Did you know student debt is typically a bigger liability than a mortgage! It’s true. No wonder you can’t get approved for a mortgage! The best bet for you right now is to refinance your student loans, it’s easy and you can do it in 15 minutes!
Today I will teach why you should refinance your student loan, and exactly how to refinance your student loan, then send you on your way with sweet victory and a wad of cash in your pocket.
- Why student debt is worse than mortgages
- 3 step 15 minute refinancing process
- Exactly who to apply with
- Checklist of what you will need
Student loans are bigger than mortgages!
That leaves you with a $2,238 a month payment and $68,504 of interest over that 10-years.
That’s the same monthly payment as a $665,000 mortgage payment (@ 3%, 30 yr).
Mortgages need refinancing too: Read this!
Quick example of what you can save by refinancing
Guess what, you will save a tonne of money by refinancing since the standard federal rates are so brutal.
6.25% is brutal when you can get rates closer to 2.3%.
Dropping to 2.3% saves you a whopping $372/month or $44,551 over the ten years. WOW!
Other reasons to refinance student loans
Wow, you can save a lot of money, but there are more reasons to mess with your loan.
- Lower interest rates
We just saw how huge this is. Seriously, dump that federal sucker. He’s not good for you.
- Lower monthly payment
Not only can you lower your monthly payment with a better interest rate – you can also extend the term if you really have to. (Although I wouldn’t recommend going past ten years.)
- Swap from fixed to variable rates
Variable rates are usually better than fixed if you can stomach the uncertainty. As a pro tip though, you can get some amazing fixed rates mid-recession.
The case for keeping your federal loan with bad rates
There may be a teeny-tiny chance that you might want to stick with the federal loan.
- They usually suck, but they’re very nice if you:
- Make very little
- Work for the government
- Can’t plan to pay off your loans
If you match those 3 criteria they will do 3 big things for you:
- Lower your monthly fees in a couple of ways (income-based repayment, graduated repayment and extended repayment).
- Loan forgiveness programs if you match some criteria
- Delayed payments
All of which will cause you to pay a huge pile of interest… unless you find a way to get it forgiven.
It boils down to: Federal loans are good to keep if you really can’t pay the monthly payments, or you can get your loan forgiven.
Even the nice things the government does don’t really make up for the huge difference in the interest you will be paying.
Covid 2020 example:
Here’s an example of the government being helpful.
Spoiler: it doesn’t add up enough to be worth keeping a federal loan.
Through the 2020 CARE act if you have a federal loan you can skip 2 months of payments AND not accrue interest. It’s pretty sweet but is it worth keeping a bad rate for?
Here’s a quick breakdown of the numbers:
$200,000 loan at 6.25%
Skip 2 months interest = $1157 interest savings (aww, thank you government)
$200,000 loan at 2.3%
Save 3.95% for 10 years = $45,400 interest savings (whoaaaaa! Never mind.)
No comparison. The government is nice but it’s still worth moving on if you can. If you aren’t using that forgiveness you are paying a high rate so that others can not pay theirs back.
Quick Note about Canadian Student Loans:
Refinancing loans in Canada isn’t a huge industry for 3 reasons.
- Government Rates are pretty good
- Student debt is way smaller than the US
(Average student debt = $5,000 – $17,000 depending on who you talk to)
- Student loans auto-consolidate
You can refinance if you want and the same rules apply (stay with the government if you can’t pay it back, refinancing saves money, variable rates are best).
3 Steps to get your student loan refinanced:
1 – Determine the type of loan you want (1 minute)
Depending on your current situation, it’s better to figure a few things out in advance instead of randomly selecting something on the spot.
- Do you want variable or fixed rates?
- Fixed rates tend to be higher, but people like the predictability of them.
- What length of term works for you?
- You can get up to 20-year terms, but borrowing is hard while you’re carrying student debt.
- I’d say 10 years is a reasonable max.
- What kind of payment flexibility is important for you?
- There are prepayments privileges, unemployment insurance, deferrals, etc.
Mr. FireEscape Recommends: A 7-year term (or less) with variable interest can get you some great rates. Also, look for one with unlimited prepayment in case you want to refinance the loan someday.
2 – Boost your credit with 2 hacks (10 minutes)
Your parents have good credit… borrow it. It costs them nothing to cosign with you and saves you money. Win-win.
Also, make sure that you pay off your credit cards because maxed-out high-interest loans are a red flag for credit reports. Your good deed of paying it off will update your credit report next time they issue a statement.
Mr FireEscape Recommends: Beg, borrow, and steal to pay off your credit cards and then get someone with better credit to cosign. It can save you tens of thousands over the years.
Buy them a bottle of wine for doing you a solid.
3 – Apply to refinance student loan (4 minutes)
Loan applications through modern companies are really fast, especially if you use my list.
Here’s what I recommend for the minimum time commitment and maximum savings:
#1 – CommonBond
I recommend this above all others but you need to have good credit or a good job.
I also have a special link (please use it) and they’ll give me a kickback. Why? No idea, they are too awesome not to recommend!
The list of pros is sooo big!
- Superfast application 1 minute, AND super fast pre-approvals (10 minutes)
- Amazing rates!
- No origination or closing fees!
- No prepayment penalties!
- For every student loan they finance they will fund a child’s education.
- Great experience (site, app, service)
- Unemployment protection in case something crazy happens (#Covid2020)
- Up to $550 cash bonus on closing your loan.
#2 – Credible
This is your best bet if you have decent credit and #1 fails. Here’s what you get:
- A marketplace for student loans. You type in your details and multiple people will send you the best offers they can.
- 1-minute applications and 10-minute pre-approvals.
- As a bonus: no origination or closing fees! Yay Credible!
- It has a low time-commitment to get many offers.
#3 – Lending Tree
Go this route if you have bad credit (under 620) or the other ones don’t pan out. If don’t know your credit. Just try the other ones first 😛
- It’s also a marketplace like Credible but they have way more lenders on hand so someone will work with your bad credit.
- You don’t have a guarantee of no origination/closing fees. 🙁
- You will get TOO many quotes. A good thing but also annoying.
A handy-dandy checklist to refinance student loans
And in case you want to get ahead of the curve here are all the things you’ll need in the application:
- Loan statements
- Employment evidence (recent pay stubs, tax returns whatever).
- Residency evidence (passport)
- Graduation evidence
- Government ID.
- Monthly housing payment
TL;DR – Refinance Student Loans
- You need to refinance your student loans for the lower rates, and savings of many many many thousands of dollars
- Before getting started, figure out what kind of loan you want and clean up your credit (or ask someone to cosign)
- Applying for a loan is a fifteen-minute process if you use my list above
You can’t start your FIRE journey with a bunch of high-interest student debt hanging over you. Refinance it for a nice low-interest rate and come back here to learn what to do next!