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A Breakdown Of How I Paid Off $87,000 Of Student Loans In 2.5 Years

One of the best things I did coming out of law school was to pay off my student loans as fast as I could.  Doing this gave me a ton of flexibility in the type of money I had to earn.  With my loans gone, I didn’t need to work in a job earning a certain amount of money, all so that a portion of it could go out the door to some student loan company.  And I could rest easy at night knowing that I didn’t have to keep paying for a piece of paper I had earned years ago!

Interestingly, even though I knew how much in student loans I had paid off, I had never actually looked at what I had paid over those 2.5 years.

I thought it might be an interesting trip down memory lane to see this information.  So a few weeks ago, I requested my payment history from my student loan servicing companies and took a look.

Background On My Student Loans

I ended up going to a law school that gave me a 50% scholarship.  This was a fairly smart move in my book. Other schools were much more expensive and would have put me into far more debt.  My goal was to keep my costs at a level that I thought was manageable.

While the scholarship did help to lower my school costs, it still cost a lot in both tuition and living expenses for me to make it through those three years of law school.

Here’s what my student loan balance looked like when I graduated in May 2013:

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As you can see, I had 8 different loans in varying amounts.  $25,000 of those loans had an interest rate of 7.9%.  The remainder were at a 6.8% interest rate.  All together, my total law school debt equaled $86,500.

I also had $552 in student loans remaining from my undergraduate days.  Luckily, I was fortunate enough to have parents that were able to spot most of the cost of college. And while I had paid back most of the few undergrad loans I had taken, for whatever reason, I hadn’t paid it all off in the years since I had graduated from college.  I just forgot about them basically.

Total Student Loans: $87,052

That’s a pretty decent amount of student loans for a 26-year old kid entering his first real job.  Let’s get started paying them off!

2013 – Trying to Figure Out What The Heck To Do With My Loans

I graduated law school in May 2013 and started my first job in September 2013.  Since I had just graduated, I wasn’t required to make my first student loan payment until December 2013.  I don’t really remember why I did it, but I happened to make a few extra payments before my loans officially came due.  Maybe I thought I should make a little progress on them.  This is what my 2013 payments looked like:

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Here’s one thing that sucks.  The vast majority of my student loans had been accruing interest for the three years I’d been in law school.  So, when I made that first, early student loan payment in August 2013, here’s what it looked like:

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Ouch!  The $750 payment didn’t even touch any of the principle!  You ever hear of throwing money away? That’s basically what this was.

My second payment of $750 on a different student loan did only slightly better.

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Nice!  A full $41 of my $750 payment hit the principal on that loan!

Stupidly though, I didn’t understand the concept of capitalization.  For those of you who don’t know what that is, basically, once your student loans go into repayment, all of the unpaid interest that accrued during the years you were in school gets added into your principal and becomes your new loan amount.

Remember that $750 payment I made on the one loan?  Here’s what that loan looked like once it capitalized:

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Do you see what just happened?  My $12,000 student loan suddenly became a $13,682 student loan!  Interest had been accruing on it during the three years I had been in law school, and once the loan entered repayment, the unpaid interest got tacked right onto the principal!  This was awful because now I had to pay back the capitalized interest AND all of the new interest that was accruing off it.  And it wasn’t the only loan that capitalized either.  I had three other loans that also capitalized, adding thousands to my principal.  Yeah…I was dumb.

2014 – My First (Real) Year of Repayment

I consider 2014 to be the first year I really started trying to pay my student loans.  I was making $110,000 in my first real job out of law school, so I had the income to make a big dent on it.  All I had to do was avoid that lawyer lifestyle trap that a lot of my colleagues fell into.

Here’s how the payments went in 2014:

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Wow!  I knew I had paid a lot into my loans, but never really realized it until I actually wrote it all down.  Here’s a nifty chart showing my payments:

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The thing that jumps out to me is that ridiculously, huge payment I made in October.  I had a fairly sizable emergency fund at that point.  My best guess is that I decided I didn’t need all of that money in cash and threw much of it into student loans.

You’re probably also wondering why my payments jump around and seem to differ a lot each month.  To be honest, a lot of this had to do with me randomly throwing down extra payments whenever I saw my bank account getting too big. I wanted to avoid getting complacent with my paycheck, so that’s why you see the random spikes and dips.

