A Huge Adjustment to our Student Loans Payment Plan

Debt has been on my mind a lot recently.  Even more so now that we own a house and I am watching a monthly mortgage payment fly away at the beginning of every month.   I became so frustrated with the monthly outflows, that I finally vented and challenged myself to start paying down debt as soon as possible.  While I had already established my plan to pay down our student debt in 6 quarters at the time of the frustration, I knew that I wanted to continue to pay down our private student loans as fast as possible.  But of course, things change over time and our situation has changed FOR THE BETTER!  It is now time to take a hard look at our student loans pay down plan and make a few adjustments based on our changing situation.

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What’s Causing the Change?

I mentioned things changed for the better in the intro paragraph, right?  I couldn’t be happier or more proud of my wife. After graduating from school and passing her boards, she finally found a job as a Nurse Practioner!  All that hard work and studying over the years finally paid off.  There will be a lot of changes to talk about with the new career and new salary and the majority of those will be discussed when I set my 2018 goals.

One of the perks of her new employers is that they offer new graduate Nurse Practitioners a tuition reimbursement benefit.  If she works at her practice for three years, she is eligible to receive three annual $5,000 payments towards the outstanding balance on her student loans!  In total, that is $15,000 extra towards paying down her debt, which will go a long way towards knocking this debt out.  I’ll be honest, I was pretty excited about this perk when she read it to me and she will be eligible to receive her first $5,000 payment within 90 days after starting in January.

What Are We Changing About Our Student Loans Payment Plans?

Currently, my wife has $17,546.19 remaining on her outstanding student loans.  The timing of this job opportunity could not have been better given the fact that I was getting ready to make our quarterly $4,000 payment that was a part of our initial plan.   Obviously we are going to receive every penny of the $15,000 her new employer is offering us.  However, the balance has to be outstanding with the borrower at the time of the $5,000 installment payment, so here is how we are going to adjust our student loans payment plan.

  1. Rather than applying a full $4,000 payment at the end of December, I am going to apply the amount required to reduce the outstanding balance to $15,000.
  2. Alter the monthly payments to the minimum amount possible (this may require some adjustments to the amount outstanding for Step 1.
  3. Brainstorm and enjoy figuring out how I want to allocate the extra $4,000 in quarterly cash flow that this opportunity will free up.
  4. Start performing research for options to refinance!

Phew, a simple four step plan.  Well, it is actually a three-step plan if you ignore Step 3!   After logging into to our online portal, without applying an additional December payment, we are paid ahead through April 2019.  So I could stop making a payment today without being considered past due.  Interest will still accrue, but I can change our monthly payments to $0 without any ramifications.  And after this next payment, that date will only be pushed further into the future, and then even further once we receive our first $5,000 payment from her new employer.  Maybe I’ll set up automatic payments each month to cover the monthly interest that will still accrue.  We will see though and I won’t mind throwing an occasional one time payment for the amount of the interest if needed.

And now, one option that I am excited about is back on the board.  In the past, I had always been hesitant to re-finance my wife’s student loans.  Since we were planning on having the debt paid off by Summer 2018, I figured the benefit of refinancing to receive a lower interest rate would be minimal.  But now that the situation is changed and we are planning on having this debt outstanding for another three years, it is time to reconsider this notion.  If we are going to accrue interest for three years, why not try to accrue interest at the lowest rate possible? Right??

Currently, the interest rate on my wife’s student loans are 5.60%.   A 1% reduction in the interest rate would save us $150 in interest annually.  Performing quick research (obviously I will complete a more thorough study and write to all of you about it!), I could potentially refinance our student loans for a fixed rate between 3.25% and 4% or for an even lower variable interest rate that could be in the high 2%, low 3% range.  It would all depend on the underwriting, credit score, etc. And I’m hoping our income and credit history would allow us to receive the lowest rate possible.

Typically, I hate having an adjustable interest rate and I would not consider it in a looming rising interest rate environment.  Especially for long-term debt;  but I would be willing to consider it in this situation.  Since our debt window is only three years and the balance will decrease by $5,000 each year, I would be willing to take out an adjustable rate loan and receive the lowest interest rate possible during our first year.   On one website, the lowest variable interest rate available was 2.57%!  That would represent a 3% drop in year 1, saving $450 of interest.  Even if the rate increase 1% annually, I would still be miles ahead compared to the higher fixed interest rate we are currently receiving.   Obviously this all depends on the rates we qualify for, but I’m getting very excited about the options that are in front of us!

Summary

I cannot wait to start applying and working through the different options ahead of us!  Luckily, my wife kicked butt in her job search and her studies and made this option possible.  I’m excited that I am not going to have to pay the full  $4,000 installment this month, meaning I have more money available to invest or allocate to different debt-pay down options.  Maybe I can use the capital to pay down my mortgage.  Who knows?  Plus, I’m actually looking forward to vetting potential refinancing options to see how we can achieve the lowest interest rate possible and save on our interest expense.   Now, it is time to put this capital to great use.  Remember, every dollar makes  a huge difference and I am planning one heck of a splash here!  

