Student Loans Archives - Poorer Than You

Can You Refinance Student Loans to a Credit Card? (Yes, and I Did!)

By Stephanie, updated October 11, 2018 14 Comments
This post may contain affiliate links

If your credit score is even halfway decent, you almost certainly get near-daily credit card offers in the mail. You may have paused (before shredding the colorful bits of garbage) to ask yourself: is there some way I could use these? Could I refinance my student loans to one of these 0% credit card offers? Yes friend, you can refinance student loans to a credit card. I’ve done it twice, and in four different ways! (Because I wanted to figure out lots of different ways to do it for you. You don’t actually need to do it four different ways yourself. More on that later.)

Credit score not so hot? Refinancing your student loans to a credit card is probably not for you… yet. But don’t worry, you can work on improving your credit score while making regular payments to your student loan (which will also help!) and come back to this later.

Why Would You Want to Refinance Student Loans to a Credit Card?

Sounds dicey, doesn’t it? Credit cards are bad news bears and this seems like jumping out of the frying pan into the fire. But actually, it can be done (relatively) safely. It can be a great way to pay off student loans faster and pay less interest. Many, many thousands of dollars of interest, potentially.

By moving some of your student loan balance to a credit card, you can take advantage of a 0% interest offer. You’ll pay no more interest on that part of your student loan. That’s a very tempting treat for those of us who have been slogging along with 5%, 6%, 7%, 8%+ interest rates on student loans. Especially if, like me, you can’t find any traditional student loan refinancing with better rates than your current loan rates. My student loans were all at fixed interest rates of 4.75% or 5%. I never found a traditional refinancing loan much lower than that. And even if I had, it never would have been as low as 0%!

By taking advantage of a 0% interest promo offer and saving all of that money in interest, you could shave years off your loan repayment schedule.

Let me show you how for me, I’ve set myself up to save $9,218 and 14.4 years off my student loans, using credit cards:

My First Student Loan to Credit Card Refinancing

The first time I did this was in 2015. I tackled my Federal Perkins Loan which had a balance of $3,784 left on it at a 5% fixed interest rate. I was able to refinance $3,148 of that onto a 0% interest credit card. Wow golly what a difference that made!

Chart of the savings from refinancing my first student loan. $427 dollars saved! — Student Loan Hero’s Lump Sum Extra Payment Calculator gave me the scoop on the interest I saved with my credit card refinance. I couldn’t use a refinancing calculator because they didn’t allow for 0% interest rates, believe it or not! (Tap or click the image to enlarge)

I did this credit-card-refinance in February 2015. My original payoff date for that loan was supposed to be July 2019. That means I still would have been paying that loan to this day if I hadn’t done the credit card refinance. Instead, I used a 36-month 0% interest credit card deal (what what!) and I paid it off in 35 months. So I shaved 18 months off my repayment, and saved $427 in interest along the way. Yaaaaaaaaasssss!

My Second Round of Student Loan to Credit Card Refinancing

I finished paying off that first 0%-interest credit card refinance dealie in January of this year. But I still had other student loans (Federal Stafford Loans, consolidated down into two loans: Subsidized and Unsubsidized). I was itching to refinance to 0% again and save even more in interest. This time, I targeted most of what was left of my unsubsidized student loans. That’s because these baddies will continue to rack up interest, even if I put them into deferment to go back to school. Ugh!

I wasn’t able to find a promotional credit card rate for 36 months like last time (narts!). But I found plenty of ways to get 15 months of 0% interest. I went much more ambitious with the loan amount this time around…

With $12,365 refinanced from the unsubsidized loans to the 0% interest credit card, I’ll be saving a whopping $8,791 in interest! And by putting my debt information into the Debt Snowball table on Undebt.it, I can see that by “snowballing” the payment from the credit card (once it’s paid off in June 2019) into the remainder of the unsubsidized student loan, I’ll have that loan paid off in July 2019—173 MONTHS EARLY!

Undebt It Debt Snowball After Credit Card Student Loan Refinance — My “snowballing” debt payments as seen in Undebt.it. By rolling the payment to the next loan each time one is paid off, I’ll be debt free in 2022! (Tap or click the image to enlarge)

Now you’re looking at the above and saying “Wait a second Stephonee… how in the heck are you gonna drop a $10,462.64 extra payment on that credit card in June 2019?!?” That’s a really good question, and the answer is: I’ve already got that money. Mostly, from a big ol’ tax return this year. (If you’re screaming at your monitor “But tax refunds just mean you gave the government an interest free loan!!!” click here to learn more.)

Note: I also tested out two other ways of refinancing to a credit card at the same time. That’s why the total amount I refinanced during this round was $12,365 and not just the $7,966 from using the tax refund. $1,000 was refinanced using the “Plastiq Method” and $3,399.68 was refinanced using the “Normal Spending Method.” More about both of those methods later on in this post.

But that does change the equation somewhat. Because I already had that money, I could have simply thrown the tax refund at the student loan and not involved a credit card at all. We have to calculate the money saved compared to if I had done that, and then see what the difference would be.

The Difference Between Just Paying a Big Chunk Off and 0% Interest Refinancing

My tax refund: $6,378
+ 5% interest I’ll earn in savings during the credit card promo period: $398.63
+ 12 months of minimum payments to the credit card: $1,189.19
—————–
Equals $7,966 refinanced from the student loan to the credit card. (Rounded to the nearest dollar, because that’s what the calculator will accept)

So what we’re actually comparing is a lump sum payment of $6,378 and the refinancing payment of $7,966:

	Interest $ Saved	Repayment Time Saved
Lump sum payment of $6,378:	$5,600	59 months
Credit card refinance of $7,966:	$6,607	71 months
Difference:	$1,007	12 months

I don’t know about you, but a difference of over a thousand dollars and 12 months of payments was definitely worth the credit card application, 1 phone call and the 2 extra bank transfers I’ll have to do for the credit card refinancing. Even a conservative estimate wouldn’t put all of this extra “work” at over an hour, and I certainly don’t earn $1007 per hour at any other job I do!

Okay, this all seems great. Loans paid off early, thousands of dollars in interest saved! Why would anyone not do this?

Reasons NOT to Refinance Student Loans to Credit Cards

#1 – You’re already carrying credit card debt

This isn’t gonna work for you if your student loans aren’t your “biggest fish to fry.” Unless the credit card debt you’re carrying is another 0% promo and you’ll have it paid off before the promo expires. But if you’re carrying a revolving balance at 12%, 18%, or even higher? Nope, friend. You need to focus on THAT debt before doing fancy student loan maneuvers.

