Student Debt: How to Lower the Interest Rate Without Refinancing Out of The Loan Forgiveness Program

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Almost a year ago, I wrote about refinancing and leaving IBR for good. We hadn’t refinanced up to that point because we were not sure if we had the frugal muscles and the mental and emotional strength to tackle my student debt, and we knew that refinancing would mean that we could never run back to the Loan Forgiveness Program if we ever hit a rough spot. Once you refinance, you are no longer eligible for the Loan Forgiveness Program. A pro of the Loan Forgiveness Program is the flexibility to revert back to a minimal payment of a small percentage of your income when times are tough. Meanwhile, you also having the choice to pay back the debt aggressively if you are able. If you refinance, well, it’s either you make those whopping payments (which in our case is $6,500 per month) or end up in mad doo-doo if you fail to do so.

After a year of paying back debt aggressively, it was obvious that we were BOTH in it for the long haul! We were ready and capable of getting these loans out of the way. So we said, “SCREW IBR, let’s refinance!” The worst part about IBR is the high interest percent rate of 6.8%, which meant that about half of our monthly payments were going towards interest alone! YUCK. This is the main reason why we wanted out.

We were very serious about the whole thing and even started researching refinance options. The list of lenders that we found included the following:

We got quotes from every lender and were about to pull the trigger, but we didn’t.

Why? By some stroke of luck, we went down the rabbit hole of purchasing our first property and held off on the refinancing of the loans until that was secured. However, once we had settled into our new home, Mr. Debtist’s start-up company went through some tough times and Mr. Debtist’s salary went down by 50%! At the time, this seemed like terrible news, but we were actually lucky in that we hadn’t refinanced yet and life had the opportunity to teach us a lesson: that maybe the flexibility of Loan Forgiveness Program was essential. With a loan this large, the flexibility of the Loan Forgiveness Program makes our journey much more comfortable! Shortly thereafter, I had my third stroke of luck. I spoke with Travis Hornsby of Student Loan Planner. If you have not already interviewed with him and you have a lot of student debt, I would just like to say that although his calls are pricey, they are WORTH it! You’ll soon see why!

In this interview, Travis informed me of a way to improve our aggressive loan repayment strategy. I learned that by being in IBR, we were missing out on an opportunity that another loan forgiveness program offered. Which is why it is important to know the differences between IBR, PAYE, and REPAYE! We learned that REPAYE helps our significantly by covering 50% of our interest every month! Just by switching to REPAYE, we were able to save over $7k in 8 months (find out here).

Since REPAYE covers 50% of  the interest, it is as if we refinanced to get a better interest rate. The interest that we have still yet to cover with our payments come out to be about 3.4% of the loans. I like to think of this as a way to get a lower interest rate while still keeping the flexibility of loan forgiveness. Even though Mr. Debtist’s job situation has  stabilized, we still never know what life may throw our way. Being able to fall back on those small payments give us a lot of peace of mind. Meanwhile, we are able to funnel even more money towards paying down principal!  It’s the best of both worlds.

I think that Travis saved us from making a decision that could put us in a bind during tough times, and he also helped facilitate our loan repayment journey. This is why I think it is so important to talk to someone who can really guide you find the most optimal path for your loan repayment journey, especially when you are talking about student loans this big. If you’ve been thinking about talking to someone but are not sure if it will even help, I bet you Travis is your guy. Schedule your consult with Student Loan Planner if you are feeling lost or simply looking for loan repayment alternatives.

In short, my advice is this. If your student debt is less than two times your salary, then maybe refinancing is a doable option. It won’t be easy, but it would be doable. However, tread with care. If your debt is more than two times your salary, highly consider sticking with Loan Forgiveness, even if you have plans to attack it aggressively. Only because life is a mess and would take any chance it has to throw you a curve ball. Ultimately, I truly believe that everyone can find a path that is in line with their lifestyle and life goals.

When we started, we were told that paying down our loans in ten years with our salaries was impossible. But deep down, I knew that we could do it and that it would be the best path for us. So we set a plan to pay it down in 9 years. Before we talked to Travis, I was hoping to escalate the plan even more and pay it back in less than 9 years. After we made the change to REPAYE, I now have hopes to get rid of it all in 7 years or less. We are implementing a number of side hustles and budgeting tactics that are speeding up progress! I can’t wait to see how much more we could do. Thanks for being here, supporting our journey, and following along. 

 

Finance: How We Paid Off $145K in Student Debt in Two Years

On the heels of the previous post, a word on how we paid off $145k in Student Debt the past two years. I think it’s one thing to inspire people to pursue a road less traveled with the hopes of reaching a more ideal life, but it’s another thing to give any meaningful sort of advice on the matter. It is the latter that I wish to address in this post.

I’d be the first to admit that tackling half a million dollars in student debt is a daunting task. However, with a few pointers under your belt, the task becomes much easier. Here are some steps that we took ourselves, listed in the order we took them.

