I had reserved this spot on the post calendar to do a post about the Prosper Act, which was going to make all kinds of changes to the federal student loan programs. Then it stalled in committee in the House, and just like in the Schoolhouse Rock song, “it's still just a bill up on Capitol Hill.” Maybe someday it'll come out of committee and I'll write that post about it. Instead, I decided to send an email to 16,000+ of my readers and ask them to contribute to this post by sharing their personal experience refinancing their student loans. Thankfully, not all of them did. But there were still dozens who contributed.
Unlike these readers, I've never refinanced student loans. In fact, when I started this blog, I tried to ignore them because I didn't know much about managing them. Fortunately and unfortunately, I was forced to learn all about them because they play such a huge role in the financial lives of my readers. Unfortunately, it turned out to be surprisingly complicated. Fortunately, it turned out to be a great business move as I recognized just how beneficial student loan refinancing would be for my readers just as soon as DRB (now Laurel Road) started doing it in late 2013 and partnered with them.
I only ever had one student loan, and I only ever made one payment on it. I once ran a post about my business manager, Cindy, refinancing her family's loans. They refinanced in 2015 and no longer have student loans. (Funny how working for WCI causes changes in people's financial lives eh?) So instead of blogging from personal experience, today we're going to peer into the real lives of real WCI readers. Some gave permission to share their name, but most asked to remain anonymous. Here are the questions I asked them:
1) Are you done with training, will you graduate soon, or do you have years of training left?
2) Which companies did you apply to and why?
3) Who did you eventually refinance with and why?
4) What loan did you choose (fixed vs variable, 5 vs 10 year etc) and why?
5) What tips do you have for someone considering refinancing?
I received so many responses, this post would be too long if I shared all ~150 responses. But I think it would be useful to readers to hear from many of them. Today's post is literally just the first 15 who responded to me. We'll save the rest for future posts. Thank you to all who took the time to respond.
The WCI Community Weighs In On Student Loan Refinancing
Refinance ASAP and Pay Off Quickly!
Greg Floerman is a hospital employed general surgeon who finished residency in 2015. He applied only with SoFi on the recommendation of his financial advisor and refinanced into a 15 year fixed loan because it fit his budget at the time for what he wanted to pay monthly. He recommends you “look at all companies to compare rates. Do it ASAP. Pay them off in the shortest time possible.”
An anonymous attending finished residency in 2014 and applied to SoFI and DRB a few months later. She notes a better customer service experience with SoFi, but went with DRB because of slightly better rates. She chose a 5 year fixed loan at 4.3% and paid off over the next 2.5 years. Her advice? “Refinance ASAP! It wasn't that hard and so worth it.”
“Finance Spouses” Are a Doc's Best Friend Getting Loans Refinanced and Paid Off Fast
Tara is “just the finance spouse” of a physician. He will graduate in 2019 from an EM residency. They refinanced with Earnest, twice actually, once right after medical school graduation in 2016 and again in summer 2017. She notes the process was “straightforward and easy. We planned to pay off the loans aggressively, so sliding the term length all the way left to “5 years” and variable interest rate instead of fixed saved us the most money. We refinanced [later] with the same company to get a slightly better interest rate for free, and to get a referral/signup bonus we missed on the first go around, which they honored. By the way, nice of them to do that, they certainly didn't have to. We lived on rice and beans through medical school and residency to pay off the loan (in January 2018) and the lower interest rate was going to save us several hundred bucks even if it did creep up (as it did). By the time the rate equaled what our fixed rate would have been, we were already more than halfway done with payments.” She recommends, “You should probably do it right away, it saved us a lot of money. I recommend Earnest because I had a good experience with them but I'm sure their competition is similar….If you're not planning on paying your debts down ahead of schedule, I think it's a bad idea to choose a variable interest rate.”
This one also came from the wife of a physician who graduated in 2017. They refinanced a couple of months later after applying with Laurel Road, SoFi, and CommonBond on the recommendation of their advisor. They went with CommonBond because they offered the lowest rate. They chose a 20 year fixed loan because they also had 19% credit card debt. She notes that “I wish we had known about the recommendations tab on the WCI webpage and received a credit to apply to loans.”
Shop Around to Get the Best Rate (Companies Will Fight Over You!)
Sara Barcia is an attending who applied to SoFi, Laurel Road, and First Republic. She refinanced the first time with SoFi, then again with First Republic for a lower rate, although they note they needed 10% of the loan amount (20% if joint ownership) in either cash or home equity to refinance with First Republic. She chose a 10 year fixed loan at 2.9% because she “needed the lower minimum payment in case I lost my job as I build up an emergency fund. I plan to pay it off in 4 years though.” She says that “Companies will fight over you if you are a good applicant. Get the best rate you can, shop around. Use referrals. I have made about $1000 by using the referral through WCI and by referring others.”