#2 – An emergency would mean that you couldn’t pay off the credit card at the end of the promo

If you’re thinking “I could totally use a lump sum to pay off the whole credit card before the rate expires! I’ve got that money sitting in my emergency fund!” then nope, stop, nope. That’s not a good look for you. If paying off this credit card balance would leave you vulnerable to a real financial emergency, or you would have to let the promo expire and start paying sky-high interest rates to protect your emergency fund, then don’t do this.

#3 – You need your credit score for something before you’ll be paying off the balance

Are you planning to do any of the following while carrying your student loan balance on a credit card?

Get a car loan
Get new car insurance
Rent a new home/apartment
Get a mortgage
Do actual refinancing on a loan
Apply for jobs
Do credit card “travel hacking”

If “yes” to any of the above, then you might want to hold up, wait a minute. Because this “refinancing” to a credit card can have a serious impact on your credit score, which could jeopardize any of the above activities (or just make them more expensive).

To prove my point, I present to you my credit score before and after my latest round of “credit card refinancing:”

Stephonee's Credit Score Before and After Refinancing Part of a Student Loan Onto a Credit Card — In this graph of my credit score (courtesy of WalletHub), you can see that I was riding high with a score of 806 before I did my credit card refinance in March. Then it dropped down to a low of 727. It’s only recently begun to bounce back as I make the minimum payments.

#4 – You’re Enjoying Any Federal Student Loan Protections

Just like “traditional” student loan refinancing, when you “refinance” a federal student loan to a credit card, you lose any and all federal student loan perks/protections. That means you lose:

Access to income-based repayment plans
Public Service Loan Forgiveness
And the ability to defer your loans due to unemployment or when you go back to school

You’ll only lose those perks on the amount that you refinance onto a credit card, of course. But if you’re dependent on them, pause and think about what you’re giving up if you refinance.

…

But assuming you’re like me and none of the things above apply to you, you may now be wondering:

How the heckin’ do you pull off a student loan to credit card refinance, anyway?

The Four Methods of Student Loan to Credit Card Refinance

Method #1: The Direct Balance Transfer Method

The most straight-forward method of the bunch has to come first. With this method, you get a card with a 0% promo interest rate (with the longest terms for that rate possible) and a $0 balance transfer fee, and then you call up that card company and give them your student loan information. They transfer the balance (up to your credit limit on the new card) by sending a check directly to your student loan company.

There’s a catch, though (of course there is!). Not all credit card companies will do a balance transfer from a student loan, so you have to do your research before you apply for the card in the first place. According to WalletHub, that means getting a credit card from one of these companies: Bank of America, Barclaycard, Capital One, Citi, Discover, PenFed, USAA, U.S. Bank, Wells Fargo, or SunTrust Bank. You should also call the card company before applying (or use their live chat feature). Ask if the balance transfers are limited to other credit cards only or not.

Method #2: The Big Purchase Method

This is a more “once in a lifetime” approach, but when the opportunity comes up, it works really well. First, you must save up a bunch of money for something you are going to buy. (Like appliances or furniture—in my case, it was a couch. Saving Sherpa once bought cows on 0% interest, which would also totally work for this.) When you go to buy the item, they offer you 0% financing for a ridiculously long time (I was given 36 months, but now I’ve seen the same company offering 48 months!). You read the fine print carefully to make sure there are no “gotcha”s. If there aren’t any, you accept the 0% financing option and hang onto your cash.

Then, you throw that cash you kept at the student loan instead. But that lump sum of cash might not completely wipe out one of your student loans. In that case, you’ll need to keep making the minimum payment on the student loan and make the new minimum payment on the thing you purchased. So make sure you can afford to do that each and every month until one of them is paid off.

Method #3: The Plastiq Method

This is a really easy method. You get a credit card with a 0% purchase APR promo rate and then use a payment processor like Plastiq to send extra payments to your student loan. Plastiq is a service that lets you pay with a credit card for things that would not normally allow you to do so. If you can find a card with a 0% purchase APR promo rate and rewards, you can even earn a little cash back with this method.

Alternatively, you can put a big Plastiq payment to your student loan on a good rewards credit card you already have (without a promo rate). Or on a new card that you’re trying to earn a sign-up bonus on. Then use a 0% balance transfer card to roll the balance from the rewards card to 0% interest. Tricksy!

The downside? Plastiq has a 2.5% fee for payments. Now, that’s probably a lot lower than your student loan interest rate, so it may still make sense to do. If you’ve got a 2% rewards card, the fee is nearly cancelled out by the rewards (reduced to 0.5% or $5 per $1000 in payments).

Plus, there are ways to severely reduce Plastiq’s fees. First, all of the links to Plastiq in this post contain my referral code, which means that you can make $500 in payments with no fee (after you make your first $500 in payments and pay the fee on those—in other words, it reduces the total fee on your first $1000 in payments to 1.25%/$12.50, which is super reasonable and can be cancelled out by using a rewards card). Just make sure that when you sign up that it shows the referral code “898826.” Once you’ve signed up for Plastiq, you get your own referral code to give out, which can earn you more fee waivers.

Method #4: The Normal Spending Method

Does your normal everyday life have you putting a lot of spending on a rewards credit card and then paying it off in full every month? This might be the method for you. Maybe you have to pay for your own health insurance out of pocket each month (like I did). Or you just have a lot of other necessary expenses that can be paid with a credit card.

To use this method, instead of paying your regular card(s) off in full, you take one month’s balance and do a balance transfer onto one of those no-fee 0% balance transfer promo cards. Or, you get a 0% purchase APR card and switch all of your spending to it. Either way, you then take the cash you would have sent to pay off your credit card(s) in full, and send that to your student loan instead (minus the amount needed to make the minimum payment on the promo card!!).

The downside to this method is that you’re limited to the amount of your usual monthly spending. If you use a balance transfer card, you might be able to get two months of spending in, depending on how long you have to make the balance transfers. For the 0% purchase APR card way, you could potentially have up to a year (however long the promo is for). Of course you’ll be limited to the credit limit of that card (and in my experience, the 0% purchase APR credit limits are lower than the 0% balance transfer credit limits).

Comparing the Four Methods

If the text above made your eyes glaze over, or you’re still not sure you understand how the four methods compare to each other, fear not! I’ve made a handy-dandy comparison chart for you:

You know what jumps out to me from this chart? There’s no perfect method to doing this. They all have their pros and cons, and really it’s about picking the best method for your situation.

I personally tried all four methods. I started with Method #2 (The Big Purchase) in 2015 when opportunity struck while I was buying my couch. Then I tried Methods #1, #3, and #4 this year, pretty much in order to write this post. If I weren’t trying to help you figure out what method works best, I personally would have just used Method #1. (To keep it simpler.)