Steps to Paying Down Debt

  1. Figure Out Your Why. The pillar to every debt pay-off story is the “Why”. Why are you pursuing financial freedom? How does paying off the debt lead you to a life you want to lead? What will keep you going? These are the questions you must first answer. You need to build that fire within you, the one that burns so achingly that you’ll never forget, turn around, or give up on the reasoning behind why you decided to take that first step.
  2. Hire a Professional. While not for everybody, I highly recommend this if you are like us and do not come from a lifestyle geared towards financial independence. As you can see from my money egg, I had a long history with money that makes me hyper-aware of excess consumption. Each person has their history with money and it shapes the way you view your finances. I knew when I graduated from dental school that I did not come from a place of wealth, and neither do I have experience with dealing with large sums of money. I also did not want to be the person dealing with a looming debt hanging over my should. I had to talk to someone, and fast! While colleagues were buying homes and cars with their first paychecks, the first thing I paid for was a financial planner. And it changed our lives! If you are swimming in a large amount of student debt like I am, then I would highly recommend a conversation with Travis Hornsby from Student Loan Planner (affiliate link). He helped us save thousands of dollars on our journey, and as you can tell from our Itunes interview (here) he has no problem telling you how to optimize your repayment journey … which is exactly the type of person you would need in order to get great feedback! He broke down why we could optimize our path better (from a financial standpoint) by waiting 25 years and investing our money instead, but I chose to follow what I felt was right, and pay it back aggressively instead. The good thing is, you can discuss options and a good professional will make sure that you are aware of all the ways you can tackle the debt, but in the end, you are the decider about what to do.
  3. Educate Yourself. Admittedly, we did this with a financial planner holding our hands. We learned about budgeting strategies, loan repayment options, ways to optimize our health insurance, options with our retirement funds, and more. Off course, you don’t need a financial planner. There are plenty of books, sources and inspiration out there. The more you get educated on personal finance, the more options you will have. As you learn new ways to battle the same thing, you will become more innovative in your solutions, and doors which you never knew existed will open. Knowledge will only facilitate the process.
  4. Get Budgeting Down. It’s difficult to direct money towards paying down debt when you are always scrounging for money in order to live. Living paycheck to paycheck would indicate that there is nothing left-over to funnel towards your goals (student loans included). Creating a budget and sticking to it will help. Start with my course on creating a budgeting tool, and go from there!
  5. Manage All Other Debts. The last thing you want to do is to focus on student debt so much that you ignore all other debts, or worse, accrue an even larger number of debts! For us, managing all other debts meant paying down higher interest debts such as credit cards. We paid these off within the first month of marriage. However, for those with lower interest rates than my student loans (that is, lower than 6.8%), we paid only the minimum payments. For example, Mike’s car loan has a lower interest rate AND a lower total amount. Therefore, the money would be of better use towards my student debt, rather than eliminating the car loan.
  6. Get a Good Job. Let’s face it, a good job will largely affect how well you can pay off your loans. A job that’s consistent, reliable, and pays well. As much as I would love to explore being a temp, I also know that working more days as a dentist will help us on our repayment path. So there must be a balance. I can’t just cut down dentistry to one day a week and then pursue all my other creative endeavors. And if you’ve got a large debt, unfortunately, it wouldn’t behoove you either.
  7. Consider Side Hustles. Once our spending habits were controlled with a good budgeting tool, I started to think of ways to increase income. Actually, I started to explore hobbies that I like to do, and found ways to use that to make extra money. I started side hustles at the beginning of 2019, and the returns have been increasing steadily. I cannot wait to see where this year of side-hustles will take me.
  8. Be Kind to Yourself Along the Way. Lastly, but most importantly, find ways to make this lifestyle sustainable. The importance of enjoying life, rewarding yourself for your hard work, and having grace cannot be stressed enough. If everything in your journey is harsh, then it will be difficult to continue on when the days get rough. Because they do. I can recognize when I feel bogged down by the weight, tired by the work. When I do, I schedule a day of rest, or force myself outdoors, or meditate to reset. I send all my focus towards taking care of me, and in doing so, the loans find a way to take care of themselves. Ways in which we make this journey more sustainable include finding creative joys – I dabble a lot in the arts, Mike dabbles in music, and we both fulfill recreational activities in the form of travel, hiking, board games, and get-togethers with friends and family. In the end, you have to do whatever it takes to feed the fire.

Finance: The Second Year of Paying Down $550,000 in Student Loans, An Update

I can’t believe how fast time flies! The second year of paying down my student debt has passed, and I didn’t even notice. After the first year, I posted an update that outlined a review of our journey. It seemed to help some, so I decided to do the same for the second year. This year there were some ups and downs (a lot more downs than we thought would happen), but I am so pleased to announce that we are on track to finish paying off our debt in under 10 years. In fact, if we continue on this same trajectory that we’ve been on, we are actually estimated to finish 6.9 years from now, for a total of 8.9 years!! And I have high hopes to bring that number even lower. Read on to find out how we got here, and where we plan to go.

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To recap, we started off our journey with $574,034.50 of student debt (including the interest that had accrued)! All of which was mine. To date, we have paid a total of $145,128.48 towards my student debt over the last two years, bringing the principal amount down to $481,368.06.

To understand the progress, do recall that after year one, only $28,000 went towards paying down the principle. The rest of the $84,000 that we had paid towards the loan went towards the interest only. This means that only 33% went towards paying down the principle amount of the loan.

In year two, you start to see improvement. Of the $61,000 we paid to the loans, $29,000 went towards paying down the principle. That’s 47.5% of our payments going towards actually making the loan smaller!

Off course, you will see right away that we paid way less towards the loans in year two ($61,000) versus year one ($84,000). If we had paid the same amount or higher, we would have had an even higher percentage going towards the principle balance. So I guess this is a great time to recap what slowed us down this year.