Kaitlyn Le says she was “looking for an article like this one when I refinanced a few years ago” and was glad to participate. She is a pediatric hospitalist who finished training in 2015. She applied to Earnest and SoFi, refinancing first with Earnest in 2016 and then SoFi in 2018 because they “had the best online reputation with a user-friendly interface, easy access to live phone help, and low reported interest rates.” She took a variable 5-year loan to get the lowest rates available since she “had the ability to pay the loan off at any time” but is preferentially funding retirement accounts right now. Her initial rate of 2.2% has increased to 2.5%. She recommends “Don’t delay! It initially seems daunting, but really takes only about half an hour of your time to look into a couple online refinancing options, and you can apply online. The difference between a few percentage points at face value seems insignificant, but when you crunch the numbers, refinancing a 7% loan to a 3% loan can mean the difference of thousands of dollars EACH YEAR on a $200k loan!”
Refinance Early and Often
An anonymous dentist 1.5 years out of school has already refinanced his student loans three times. This last time he applied with SoFi, Earnest, and CommonBond. He applied to Earnest “because I had previously refinanced with them and found their customer service and servicing interface to be top notch.” He applied to the other two “mainly because of hearing good things about them, mostly from sites like WCI. I did not apply with Laurel Road, as my loan was currently with them.” He chose CommonBond based on the lowest rate “this go around” and chose a 15 year fixed loan. “I'm definitely paying it off much faster than that, but I knew I was going to possibly change jobs soon and wanted the flexibility of lower payments should there be a period of unemployment.” He recommends, “Apply with several, and then take the best rate. Definitely do it through WCI so you get the bonus.”
Brian “loves WCI and is happy to be able to contribute a little bit.” He is an attending anesthesiologist since 2016. He initially refinanced with SoFi into a 4.8% 10 year fixed loan, and then a few months later refinanced with First Republic to a 10 year fixed at 2.6% because “they had the best rate available of any company I was looking at. They did require some cash reserve on hand in order to be approved but they were super easy to work with and were always ready to help. They have one of the best customer service I have ever experienced.” He chose the 10 year fixed because “it was a good balance between manageable monthly payment and acceptable length of payment for me. I didn’t want to go as long as a 15-year term.” He recommends “make sure your credit score is decent. Make sure you have some savings on hand (I think I needed to have 15% of the total refinancing amount in savings to qualify) so you can get approved for competitive rates. Shop around.”
More Advise to Pay off Student Loans Aggressively (3-5 Years)index funds. He applied with SoFi and Laurel Road and only Laurel Road agreed to refinance him. He went with a 5-year variable loan (2.48% initially but increased to 3.2%.) “I went with the lowest rate knowing I was going to pay it off early.” He recommends, “Dentists should always refinance unless you don't have a stable job or at some point would like to go back and specialize.”
An anonymous spine surgeon said “I did not refinance mine (didn't know it was an option) but paid $200K off in 1.5 years by using a signing bonus and large payments until it disappeared. The rate sucked at 7.5%.” Although it was hard to complain since his wife's were at 8.5%. He does note he felt “amazing relief and freedom” from paying them off.
A sports medicine doc and his physical therapist wife paid off their loans last year. He is 3.5 years out of training and refinanced with Earnest because he liked the ability to choose a customized repayment interval. He used their slider bar and found the best combination was “something like 6.2 years to give us the lowest payment in times of a lean quarter (winter and spring are lower earning quarters in sports medicine) and nearly the same rate as a 5-year loan.” They paid off both loans in about 3 years using the “extra” income from his higher earning quarters and appreciated the flexibility of Earnest that allowed him to do that with the best possible terms. They chose a “fixed rate because it was minimally different than a variable rate at the time, though a variable rate was certainly reasonable.”
Get Creative and Be Persistent
A fellow with 1.5 years left in training didn't actually go to a lender, he went to his family who offered him a sweet fixed 5-year loan. He plans to pay it off in 3 years and recommends “Get creative in your financing. Lots of people, especially older individuals, like bond like payments which in essence is what this is.”
