A quick note on student loans...
Editor’s Note: When I first wrote this post, I included affiliate links to CommonBond. If you clicked on them, and refinanced your student loans, you and I would both receive a commission. I am updating this post to redirect the links to go to the student loan comparison page on Your Financial Pharmacist.
This is nothing against CommonBond…they’re still awesome! But when you’re dealing with hundreds of thousands of dollars, you owe it to yourself to shop around. You might find that you get a slightly better rate with Earnest, or SoFi, or any of the other companies out there.
Your Financial Pharmacist has done a great job at putting all of the available resources together on the same page, AND you will get a larger bonus from refinancing through Your Financial Pharmacist than you would have by refinancing through my affiliate link on this page.
I do this whole “tl;dr thing” more to help people than to put a few dollars in my pocket. So I’m updating this post to redirect your refinance efforts to the best place I know - Your Financial Pharmacist.
Just reading that makes you feel a little uneasy, right?
Maybe you're in school, and you're racking up 6 figures of debt at an impressive rate. Or maybe you've graduated and are trying to make the astronomical payments on 6 figures of debt while not feeling indentured to your job. Maybe you're 5 years into repayment and you're damn tired of seeing so much of your take home pay get sucked down the student loan drain.
I'm in the same boat, and I feel your pain.
I'm somewhat of a personal finance "enthusiast," and have been for a few years.
Given that I recently graduated from pharmacy school, student loans make up a large percentage of my current financial picture. And they aren't going anywhere anytime soon.
For a couple of years, I've diligently explored student loan repayment options. I recently found a new option that works for me, and I thought I'd tell you about it.
If you want some of the gory details of my personal financial life, as well as my current repayment strategy, read on.
For some quick background; I became interested in personal finance during my P3 year. Is it weird that I know almost down to the month when I became interested in finances? Well, here's why:
I ran out of money.
Not like "I'm living under a bench in the park" out of money. More like "I'm not going to be able to pay rent next month if I don't do something right now" out of money.
But either way, let me tell you, that's a feeling that sticks with you.
That's a bucket of ice water splashed on you when you're cozily lying in bed. It's being unplugged from the Matrix. I can remember everything vividly. Where I was when the realization hit. The exact moment when it dawned on me how effed I was. How I reacted...
Personal finance had never concerned me much prior to that. By my estimation, I had always been "OK." I didn't really think about money, and this plan seemed to be working for me. I didn't carry any credit card debt (though a few times in my youth I had broken this rule). I even had an emergency "Oh Shit" fund of $1000 in case the sky fell. All that talk about "debt" and "responsibility" were for other people. I was doing just fine.
Former heavyweight boxing champion Mike Tyson is quoted as saying "Everybody has a plan until they get punched in the mouth." My laissez-faire attitude towards money just resulted in me going down in 91 seconds like Michael Spinks.
I was in a weird state of "panic-denial." It's a weird mixture of feeling helpless, but at the same time feeling like you have to do something. My initial response was to pick up more hours as an intern. But really, even with my emergency fund I couldn't cover rent next month; what were a few more shifts at $12 an hour going to solve?
Eventually, something changed in me. I was about to marry to my amazing, beautiful, super-fun, and kick-ass wife (see picture). I needed to get my shit together. So, I started reading, and taking action on what I read.
I read every personal finance book and blog I could get my hands on (if you'd like recommendations, email me at firstname.lastname@example.org). These books literally changed my life. I studied. I applied. I moved into a smaller apartment. I sold my car and started biking to work. I even got creative and took out a 15-month interest-free credit card to cover expenses for a few months until my next student loan disbursement came (I paid the balance in full before any interest was due). Slowly but surely, my financial picture started looking better.
So, there's some background. But that's not really why I'm up at 5:38 AM on a Thursday morning writing this to you. This post is about one of my current financial strategies, and (more importantly), something you can do with your finances.
Student Loans: The Bane of My Existence
Since I've graduated in 2013, we've made a ton of progress on my student loans. My wife and I lived very frugally during my PGY1, surviving almost entirely off of her paycheck and putting my salary towards my loans. But the reality is that we've still got over $100k to go. And we've added a mortgage, retirement savings, and a growing family to our financial picture.
Student loans are going to be a part of my life for years to come.
At the peak of my loans (I graduated with just over $200k), I was paying over $26 in interest per day. I calculated that as a resident, the first 4 months of my take home salary would be given straight to the bank just to pay the interest on my loans.
Stop a moment and think about that. Every day, even buying a cup of coffee from the cafe in the hospital where I worked would start me at negative $30 on the day...before I've earned anything.
I pretty much never bought coffee.
And even now, after so much progress, I'm still paying over $11k a year in student loan interest.
If you graduated recently (or are about to graduate), you're probably in a similar situation. Doesn't that make you angry? Because it sure as hell fires me up. It makes me burn with the fury of 1000 suns.