THE SET-BACKS

  • In September of 2018, we decided to buy property. Property ownership was something we felt was right for us to do. We bought a live/work space that we hope to utilize in the future for some sort of business. Meanwhile, we are co-housing, or as financial independents might say, house-hacking, our way towards paying down the mortgage. Buying the property did entail two things to happen: We used some of our emergency fund to place a down payment on the home. Because of that, we are now re-building the emergency fund back up to what it was, which decreased our ability to pay back loans. Currently, we are setting aside $1k a month to rebuild the emergency fund and are on track to being back to normal in March of 2020. Also, it raised our total payments towards our housing a teeny bit, since now we pay for things like HOA fees and home insurance.
  • In October of 2018, we were delivered some shocking news. Mr. Debtist’s company experienced a laying off of 80% of the people working there, and even though Mike was one of the “lucky” few to stay, his pay got decreased by more than 50%! It was something we were not really prepared for, so on top of wanting to re-build the emergency fund, we also had to deal with a huge blow to our income. Since we were living off of one income, the change in salary really affected our ability to pay down the loans. But we made it work! That’s part of the joys of being on Loan Forgiveness Program even though we were paying it back aggressively. They still only required the minimum payments. Off course, we continued to pay more than the minimum. We were able to keep up with the interest that accrued and to slowly bring the loans down.

THE POSITIVES

Now that those two negatives are laid out, here are some positive things that happened!

  • A conversation with Travis from Student Loan Planner (affiliate link) is saving us THOUSANDS of dollars. He brought to our attention that we could optimize the loan repayment by switching from IBR to REPAYE. How does this help? Under REPAYE, the government subsidizes the interest at 100% for the first three years for an subsidized loan, and at 50% for unsubsidized loans and subsidized loans that have been present for longer than three years. Which means every month, we are given a free $850 to go towards our loans and help us out! This is fantastic because now that Mr. Debtist has a new job and we are back to our previous income, we also are getting help to pay back the debt. Whereas last year we were paying $6,500 per month towards the loans, we are now sending $7,300 towards the debt with the help of REPAYE’s stipend. And while we were dealing with the smaller income stream for four months, we were still getting that helpful $850 to add to the few thousands that we were contributing to the loan. If you want some loan advice, I really think Travis is your guy, and you can schedule a call with him to discuss your particular situation.
  • Additionally, the side hustle game has been ramping up since 2019 started! Now that we have our budgeting in order, it was time to start increasing our income. I was already writing on this blog and doing some dog-sitting on Rover, but I just recently started as a bread baker, and soon thereafter opened my own bakery called Aero Bakery. In January, I made only $14 in side-hustles, which made sense since we were off traveling in Australia and New Zealand for the first half of January. In February, I made $450, and in March, I made $750. For April, I am on track to make an extra $1,500 in side hustles! Read more about why I am an advocate of side hustles, here.

Why the Future Is Bright

So now, we are not only back on track with making $6,500 payments, but we are actually on track to be finished one year early! How did we do that? By being AGGRESSIVE. The minimum payment for a 10 year repayment plan was $6,063 a month. We set our sights on $6,500 a month. Even with the lapse during those few difficult months while Mr. Debtist struggled with his work situation, we were still able to be at a point where we have only 6.9 years to go! How exciting is that?! And what’s even more exciting is that I predict this will all snowball even more! I turn 30 years old this year, and wouldn’t it be great if this would all be cleared by the time I turn 35? That’s right! I have my sights set on getting rid of this in 5 more years. Here’s what we have planned.

  • Since we are now switched to REPAYE, we are making $7,300 contributions towards the loans, instead of the $6,500 that we were previously doing under IBR. That will vastly improve the trajectory of our path.
  • In March of 2020, we predict to have saved enough for our emergency fund, leaving an extra $1k to be funneled into the loans. That would increase our contributions next year to $8,300/month.
  • Also in Spring of 2020, Mr. Debtist is scheduled to finish his car loan payments. While I was in dental school, Mr. Debtist got a car loan and we currently pay $585 towards it every month. Freeing up $585 will increase our loan contribution to $8,885/month.
  • The side-hustling is just getting started. I hope to continue with many of these hobby-turned-hustles, and we will see how that impacts our payments.
  • Lastly, we decided not to refinance our loan at this time because of the risk of not being able to meet the minimum payments in case we have another fiasco like the job situation. However, when the loan is small enough (say under $300,000), we may still consider refinancing the loan. It’ll be less of a risk at that point, since the monthly payments will be way more doable. If we DO refinance as we get closer towards paying the loans off, then we will be able to attack the loans at an exponentially improving clip.

Please note that we are paying back student loans aggressively, but we are also doing it responsibly. We are living within our means, investing in our 401ks respectively, and are diversifying by entering real estate last year. I make myself less susceptible to fluctuating job conditions by having my own dental S corporation, opening my own bakery, working as a dog-sitter, working as a baker for another company, and doing some writing on the side. We are also a dual-income household, which greatly affects the possibility of this success.

If you are feeling lost in your student loan repayment journey, or you simply want to know your options, I would start with talking to a consultant at Student Loan Planner. This path is not for everyone, but it also may be more doable than they want us to believe. For those who just want to get budgeting down, why not start with my free course on creating a budgeting tool?

Finances: How Marriage Can Affect Student Loan Repayment

A few months ago, I had a friend and colleague call me and ask me the following question: “What happens to my student loans if I choose to get married?” In the same breath, she went on to explain that she had been delaying her marriage for months because she was fearful of how that would affect her finances.