Greg Reichert is a family doc in North Carolina who graduated in 2013 and refinanced twice, once with Laurel Road to a fixed 4.5% a year out of residency and then again “when SoFi hit the scene” when he switched to a 10-year variable loan. He says he took the variable loan “based on your post and my desire to get aggressive with it and not caring if the rate went up when I was lump summing extra at it. I wish I had gone with the 5 year but was worried about being locked into that higher payment.” His recommendation? “DO IT, it gets frustrating because it takes time but so worth it. DO NOT get overwhelmed with the loan vs invest question, get this thing done. I actually increased my payment to what my estimated payment would be after refinancing to convince myself I could afford it and that really helped.”
An emergency doc in Oregon is 3 years out of residency and has paid his loans down from $310K to $185K. He refinanced with Laurel Road and then First Republic Bank. He also applied to SoFi. He liked the rate with Laurel Road (then DRB since this was before the rebrand and refocus), but did note some slow customer service. He saw that First Republic “had the BEST rates but I was just outside of the first republic bank physical encachment area to qualify to refinance and was initially turned down. I live 110 miles from a branch location. After persistence and multiple phone calls and about 6 months in between, I convinced them to let me apply and was approved.” He got a 5 year fixed at 2.5% and recommends you “shop around, pay them off as fast as you can and try to live like a resident until they're paid off.”
Let a Variable Loan Motivate You to Pay off the Debt Quickly
An attending since 2015 read through the WCI site and then waited 6-12 months before applying, which allowed her to pay down credit card debt and build an emergency fund to improve her credit score. She applied to Laurel Road and SoFi “because at the time they seemed to have the best rates and the most feedback on the WCI forums.” She went with SoFi because “the application process was so simple as far as uploading all my documents using photos on my smartphone and they got back to me fastest.” She chose a 5-year variable loan and notes “This felt like a scary decision but has definitely turned out to be the best decision for me. After looking at how fast the rates could increase and the amount of debt I was refinancing I knew I would be able to pay it faster if the rate started to go up. Instead, I feel like knowing that the rate can go up (and it has on average every two months) has kept me motivated to pay the debt down faster. It has just barely reached the rate that I was offered on a 5 year fixed loan but in the interim I have paid down over $60K over the past 18 months and so even if the rate rose quite quickly now it is exceedingly unlikely that it would be high enough that the variable rate would have been the wrong decision.” She recommends paying attention to student loan management as an intern and relates this sad tale:
“I ended up doing a 5 year residency and a 2 year fellowship and then took a job in a public university. I would literally have saved myself ~$80K if I had been doing IBR all along but I literally had no idea that [PSLF] existed so the biggest advice would be to young residents to really investigate the pros and cons of repayment strategies and the long term implications ASAP. When considering refinancing taking the extra time to understand the difference between fixed and variable rates and rate increases and what that means to your individual situation. Equally important is understanding your own risk tolerance. It might sound dumb but [being] relatively OCD in my professional life makes a variable rate feel like significant risk even though I know that it made the most sense for me by the numbers. That being said that feeling of not having control has probably been a big motivator in paying down the debt as quickly as I have.”
Lessons Learned: What are the Best Ways to Refinance?
That's probably a long enough post for today. I've got enough of these to at least do a part 2 and a part 3 later this year and I'm going to try to incorporate some into the podcast. There are some lessons that can be learned here from these personal experiences:
- Don't refinance if you're going for PSLF (and figure out if you should be going for PSLF)
- Shop around
- Refinance early and often
- 5-year variable loans have the lowest rates but the most risk. Mitigate that by living like a resident for 2-5 years after training.
- Pay off loans within 3-5 years
WCI Student Loan Refinancing Deals
Here are the current WCI deals for refinancing, including several newer companies not mentioned in this post (but who are refinancing loans for WCI readers) that you should include in your search:
New Bonus Disclosure
Earnest Welcome Bonus Offer Disclosure: Terms and conditions apply. To qualify for this Earnest Welcome Bonus offer: 1) you must not currently be an Earnest client, or have received the bonus in the past, 2) you must submit a completed student loan refinancing application through WCI link; 3) you must provide a valid email address and a valid checking account number during the application process; and 4) your loan must be fully disbursed. The bonus will be automatically transmitted to your checking account after the final disbursement. There is a limit of one bonus per borrower. This offer is not valid for current Earnest clients who refinance their existing Earnest loans, clients who have previously received a bonus, or with any other bonus offers received from Earnest. Bonus cannot be issued to residents in KY, MA, or MI.
“*Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. If you choose to complete an application, we will conduct a hard credit pull, which may affect your credit score. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Oct 10, 2020 and may increase after consummation.”
What do you think? Which student loan refinancing companies did you apply with and why? Which company did you end up choosing? How many times have you refinanced your student loans? What type and length of loan did you go with? What tips do you have for those considering refinancing? Comment below!