But before we get too carried away, this isn't one of those "We've got to DO SOMETHING about student loans!!" complainy-posts. I'm resigned to my choices. No one forced me to go to pharmacy school. No one forced me to take out more money than I needed. I wasn't educated about what I was doing, but that's my fault. That's on me. I'm able and willing to deal with the consequences of the misguided choices of my youth...
But that doesn't mean I'm not going to do everything in my power to save money and reduce the financial burden on my family.
Which brings me (finally) to the point.
Lowering Your Student Loan Burden
Lowering the interest on your student loan saves you a ton of money...both in your monthly payment and in the total amount you pay over the term of the loan.
If you've been paying attention, you may have noticed something recently. Private loan companies are coming out of the woodwork offering lower interest rates compared to federal loans. This is especially true if you've got Graduate and Graduate Plus federal loans...which you probably do if you graduated with a pharmacy degree.
Every time a new private loan company popped up in my Facebook feed, I'd eagerly review the deets. I came across plenty of companies and plenty of plans that seemed attractive. But one thing always stopped me from refinancing: Lack of flexibility.
My family depends on my income. What happens if I'm injured and unable to work for a few months? Federal loans provide you with a nice "out" called deferment. This lets you stop making payments for a few months if ish hits the fan in your life. They also have flexible options such as Income-Based Repayment. Many private companies don't allow for that.
Then a friend (a fellow money-nerd) referred me to CommonBond. And finally, I found an option that works for me.
CommonBond isn't revolutionary in terms of how they operate. But they do present an easy, no-hassle process to loan repayment.
And more importantly, they've saved me a ton of money.
Namely, they reduced my interest rate by over 1%. I don't need to be a math wizard to see that that's a solid $1,100 in interest saved this year alone. #amirite?
On top of that, my monthly payment got smaller even though the length of my repayment period got shorter.
So to summarize:
My monthly student loan payment is now smaller by about $100. Even assuming I don't pay extra (which I do), I'll be finished paying years earlier than I would have on the federal plan. AND I get to chip away at my balance even faster because they're saving me so much in interest.
CommonBond, this might sound weird...but I think I have feelings for you.
That flexibility I was talking about? CommonBond allows you to put your loans in deferment if you come across hard times. For me, this was the last piece I needed to pull the trigger.
So I did. And let me tell you, I've got nothing but positive things to say. I've had to email their support team a few times for various questions (I'm pretty Type A about my finances nowadays), and they've always responded in a quick, helpful manner.
They have a variety of refinancing plans available. They don't currently have an income-based repayment plan, but I'm stable with my income so I wasn't particularly interested in one.
To keep flexibility, I went for a longer repayment window (15 years) instead of a more aggressive 5 or 10 year plan (Note: CommonBond has plans as long as 20 years). If you do this, your interest rate will be a little higher, but your monthly payment will be a lot lower. The lower monthly payment gives you flexibility. You can always pay extra. You can aggressively pay your loans as if you're on a 10 year plan, but have the peace of mind of knowing that if you fall on hard times you can reduce your payment.
There's no way I plan on keeping my student loans for another 15 years. But it's comforting to know that my monthly obligation (the amount I have to pay) doesn't stretch our budget. And since we're living within our budget, I can pay extra.
I probably pay about 50% extra on my loans each month. But if the holidays are coming up or my family wants to take a vacation, I can just pay less "extra" on our loans that month and we magically have the money we need to travel.
If you're interested in saving a bunch of money with CommonBond, just click this link. It takes only a few minutes of your time to get an initial rate quote, and then only a few minutes more (to find the documentation you need) to get it finalized. The whole process takes a few weeks, but it is incredibly simple on your end.
Some potential things you should think about:
Do you need income-based repayment? This is an attractive option during PGY1 and PGY2 years. Maybe it makes sense to hold off on refinancing until you have a stable job after residency. Or for a workaround, you can select a longer repayment term that minimizes your monthly payment.
Are you working in the public/non-profit sector hoping to capitalize on the Student Loan Forgiveness Program? If you refinance with CommonBond you will have private loans. These are not eligible for loan forgiveness. I have mixed thoughts on the loan forgiveness program, and there's already a lot of confusion and reneging on who is eligible. But that's a topic for another day...
For me, CommonBond made sense for my family's situation. If it doesn't, please do everything you can to educate yourself and keep your financial house in order. No one else is going to do this for you. Barely scraping by and living paycheck to paycheck on a 6 figure salary is a very real thing. Don't let that happen to you.
Check out the resources on Your Financial Pharmacist to see if refinancing makes sense for you. As an FYI, I do not receive any compensation for you clicking through to these YFP links, but I DO want to make sure you make the best possible decision and get the best possible deal. YFP will help you do that.
If you still want to talk more about personal finance; email me at email@example.com
If there's enough interest, I may write future tl;dr articles on the subject. But in the meantime, I'm happy to steer you towards books and other resources that have helped me.