I can’t imagine how difficult it must have been for her, feeling like she had to choose between marrying the man who she describes as her “number one supporter and best friend”, or her student debt. The concern was that she and he both had student debt, and they were both currently under the loan forgiveness program. Which meant that separately, they were both paying a percentage of their income towards the loans. She feared that getting married meant combining their incomes which would create a higher total income number and which therefore would require them to make an even higher monthly payment on BOTH of their student loans. So here I am, walking through some of the basic info, just like I did with her on that far away phone call. I hate seeing student loans get in the way of, well, l i f e , and I want to say to all of you the same advice I said to her. Life is too short, for numbers to be the only factor. I hope this helps.

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We all know that we bring into our marriages our past experiences, the perceptions shaped by those events, and other baggage (suitcases of?) that we may be carrying. Student loans is more commonly becoming one of those suitcases, or if you’re like me, loads of suitcases. As student debt numbers continue on the rise, it seems to become a bigger deciding factor than ever before.


The fact that student loans are preventing people from getting married seems ridiculous, but it’s a fact that exists none-the-less. My friend was not the first to delay getting married because of student debt concerns. In fact, I frequently get calls regarding student loans after a recent marriage. I have people all of a sudden interested in a CFP after tying the knot, because now, their professional pursuits are affecting other people they care about. More than that, it’s affecting their futures. I’ve spoken openly about how my own marriage is what motivated me to get rid of debt. In addition to marriage, I have had people confess that it’s prevented them from pursuing passions, changing career paths, buying a home, and also, starting a family. But it shouldn’t.

Here’s how marriage affects those under the student loan forgiveness plan.

Will my student debt affect my spouse?

Technically, your student debt will only be tied to your name. Even if you get married, your spouse will not be responsible for paying off your debt. An exception to this rule is if you decide to refinance your loan and have your spouse co-sign. Co-signing puts your spouse on the hook for your loans. I would not recommend refinancing if it requires having someone else sign their name. I wouldn’t want to burden even my worst enemy with this debt. If you refrain from doing this, then the student debt will stay with whoever originally took out the loan, and that’s it.

But it does not mean it won’t affect the other individual. Take my case for example. I have a student debt payment of $6,500 a month for almost ten years. That means that every month, that’s $6,500 less than what my spouse or I can use to live our life. It’s that much less that we can put towards paying down our mortgage, or setting aside to travel. Or, if my spouse hypothetically had loans of his own, then it would be $6,500 less that we can contribute to his debt.

So the short answer is yes. It does affect your spouse and family in the grand scheme of things. Which was my number one motivator to get rid of the debt faster than they can be forgiven.

If both individuals have student debt, should the student loans be consolidated?

They say that when you become married, you become one. Everything gets joined together, finances included. Most married couples decide to combine bank accounts to simplify life. “It’s all half-and-half now anyway.” So some ask, shall we also consolidate student debt.

I would put the brakes on this one. While there are some pros, it could also be harmful too. Let’s consider both sides of the coin.

A positive of loan consolidation occurs when one spouse has a significantly higher credit score than the other. Since interest rates are determined by credit score, the individual with a really low credit score might benefit from consolidation.

Merging debts can also be beneficial in terms of simplicity. When loans are consolidated, you no longer have to worry about your tax filing status when tax season rolls around. Additionally, you would reap similar benefits as if you refinanced your loan. These include lowering your interest rate, lowering your monthly payments, adjusting your length of repayment term, and therefore decreasing your total number of monthly payments. Lastly, it will get rid of having to juggle multiple loan servicers at the same time.

Out of all this, I think the most beneficial aspect (for me anyway) is the psychology of combining student debt. When things remain separate, it sometimes happens that one person will hold a grudge against the person with the higher debt. This can either be a silent sentiment, or one that gets voiced more and more frequently as the time passes. Consolidating loans at the get-go is a symbol of both individuals wanting to work together to get rid of the debt. Regardless of how much there is to pay back, both are putting their hard earned pay towards the loans once they are consolidated, and the adversity can unite rather than divide.

That being said, I would be wary of loan consolidation, especially for those under the Public Loan Forgiveness program and the 25 or 30-year Loan Forgiveness Program. First and foremost, loan consolidation of any kind usually resets the clock for the loan. This affects those in PLF because their 10-year service to a company may be reset as well. I have talked to nurses who have been unfortunate enough to consolidate their loans after working at a hospital under PLF for multiple years. By doing so, their previous years’ contributions to the hospital did not count towards PLF, and after loan consolidation, they have to contribute another 10 years in order to qualify for forgiveness!

Additionally, most lenders who will consolidate multiple student loans are private lenders. By consolidating with a private lender, you will lose the ability to qualify (ever-again) with a 25 or 30 year loan forgiveness program! This is all fine and dandy if the private lender gives you a lower interest rate that would allow you guys to keep up with the payments. But take my case, for example. We heavily considered refinancing my student debt, and I drawled on about our wishes to do so in this post. In the end, we did not pull through with refinancing, firstly because they required Mike to co-sign (see above) and secondly, because it would forever prevent us from falling back on loan forgiveness. That would mean that even with a lower interest rate, it would require us to pay $5,500 a month every month for 8 years. Currently, 100% of my dental income goes towards paying down the debt. If something were to happen to me, say I broke my wrist while baking, that would prevent me from working, and we would be screwed! By not refinancing with a public loan lender, my monthly payments are only a small percentage of my income, and we can manage that payment in case temporary (or permanent) disability occurs (applicable also to natural disasters, personal conflicts, and job insecurity).

