Post-college life

Why this millennial refinances her student loans every year

Lia, 30, was accepted at Teach for America after graduating college. But after a year she was laid off, and she found herself facing a monthly student loan bill that was more than her monthly income. Since then she’s focused on getting promotions, aggressively paying her loans, establishing credit, and refinancing every year since 2015. She’s put herself in a position to pay off her loans 11 years early and save $125,000 in interest payments.

Lia, a CommonBond Member

What went into your decision to take out student loans?

I always knew I would go to college; I even started making binders of the admissions criteria of my favorite colleges in seventh grade. I had no idea going to school could cost hundreds of thousands, not tens of thousands. I was the first in my family to study at a four-year college, and I didn't know there was any way other than student loans to pay for a degree. I took out about $25,000/year and double majored in Spanish and sociology. I felt so anxious, but I thought the job opportunities after school would be worth it. Unfortunately, it took a long time for me to find a job that matched my student loan balance.

How did you feel about your loans once you graduated?

I was pretty worried about them, but at Teach for America they put your loans into forbearance for a year. I was working full time and going to graduate school for a teaching license, so I didn’t have a lot of time to think about it. I knew I’d be paying them back for a while, but I just assumed I’d be able to manage the payments.

What did you do after getting laid off?

I started working at a call center at a healthcare company in my area in the fall of 2012. That December, my forbearance period ended, and I was totally astounded by the bills. I had loans I didn’t even remember signing. I had a minimum payment of $1,850, and my take home pay was less than that.

How did you manage to make payments?

I spent a long time on the phone, but the largest loans were with private lenders who weren’t willing to work with me. I used money from my savings for a few months while I worked on getting a promotion. Since then I’ve gotten four promotions, mostly motivated by paying down debt! I’ve refinanced my sixteen original loans and now pay more than twice my current minimum bill. By December 2020, I’ll have finished paying off my loans eleven years early and saved about $125,000 by refinancing. I’ve become an expert in how to pay off loans making less than $65,000 a year – it takes a lot of discipline and constant re-evaluation.

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How have you made so much progress?

My parents weren’t able to put money aside for college, but they made it clear that I could come home, so I live at home and don’t pay rent. I put every tax refund, money from side gigs, and two full paychecks per year toward my loans (I plan my budget on 24 paychecks per year instead of 26). My boyfriend thinks I take it a little too far – if his grandma gives me twenty bucks for Christmas, I put it toward my loans! But I don’t want to be paying loans when I’m his grandma’s age. In 2016, I unfortunately got into a car accident. Instead of buying a new car with the insurance money, I paid off my federal loans.

How were you able to lower your interest rates?

I didn’t qualify for refinancing for a few years because my debt was too high compared to my income. I was scared of getting a credit card, but I didn’t realize not having one could impact my ability to establish credit. Eventually I had to get a credit card for work travel, and I realized my score was going up, along with my income. In 2015 I refinanced my four private loans into one loan. I knew there might be a better rate out there, but I just wanted to do it and keep moving forward. I’ve refinanced every year since then. My highest ever interest rate was 9.75%, and my current rate is 3.1%.  

Why did you choose to refinance with CommonBond the last two years?

It can be hard to balance the goals of socially conscious spending and debt repayment – usually the cheapest option doesn't feel like the most altruistic one. With CommonBond, I felt great that part of my loan helped to fund an education for someone in a developing country. It was the best decision for me financially, too. I could not find anyone who would offer me a better rate than CommonBond, and it has lightened my load to know I have the best terms available.

What does your loan picture look like today?

My minimum monthly payment is $932, but I pay $2,010. I knew I’d never make progress if I just kept paying the minimum, so even though I’ve refinanced to better rates, I’ve never put less than the $1,850 I was originally paying. I make the extra monthly payment by setting up an automatic bank transfer.

What keeps you motivated?

I want to be able to look at my monthly money and have the freedom to do whatever I want to do with it, whether that’s buy clothes or save for a trip. I have bigger life goals – build a travel budget, save for a home, have kids, and be able to set aside money for them for school. With the advantage of a low interest rate with CommonBond, I already started on one goal I thought I would have to put off: I opened a Roth IRA this year, so that my retirement savings keep up with my other financial successes.

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This interview has been condensed and edited for clarity.

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