Student loans can feel unbearable at times. As a new graduate in an entry-level job, you might struggle with a large monthly payment and high-interest rates. Even after you’re more established, it may seem like you haven’t made much of a dent in your loan balance.
It’s been a long four years since I graduated, but I’m happy to say that I’ve figured out a way to crush my student loans — and you can do it too.
Since graduating in 2015, I’ve made consistent payments on my student loans. At the beginning of my debt payoff journey, nearly half of my monthly payment was going towards interest. I felt hopeless that I would never pay them off, and I knew there had to be a better way to go about tackling this debt.
After some research, I discovered student loan refinancing. Since I discovered this, I have saved thousands of dollars in interest costs. In this article, I will discuss the one secret that no one is talking about when it comes to paying off your student loans: crushing your interest rates through consistent refinancing.
Where I started my student loan journey
I left Arizona State University in August 2015 with just under $80,000 in private student loans from Wells Fargo. The interest rate hovered around 7%, which was decent but not great. I knew I had to make a change, but I wasn’t too sure of my options. I even considered bankruptcy early on but came to learn that it’s nearly impossible to discharge student loans in bankruptcy.
After the Wells Fargo debacle was revealed in 2016 — and realizing the impact of compounding interest on my balance — I knew it was time to make a change. I did some research and came across various student loan refinance companies.
When you refinance your student loans, you essentially take out a new loan with another lender. You use that loan money to pay off your old student debt, then start making regular payments to the new lender. Ideally, your new loan should have lower interest rates or better terms, which can save you money.
Once I knew I could qualify to refinance, I kicked Wells Fargo to the curb. Since then, I have refinanced my student loans four separate times, lowering my interest rate significantly each time.
Refinancing your student loans may sound difficult or intimidating, but the process is quite simple. Here are several steps that I took to lower my student loan interest rates.
6 steps I took to lower my student loan interest rates
1. I got my credit in tip-top shape
When you apply to refinance your student loans, the new lender will be checking your credit to determine whether you qualify or not. Keeping your credit score as perfect as possible is key to having a wide array of financial options. Whether it’s student debt, car loans, or applying for an apartment lease, having a strong credit score can help you access the best deals.
2. I researched lenders
The next step is to find a lender that you want to refinance with. Many of these lenders aren’t your typical neighborhood banks, and many of the “big players” in student loan refinancing are online banks.
New fintech (finance technology) companies such as SoFi, LendKey, and Earnest have been leading the way in the fintech space and are well regarded. So don’t be afraid of these fancy new names. In fact, embrace them!
One of the largest benefits of an online bank is that they don’t have brick-and-mortar buildings. Because they don’t have the hard costs of a retail space, they can pass on the savings to you.
To date, I have refinanced my student loans with SoFi (online bank), Nationwide (online bank), PenFed Credit Union, and First Republic Bank (traditional bank).
Additionally, these refinancers make the debt consolidation process very simple. If you have multiple student loans from different servicers, they can consolidate them into one loan. This is beneficial as you will no longer have multiple debts to track.
3. I compared interest rates
While there may be some ancillary benefits to each lender, your main concern is likely to find the lowest interest rate. To easily compare multiple offers at once, I used Credible.
You can enter your information, and you will be presented with any refinancing options that you are eligible for. You can view the name of the lender, interest rate (fixed or variable), length of the loan, and the total interest you will pay.
Seeing your options in one place can simplify the comparison process, and help you find deals you might not have known about otherwise. Plus, it can give you a sense of what you might be eligible for.
4. I submitted an application and made sure to get the best deal
Once you know which lenders are likely to offer you the best deal, you can submit an application, either on your own or with a cosigner.
However, having a cosigner could be worth it if your credit isn’t high enough to qualify for the best interest rates. By having a cosigner, you will have a second person responsible for the loan, and the lender will likely give you a lower rate.
If you ask a friend or family member to cosign, it is important to have a discussion of what the implications are of this decision. If you default on the loan, your co-signer is responsible for paying back the loans, which can place a large strain on their credit and your relationship.
5. I enrolled in autopay for an APR discount
Many lenders will offer you even further discounts on your interest rate if you sign up for autopayments, commonly knocking off about 0.25% from your rate. While it’s not much, over time that can grow into significant savings. Plus, you won’t have to worry about manually paying your bill each month.
I have taken advantage of this with each of my lenders. It is a simple way to continue saving money on your interest and take the hassle out of tracking payments.
6. I didn’t settle after my refinance was complete
This is the key reason why I have been able to crush my student loan interest rates. Every month or so, I would check comparison sites like Credible to see if there were any interest rates that were lower than what I currently had.
If I found a rate that was more than 0.5% lower than what my current loans offered, I would refinance. This is key to eliminating the amount of money going towards interest and to keep attacking the principal.
How things look today
Today, I am nearly 50% complete paying off my student loans. If things go according to plan, I should have them paid off by the end of 2022. I may even refinance my loans again if I get an even lower interest rate, but that is unlikely.
One strategy I have found super useful is knowing exactly when my student loan debt will be paid off. I use a student loan calculator to know the exact day when it will be officially gone, which helps me with my financial planning. Once you figure out your debt payoff date, you can start planning ahead for your future.
To start, you can use a student loan calculator to see when your current payoff date is. You can also see how much your loans will change if you increase your payments or decrease your interest rate by refinancing your student loans.
Once you complete all of these steps, you will be in an informed position to refinance your student loans and crush your interest rates like me.