Do I have a favorite method? Yup. It’s #2, the Big Purchase. The length of the 0% promo period is what seals the deal for me. 36 or even 48 months of no interest?!? SIGN ME UP! But I’m not willing to make big purchases just to do it—that’s crazy talk.

But I’ll probably use Method #3 (Plastiq) again in the future, as it’s more easily done periodically than any other method. Since I can use it for “travel hacking” or just make a random payment for free if I receive a Plastiq referral, it has a lot of potential for me.

Your Turn

What do you think of all this “refinancing a student loan onto a credit card” business? Think I’m crazy for doing it at all? Want to know even more about one (or all) of the methods I used? Let me know in the comments below!

Photo credits: Ales Nesetril, Student Loan Hero, Undebt.it, WalletHub

What New Grads Need to Know Before Paying Back Their Student Loans

By Guest Author, updated May 21, 2018 4 Comments
This post may contain affiliate links

Editor’s Note: Graduation season is upon us! Congrats to all the freshly-minted graduates out there… a new chapter is beginning for you. But if this new chapter includes a page on paying for the last chapter, you might be feeling a bit overwhelmed right now. Not to worry! Kat Tretina from Student Loan Hero is here on the blog today to help you navigate everything you need to know before you start paying back those pesky student loans. Take it away, Kat…

After four years (or more) of college, it’s finally time; you’re going to graduate. Although it’s a huge achievement, you might not have a lot of time to celebrate. Graduation is a major milestone in your life and marks your transition into adulthood.

If you took out student loans to pay for school, your first harsh dose of reality will come in the form of your monthly payments. For many graduates, the amount due can come as a huge shock, and you might be unprepared to manage your debt.

If you don’t know where to begin with your student loans, here’s how to avoid common mistakes and get your financial life in order.

4 biggest student loan mistakes new grads make

When you first applied for financial aid, you probably didn’t give much thought to your interest rate, loan servicer, or repayment term. Over the course of your college career, you likely took out other student loans, too. Now that years have gone by, you might have even forgotten how much you owe.

Not having that information is a huge problem. Unfortunately, many graduates don’t understand their loans, leading to the following four mistakes.

1. They don’t know when their grace period ends

When you take out a student loan, your loan documents outline when you have to start making payments. Depending on the type of loans you have, you might not have to make payments until months after your graduation date. The period between when you graduate and when your first payment is due is your grace period. If you don’t know when your grace period ends, you could end up missing payments. That issue can hurt your credit and lead to late fees.

Most federal student loans have a six-month grace period. But payments for PLUS Loans begin as soon as the lender disburses them.

When it comes to private student loans, grace periods vary by lender. With some, payments are due while you’re still in school. Other private student loan lenders allow you to postpone making payments for a few months after graduation. If you’re not sure when your grace period ends, consult your loan documents or contact your lender.

2. They don’t know their student loan servicers

It’s easy to forget about your loan servicers by the time you graduate. To make it more confusing, loan servicers sometimes sell loans to other companies. If you don’t know your servicer, you won’t be able to make payments or request changes to your repayment plan.

There are two ways to find out who owns your student loans:

Check the National Student Loan Data System (NSLDS): If you took out federal student loans, you can find your servicer by searching the NSLDS. It’s a comprehensive database that will show you your loan servicer and balance.
Review your credit report: Private student loans aren’t listed on the NSLDS. Instead, you can find your loans by checking your credit report for free at AnnualCreditReport.com.

3. They don’t know how much they owe

One of the biggest mistakes you can make is not knowing how much you owe. Your current loan balance can be different from what you originally borrowed. With the exception of Direct Subsidized Loans, all private and federal student loans accrue interest while you’re in school and during your grace period. Depending on your interest rate and how long it’s been since the lender disbursed the loans, your balance could’ve grown by thousands.

To find out how much you owe now, contact your loan servicer for an updated balance.

4. They don’t know their interest rates

Many graduates don’t pay attention to interest rates, which can cause problems later on. Your loan’s interest rate affects your total balance and your monthly payment.

If you don’t know your interest rate, you can find out by contacting your loan servicer or by reviewing your original loan documents.

How to improve your finances after graduation

Once you know which loan servicer you owe money to, how much you owe, and when your payments are due, you can come up with a repayment plan that works for you. To improve your finances after graduation, complete the following steps.

1. Create a budget

Learning to live within your means is the best thing you can do for long-term financial stability. To do so, you need a budget. It doesn’t need to be fancy, and you don’t need special software. Just make a list of how much money you bring in each month. Then, list all your set expenses, such as rent, student loan payments, utilities, groceries, car insurance, gas, and your cell phone bill.

Your goal is to earn more than you spend each month by sticking to a budget. If your expenses are higher than your income, you’ll need to make sacrifices, such as by reducing how often you eat out.

2. Make sure you can afford your payments

When you create your budget, you might find that your student loan payments eat up too much of your income. If that’s the case, you need to take action right away before you fall behind on your bills.

You have two options when you can’t afford your payments:

Apply for an income-driven repayment (IDR) plan: If you have federal loans, you might qualify for an IDR plan. With an IDR plan, the government extends your repayment term and caps your payments at a percentage of your discretionary income. Although you’ll pay more in interest charges over time, signing up for IDR can dramatically reduce your monthly bill now and give you more breathing room in your budget. To apply, contact your loan servicer.
Refinance your loans: Another option to reduce your monthly payments is to consider student loan refinancing. When you refinance, you work with a private lender to take out a new loan. The new loan has a different repayment term, interest rate, and monthly payment. If you qualify for a lower rate or extend your repayment term, you could reduce your monthly bill. There are downsides to refinancing, especially if you have federal loans, but it can be a helpful tool if you’re struggling with your debt. If you decide that refinancing is right for you, compare offers from student loan refinancing lenders to ensure you get the best deal.

3. Boost your income

When you’re fresh out of school and in an entry-level job, your salary will probably be low. Without a large paycheck, it can be hard to pay down debt or set aside money for savings.

To help you accomplish your financial goals, boosting your income is essential. Luckily, you don’t have to depend on your regular job for money. There are a number of side hustles you can pick up to earn extra money in your spare time. You could consider walking dogs, delivering groceries, cleaning houses, tutoring students, or watching children.

If you use the cash you earn from these jobs to make extra payments toward your loans or to set up an emergency fund, you’ll be much more secure.

Tackling your finances

Graduating from college is an exciting milestone, but with it comes many obligations and responsibilities. Although it can be overwhelming, by taking the time to understand your loans and come up with a repayment strategy, you can take charge of your debt and get on track.

