Harvard Professor John Campbell teaches a freshman seminar on campus with the aim of preparing his students to enter the real world equipped with the skills necessary to make smart decisions with their money (like how to evaluate student loan refinancing options).
I love that he teaches this class because I know I could have used it. I struggled going from growing up in poverty to attending an Ivy League university.
The other day I was chatting with Professor Campbell and was telling him about Sarah, a loyal Finance Twins reader who wrote to us because she felt stuck.
Her story struck a chord because it’s so relatable. We’ve all felt defeated or overwhelmed by money at one point or another.
Sarah also mentioned she had student loans. Which gave us an idea.
What if we used her financial details and presented a menu of available refinancing options in order for Professor Campbell’s Harvard students to discuss whether it makes sense for Sarah to refinance her student loans and actually determine which refinancing quote they’d go with?
So here we go. First, read this article if you aren’t sure if you should refinance student loans.
Next we’ll share Sarah’s financial details, followed by some student loan refinancing quotes.
The fun part comes last: Comment below the article to share whether you think she should refinance or keep her current loans and which quote you’d go with if you were her.
Sarah’s Financial Information
Please note that we modified some of her info in order to make this exercise more helpful.
I’m a 29 year old female from Chicago (which is not a cheap city).
I work in the private sector and my annual income is $47,500 before taxes. I get paid $1,400 bi-weekly, after taxes, so I get taxed about $11,100 per year.
A month ago, I moved to a further neighborhood slightly outside of the city with my fiancé to save on rent, as I was previously living alone in Downtown Chicago.
I have a monthly budget and broke down my bills into 2 lists on my phone to indicate which payments come out of my 1st paycheck and which come out of my 2nd pay (I get paid bi-weekly).
The budget lists my rent, renters insurance, groceries, phone, internet, public transportation, laundry, gym, Netflix, Spotify, bank fee, student loans, personal health spending (ex physical therapy, psychologist or skin care products I may run out of) and also includes the amount I’ve paying towards my debt (just slightly above minimum payments). I’ve also just added $100 savings from each pay check in the budget for emergencies.
On a monthly basis, my expenses add up to $2,370. This includes the $100 I am saving for emergencies.
My credit score is 650 so I think I can qualify for several refinancing options for my student loans.
My Student Loans Include:
I have $10,500 remaining in student loans.
- 1 Federal student loan with a balance of $5,500 and an interest rate of 6.8%. The monthly payment is $92.06. The loan had an original balance of $8,000 and a 10 year term. The final payment is due in August 2025.
- 1 Private student loan with a balance of $5,000 and an interest rate of 5.95%. The monthly payment is $80.31. This loan had an original balance of $7,250 and a 10 year term. The final payment is also due in August 2025.
My Other Debts Include:
- 3 credit cards with balances of: $500, $3,000, $2,800 (active)
- 1 low interest personal loan: $6,600
- 1 high interest line of credit loan: $1,350
My total debt right now, including student loans, is rounded up to about: $25,000
Alright, now let’s take a look at her refinancing options!
Refinancing Options For Her $10,500 Of Student Loans
|APR||Term||Monthly Payment||Total Paid (principal + interest)|
|Option #1||3.10% Variable||5 Years (60 Months)||$189.14||$11,348.29
|Option #2||4.2% Variable||10 Years (120 Months)||$107.31||$12,877.00
|Option #3||5.15% Variable||20 Years(240 Months)||$64.74||$15,537.58
|Option #4||3.7% Fixed||5 Years (60 Months)||$191.96||$11,517.31
|Option #5||4.99%||10 Years (120 Months)||$111.32||$13,358.10
|Option #6||5.75% Fixed||20 Years(240 Months)||$73.72||$17,692.50
You should note that all of the quotes she got were for the entire balance remaining on her student loans of $10,500. All of these new loan options can be repaid early. Just assume the only differences here are the interest rates, term, and whether the APR is fixed or variable.
So What Should She Do?
Okay, now that you know her financial situation and the options available to her, what should she do?
Should she opt for a higher payment to repay faster, or go for a longer term in order to lower her monthly payment and give her more flexibility? There are pros and cons to both!
What about fixed vs variable APRs? Which would you recommend for her and why?
Put yourself in her shoes and come up with a plan. We want to hear your opinion!
If you are considering refinancing, here are some solid options:
Top Student Loan Refinance Companies
|Company||Variable APR||Fixed APR|
|1.86-6.01%||2.43-5.99%||Get My Rate|
|1.99-5.64%||2.98-5.79%||Get My Rate|
|1.99-6.09%||2.99-6.09%||Get My Rate|
|1.99-6.10%||3.00-6.20%||Get My Rate|
|2.99-6.06%||2.99-5.99%||Get My Rate|
|1.99-5.25%||2.99-7.75%||Get My Rate|
Camilo is a personal finance expert and the Co-Founder and CEO of The Finance Twins. I was raised in poverty by a single mother and had to learn everything about personal finance on my own. I have been featured on Forbes, Business Insider, CNBC, and US News. Earlier in my career, I worked as an investment banking analyst on Wall Street at JPMorgan Chase & Co., and I have an M.B.A. from Harvard University and a B.S.E. in finance from the Wharton School of the University of Pennsylvania.