payoff estimate, my student loan lender did not and I didn’t do the math. Ugh.

In any instance, I will make very little progress on this loan this month because I used the leftover from my August 1st salary (which wasn’t a full salary because I didn’t start at the beginning of the month) to finish cash flowing my moving/settling expenses (seriously, moving from literally one side of the country to another is not cheap). While it is disappointing that I won’t make much more progress on my student loans this month than the minimums, I knew this was a possibility and I’m grateful not to have had to go into debt or touched my emergency fund (look C, I can find a bright-side too!). So onto the revised, revised goals…

August 2019 Goal – My goal this month is to cover the cost of the balance transfer fees and, add the difference mentioned above, so that my balance on September 1st is the same or lower than the balance on August 1st. On September 1st, when I get my first full paycheck from my new job, I should be able to make the first really significant dent in this loan. My goal in August is also to find my first/initial side hustle. 

When checking my accounts this morning (I told you, I do this almost obsessively), I noticed that despite being a 0% for 12 months, 3% balance transfer fee offer, Citi said my offer end on 6/1/2020 (see below). While I have zero plans to have this debt lingering around that long, it did make me think more about how I should pay these two debts. While I initially thought I might pay the minimum on Citi and chuck everything at Discover, the smaller balance of the two, now I am not so sure. While Discover does have the smaller balance, their balance transfer doesn’t expire until 8/16/2020, two months later (again, even though I have every intention of having this paid off well before then, a buffer is always good).



Revised 2019 Private Student Loan 1 Goal – Payoff my Citi balance ($6,695.00). While it would be much easier to list the smaller debt as the goal, that wouldn’t really push me. I want something that is going to push me to hustle and sacrifice. It’s literally going to take everything I have and then some but I really want this for myself.

Okay. This should be the last post this week, I promise.

Debt Psychology: The Balance Transfer Strategy and Private Student Loan 1

Interest sucks. And it sucks because its effects are both material and psychological. Each month it deftly diminishes the significance of your payments, siphoning hard earned dollars meant for the principal. And while you understand logically that this is how it works, that this was the bargain, it still sucks and you can’t help be anything but sad.

As I look down the long road of debt repayment, I have spent countless hours scouring the internet for debt repayment hacks to help me pay off my massive debt more efficiently. The most ubiquitous suggestion is to refinance. Unfortunately, despite having very good credit (FICO 791) I didn’t qualify for a refinance because my debt to income ratio (DTI) is too high. That sucked. It really sucked because I was not attempting to refinance the entire balance but just the non-university private loans (~$40,000.00); and, ultimately, the minimum payment for the refinanced loan would have been less than I currently pay on the individual loans. So I kept reading and kept looking for things I could do. Another strategy I came across was called the “self-refi” or “balance transfer strategy.”

While there are countless other blogs that will explain this method in greater (and better) detail, essentially, you accept a balance transfer offer that allows for a direct deposit into your checking account and then use that amount to pay off your student loan. (Note: Because student loans are not bankruptcy eligible but credit cards are, some credit card issuers will not allow you to use balance transfer funds to pay off student loans. Fortunately, some do).

There are two rationales for me using the balance transfer strategy: 1) Saving on interest and 2) the psychological benefit of seeing every dollar I save or hustle for go towards a principal payment reduction. I will return to these rationales in a bit, but first, the nitty gritty of my balance transfer.

First, I accepted a balance transfer offer from two of my creditors (Discover and Citi). While it would have been preferable to transfer the balance to one creditor, at present, I do not have a credit line large enough to accomplish this. So two creditors it is. Financially, there is no real impact to using two creditors, it’s just less convenient. Both creditors offered me a pretty standard balance transfer 0% for 12 months and a 3% transfer fee (this really is the pretty standard offer, although I have seen 15 months offered at account opening and USAA apparently occasionally floats a 0% balance transfer fee to some of their members).



I forgot to grab a screenshot for Citi but it looked quite similar…


Total Transfer Amount: $6500.00
Total Transfer Fee: $195.00
Remaining Credit: $605.00

So the total amount for the balance transfer requested was $9,850.00. I will use this to payoff Private Student Loan 1, which currently has a balance of -$9,812.49 at 9.74%; I was worried about how long I would have to wait until I could pay it off, but the August statement posted this morning so as soon as I receive the funds from Citi I will pay it off. This process has happened pretty quickly. I pulled the trigger and made the balance transfer request on Saturday and as of today, Monday morning, Discover has already deposited the money into my checking account.

Now, before I return to the rationales, let me address some of the concerns any reasonable person reading this post might have…

Objection 1: An accelerated, adjusted repayment schedule might result in no savings using the balance transfer strategy.