Photos: Jonathan Daniels

About the Author: Kat Tretina is a writer for Student Loan Hero. She graduated from Elizabethtown College, before earning a master’s degree from West Chester University. She specializes in writing about personal finance and is dedicated to helping people improve their financial futures and pay off debt.

Pay Your Student Loans Off Faster by Sending All Your Extra Payments to the Principal [Free Letter Template]

By Stephanie, updated January 29, 2018 34 Comments
This post may contain affiliate links

This is the year! If I can max out all of my tax advantaged retirement-type accounts, then I’ll start paying extra to my student loans. The problem: I’ve already been sending “extra” money to my student loans with MOHELA (my student loan servicer) each month, and they weren’t applying that “extra” payment to the loan principal! Wait, what?

What I Want MOHELA To Do With Extra Money I Send Them

It seems so simple: when I make a payment to my student loans, the money normally goes toward the “amount due,” which consists of some amount of interest (the “fee” I have to pay for borrowing the money) and some amount of loan principal (the amount I borrowed in the first place that I’m paying back).

If I send any more money than the “amount due,” then it’s extra. There’s no interest on the account because I’ve already paid that for the month, so all the extra that I send should pay off the principal, right? This would reduce the total that I owe, meaning that less interest would be charged, and my loan would get paid off faster.

But nope, by default, that’s not what happens when you send an extra payment to MOHELA (or pretty much any other student loan servicer).

What MOHELA Was Doing With My Extra Money Instead

So if that money wasn’t reducing my principal… what was it doing? It was doing something that they call “Paying Ahead.”

Paying Ahead means that your current payment has been satisfied and you have paid at least a portion of your future bill.
…
Each time you satisfy a bill due, we will automatically advance your next payment due date and your billing statement will indicate a payment is not required for that bill.
– MOHELA’s website, Payment Information – How Payments Are Applied

Instead of straight-up reducing my principal, the default for extra payments is to reduce or eliminate next month’s bill. So the next month after I send an extra payment, I get the bill (electronically, of course – what am I, some sort of savage that gets paper bills?), and it says all the normal stuff, except the Total Due is “$0.00.” So I could just not make my payment the next month and be super duper okay, because the bill is already paid? Huzzah! … right?

MOHELA’s website is quick to point out that yes, this should be a “huzzah!” yes yes definitely! (Which is exactly when you should be at your most skeptical.) They say:

Paying your account ahead of schedule offers many benefits such as:

Decreasing your total interest cost

Paying your loan off sooner

No prepayment penalties

And technically, they are right. (And the “No prepayment penalties” bit is super important – make sure that your student loan servicer has a similar policy before you send any extra payments!) But wait a second… the whole “Paying Ahead” thing doesn’t lead to me getting no bill the next month, it just leads to me getting a paid off ($0 due) bill every month, with accrued interest! So I won’t realize any benefit from this until:

A. I have to miss a payment for some reason, in which case I can just turn off my autopay but not get hit with any late fees or have to deal with putting my loans into deferment or forbearance (two fancy terms for “you don’t have to pay these loans right now but you will have to later”). The benefit wouldn’t be reduced interest, it would just be the ability to not make a payment for one month (or however many months I’ve “paid ahead”).

B. OR, at the very end of my loan, I won’t have to pay the last payment, because I already paid it!

Scenario B is what MOHELA is referring to with all that “decreasing your total interest cost” and “paying off your loan sooner” – any payments “ahead” that I make mean payments I don’t have to pay at the end of my loan. But hold up, here’s a thing: payments at the end of a loan have hardly any interest at all!

Oh of course MOHELA is over the moon to have me pay ahead and then not pay my final payment… they get a whopping $1 of interest on that final payment!

Student Loan Principal and Interest Payments Graph — A handy-dandy graph of my payments from Credit Karma’s Amortization Calculator which shows how my final payment will have only $1 of interest – *whomp whomp*.

Why not always default to having extra payments “pay ahead?” Well, if you’re the student loan servicer, this is a pretty sweet deal – it only costs you a dollar! But you’re not the student loan servicer – you’re the student loan payer and this is a bad deal for you. And me. So I went through the steps to get them to cut that out.

How to Get MOHELA to Let Me Pay the Principal on My Student Loan, Instead of Paying Ahead

Option #1 – One-Time Payment Instructions

Just sending in one extra payment that you’d like MOHELA to apply to your loan principal? This could be quite easy for you… if you don’t have a consolidated loan. (Which I do, so this option isn’t available to me… whomp whomp.) You can just follow the instructions on MOHELA’s Payment Information Page (under “Submitting Special Payment Instructions” > “One-Time Payment Instructions”) to target your payment to a specific loan.

But if you do have a consolidation loan, you won’t be able to do the Web instructions – you’ll be stuck with only the Phone or Mail options. And if you’re going to mail in a payment with instructions, why not mail in instructions for all future payments? Because you can totally do that:

Option #2 – Standing Instructions for All Future Payments [With a Free Letter Template!]

To tell MOHELA how you’d like them to handle all future extra payments, you need to mail them a letter with specific instructions about how you want those payments applied. You need to include the loan type, especially if you want to target one specific loan versus another. For example, I have both a subsidized and an unsubsidized student loan with MOHELA, and I’d like to target the unsubsidized loan. Because that’s the one that still racks up interest even if I go back to school or put my loan into deferment for some other reason. Let’s get rid of that loan first, shall we?

Please note that MOHELA’s online instructions say your letter should include the “amount and disbursement date,” but that doesn’t seem to actually be necessary.

Get the Free Letter Template!

I took the very letter that I sent MOHELA with my standing payment instructions, and turned it into a handy dandy Google Docs template for you.

MOHELA Student Loan Letter - Click to get the template!

Copy the letter template to your own Google account, then replace all the [ALL CAPS] stuff with your information. I’ve left MOHELA’s address off of there just in case they move or change the address, but included a link to where you can easily find their current address. You can find your account number, the loan number, and the name of your loan by logging into your MOHELA account.

Then print it out, sign it (very important – your signature is required!), and mail it in to MOHELA. You’ll get a response in a few weeks (by secure online message if you’ve signed up for paperless communication – otherwise, it might come in the mail), confirming that they’ve received and processed your instructions:

Aw snap!

Will this letter template work for student loan servicers other than MOHELA? Probably! If you send in written instructions like this, they pretty much have to follow them (or at least respond and tell you why they can’t). I don’t have student loans with anyone other than MOHELA to test this, though. You can feel free to be a guinea pig and try it out. Just Google “[name of your student loan servicer] apply payment to principal” to get the information you need, such as the address for where to send the letter.

Now What Happens?

