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Guess which generation has been burdened with the most student loan debt in history? Yep, we millennials. And it’s not getting any better.
We owe $1.3 trillion in student loans alone (and that’s not even getting into auto or credit card debt) with an average balance of $28,400 per borrower. 60% of all students who graduate college do so with student loans to repay. And 11.8% of us are defaulting on those loans (which, by the way, you have to repay no matter what – bankruptcy can’t even get you out of those). Even for those of us blessed with graduating without any, we see the strain on the people we date, our best friends, our family members and feel the pressure to save for the ungodly amount our children will undoubtedly need. How’s that for a positive outlook?
This month marks the 3 year anniversary of the start of Britt & the Benjamins, and as I read over my first post (which you can find here), I was reminded of why I started this blog in the first place: to help people, especially women, kill it with their finances. I knew that the steps I’d taken with my money had afforded me some wonderful opportunities, and I wanted (and still want) the same for all of you.
That’s why when I stumbled upon SoFi, I was ecstatic (no lie) to share it with you. If you weren’t already aware, I graduated without student loan debt (read all about it here), but as I was pouring over SoFi’s website, reading testimonials and learning about all they offer, I knew that while it couldn’t necessarily help me, it could be a game changer for some of you. And I mean game changer. GAME. CHANGER.
So what is SoFi? Basically, it’s an online financial company that can help you get a mortgage, make investments, and build wealth; however, the best part about them (and what I –and they – consider their main gig) is that they also refinance student loans. And they are the best ones in the market doing this today.
Want to refinance your loans and get a $100 welcome bonus? Sign up through this link!
REFINANCING VERSUS CONSOLIDATION
Before we get into SoFi a little more, let’s talking about the difference between refinancing and consolidating student loans. These are both terms used quite a bit in the student loan world, but each has very difference effects.
Loan consolidation essentially means you roll multiple federal student loans into one new loan at the weighted average of your old loans’ interest rates. (Note: Private loan consolidation essentially acts like refinancing, which is discussed below). This doesn’t lower your interest rate or decrease the amount you’ll pay over the course of your loan. In fact, if you have a lower monthly payment, it’s most likely because they’ve lengthened your loan term, which will just make you pay more in interest over the long haul. The benefits then? To be truthful, there aren’t many, other than that you can lock a variable rate loan into a fixed rate and you’ll have fewer loans/payments to keep track of.
Loan refinancing, on the other hand, is where you roll multiple loans (federal or private) into one loan at a new, lower interest rate. The financial institution doing the refinancing will look at your financial and credit history, and if you’re a good candidate, will hopefully offer you a lower rate than what you’re currently paying on your loans now. And while it doesn’t seem like this could make a huge difference, it could save you a couple of hundred a month, depending on the amount of loans you have. How’s that for some extra cash in your pocket?
Want to learn more about loan consolidation and refinancing? Click here.
WHY I LOVE SOFI
While a lot of companies offer loan refinancing, SoFi is head and shoulders above the rest. Why am I so obsessed/excited about them?
They refinance both federal and private loans
Most financial institutions only refinance private loans, which could still leave you paying a high interest rate on your federal loans. Refinancing both can potentially cut the amount of interest you are paying even more. And saving more is always a good thing.
You can save an additional 0.25% of your loan when you enroll in AutoPay
It may not seem like much, but over the course of a 10-year loan at the average 2016 debt balance ($28,400), it will save you roughly $400. And if someone wants to pay me a few hundred dollars to simplify my life, I’ll take it.
Average savings for SoFi users is $19,000 over the course of their loan.
$19,000. Yes, that’s a car, people. And if you pay more than the minimum each month (which SoFi allows you to do), you can increase that savings even more.
I know, I saved the best reason for last. Saving $19,000 can have a huge impact on a 20- (or even 30-) something, and I want to get into a little more detail on just how refinancing with SoFi (Get a $100 welcome bonus by clicking here!) could change your financial situation drastically, making it easier to build that emergency fund, save for retirement, or even afford to go on a vacation this year. Or if you want to spend it on shoes, go for it. It’s your money.
3 WAYS YOU CAN SAVE ON YOUR STUDENT LOANS
I used this loan amortization calculator to help me do these calculations, so if you’d like to calculate the effects refinancing can have on your personal situation, feel free to download it yourself. But first, let’s look at an example and the 3 ways you can save using SoFi.
Let’s say currently you have $30,000 of student loan debt, $20,000 of which is at a 6.8% interest rate and $10,000 that is at a 7.5% interest rate, both on 15-year terms. Your total monthly payments for the two loans combined are $270.24, and the interest you’ll be paying over the course of your loans is $18,643, as evidenced in the two tables below.
Now, there are 3 different situations you can choose when refinancing. Let’s take a look at how each would impact your monthly payment and overall interest paid.
