How Refinancing Helped This Family Pay Back Their Loans in Just 12 months

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When Riley Adams met his wife, Lily, she had a substantial amount of debt from medical school. But, for Adams, the student loans were well worth it.

“I knew she was the woman I wanted to marry,” he said. “At the end of the day, no amount of student loans would have changed that.”

Once they were together, Adams and Lily worked to come up with a plan to tackle their debt. Adams, a financial analyst based in San Francisco, decided that student loan refinancing made a lot of sense for them. After turning to Student Loan Hero for help, they were able to refinance their loans — and pay off their debt years ahead of schedule. Here’s how they did it.

Getting into debt

When Lily went to school, she was careful not to take out too much in loans. By the time she finished school, she had a loan balance that was relatively low, about half of the national median of $192,000 for medical school graduates.

“She did a really good job of managing the cost and being really prudent,” Adams said. “It was a very reasonable amount of student loans that she took on, and she had been repaying them for about three years at that point.”

She had a combination of federal and private loans, with about $17,000 in private loans with interest rates as high as 8%. Alarmed by how much the private loans were costing, she asked Adams to take a look at her loans to see if there was any way to bring down the cost.

Refinancing their student loans

With student loan refinancing, a borrower works with a private lender to take out a loan for the amount of their current debt. The new loan has a different interest rate, repayment term and monthly payment. Depending on what repayment term you choose, you could save money over the length of your loan.

Since he didn’t have student loans himself, Adams didn’t know much about the student loan refinancing process. But as a financial analyst, he knew refinancing was an effective strategy for managing other types of debt.

“My parents had a loan on my childhood home and a pretty decent interest rate in the ’90s,” he said. “But then, in the mid-2000s, they refinanced their mortgage and it saved them a significant amount of money.”

However, Adams knew they had to be cautious.

“I wanted to be careful because I read on Student Loan Hero about the [federal] protections you might lose if you choose to refinance,” Adams said. “But since her loans were private, there weren’t protections in place for her.”

Ineligible for perks like income-driven repayment plans or Public Service Loan Forgiveness, they decided to move forward with the refinancing process.

Initially, Adams and Lily tried to refinance the $17,000 of private loans on their own. But when they applied, their application was denied because of a too-low credit score and insufficient income.

Adams did some more homework and ended up finding a list of the top refinancing lenders. He decided to fill out an application and apply for a refinancing loan through Citizens Bank.

“The process was very quick, and they gave us a quote almost instantly,” Adams said.

Repaying their loans

Lily was able to dramatically reduce her interest rate, going from 8% interest to just 2.83% variable interest, including a discount for signing up for automatic payments. She opted for a shorter repayment term, going from seven years left of repayment to just five.

“She realized we could use that money to invest or to put toward a house down payment,” Adams said. “If we paid off the loans early, that would be a guaranteed return.”

With a lower rate, they were able to make extra payments toward their debt. And when they got married, they decided to put any money they received as gifts toward the private student loans. With the help of student loan refinancing, they were able to pay off the loans within 12 months and even saved money.

“In terms of what we saved on interest during that twelve months, I calculated it was something around a $1,000 just from refinancing,” Adams said. “We didn’t have to pay any fees or any sort of points or anything like that.”

Now with less debt on their shoulders, the pair is looking to buy their first home.

“Hopefully this time next year we’ll be in a place of our own,” Adams said.

Looking ahead

With his experience as a financial analyst and his past dealing with student loans, Adams started a blog — Young and the Invested — geared toward young professionals or who are smart, driven and looking to improve their personal finances.

When faced with someone who is struggling with a large amount of student loan debt, Adams advises them to think about their earning potential.

“I would try to understand how much debt you have relative to what your future expected income would be,” he said. “Try to get an understanding of how your future expected earnings compare to the amount of outstanding student loans you have.”

If the debt load is too burdensome, it could affect your ability to achieve goals like getting married or buying a home. If you’re struggling with your debt, consider signing up for an income-driven repayment plan to reduce your monthly payments.

“I’d also suggest looking into your ability to qualify for Public Service Loan Forgiveness program,” he said. “ But, if you don’t feel the protection of the federal student loans is worthwhile, I would definitely look into refinancing to see if you can bring down your interest rate considerably.”

With the help of refinancing, you can lower your interest rate, save money and even pay off your student loans faster, helping you become debt-free well ahead of schedule.

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