The next time I send in an extra payment to my student loan, MOHELA should apply the entirety of my “overpayment” to the loan principal on my unsubsidized loan, rather than advancing my due date up by another month. I will see this with my very next automatic payment, because I already (accidentally) “paid ahead” by one month, so I have a $0 bill for the current month. This has been the case for years because of that one accidental double payment – each subsequent automatic payment was always applied to the next month.

But now, no longer! The next automatic payment should be considered an “extra payment” and handled precisely according to the letter that I sent in – applied to the principal on my unsubsidized loan, of course.

And what if the day comes when my unsubsidized loan is paid off thanks to all this “applying the extra payments to the principal” stuff? Well, we’ll see what MOHELA (or whoever has bought my loan out by that point…) does then. My guess? They’ll default back to “paying ahead” on my remaining loan, and I’ll need to send in another letter to get them to apply payments to the principal of that loan. Good thing I’ve got a template for that!

If you’ve got student loans with MOHELA, feel free to use the letter template and report back on your success. If your loans are with someone else, leave a comment below about the process for getting your servicer to apply payments to the principal – other people will benefit from the knowledge you share!

Photo credit: MILKOVÍ

How to Best Use Your Grace Period: Create Your Debt Attack Plan

By Guest Author, updated March 27, 2017 3 Comments
This post may contain affiliate links

Editor’s Note: We’ve got a guest post on the blog today! This one is for those of you who will be graduating soon – are you ready to tackle your student loans after graduation? Liz from Less Debt More Wine has the scoop on how to create a plan during your grace period. Take it away, Liz…

The period after you finish school can be both very exciting and very overwhelming. It seems student loan servicers know this and they give you a break by not making you start paying back your loans right away. Which means it’s the perfect time to get organized and decide on how you will attack your student loans and any other debt you have.

First, you’ll need to know how long your grace period will last. Second, you’ll need to evaluate the state of your debt. Third, decide on a debt payoff method that will work best for you. Lastly, you can start practicing making those payments and start saving some money.

What is a Grace Period?

A grace period is a set amount of time (typically six months) after finishing or leaving school, where you are not required to make loan payments. If you end up going back to school then the grace period resets. You will once again have six months after leaving school before you have to make a payment towards your loans.

Editor’s Note: Always check the terms of your specific loans. I had one where the grace period restarted when I went back to school, and another where it did not. This meant that after I graduated after going back to school (following a leave of absence), I had to start making payments on that one loan immediately!

So that you don’t end up overwhelmed when your repayment term starts, it’s a great idea to use your grace period to prepare and practice making payments.

Evaluate Your Debt and Your Options

First, you need to evaluate the type of debt (typically student loans) that you have. Different debt presents different repayment options.

Private Student Loans

Private student loans typically offer fewer repayment options, but there are some benefits as well. Unlike federal student loans that offer income-driven repayment plans, private student loans usually have a set repayment term.

The good news it, it is easy to figure out your monthly payment and what a difference paying just a little bit extra each month can make. Private loans also mean you can refinance without worrying about losing flexible repayment terms.

Refinancing is typically done to lower your interest rate and save you money. If you have several private student loans, you might also consider consolidating your loans. Consolidating would take your multiple loans and combine them into one big loan. Meaning you only have to worry about paying that one loan servicer instead of several loan servicers.

Since private loans typically do not offer any flexible repayment plans like income-driven repayment, it’s worth it to see if you can save money through refinancing or consolidation.

Federal Student Loans

If you have federal loans, then you have several more repayment options available to you. Besides standard repayment, you have income-driven repayment, extended repayment, and graduated repayment as well.

You also have the ability to consolidate your federal loans at the average interest rate of your loans with a federal consolidation loan. If you consolidate with a federal consolidation loan, then you still have access to those flexible repayment plans.

The downside of federal loans is that you cannot refinance federal loans without giving up things like income-driven repayment plans. If you refinance, you have to do so with a private loan. If you have a significant amount of debt and a lower salary (for now), you may need to take advantage of the income-driven repayment plans, which calculate your monthly payments based on what you earn.

Student Loan Forgiveness

You might be thinking that an income-driven repayment plan is the way to go, not only because it’s what you can afford right now, but because leftover loans get forgiven at the end of the repayment term. The only instance where the loans are truly forgiven is if you make payment under the public service loan forgiveness plan.

If you make payments under Income Based Repayment, Income Contingent Repayment, PAYE, or REPAYE then at the end of the 20 or 25 years, the amount “forgiven” is considered taxable income. That means that if your monthly payment doesn’t even cover the interest that accumulates each month, your loans will grow. If your loans grow for 20-25 years, you’re going to end up with a very large tax bill.

So, while taking advantage of income-driven repayment plans may be your best option for now, make sure to consider the long-term consequences. Since there is more flexibility and protection regarding federal student loans, you might consider making minimum payments through income-driven repayment plans for now so that you can work to pay off any private loans first.

Miscellaneous Debt

If you have other debt, such as a car loan or credit card debt, you won’t have a grace period to pay it off. However, you can take advantage of your student loan grace period, when you aren’t making payments on your student loans to pay extra towards your other debt.

Decide on a Repayment Strategy

Once you’ve gathered all the information on the types of loans you have and the repayment options available to you for each loan, you can start to plan your attack. First, you will need to prioritize your loans.

You will, of course, make the minimum payments on all of your loans, but you will prioritize your loans based on the order you want to pay them off. Focus on one loan at a time, so that you aren’t spreading yourself too thin and can actually make progress on your debt.

How you decide to prioritize your loans may depend on what debt repayment strategy you decide to use. There are two main debt repayment strategies known as the Snowball and Avalanche methods. Then you can use the snowflake method in addition to the snowball or avalanche method to help speed up debt repayment.

Snowball

The snowball method has you order your debts from smallest to largest. You make minimum payments to all of your loans and put all extra money towards your smallest loan until you’ve paid it off. You then apply all extra money to the next smallest loan and continue to do so until all the loans are paid off. As you pay off your loans, your extra payment will snowball and make paying off each of the larger loans go by faster. The reason most people like this payment method is because of the quick emotional payoff of getting rid of that first loan.

Avalanche

The avalanche method has you order your loans by interest rate with the highest interest rate first. Similar to the snowball method you make minimum payments on all your loans and put all extra money towards the loan with the highest interest rate. You keep going until the loans are paid off. Since you are making payments by interest rate, this method will save you the most money over the life of your debt repayment.

Snowflake

The snowflake method can be used to help with the snowball and avalanche method. Any time you find some extra money, be it a quarter on the street or a $5 rebate, you put it towards your debt right away. If you don’t put it towards your debt right away, you’ll end up spending it on something else.

