Ask The Readers: Refinancing Student Loan Debt?

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college_shirtSometimes I get questions about dealing with student loan debt, but I no longer feel well-qualified to answer. I graduated in 2000 with roughly $30,000 in student loan debt myself, but I never participated in any government-backed repayment plan, nor did I refinance it into a lower interest loan. Roughly 70% of students are graduating with debt today as opposed to 60% in 2000, according to this NPR chart:


Once I started earning income, I did the “live cheap like a student” thing (not hard, I was a grad student for most of the time) and paid off the debt in about four years. If I had a bigger balance or a tighter budget today, I might do things differently given the current options. I know there are smart readers out there with more recent experience, so I ask you:

How did/are you handling your student loan debt?

Perhaps one of these government-backed repayment plans? If so, which one did you pick and why? Some limit your payment due to 10% to 20% of “discretionary” income, and some will even forgive the remaining balance after 20 to 25 years.

  • Pay As You Earn Repayment Plan (PAYE)
  • Revised Pay As You Earn Repayment Plan (REPAYE)
  • Income-Based Repayment Plan (IBR)
  • Income-Contingent Repayment Plan (ICR)

Did you refinance your loan privately through a student loan start-up or traditional bank? Why did you pick yours over the competitors? Some examples:

  • CommonBond
  • Earnest
  • Local community bank or credit union
  • National bank or credit union like Navy Federal

Please share your experiences, positive or negative, in the comments. It will help me focus my own research. You can also contact me directly.

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  1. My wife and I refinanced our loans with Sofi last year and we have no complaints. We were able to choose from fixed and variable options which were lower than the 6.8% that we were previously paying.

  2. I was fortunate enough to graduate with no student loan debt. My wife had two loans and was able to lock rates under 4% for one and around 2% for the other. We paid off the higher interest (and also higher payment) loan early so that we’d improve our cash flow situation before we had kids and she transitioned to staying at home. We still have the remaining loan but it’s such a cheap rate and it’s under $100 per month that we haven’t even really looked into any options other than making the regular payment.

    • Just to clarify, you locked your rates through your direct (government) lender? For payment amortized over a certain amount of years? I’m just trying to understand the options, thanks!

  3. I consolidated/refinanced all by loans after college the best part was that I got a extremely low interest-rate on all of them at around 2% for a 30 year loan. The main reason to consolidate or refinance is to lock in your interest rate because government programs tend to fluctuate with market rates. However if you do refinance it may make it much harder to use any kind of government forgiveness such a military or teacher America

  4. I lucked out in that I graduated law school in 2003 during what I believe to be one of the last years before they tinkered with the refi options and refi rates went up. I only had stafford loans and was able to refi them at 1.625% fixed (net of discounts for auto pay and timely pay) over 25 years. Don’t really have any urge to pay them off on an accelerated basis as I would rather invest the monies. I always laugh when I get unsolicited mail encouraging me to refinance my student debt in the 6%+ range – just got some last week from Sofi.

  5. After undergrad (2000) and grad school (2003) I consolidated about $35000 of loans under whatever program was available at the time. After an on-time rate discount and an automatic-deduction rate discount, I’m locked in at 2.5%, so I’m in no rush to pay that off. Could have sworn I’d chosen a 30 year consolidation, but I’m on track to pay it off in 20, so I may have made some extra payments before I had a mortgage.

  6. Jonathan says

    I consolidated our loans into our mortgage. Thanks to good timing on the purchase our house I was able to use the equity we acquired to pay off our loans. This allowed us to drop the interest rate from 6.25 to 3.75, and still
    deduct the interest.

  7. For those with a ratio of debt to annual gross salary at less than 100%, it likely makes the most sense to re-fi into a lower fixed rate program like SoFi, in order to accelerate payoff timeline. Generally speaking, you should be able to tackle your undergrad debt, if all government loans, within a SoFi re-fi plan without truly relying on the government income based plans.

    For me, I graduated with six figure debt from law school in 2013, so the government lending advantages (eventual debt forgiveness under several different loan plans, potential hardship options if ever needed, etc.) weigh heavier in my favor.

    If you are staying under the government lending program, PAY-E is far and away the best option to stay with. Lower discretionary income ceiling at 10% and potential debt forgiveness after 20 years. IBR has a higher discretionary income ceiling, and PAY-E I believe has both a higher discretionary income ceiling and a longer repayment requirement (25 years).