This is true. Assuming I paid off Private Loan 1 in December, which was my midyear revised goal, I would actually lose money on interest. According to the Student Loan Amortization Calculator I used, if I paid off the loan in December, I would lose $56.00 in interest, which is the difference between the interest I would have owed the student loan lender ($239.00) and the balance transfer fee I paid Citi and Discover ($295.50).

Date Interest Principal Balance
Aug, 2019 $79 $1,920 $7,838
Sep, 2019 $64 $1,936 $5,902
Oct, 2019 $48 $1,951 $3,951
Nov, 2019 $32 $1,967 $1,983
Dec, 2019 $16 $1,983 $0
2019 $239 $9,758 $0

But I am a very reasonable woman, and despite my intent to hustle my tush off over the next few months, I figured it was probably unlikely that I would get this done by December. So I calculated what the interest would be if I paid the loan off in March 2020. The difference this time, of $64.50, is interest saved doing the balance transfer over continuing to pay the student loan lender.

Date Interest Principal Balance
Aug, 2019 $79 $1,186 $8,572
Sep, 2019 $70 $1,195 $7,377
Oct, 2019 $60 $1,205 $6,172
Nov, 2019 $50 $1,215 $4,958
Dec, 2019 $40 $1,224 $3,733
2019 $299 $6,025 $3,733
Jan, 2020 $30 $1,234 $2,499
Feb, 2020 $20 $1,244 $1,255
Mar, 2020 $10 $1,255 $0
2020 $61 $3,733 $0

And, just as a thought exercise, if I were to extend repayment over the full period of the balance transfer, I would save $226.50 in interest.

Date Interest Principal Balance
Aug, 2019 $79 $777 $8,980
Sep, 2019 $73 $784 $8,197
Oct, 2019 $67 $790 $7,406
Nov, 2019 $60 $797 $6,610
Dec, 2019 $54 $803 $5,807
2019 $332 $3,951 $5,807
Jan, 2020 $47 $810 $4,997
Feb, 2020 $41 $816 $4,181
Mar, 2020 $34 $823 $3,358
Apr, 2020 $27 $829 $2,529
May, 2020 $21 $836 $1,693
Jun, 2020 $14 $843 $850
Jul, 2020 $7 $850 $0
2020 $190 $5,807 $0

It should also be noted that the interest savings assume that I pay the same amount each month. If I paid less (or more) the interest would also fluctuate accordingly. The balance transfer fee is not subject to such fluctuations so whether I pay it slowly over the full term or more quickly, the amount of the transfer fee stays the same.

Objection 2: Student Loan interest is tax deductible whereas credit card interest is not.

Also true. However, the amount I pay in student loan interest always exceeds the tax credit. This might be of greater concern in the future as my student loan balances decrease, however, as my DTI improves, I would like to apply for a traditional refinance.

Objection 3: If you don’t pay the amount off during the balance transfer period, the balance will be subject to a much higher rate of interest than the original student loan.

Also true. But don’t worry. I got this. I kid, I kid. While I do like the idea of a hard deadline and a bit of pressure to pay this off, I would like to payoff far more than just this loan by next year at this time. Additionally, the amount that I would need to pay each month to have this loan paid off by the end of the balance transfer period is rather reasonable ($857.00) and at the very least, I expect to be able to pay that each month, especially now that I am a bit more settled and can begin to hustle.

Objection 4: FICO doesn’t weight installment debt and credit card debt the same. Your FICO score is going to take a hit.

Absolutely true. The transition of this debt from installment debt to credit card debt is pretty big. My credit utilization is going to go way, way up (it’s currently 0-1% depending on when the statement cuts) and I expect my score to drop, at least temporarily, by between 50 and 100 points (the swing could be that large because I am still relatively young with a relatively shorter credit history). I would never have embarked on this strategy if I knew that I would need credit in the near future. As I do not, and the hit will be temporary, this was not a huge consideration for me.

Now, those initial objections at lease cursorily addressed, let us return to my rationales for the balance transfer…

1) Saving on interest. – This was addressed extensively above. As long as I pay off the amount after December 2019, I will likely save a tiny bit on interest.

2) The psychological benefit of seeing every dollar I save or hustle for go towards a principal payment reduction. – As you might have expected, the largest benefit to this strategy for me is psychological. I can’t speak about the experience of anyone else, but when I am targeting a debt, as I am targeting Private Student Loan 1, I log into the dashboard and look at the debt frequently. It is disheartening to see the balance gain interest every day and to not actually see the fruit of my sacrifice. (Skip buying a new pair of shoes so that you can make an extra $30 student loan payment, watch the loan gain that amount in little over a week in interest). With the balance transfer, every dollar I save or earn will chip away at the amount I owe. While I know that it would be better to be motivated by the interest that accrues each day, I’m not there yet. And as my journey will be a long one, anything I can do to keep myself happy and focused is worth its weight in student loan debt.