Estimate Monthly Payments and Practice Making the Payment

Once you know what order you will be paying off your student loans, you can estimate your monthly payment. You can use the Repayment Estimator to approximate your monthly payment under different repayment plans. Even if you have private loans, you can get an estimate of the standard repayment cost using the Repayment Estimator tool or sites like Student Loan Hero.

Once you know roughly how much you will have to pay each month, start pretending to make that payment. Take that amount and set it aside in a separate savings account. The benefit will be two-fold. First, you will get used to making the payments, and spend accordingly. Second, you will build up some savings as an emergency fund to help you when something comes up, or money gets tight.

Photo credit: Avi Richards

About the Author: Liz is a recovering attorney, freelance writer, and blogger. She shares her own journey to debt freedom and helps graduates dealing with above average student loan debt on her site, Less Debt More Wine. She currently resides in NC after calling Massachusetts home for nearly a decade.

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Reader Question: Should I Refinance My Student Loans?

By Stephanie, updated March 6, 2017 6 Comments
This post may contain affiliate links

Thinking you might want to refinance your student loans to get a better interest rate and save some money? You’re not alone! Several people have reached out to ask what I think, such as this message I got from a reader named Cindie:

I’m thinking about refinancing my student loans (already federally consolidated but I think I can get a better rate). I’m at 8.25% fixed, but it certainly looks like I can better. Anyway, I don’t mind doing my own research, but I wondered if you had some direction/suggestions? I see SoFi pop up frequently, but I don’t know if they’re reputable.

Separately, I also spoke to a friend whose wife has private student loans at 5% interest, and he wanted to know about SoFi, as well. My guess is that all of this hullabaloo around student loan refinancing is due to the very broad-reaching and clever marketing campaigns that SoFi has been doing over the past year or so. So I decided to dive in, using my own student loans as an example, and see if student loan refinancing is really worth all the hype:

My Own Student Loan Situation

Because I’m using myself as the example for my research, here are the details on my student loans:

Type: All federal, Direct Loan consolidated. About 50/50 subsidized & unsubsidized.
Balance (Payoff Amount): $28,555.99
Interest Rate: 4.75% (includes a 0.25% interest rate reduction for auto debit)
Monthly Payment: $204.97 (“Standard Level” repayment plan, meaning the payment amount doesn’t change over time)

When you’re refinancing a loan, you’re asking a new creditor to pay off the old loan for you, and issue a new loan to you at a lower interest rate. So I’d be looking for a new interest rate that beats 4.75% for myself (or the friend with a 5% rate). Cindie will want to look to do better than 8.25%. This can also pull together multiple loans (if that’s what you have) into one big ol’ ball of loan. This can be good if you’re currently dealing with several loans from different servicers, which can be a hassle.

Consequences of Refinancing Your Student Loans

The website Student Loan Hero has an awesome cheat sheet about student loan refinancing, covering topics like difference between consolidation and refinancing, the benefits of refinancing, which student loans to refinance (and which not to!), how to qualify for refinancing, and how to compare lenders.

Student Loan Hero also offers a free dashboard for tracking your student loans – again, handy if you have multiple loans from different sources. There are all sorts of other goodies on their site, from student loan calculators, to a personalized repayment plan tool, and more.

So what are some of the consequences of refinancing that you might run into?

Your monthly payment may go up. This happens when you commit to a shorter loan term than what you currently have. This isn’t necessarily bad, but you need to make sure you can consistently afford the new payment, with some wiggle room (so you can pay it off even sooner, if you want!).
Your monthly payment may go down. Of course, this is the opposite of the above, and happens if you take a longer term than what you have now. But be aware – a longer term means you’ll pay more in interest overall!
Federal loans lose some benefits if you refinance them. By taking your Federal loans and making them private loans (which is what you’re doing with refinancing), you lose access to income-based repayment plans, Public Service Loan Forgiveness, and possibly even the ability to defer your loans due to unemployment or when you go back to school. Check the terms of refinancing to see what you’re losing!
You can remove a cosigner from a loan. Ready to get Mom or Dad off the hook for your loan? Refinancing a loan that currently has a cosigner to a loan with no cosigner will get them off of there for you. And hopefully off your back in the process.
Refinancing does not change the tax deductible status of your interest. If you were able to deduct your student loan interest off your taxes, you’ll still be able to do so after refinancing. But, if you refinance for more than the amount of your loans, the difference has to be used to pay for education expenses. Consult with a tax advisor on this stuff.

Be mindful of the two types of loans that Student Loan Hero points out you may not want to refinance: loans with super-low interest rates, and Federal loans that you want forgiven.

Since I’m not using an income-based repayment plan, I don’t qualify for student loan forgiveness, and my interest rate is low but not super-low, it seems like I could benefit from refinancing. But I’m sort of in the grey area where it might benefit me, or it might not. With a higher interest rate, or several private loans, the situation would be more clear cut.

Will Shopping for Student Loan Refinancing Hurt My Credit?

No.

All of the services for comparing student loan refinancing offers that I’m about to talk about check your credit to see what offers you qualify for. However, this is a “soft credit pull” for these sites, meaning your credit score is not “dinged” in the process. (I can only say this for the services I tried, however. If you shop with a different site, be sure to research whether they’re going to do a soft or a hard credit pull!)

However, the opposite is true: bad credit will hurt your chances to get a good student loan refinancing rate (or get refinancing at all!). Before you start shopping for student loan refinancing, make sure you’ve taken some steps to improve your credit score.

My credit score is between 750 and 780 (depending on which of the three credit bureaus you ask), which is “great” but not “excellent” (It would be excellent if I weren’t so young, and I had a mortgage – curses!). This will affect what rates I’m offered during the shopping process, so don’t expect to necessarily get the same rates as what I got. Again, shopping around doesn’t hurt my score one bit. So it’s totally worth shopping, just to see if I could save some money.

Of course, once you go past the “rate quote” stage and apply for an actual loan, you can expect that to show up on your credit report and be reflected in your credit score.

My Student Loan Refinancing Shopping Experience

Important note: I’m sharing my shopping experience below, so that you can see how I go about evaluating different offers. However, this is not meant to replace your own shopping experience. Interest rates change frequently, and are based on individual information such as income, credit score, and the amount of the loan balance. Since these factors will vary for you, you cannot assume that the rates I was quoted will be the ones you would get. You need to request your own rate quotes.

Direct Loan Consolidation

Before I get into any refinancing options, I want to take a moment to address the alternative: consolidation. My student loans are already consolidated (as are Cindie’s). Consolidation allows you to take multiple federal student loans and combine them into one loan. However, this is only available for federal loans – not private loans. I consolidated some of my loans back in 2010, giving me one payment through one single loan processor for those loans, and the low fixed rate that I have now.