    Many may not qualify for income based plans based on initial salary/debt requirements, but once you initially qualify, your payments (whether under the plan or, if you eventually make enough income, at the 10 year repayment rate) will apply to any potential debt forgiveness.

    Outside of the plan terms alone, there are always risks that the government will alter the terms of the deal before you obtain loan forgiveness – for instance, the public interest forgiveness of student loan debt after 10 years weighs heavily in favor of graduate students such as doctors who go on to work at university hospitals during residency and so forth. There continue to be rumblings in Congress that there will be a ceiling placed on public interest forgiveness, among other items

    • Correction – *and **REPAY-E** I believe has both a higher discretionary income ceiling and a longer repayment requirement (25 years).

  8. I was lucky to not have student loans, however I just wanted to put out a BIG WARNING to anyone planning on loan forgiveness. Any of that debt forgiven after 20/25 year (or 10 years of non-profit/govt sometimes I believe) is TAXABLE INCOME. So if you’re not at least paying the interest every month, your debt is increasing every month. That increase over 20-25 years may be forgiven, BUT the income tax due will grow.

    • Scott Cline says

      Correct on 20/25/30 year loan forgiveness, but public service loan forgiveness (10 years) is not taxable income.

  9. Graduated law school in 2008 with about 130,000 in debt. 17,000 was variable rate and is currently at 12,000 and 3% interest. The rest was at 7.25% interest, and I had to defer/forbear several times due to underemployment. I’ve had a good job for several years now, and last year I refinanced the big loan with SoFi for 4.99% for 100,000 balance. It’s been great. I now pay less per month and more of it goes toward principal. I would highly recommend SoFi based on my experience so far. I’m one year in and haven’t had any problems. I don’t know much about the other places, like Common Bond, so I wouldn’t necessarily recommend SoFi over the others. It’s just what I know and I’m happy with it.

    If anybody is interested in SoFi, you can get $100 by using my link:

    No pressure, though. I’d go wherever they’ll give you the best rate at the moment.

    One more thing…I paid all my cc down to zero balances before applying. When I got my loan disclosure, my credit score was about 30 points higher than it had ever been before or has been since. I’m not 100% sure if paying the cc down to zero caused that, but I’d do it again because it “seems” to have worked.

    Good luck to anyone trying to refinance.

  10. Can someone speak more about refinancing student loans into a mortgage? How does it work? What are the upsides and downsides?

  11. Finished Bus School in 2002 with 35k in student loans at 3%. I owe about 8k right now. I was going to toss it on a 0% transfer/0% fee card and pay off this year but fell ill. Recognizing student loans are forgiven on death, I’ll go back to min payments and focus on savings/debt for now to protect my family.

  12. I graduated with $45,000 student loan debt after graduate school. The interest rate was 6.8%. I signed up for IBR as I had a pretty low income for the first 2 years. The debt grew to $48,000, as only half the debt was subsidized. I did a 0% balance transfer for $12,000 through a Discover It offer and paid that off in a year. I got more serious about paying the debt and got a better job and its now down to $23,000.
    2 years ago I decided to refinance with SoFi, as I was not receiving any benefit from IBR and the interest rate was quite high. SoFi was straightforward and pretty easy. I did a variable interest rate refi at 4.3%. After about a year, I refinanced again with Earnest at 3.4% variable interest rate. Earnest is pretty cool. It is like using Mint. :Like with Mint, you link all your accounts (assets and liabilities) and they mine the data and look at a big picture of your ability to pay the loan. They could see that I had sufficient funds in retirement accounts to pay the loan, so I was a pretty safe bet. They called and interviewed me and asked about how I used specific accounts (I have a personal line of credit that I was occasionally carrying a balance) and approved me. Their interface is sleek, but has only limited functionality. My sister is fresh out of college and was denied by Earnest. They told her to improve her financial situation.
    If anyone is considering Earnest, I would appreciate using my invitation. Thanks!

  13. I had a client who paid off about $30K in student debt by rolling it into credit cards with 0% APR/ 0% balance transfer fees pre-2008. She paid 0 interest on the student loans AND gained protection over creditors (student loans won’t be discharged in bankruptcy but CC debt will).

  14. I have about $150k in student debt from undergrad and medical school. I’m staying on IBR with plans to qualify for Public Service Loan Forgiveness (PSLF) after 10 years. I would love to be on PAYE but I did not qualify as I had student loans prior to 2007. As far as REPAYE, I’m still debating whether or not I want to switch over from IBR but I’m holding off for now. In fact, I made a post about the differences between PAYE and REPAYE.

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