In the end, we chose flexibility and peace of mind over money. I think that consolidation would be more beneficial as the student loan amount decreases and the pay increases. You have to just run numbers with your own personal situation to see what the risk is, and if it’s worth the cost.

If both individuals are on the student loan forgiveness program, how can they keep their monthly payments to a minimum?

Sometimes, when people choose to get married, both individuals have student debt under their names. If they are both under the student loan forgiveness plan, then they are currently paying a small percentage of their reported income based off of the previous tax year. The concern most people have is that when you get married, the student loan forgiveness plan may or may not consider your total household income. For example, currently, you may be paying 10% of $10,000 (just to make the numbers easy) per month. That’s $1,000 a month towards student debt. And your husband may be paying 10% of $10,000 a month as well. But when you get married, now your household income is $20,000 a month. Will you both be responsible for $2,000 contributions to each of your loans?

Not exactly.

First off, if you both are in this situation, you should probably consider filing separately. If your monthly payments are dependent on your income, then filing separately will help lower the total monthly payment, because it will be based on only one person’s income. Remember that under the student loan forgiveness program, you want to pay AS LITTLE AS POSSIBLE, and you want the government to forgive as much as possible.

The Caveat: Not Every Married Couple Should File Married-Filing-Separately

I follow up that last paragraph with this caveat. Not all married couples on the loan forgiveness program should file taxes separately. Here’s the thing. You may get a lower monthly student loan payment by lowering your total income. However, choosing to file taxes separately will likely lead to higher taxes. So even though you are paying less towards your student loans, you may find that your monthly savings will not be worth the extra amount you have to dish out come tax season.

The only way to really know which situation is best for you is to run the numbers. You need to compare the savings you get from having a lower income to base your student loan monthly payments with the additional taxes you would pay by filing separately. Unless you are a tax whiz, this is the part where I refer you to an accountant. Or talk it through with my pal Travis at Student Loan Planner. As you can tell from our conversation at this Itunes Podcast recording, I may know a little bit about student loan repayment, but Travis is the guru. Even he pointed out ways to optimize my own plan, which we used to save thousands of dollars.

There is one situation where your tax filing status does not matter as much. This is the situation Mike and I fell under. My loan is under the loan forgiveness program but we decided to file our taxes jointly. The reason is that although we are under the loan forgiveness program, we are trying to still pay my debt down aggressively and as quickly as possible. We stayed under the loan forgiveness program in case of a financial crisis or emergency… essentially, for peace of mind. However, we have all plans to pay it down like a standard loan payment. By filing jointly, we reap the tax savings of being married. Even though our total household income is greater and our minimum monthly payments are larger, our total monthly payments are aggressive and far exceed our minimum monthly payments anyways, so our total household income becomes null. Which is the perfect example to show that every choice behind what to do with the loans is entirely situational. It requires a good grasp on your financial abilities and your personal goals, while considering the best path for your psychological well-being. For, let’s face it, a lot of the motivation comes from the mind, and any long-term progress will highly depend on how “right” everything feels to you.

The moral of the story is this: Instead of fearing marriage as being an impediment to your financial journey, or vice versa, use them as tools to fuel each other. My marriage is what inspired me to be extremely aggressive in my student loan repayment. In much the same way, my student loans have ironically strengthened our relationship. For the first year, we sweated, cried, and rejoiced over battles and victories regarding debt. We’ve learned to work together as a team, stretched our creative boundaries, and really stood our ground, hand-in-hand, against nay-sayers, financial instabilities at work, and plain old exhaustion. We hit walls that we never thought we could surpass, only to climb over mountains. I think everyone can do the same, too. And if you need someone to simply talk to, to rant or cry, know that I am here. And so are all the other people who have reached out to me. We are all going through a similar journey, but I want us all to feel empowered, not struck down by the weight. I want to a be collective, rather than lonely individuals. I want you to succeed, not in being rich, but in your pursuit for a happy life.


Feature: Student Loan Repayment with Student Loan Planner

This post may contain affiliate links. Please see my disclosure to learn more.

Today, my Itunes interview with Travis Hornsby was released, and it will leave you with much to mull over. Travis Hornsby is the founder of Student Loan Planner, whose goal is to help guide recent grads down the correct repayment path for their lifestyle . In this episode, he dissects my current student loan repayment plan. We discuss optimized strategies, loopholes in the system, as well as pros and cons with paying down debt aggressively or passively. I learned something new during my conversation with Travis which led me to switch my repayment plan in order to save thousands of dollars! Throughout this journey, I have found that it’s amazing that we don’t know what we don’t know. Without conversations such as these, we will never really be making the best choice available. Additionally, it secures my faith in our ability to pursue our path and reinforces the contentment that I have with our decision.

There are a few things that we touched on in the podcast that I wanted to clarify.