If you have multiple federal student loans, you should definitely look into whether loan consolidation is right for you.

Consolidated loans can be refinanced, of course. So let’s take my consolidated loans and go shopping!

Credible – Offering a $500 Bonus through March 31st

Going where the money is, I started my shopping trip with Credible because they are offering a $500 bonus if you open a loan after you click a refer-a-friend link. (Which is what my links to Credible are, by the way.)

In order to show me offers, Credible asked for the following information from me:

Undergraduate School
Highest Undergraduate Degree
Field of study
Did you attend graduate school?
Income information
Total loan balance to be refinanced (estimate okay)
Monthly portion of housing payment
Name
Date of Birth
Phone number
Address
Email address (and create a password)
Optional: Verify identity to see more rates (previous address and/or Social Security Number)

Once it has your rates for you (instantly – no waiting), you can fill out a little more information about your current loans in the sidebar, and Credible will update your rate offers with an estimate of how much you’ll save in interest with each offer. Be careful with this, though! Sometimes the interest savings are simply because the loan term is shorter. In some cases, you could save that much or more just by sending larger payments to your current student loans!

With my information, I was offered variable rates as low as 3.88% and fixed rates starting at 5.10%. Obviously with my loans currently at 4.75%, the 5.10% fixed rate would not be good for me, or for my friend with the 5% rates. But for Cindie with an 8.25% rate, there could be some real savings there!

What about the variable rate offers? It’s true that 3.88% is nearly a whole percent less than my current rate (and a whopping 4.37% less than Cindie’s!). By clicking the “View lender details and cost breakdown” option on the 3.88% variable rate loan offer, I get to the information I’m looking for. In Credible, I can see that this particular offer has “No origination, annual, or prepayment fees.” That’s good, because any fees like that can sour a good offer quickly. If there were an origination fee (a fee for getting the loan, basically), I’d want to add that fee to my balance when doing calculations for this loan. An annual fee would also be added to the balance calculation, by multiplying the amount of the fee by the years of repayment. And a prepayment fee? That’s right out. Don’t get a loan that charges you to make prepayments, because that will make it hard to pay off the loan quickly if you decide you want to do that.

Also in this section is a link to the loan disclosures, where I can find the missing information about the variable rate. For this particular loan, the rate can be adjusted monthly, starting right away, and the cap is 25%. 25%?!? That’s insane. It says:

The variable interest rate is based upon the one-month London Interbank Offered Rate (LIBOR) rounded up to the nearest one-eighth of one percent (0.125%) which is currently 0.75% and which may be adjusted monthly, plus a margin which is based on your and, if applicable, your cosigner’s credit history, information you provide in the application, and other factors. [Emphasis mine.]

“Other factors.” So they can just raise the rate, in one month, to 25%, based on whatever they feel like. This, my friends, is why you always want to read the disclosures!

Another piece of information you’ll find under “View lender details and cost breakdown” is the name of loan servicer. This is who’ll be managing your loan, and it’s important to research both the bank that’s offering you the rate, and the loan servicer. The Better Business Bureau is always a good place to start – you can see their rating as well as customer ratings for all of these companies.

So despite the delicious $500 bonus offer, it doesn’t look like Credible has anything for my situation. But for someone like Cindie who has a higher interest rate, it could work out to a great deal. Using Nerd Wallet’s student loan calculator, I ran through what the savings would be if I had Cindie’s interest rate on my loans:

In order to compare apples to apples, I adjusted the loan term on the “current” loan so that the monthly payment is about the same as the new, fixed-rate loan. That’s because if you use a longer loan term, it’s going to show a much bigger difference in total interest paid. But that’s not a true savings, since you could achieve that just by paying a higher monthly payment on your current loan.

By throwing roughly the same amount at each loan each month, the difference ends up being $3,937.79 over the remaining life of the loan (including the $500 bonus), and the new loan would be paid off 7 months sooner, to boot! Of course, this will vary based on the actual balance of Cindie’s loans.

Credible showed me 18 different offers from 6 different lenders, all with interest rates below 7.5% (in my case). They also showed me some interest-only loan offers (where you pay just the interest for a number of years, and then your payment jumps up for the remainder of the loan). That really doesn’t interest me, and I’m hard-pressed to think of a situation where that would be good. If you are having trouble making your current student loan payments, you should check with your current borrower to see if you have a different payment option, before you go with an interest-only loan.

Still, I really appreciated all of the different offers Credible was showing me. It was a very quick and easy way to get several different rate quotes. Even though there weren’t any with a rate and terms combo that would work for me, now I know that. Credible saved me a lot of time researching some of those lenders individually, if nothing else!

LendKey

I was excited about the idea of LendKey, because they search credit unions and community banks instead of the big ol’ national banks. I love my credit union (PenFed); I got a great car loan rate through them in the past. So I figured it was definitely worth giving LendKey a go to see if searching credit unions and community banks would give me better rate offers and terms.

If you already have a relationship with a local credit union or community bank, you may want to just contact them and see what student loan refinancing options they have for you. It’s worth going through a few of these online rate “aggregators” first, though – to get a baseline to compare your local offers to.

LendKey took the following information from me:

Name
Address
Email
Phone number
Citizenship
Income (unclear if they want you to include spouse or not)
Degree
School
Loan Amount
Loan type (private, federal, or mix)
Asked me for my Social Security Number because I recently moved

LendKey’s site needs a little work. At the time I searched, it was hard to filter the offers properly. The fixed rate loans I was offered all had rates above 6%, but then I could no longer even see those once I started playing with the filter options. That’s because the APR filter doesn’t go above 4.97%, so once I touched it, the fixed rate loans disappeared on me.

So I do love the idea of LendKey, and if you are looking for a loan from a credit union or a community bank, it is worth checking them out. Hopefully their interface improves soon and you get a better experience!

Common Bond – $300 Bonus

If you refinance through Common Bond using the offer from Millennial Moola, there’s a $300 bonus in it for you. (Yes, I’m giving you someone else’s referral link. Why? Because it’s a better deal for you. My referral link would get me $200, but no bonus for you. I’d rather you take the better deal.)

Information that Common Bond asked me for to give me rate quotes:

School
Degree
Field of study
Income information (mine only – not including my spouse’s)
Which loans I wanted to refinance (spookily, they have access to that!)
Monthly portion of housing payment
Name
Date of Birth
Phone number
Address
Email address
Last four of my Social Security Number

The rates I was offered were between 5.25% (5-year variable) and 7.52% (20-year fixed). They also offer a 10-year hybrid loan, where the first five years have a fixed interest rate, and then it’s variable for the final five years.