Have you refinanced your student loans?  If so, what bank or financing company did you use and what was the interest rate you received?  If you were me, would you use the capital to pay down additional debt like our mortgage or invest the proceeds?  

Bert

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13 thoughts on “A Huge Adjustment to our Student Loans Payment Plan

  1. I’m fortunate that I never had any student debt. Higher ed was cheaper when I went to school and I went to a lower cost in-state public university. With part time work and scholarships and a little help from parents I graduated debt free. Your wife’s employer’s reimbursement program is really awesome. I can see why you are excited about it. You married right my friend. And that is soooo important in life in more ways than one. Regarding your question, I would use the newly found funds to pay down debt. I’m very debt adverse and always like the sure thing. Especially now with stock and bond markets at all time highs. Tom

    • Tom,

      You’re right. I married very well 🙂 Thank you so much. I can’t stress enough how fortunate/lucky I am. Finding the right partner in life is what it is all about and you want that amazing person that you can experience every step of the way with. I definitely think I found that!

      Graduating debt free is a great feat as well. You’ve been hustling and working your butt off for a long, long time. Her reimbursement program is nice and I can see more and more companies going to this model in the future. It can help keep employees at your company long enough (if the payback period is right) in an environment where people are flipping through jobs like crazy. Also, heck, it will help their employees out a ton. Maybe the extra debt paydown is a great idea. I’ll have to start crunching some numbers now!

      Bert

  2. Awesome news!!! I

    One note on refinancing to look into, the cost of the process to refinance. I believe it will be worth it since you can save $150 a year, but the time for the process + the cost of it may outweigh it!

    Have fun with the 4K extra mula!

  3. I get pissed off at myself for even contemplating the potential acceptance of going into debt if there are ways for us to avoid it.

    I think I’ve commented previously that we currently have no debt, but we had a choice when my wife was about to start grad school. We would have taken out loans for NYU but we were able to afford a great city college in New York City.

    Similar to what Tom mention above, we’ve been fortunate to be able to avoid debt – including for school.

    • Mike,

      That’s fair and I do remember your comment from earlier articles about student loan debt. We ultimately decided to take out debt, but my wife and I went through a similar decision when selecting her school. She could have selected several private schools in the area for her degree. Instead, she selected an online school that was significantly cheaper. Sure we took out debt, but the payback period for the total amount borrowed versus the increased wage power made it an easy decision. Trust us, this decision was not an easy one but we are happy we made it together.

      Bert

  4. You might not want to pay down to owing $15k on the student loans. Not all student loans will let you pay just interest. Also, if you do refi, make sure that what you refi to will be covered by the outstanding student loan payment from her company. A client of mine had a similar agreement with their employer. They did a refi with their credit union for a lower rate. Well doing that, it became a personal loan and the employer would no longer pay for the outstanding student loan debt. Though in this case the employer was a little bit shady so this was probably just an excuse they had to get out of it.

    • That’s a fair point. I wouldn’t make a refinancing decision without reading the terms. Yeah, I definitely would not want to ruin the benefit by re-financing and making it a personal loan. It sucks that it happened to your client. Why can’t people just be honest and fair with each other? That’s a different story for a different day though. The one thing I considered is that we are paid down pretty far in advance, so we wouldn’t be late on a payment for a long time. But you raise a fair point and one that I’ll consider. What’s the worst that happens? I don’t make a large down payment and I use the cash flow elsewhere?

      Bert

  5. It seems like perfect timing to plan for the three $5,000 credits over the next few years. Congrats to your wife for setting herself up into such a great position!

    It may not be a student loan refinance, but I will share my home mortgage refinance details. I was a year into a 30-year mortgage and had a 4.50% interest rate. I was referred to a local “mortgage consultant” (broker?) who found me a 3.375% interest rate. Closing costs were $1,350 and were rolled into the total new mortgage. After a little paperwork, my PITI went down by about 20%. This made a huge difference in my monthly cash flow and will have paid for itself after two years.

    The only negative has been that my new loan has been sold multiple times. Terms stay the same, but every few months, I have to make a new account on a new bank’s web site and make sure the transfer goes through correctly and automatically (it always does).

    • Dozer,

      Thank you very much! I’ll pass the message along to her. This was excellent timing for us and I cannot wait to see how some of the dominos are going to fall. Thanks for sharing your refinancing story. I want to see how much the costs are and weigh the options. I know I”m able to reduce my payments and unlock even more cash flow, it is just going to take some time and research to find the best possible option. Congrats on saving so much by refinancing! Lanny has had some great “selling” of loan stories, but luckily his situation has ironed itself out.

      Bert

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