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Like most working adults in their 20s and 30s, I have student loan debt. I’m paying it off faster than the minimum payments, but my interest rate is relatively high at 5.875% with automatic payment. I just completed a refinance of my student loans into a 10 year loan at 2.68%.
Like many of you, I took out student loans in college and have been paying them back ever since. Most of the loans I took out went to pay for school, but some supplemented my income while I was a “poor college student”. I consolidated my loans about 10 years ago into a long-term fixed-rate loan at 6%. Recently, I was able to refinance the student loans to reduce my interest rate by more than 50%.
How I had been paying my student loans previously
When I first started paying off my student loans after graduating with my MBA, my income was substantially less. But, I also didn’t have a mortgage, a wife, or two kids.
Based on my income at the time, the student loan interest was deductible on my taxes. (The 2014 modified adjusted gross income [MAGI] threshold to deduct is $80,000 for singles and $160,000 as a married couple.) I chose the graduated payment method so that I could focus on contributing to my 401(k) and paying down higher interest rate debt I had accumulated during college.
The graduated payment method is similar to an income-based repayment, where the payments start out lower, then increase over time. The thought is that your payments will increase in line with your increases in salary, so that the burden of the student loan repayment does not overwhelm your ability to pay.
After paying off my credit cards, I would occasionally pay extra towards the student loans. When my car was paid off in 2008, I took the monthly car payment and put half towards my student loans and half into savings. My thought being that, if something were to happen, having that emergency fund / cushion would be a lifesaver, whereas, if I concentrated everything on the student loan payments and an emergency arose, I couldn’t access the extra amounts I had paid off, so I could potentially go back into debt.
Luckily, my income has increased, but unfortunately I no longer get the tax deduction for the student loan interest.
I came across SoFi‘s name while reading an article about student loan refinancing around January 2015.
As I understand it, their target market is professionals with excellent credit, which allows them to offer rock-bottom interest rates. To qualify, you should probably have a credit score north of 700, but that isn’t the only factor that SoFi considers when reviewing your application.
There are many options to choose from when refinancing:
- 5, 10, 15, and 20 year terms
- Fixed and variable rates based on LIBOR
- Discount for autopay
My experience refinancing student loans with SoFi
Applying for a SoFi refinance
I started the student loan refinance process in early February 2015. Although I was on track to pay off my student loans within 8 years at the current 6% interest rate, and I calculated that I will pay them off within 5 years now that my interest rate would be 2.67% with auto pay using the variable rate option, I chose the 10-year loan to minimize the required debt service (aka minimum monthly payment).
Minimizing the required debt service is important to me as we continue to use bank financing for our real estate venture.
Another positive is that both the 5-year and 10-year loans had the same 2.92% interest rate, with 0.25% discount to 2.67% with auto-payment. If I had chosen a longer term, the interest rate would have been at least 0.375% higher. If I had chosen a fixed rate loan, the interest rate would be almost 2% higher.
I’m betting that I can pay off the loans much faster (less than 5 years) than the LIBOR rate will rise, allowing me to “win” the variable vs fixed rate game. PS: PLEASE DO NOT DO THIS WITH YOUR MORTGAGE OR OTHER LONG-TERM DEBT!
Getting the decision from SoFi on the student loan refinance
My finances tend to be complicated because I have a W-2 from work, 1099s from blogging, an LLC for my 3 rentals, and LLCs for my real estate ventures with my partner. So, when we started the refinance process, SoFi “dinged” my debt-to-income ratios for all of my mortgages, but didn’t factor in my rental income that more than offsets that debt. Their credit process was more geared towards simple / traditional W-2 employees.
I was conditionally approved for my loan amount, but the interest rate I was approved for was not the lowest rate listed on their site.
I had to submit additional documentation substantiating the rental income, such as tax returns and lease agreements. I would upload the documents as soon as an upload spot was created in their system —- YES, I had to call and ask them to add upload spots for me, rather than allowing me to upload all the documentation all at once. Minor irritation for a tech company.
Eventually, my loan was approved for the lowest interest rate offered for the 10-year variable student loan. After my loan was funded, I received a welcome gift of a SoFi t-shirt and a beer & wine bottle opener. I wish they would have sent a nice bottle of wine for me to open too!
Paying off my old student loan servicer
When I applied, I took a screenshot of the balance owed, and that was the amount that SoFi funded the loan for in March 2015. However, because we started the process in January 2015, I continued making payments to the old lender, which reduced the balance owed.
Secretly, I was hoping that I would receive a refund check for the overpayment of almost $900. I love loans at dirt-cheap interest rates! The old lender told me on a couple of occasions that I would receive a check and that it was “in the mail”. Finally, I spoke to a manager in early May who informed me that, because it was a student loan, the overpayment had to be returned to the new lender. Bummer! “Ok, so when will they receive the refund?” I asked. “Umm, I’m not sure” was their response.
I called last week to follow up again, because the old lender’s customer service is horrible and nobody called me to give an update. They informed me that a check had been cut to SoFi, but they weren’t sure if it had been mailed or cashed yet. HOW ARE THESE PEOPLE IN BUSINESS? I’m so glad that I’m paying off their loan and going with SoFi now.
It hasn’t been perfect with SoFi either. When I called SoFi last week, the agent told me that they had received the check in late May 2015, but the payment has not yet been applied to my account. They reassured me that it would be retroactively posted in a batch process, but that, because this $900 wasn’t a payment I had made, it wouldn’t show up in my payment history. WTF?!?!? “How am I supposed to validate that the payment was applied correctly” I asked. The reply was that my “balance would be lower”. A rocket scientist, she was not.
Eventually, the overpayment was posted to my SoFi account, but I never received notification from SoFi. I was disappointed that they missed an opportunity to provide great customer service. I got over it pretty quickly, though, when I remembered that I dropped by interest rate by over half!
Benefits of having your student loans with SoFi
Although there were some hiccups and somewhat questionable actions, I am much happier with SoFi than with my prior lender. And that is before I explored the benefits offered to borrowers:
- Career Support – you can access complimentary career support, such as interview coaching, resume review, and networking tactics
- Entrepreneur Program – qualified entrepreneurs pursuing a new venture are eligible to receive mentorship and peer support and apply for 6 months of loan deferment
- Exclusive Products – you’ll get advance notice of new features
- Unemployment Protection – if you lose your job, SoFi will temporarily pause your payments and help you find a job
- Members Network – make connections with SoFi’s private network on LinkedIn
Perks – get special discounts and deals through SoFi’s partnership with AnyPerk
I’m really happy that I was able to reduce my interest rate by more than 50% by refinancing my student loans with SoFi. I’m going to reduce my loan term by several years and save 1000s of dollars in payments simply by continuing to make the payments I was making to my old lender. Beyond saving a lot of money on my payments, I picked up a lot of benefits that I look forward to exploring… except the unemployment benefit. Let’s hope that one is never necessary!
If you’d like to explore refinancing your loans with SoFi, use this link to get the best rates and benefits.