What I like about Common Bond is that the variable terms are much, much better than some of what I saw on the other sites. The interest rate cap ranges from 8.99% to 9.99%, which is so much better than the utterly ridiculous 25%. However, I could not find on their website how often they can raise the rate, and by how much. This is something I would want to know before I signed on, so if I were going with a refinancing loan from Common Bond, I would contact them to ask first.

Common Bond also has something I haven’t seen anywhere else in the student loan refinancing space: what they call their “Social Promise:”

From Day 1, we have had a strong social mission – what we call our “Social Promise.” The CommonBond Social Promise: for every degree fully funded on the CommonBond platform, we fund the tuition of a student in need for a full year through our partnership with Pencils of Promise. CommonBond is the first-ever company to bring the “1-for-1” model to education and finance.

Inspired by the likes of TOMS Shoes and Warby Parker, we firmly believe that business can and should be a positive force for change. By empowering our students and investors to become Social Promise champions, we hope to make an exponential difference.

Again, not a solution for me, since the interest rates I was offered aren’t lower than the fixed interest rate I have now. But for the Cindies out there with higher rates, Common Bond could be a good option to explore.

SoFi – $500 Bonus

SoFi has been getting a lot of attention lately – seems like they’re popping up everywhere I go! Like I said at the opening of this article, I really think that SoFi has been driving a lot of interest lately in student loan refinancing. So my own student loan refinance shopping trip really wouldn’t be complete without a visit to SoFi. A little bit of Googling reveals that there are bonuses of up to $500 available (try searching for “SoFi 500 bonus”).

To do a rate quote, SoFi asked me for:

Name
State of Residence (and later, full address)
Email address & create a password
Phone number
Optional: consent to text notifications
Date of birth
Citizenship
Home ownership (Rent, Own, or Living With Parents – nice touch)
Undergraduate University
Undergraduate Program
Graduation Date
Optional: Graduate degree information
Employment Status, Employer Name (and Self Employment status, if applicable)
Total Individual Annual Income (note: NOT household income!)
Total Years of Professional Work Experience
Total Loan Amount
Asked me for Social Security Number because I recently moved

They also provided a ton of information within the application itself, about fees, the variable rate offerings, etc.. This information can be found within the application itself, under a link that says “Information regarding rates, costs and fees associated with your SoFi loan application are detailed below.” Like Common Bond, the variable rate caps are reasonable: 8.95% for 5/7/10 year loans, and 9.95% of 15 or 20 year loans.

Unfortunately, my SoFi experience did not go well from there. I was really disappointed, because the rate ranges they were quoting gave me hope that I would finally find a loan that could beat or match my 4.75% interest rate. However, SoFi couldn’t seem to confirm my identity to do the soft credit pull, even after I gave them everything. So they couldn’t/wouldn’t give me an actual interest rate quote, just a range.

Then, a few days later, they emailed me to say they were denying my application outright. The email says that I can write them a physical snail mail letter to request the reason. Again, a pity – I really hoped that SoFi was the answer for me, but I never even got to find out if their rates were in my range. The rate ranges they were offering all would have been a net gain for Cindie… but she’d have to make it through the application process.

Earnest

Earnest was not really on my radar before I began shopping. But when I put a call out on Twitter for people to share their student loan refinancing experiences with me, I got a response from Corey VanSchaick about Earnest. Corey is a commercial credit officer for a community bank in Illinois, and knows a thing or two about lending that the average person doesn’t.

Corey sent me an email detailing the whole story of what went on with his attempt to refinance his loan with Earnest. It’s a whopper of a tale, but here are some relevant snippets as to what went down:

In the application process for a student loan refinance, Earnest requests a 10 day payoff letter from your current loan servicer. This is a very standard practice in the financial services industry. What this does do though is create a reasonable expectation that the loan you are refinancing should be paid off by the date on the 10 day payoff letter.

This is where things went sideways. I was diligently watching both accounts for activity, and there was nothing. No updated from Earnest saying my payoff was sent, or that they were experiencing a delay. On February 6th I contact my current loan servicer … to see if they had received a payoff for my account. They informed that they had not received a payoff yet. This was a full three weeks after the date that my payoff was to be sent. I immediately contacted Earnest to see what was going on. This is when I first learned that the company was experiencing a 45-60 day delay in processing loan payoff [emphasis added]. At no point was this communicated to me.

Since there is this large delay in processing payoffs (that they are not informing their customers of) it has a few crucial effects on the consumer:

1. The consumer must now continue to make payments to their current loan servicer. Some consumers may not be financially savvy enough to
know that they will need to continue to make the payments to their current servicer (especially seeing how Earnest is not communicating this, or was not communicating this to their consumers).

2. You are possibly paying more in interest expense as a result of Earnest’s failure to process payoff in a timely fashion. If you refinanced your loan into a better rate than what you are currently paying, you are now incurring increased interest expense.

3. If consumer was not wise enough to continue to pay they will incur late fees, and have negative information reported on their credit reports.

Corey also found that going directly to Earnest’s customer service, and even a formal complaint to the Consumer Financial Protection Bureau, did not bring a satisfactory resolution. Reviews for Earnest on the Better Business Bureau are mixed, with some borrowers reporting that their experience went smoothly, and others being similarly unhappy with customer service or some other aspect of the process.

I thought Corey’s experience was particularly important to share because no matter who you choose for your student loan refinancing, you’ll want to make sure to track both your old loan account and the new one carefully through the transition. Only because Corey stayed on top of what was happening was he able to catch the problem and continue to make payments to the old loan servicer.

In the end, Corey opted to take his business elsewhere. Needless to say, after reading Corey’s email I decided to skip Earnest on my own shopping trip.

So What Did We Learn?

Student loan refinancing can save you a good chunk of change in interest… depending on what your interest rate is now, and what rates you can get for refinancing.

Don’t be swayed too much by bonus offers – take the extra 2 seconds to run the numbers through a simple student loan calculator (and to adjust the loan term so you are comparing apples to apples!) to see what your true savings would be.

Find out who you’re dealing with before signing anything. Check the Better Business Bureau and do a little Googling.

Read the disclosures! Find out what the interest rate cap is on variable rate loans – or else you might be caught off guard when your “great rate” climbs above 10% or 20%!

No matter what, paying off your loans sooner is going to save you on interest charges. But you probably already knew that!

Have you refinanced your student loans? Would you care to share your experience in the comments below, for Cindie and anyone else thinking about going through the process?

And if you have a question you’d like me to tackle, send it on over!

Photo credits: Rochelle Nicole, LendKey