  • Mr. Debtist and I both have 401ks. We are not paying down the debt and ignoring retirement all together. We contribute to our 401ks every month and currently have more than $100k tucked away.
  • We bought our property but not just as a place to live. We knew before we purchased that property ownership is FOR US. Our property is very unique. It is a live work loft that has a commercially zoned business space on the first floor, and the living space on the second floor. We bought it as a means to increase our income. Even though Travis is wary of people buying at more than the 1% rule, especially in California, the conversation we had talks specifically about homes to live in. It does not take into account the money the house brings in on top of its worth. We currently make passive income off of the business space by renting out the room. If ever our roommate leaves, we have a few ideas on what to do with the space. Our hope is to eventually create a business of our own on the lower floor, thus adding to the ways in which the house makes us money.
  • As much as I would love to work pro bono in another country, I want to be rid of the loans more. I know that it seems crazy to forever pay $6,500 towards student loans every month for 8 years, but I trust that it will not be equivalent to what we are paying now forever. I believe in the snowball effect. As we alluded to in the podcast, once the loans are at a certain threshhold (less than $400k) there is the possibility of refinancing at 5.5%. Once it’s below $300k, there’s the possibility of refinancing at an even lower rate. Additionally, we hope to increase our income over time, as we are doing a number of side hustles. Lastly, as Travis tried to convince me to get on the forgiveness path, you can see that he did so to no avail. I am certain we are on the correct path for us. Once we are free of debt, we would have already been contributing to both 401ks for 8 years, paid as many years to a mortgage, established at least one consistent stream of passive income in the form of a side gig or business, and most importantly, we would know how to live off of very little. We know how to find happiness in the simple things. We would have created a life of intention. And that is worth more than anything a loan forgiveness program could give me.

This is definitely a podcast to listen to if you graduated with a large student debt. You will likely find some golden nuggets in our conversation, and if you like what you hear, then maybe scheduling a call with Travis would be the next step for you. If you have a smaller student loan amount, maybe getting rid of your debt is closer to your reach than you think. In case you were considering refinancing, below are a few refinance links, to help you get a better rate on your refinance.

Using the links above will reward you with a sign up bonus for choosing to re-finance. But before you do, please think thoroughly about whether or not you can sustain the new rates, because once you refinance, there is no going back to student repayment. Also, don’t forget to shop around and find the lender that will give you the best deal out there!

And in case you missed it, my previous podcast interview on Itunes with ChooseFI can be found here.

How Switching Your Student Loan Forgiveness Plan Can Save You Thousands of Dollars!

This post may contain affiliate links. Please see my disclosure to learn more.

How would you like to save thousands of dollars a year, simply by switching the loan forgiveness program you are on? We know we did! A recent conversation with Travis Hornsby of Student Loan Planner informed us that we could speed up our loan repayment simply by switching from IBR to REPAYE! The information that Travis shared with us was so valuable, because it could in fact save us thousands of dollars on our student loans! That’s equivalent to refinancing to a lower rate, thus cutting down our repayment timeline, while still allowing us the safety net of being in a loan forgiveness program. After conversing with Travis for an hour, I would highly recommend Student Loan Planner as the starting point for any student or new grad looking for student debt advice.

So how do we save $$$ this year? It’s simple. All we need to do is to switch from IBR to REPAYE. Today, I will outline why.

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A Case Study: IBR VS REPAYE

We were under the IBR program since we embarked on this journey to repay our student debt of $574,000. Before you consider which loan forgiveness program you want to choose, you should probably read Finance: Student Loan Forgiveness Options: IBR VS PAYE VS REPAYE. We had initially chosen IBR despite the fact that the monthly payments would be 15% of discretionary income vs REPAYE’s 10% of discretionary income because of this one factor: IBR allows you to file taxes separately as a married couple and it will only consider the loan holder’s income, versus REPAYE which will consider the income of your spouse as well. Since Mr. Debtist also makes a six figure number, we figure that we would have the better deal using solely my income.

Here is an example of how to calculate that:

Let’s use estimates from our personal story to calculate the difference.

Assume that our loan is an even $550,000, my income (the debt holder) is $125,000 and Mr. Debtist’s income is $120,000.

Under IBR, they would calculate our yearly loan payment by multiplying my income by 15%.

125,000 * 0.15 = 18,750

Now we divide that by 12 months to find the monthly payment.

18,750 / 12 = 1,562.50

Therefore our monthly payment would be $1,562.50 under IBR.

Under REPAYE, we need to use the total household income of $245,000 to calculate the yearly payment, however we will only be paying 10% of our household income.

(245,000 – 1.5 * 16,460) * 0.10 = 22,030.85

To find the monthly payment, divide by 12 months.

22,030.85 / 12 = 1,835.90

Therefore our monthly payment would be $1,835 under REPAYE.

As you can see from this example, IBR would be the better payment plan because you would be paying the cheapest amount per month and allowing the program to forgive as much as possible.

HOWEVER, there is a rule with REPAYE that IBR does not have. REPAYE will subsidize 100% of the interest accrued for the first three years for subsidized loans, and 50% of the interest accrued after the first three years, which changes the game. Note, if you have unsubsidized loans or GRAD PLUS loans, they will only pay 50% of the interest accrued, period. Let’s see how.

Under REPAYE, the government will subsidize the interest that does not get covered by your minimum payment. In my case, I took out GRAD PLUS loans, so that would be 50% of the interest that accrues. We have already calculated the monthly payment to be $1,835.90. Let’s convert that to yearly payments.

$1,835.90 * 12 months =  $22,030.85 owed this year under REPAYE

This year, based on last year’s income, we owe $22,030.85 in total payments under REPAYE. We also know that interest on $550,000 at 7% is $38,500. Therefore, our payments under REPAYE are not even enough to cover interest, as is usually the case with a loan this large.

