Understanding Student Loan Refinancing | What Would You Do?


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.

The Assignment

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.

About Me

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.

I have 3 credit cards (2 of which I turned off) 1 is active for ‘emergencies’ because I don’t have any money saved after moving. However, this card is almost maxed out now.

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

Monthly Payment
Total Paid (principal + interest)
Option #1
3.10% Variable
5 Years (60 Months)
Option #2
4.2% Variable
10 Years (120 Months)
Option #3
5.15% Variable
20 Years(240 Months)
Option #4
3.7% Fixed
5 Years (60 Months)
Option #5
10 Years (120 Months)
Option #6
5.75% Fixed
20 Years(240 Months)

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

CompanyVariable APRFixed APR 
should I refinance my student loans2.39-6.01%3.19-5.99%Get My Rate
should I refinance my student loans1.99-5.64%2.98-5.79%Get My Rate
Should I Refinance My Student Loans1.99-6.09%2.99-6.09%Get My Rate
Should I Refinance My Student Loans1.99-6.10%3.00-6.20%Get My Rate
Should I Refinance My Student Loans2.99-6.06%2.99-5.99%Get My Rate
Should I Refinance My Student Loans1.99-5.25%2.99-7.75%Get My Rate

8 thoughts on “Understanding Student Loan Refinancing | What Would You Do?”

  1. I am assuming that she wants to refinance and is willing to forgo the protections of the federal loan.

    Initially, I would never choose any of the variable rate options. The projected savings as compared to the corresponding fixed rate term is negligible, so it’s not worth gambling on interest rate fluctuations.

    Of the fixed rate options, #5 is the best overall for her. She’d be paying less per month than she does currently at a lower interest rate, and can use those savings to help pay off her other ~$14,500 in debt. She can always throw more money at the student loan once the other debt is cleared.

    Alternatively, another reasonable option is doing #6 in the short term to free up more money to pay off the other debt even faster. However, I would suggest that she look into re-refinancing after that other debt is paid off.

  2. I would advise her to choose option #5, as it is generally a safer approach to go with a fixed-rate (variable can rise unexpectedly). Although option #4 is another fixed-rate approach that would allow her to pay off the debt faster and with less overall interest, it has a higher monthly payment. That money can go towards Sarah’s other, much more expensive debt. She has a high-interest loan of $1,350 and a combined credit card debt of $6,300. That debt and loan and likely have much higher interest rates than her student loan debt. It is in her best interest to pay off that higher interest debt faster, so she should take the fixed-rate option with a lower monthly payment. That way she will be able to use the extra money to pay off her more expensive debt.

  3. I would advise her to take Option #5. She has other debts at extremely high rates. She has three credit cards, one credit loan, and one low interest personal loan. It is in her best interest to pay off the highest debts first.
    Option #5 does have the highest total payment, but it also has the lowest monthly payment. This will allow her to manage her money and pay off some of the immediate high interest debts.
    Option #5 also has a fixed rate which is key over that long of a time. It is hard to predict how prices will change so having a fixed rate is important.

  4. I would advise her to choose option number 5. She has other debts that probably have higher interest rates that she should pay off first so, if she does option 5 she would have more money to contribute to those debts.

  5. I would advise her to choose option number 5. When paying off debts, it’s important to pay off debts with a higher interest rate first. This is the key to saving money in the long term. Option number 5 does have a high overall ticket price, but it’s over a low fixed rate and her monthly payments would be low. This will give her some flexibility with which she can pay off her more urgent high interest debts first.

  6. To minimize the total amount of interests she pays on her loans, she should pay back the highest interest loans first as quickly as possible while paying the minimum for the rest. Thus, depending on the interest rates on her credit card and credit loan, I would advise her to choose either option #5 or #6 because they give the most room (out of the fixed-rate options) to pay back the high-interest debt more quickly. If these high interest rates are really high enough, option #6 might make the most sense, but more calculations would be necessary to determine this. I would not advise a variable rate option because these are fairly long term loans, and it is risky to be subject to variable rates across a long period of time.

  7. I would advise her to choose option #5. Not only is the interest rate fixed, but the monthly payments are also reasonable, especially compared to the monthly payments option #4, which I think would be her best option if she had no other debts. However, since she does have other debts, some of which may even have higher interest rates (such are her credit loans), I think the monthly payments for option #5 will give her the flexibility to pay those debts off while also paying off her student loans at a good rate.

  8. I think that she should consider either option 2 or option 5. These options not only allow her to focus on first repaying her higher-interest loans (i.e. credit loans), but also do not take up too much of the $430 net income she has every month after taking out expenses. Depending on the cycle of the economy, it may be more viable to pick option 5 due to locking in the fixed interest rate, as opposed to dealing with a possibly rising variable interest rate, which would cause her to pay even more on interest. At the same time, having the repayment period over 10 years as opposed to 20 years prevents her from having to pay much more in interest, and decreases the mental impact from having the debt in the long run.


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