SITUATION #1: SAME TERM, LOWER INTEREST RATE
In this scenario, you would keep the term at the same number of years (i.e. if you had 72 months left on your loan, you’d refinance for a 72-month loan) and lower your interest rate. We’ll drop it to 3.5%, as this is the lowest fixed rate you can receive from SoFi. Note, you can choose a variable option, which can fall anywhere between 2.2% and 6.0%; however, while you may save now, you may end up paying more in the long run if interest rates rise nationwide. Because I’m not much of a gambler, I always choose fixed, but feel free to contact SoFi and see which option is best for you. Let’s look at the results below.
Under this scenario, monthly payments would drop from $270.24 to $214.46, saving you over $55 each month. Not huge but not insignificant. The real benefit here is with the amount of interest you’ll be paying over the life of your loan, which would fall from almost $19,000 to $8,600, giving you an extra $10,400 in cash. Yes, you can save that much in about an hour of your time. Talk about a return on investment.
SITUATION #2: LONGER TERM, LOWER INTEREST RATE
You are able to refinance your loans to extend the term of your loan; however, I caution against this because while it may lower your monthly payments, you will end up paying more in interest over the life of the loan. Let me illustrate.
Since the loans in this example are currently at 15 year terms, let’s say we want to extend that by 5 years. Here’s the impact:
These are both still lower than your original federal loan payments; however, when comparing to the 1st situation outlined above, your monthly payment has decreased by an additional $40, but your overall interest rose by over $3,000. Thus, only choose this option if you are living paycheck to paycheck and need that extra cash each month to make ends meet. Otherwise, you’ll just be shooting yourself in the foot. And no one likes to walk with a limp.
SITUATION #3: SAME TERM, LOWER INTEREST RATE, HIGHER PAYMENTS (AKA THE WINNER)
If you have the room in your budget to make higher payments, this is 100% the route to go. Basically, this will be the same situation as the first scenario we mentioned except for the fact that you will pay more than the minimum each month, thus paying your loan off faster and lowering the overall amount of interest paid over time.
For instance, let’s say you continue to pay the same monthly payment you used to pay under your un-refinanced loans ($270.24) even though your new monthly payment is only $214.46. Here are the results:
You will save an additional $2,300 in interest and have your loan paid off almost 4 years earlier than expected. From your original loans, that’s over $12,000 in interest saved all due to the simple task of renegotiating your loans and continuing to pay what you’re currently paying now. Kind of sounds like a no-brainer, right?
HOW TO GET A LOWER INTEREST RATE
Now, please be reminded that the benefit of refinancing is getting the lower interest rate. And to get the lowest interest rate possible, you need to have a great financial history. Which means you need to have a great credit score. So unless you know your credit score offhand, go to one of the 3 credit bureaus (Experian, TransUnion, or Equifax) and check it. You can do this once a year through each bureau (aka up to 3 times per year) without it having an adverse effect on your score.
If your credit score is a 720 or above, you will most likely be eligible for the best rate, so go ahead and apply through the link at the bottom of this post. If not, look to do some or all of the following things to increase that score. Then, give it 3-6 months and check your score again using a different credit bureau than you did the first time around. If it’s where you want it to be, then apply away ;)
PAY DOWN DEBT, PAY DOWN DEBT, PAY DOWN DEBT
This is going to have the biggest impact on your credit score, so do whatever you can to get your loan balances down, especially anything outside of your student loans. I don’t care if you have to sell half of your closet on Poshmark, eat Ramen for a month straight, or give up alcohol or dining out. Anything you can throw at your debt will have an impact, and you’ll be on your way to a lower interest rate in no time. And that extra $12,000.
LOWER YOUR CREDIT UTILIZATION
A lot of people don’t know this, but how much of your total credit limit you use effects your credit score as well. This is why many experts state to never close any old credit card accounts – it adds to your overall credit limit AND gives you a longer credit history, which is also a factor in your score. Thus, if you are fairly disciplined in your spending habits, go ahead and request your credit limit on your credit card(s) to be increased. If you continue to spend the same and pay it off in full each month (and you should – otherwise, I have taught you nothing), then you’ll be using less of your credit limit and increasing your credit score. Holla.
MAKE THE MONTHLY PAYMENTS ON TIME, EVERY TIME
Put reminders on your phone, circle it in red on your calendar, download the Prism app – whatever you need to do to be reminded to pay these on time, do it. It’s a big red flag to lenders if they see you can’t be relied on to make timely payments, and it’s going to be a big hit to your credit score. Comprende? Bueno.
I’m so excited for you guys. I really am. This is one of those things I stumbled upon while browsing my blogging community and couldn’t wait to share with you. I know how immense of an impact even $50/month can be for some of you to start chasing your other financial goals, and I can’t wait for you to be closer to those. Helping you get to a better financial position is my passion, and this is one thing I know that could get you there.
So, if you are looking to save some serious cash on your student loan debt, click the link below – you’ll not only be on your way to saving money but you’ll also get a $100 welcome bonus by signing up. The sooner you start saving, the better!
 Rathmanner, Dave. “Student Loan Debt Statistics 2016.” LendEDU. 1 July 2016. Web. 17 September 2016.