So the difference is calculated as follows:

$38,500 – $22,030.85= $16,469.15 * 0.5 = $8,234.58

Which means that for our case, the government will subsidize over $8k per year! You would be missing out on thousands of dollars just by being on the wrong program! We certainly did.

Why We Stuck with IBR in the past

We decided to be under IBR right when I got out of dental school, BEFORE we decided to pay back our loans aggressively. The reason being in my first year, I only worked for the last three months of the year, having waited for my license to be approved after graduating in June. In my first year’s taxes, I made $25,000. So taking 15% of $25,000 would be cheaper than 10% of $145,000. Now in the second year, the numbers completely changed since I started working full time for the entire twelve months. My salary jumped from $25,000 to $125,000. The ultimate question: Why didn’t we make the switch?

In April of my first full year of work, we had decided to pay back the loans aggressively. Meaning, our monthly payments were MORE THAN the minimum amount required. In order for there to be excess interest accrued on the loan, our monthly payments should not exceed the interest gained, which was about $3,000. But since we were paying our debt like CRAZY, we were actually paying $6,500 towards the loans, so no interest was accruing and it did not matter if we stayed in IBR or went to REPAYE.

Or so we thought…

We were VERY wrong!

A Common Misconception

According to Travis Hornsby of Student Loan Planner, REPAYE calculates the difference between the interest accrued and the amount paid back on the loan at the beginning of the year. REPAYE assumes that you will only make your minimal payment each month, which means that they lock in the assumption that $11,500 would be accruing in interest (for our particular example). Every month, they will subsidize a portion of your loan to make up for the interest that will supposedly accrue, REGARDLESS OF THE MONTHLY PAYMENT YOU ACTUALLY PAY. It doesn’t matter if we pay $6,500 towards the loans or if we pay the minimum amount. Either way, REPAYE will subsidize the difference between the minimum payment and the interest that’s being charged. So we have actually missed out on an opportunity here! What’s passed is past, but we are definitely jumping from IBR to REPAYE ASAP!

What Switching from IBR to REPAYE will save us.

We need to make this jump because of the following:

  • It will save us tens of thousands of dollars in the long run.
  • Making the change will be the equivalent of refinancing to a lower rate without actually having to refinance! Which then gives us the safety net of staying in a loan forgiveness program. If ever life throws us a curveball (such as an accident, layoff, disability, sickness, or our worlds fall into chaos and we cannot work), then the loan forgiveness program will give us the flexibility to not HAVE to pay $6,500 per month.
  • After all the money we save, we can cut our repayment timeline down to 7.5 years!

Off course, not everyone under IBR should automatically jump to REPAYE! You have to pick the financial path that is right for you, considering your personality, your goals, your lifestyle, and more. If you are looking for sound advice on how to create a student loan repayment plan customized for your situation, don’t hesitate to contact Travis Hornsby, founder of Student Loan Planner, using my affiliate link. It will be a very rewarding hour! And check out my second podcast episode with Travis, to be released in 2019! Stay tuned.

Tackling Student Debt: Exploring Refinance Options

This post may contain affiliate links. Please see my disclosure to learn more.

As you all know, we’re in the midst of refinancing my gigantic student loan! We started at $575,000 and in one year, reduced the total to under $500,000. I have shared why we decided to refinance, and what the hold-up has been since then. Now it’s actually time to bite the bullet. There are many companies to choose from, and what is necessarily best one person isn’t the best for another. Therefore, there is no one formula or equation that would allow me to tell you the refinancing agency you should go with. My advice is to do what we did — shop around!

Figuring out which refinancing company is best for you is easy. You can visit a number of them online and get a quote. Here are some decisions you’ll have to make.

  • Fixed interest rate vs variable interest rate: I like the stability of a fixed interest rate, even though variable interest rates give you a lower rate initially. Unfortunately, you may find that low rate changing as time goes on, a surprise I am not willing to chance.
  • Number of years for repayment: You can also choose the number of years you want to take paying down the loan. They may offer you anywhere from 5 to 20 years. If you are refinancing out of IBR like I am, the smartest choice will be to choose the least number of years as you can comfortably pay… except for one exception. If they offer you a lower rate at 10 years instead of 5 years, then I would take the 10 year option at the lower rate, and simply pay it down more aggressively, so that you still finish in five years. It’s a way to take advantage of a lower interest rate!
  • The amount of your loan you will refinance: I put this here because sometimes you simply can not refinance your loans in its entirety. For example, some of the companies that we looked into max out at $300,000. Some are even career-dependent or level-of-education-dependent, and cap at lower numbers such as $150,000. This caveat specifically applies to us, because my loan is so huge! In fact, I have not found any lenders to date that would refinance more than $500,000 of student debt, which is why it was so important for us to pay down my debt until it was under $500,000.

Now that you’ve made some decisions, it’s time to make the big decision: Which lender? I would recommend going to each of the following websites below to see what they can do for your specific case. A pre-application will at least give you a rough ballpark estimate of what they can do for you. Below, you will find some affiliate links to each of the companies we explored.

Things to note:

  • Once you refinance out of IBR, you cannot re-enter IBR again. I’ve spoken of this before, but please make sure that you are able to pay the required monthly payments under the newly refinanced loan. I would like for you to consider any possible complications that may occur over the repayment timeline. If you or your spouse experience disability, will you still be able to pay? If you have a lifestyle change, such as an addition to your family, or move to a different city because of your job, would it still be doable? The last thing you want to do is refinance and get yourself stuck with a payment that you won’t be able to make. Off course, no one ever knows what the future holds, but try to ensure you have a fallback plan in place.
  • Pre-application rates have expiration dates. You can fill out a pre-application form, but do know that they have an expiration date. The quoted interest rates may change if you wait too long to go through with the refinancing process. Rates are always changing. Do not be surprised if you re-apply after your first application has expired, only to find a higher rate than before. If there is a rate you really like because it is very low, I would say move quickly, or risk losing it. Of the same token, don’t start gathering rates until you are absolutely sure you are ready to re-finance.
  • Soft credit pulls do not affect your credit score. Some pre-applications may request making a soft pull on your credit report. These will not affect your credit score, however, if they request making a hard pull, then that will have some effect. Therefore, you want to avoid hard credit pulls unless you are 100% sure that you will be going with a particular company. I have discussed how credit scores work once before.
  • Do not add your spouse as a cosigner unless you are willing to tie them down to your debt for life. Consider this gruesome inquiry: What happens to your student loans in case you pass away? A conversation I implore everyone to have. If your spouse co-signs with you on that refinanced loan, if you happen to pass, then your spouse is still on the hook to continue paying back that debt. If, perchance your spouse does not co-sign, should you pass away, that debt is erased. Off course, you must read the fine print of the contract they send you to confirm this, but that is something to consider. You may receive a lower rate with a co-signer, but is that worth it? Maybe for some whose loans don’t approach half a million dollars, but for us, I don’t think so.

Finances: Why We Are Refinancing and Leaving IBR Behind, For Good!

Before we head off to Portland, OR, we wanted to share with you guys some very exciting news! We are finally pulling the plug on student loan forgiveness, completely! We are in the process of refinancing our student loans, and leaving IBR behind, for good!

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Why haven’t we refinanced sooner, you ask? Well, there is a clause in the student loan forgiveness program IBR that states that once we refinance our loans, we will no longer be eligible for the student loan forgiveness program in the future. Meaning, if something happened, like one of us lost our jobs, we would still need to continue to make the $6,500/month payment from now until forever (or at least until we are free from the loans). If we stuck with IBR and one of us lost our jobs, we could revert back to paying the minimum payment under IBR (which is calculated as a small percentage of your income), until we could dig ourselves out of the rut. You can see why refinancing can be a tricky thing. A life event that changes our financial situation could immediately cause us to get in trouble with the IRS if we cannot maintain that $6,500/month payment. In other words, we were giant wussy pants and scared of what could happen. We were not quite ready to leave the safety of IBR when we decided to pay down our loans a year ago.

However, under the IBR program, my student loan with Great Lakes is charged an interest of a whopping 6.7%! By refinancing, we could lower that down to about 5.5%. It doesn’t seem like much, but on a loan this huge, it makes a big difference. To give readers an idea, for a 10 year refinance at 5.5%, our monthly payment would decrease from $6,500 to $5,300! Or, put another way, if we continued the course of paying $6,500/month, then we will be done with our loans in 7.5 years! I don’t know about you, but both perspectives are extremely exciting and extremely enticing.

I have spoken about us paying down $84,000 towards my student debt of $550k+ in the past year. Initially, we didn’t know at the start of our journey whether we would be able to make the large monthly payments. We wanted to try it out, but were afraid that we would not be able to support the lifestyle we want and still have enough for the loan amount. What we found was that we were able to alter our lifestyle in order to make our payments, and our lives have much improved from it. After one year, we are extremely confident that this is the path we want to take, and that we can do this! We are no longer afraid of the what-ifs and are ready to take a leap of faith (in ourselves) and just turn our backs on student loan forgiveness for good!

So what happens if some life event occurs that dramatically impacts our finances? We haven’t forgotten about the possibility of one of us losing a job, or a natural disaster happening, or a family emergency occurring, although cross our fingers, legs, toes and arms that none of these ever come to fruition. But we HAVE thought through a series of possibilities that could help us in such scenarios.

  1. Have an emergency fund. Over the past year, we have built up an emergency fund that could support us for 2.5 months if one of us loses a job, or for a little under 2 months if both of us lost our jobs. We will continue to add to this emergency fund and over time, it should be a very big safety net for us (or it could help us pay down loans faster towards the end!)
  2. Make use of the lower monthly payments. There are TWO ways we could make use of the lower monthly payments. The first is to pay the $5,300 per month minimum payment, and stash the difference ($1,200) in the emergency fund every month. Although a viable plan, that isn’t the path we are going to take. The other is to continue paying $6,500 a month since we can support that payment, and plan to be done in over 7 years. Because we would be paying extra $$ a month, we would be paid ahead. Meaning, if something were to happen, we would have accounted for future payments already, and would likely have a buffer of time before we are back to our originally determined schedule.
  3. Rely on the loan’s forbearance policy. Loan companies want to get paid. If someone really cannot make payments, then the loan’s forbearance policy will temporarily allow non-payment for a set number of months. The interest will still accrue, but it is a back-up!

Luckily for us, our jobs are very flexible and we don’t really see ourselves without work for long periods of time, but you never know what the future may hold, and sometimes life gets out of control. So, yes, it IS still wildly scary for us to be doing this! Too risky for some. But I believe in our abilities and focus and determination. And we want to inspire other people to feel like they could be freed too.

How about you? Feel like this is too crazy a venture, or would you be willing to try too?