2015 – My Second Year of Repayment

I got a raise in 2015 and my income went up to $115,000.  Again, I had a good amount of income to work with here. Here’s what my 2015 payments looked like:

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It looks like 2015 started off great.  I pulled a bit more money from my emergency fund to start out of the year, which is why you see that really big spike early on.  I’m not exactly sure why I did that, but my best guess is that I’d been listening to a bunch of Dave Ramsey and got really motivated to get that loan balance down some more.  In any event, the money in my emergency fund wasn’t earning a ton, whereas paying down my debt was a guaranteed 6.8% return.

Here’s a sweet graph of my 2015 loan repayments:

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As you can see, my payments still jumped around in 2015.  I’d pay extra as I saw my bank account grow.

Another big thing I did was to use three-paycheck months to really toss a ton of money at my loans.  I was paid bi-weekly (as most people probably are), so twice a year, I’d see a month with three paychecks.  Since I was living fine on just two paychecks per month, I’d take the entire third paycheck and throw it all into my loans.

My Student Loan Refinancing Adventure

I discovered the world of personal finance podcasts starting around the end of 2014.  One company kept popping up in all of the ads – SoFi.  From my research, it made sense for me to refinance my loans.  I wasn’t trying to get public service loan forgiveness and I didn’t really need the federal repayment options, since I was aggressively paying off my loans. Ultimately, I ended up refinancing my loans with SoFi to a 4.3% interest rate in March, 2015.

Then, in May 2015, I went ahead and refinanced my loans again using another company called CommonBond.  This time, I opted to go with a variable interest rate that started at 1.93%.  A variable rate made sense for my situation. By this point in my debt payoff journey, I knew I was going to pay back my loans within the next 12 months or so.  Even if interest rates suddenly spiked, I’d still save money on interest.

I’m also a total weirdo and like experimenting with new FinTech companies, so in August, I went ahead and refinanced another $5,000 of my student loans with Earnest.  By doing this, I learned how Earnest’s platform worked and I snagged myself a $100 bonus and a free shirt!  Score!  (Okay, probably wasn’t worth the time, but again, I like tinkering and trying out new companies).

I like to say that I’m one of the few people out there who has actually used three of the major student loan refinancing companies out there.  I think they’re all fine companies.

If you are in a high income job and/or plan to pay off your student loans fast, then you should definitely refinance your student loans ASAP.  Don’t waste a year paying unnecessarily high interest rates like I did.  If you aren’t sure if you want to use any specific student loan refinancing company, then use a service like Credible, where you can compare interest rates and pick the company that is right for you.

2016 – My Final (Half) Year Of Repayment

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I started off 2016 with another raise, this time to $125,000 per year.  Again, a great income to pay off these loans fast, assuming I didn’t fall into the lawyer trap.

So what the heck happened here?  Why was I paying so little for those first 5 months and then suddenly dropping this huge bomb at the end?

I like to think of 2016 as a year of transition.  I was so close to the finish line and knew I was going to try to get out of that big law firm job as soon as possible.  The interest rate on my loans were also still crazy low.  Even with interest rate hikes, my variable rate was still in the 2% range, and never got higher than 2.17%.  Since my rates were so low, I decided that, just to be safe, instead of paying extra to my loans, I’d pay the extra to myself, just in case I needed the money if I quit my job.

Note the emphasis on “just in case.”  The key was that this money was ear marked for student loan payments or in case something drastic happened that resulted in me needing that money.  I didn’t spend that money on something else!

In June, I got myself a new gig with the state, and I decided to just go ahead and take all the cash I had on hand and wipe all the debt out.  That’s why you see that big $12,000+ payment in June.

How Much Did My Student Loans Cost?

Adding it all up, I paid a grand total of $102,899.51 towards my student loans between 2013 and 2016.  My $87,052 in student loans ended up costing me an extra $15,847.51.  That’s 15% of the total amount I had borrowed!  No wonder companies like loaning money!

Here’s what I find interesting.  By the end of 2015, I had paid $87,428.77 towards my student loans.  For those of you keeping score at home, I had paid back everything I had borrowed by that point.  And I still had to pay another $15,000!

Could I have made more money by investing this money instead of paying down my student loans.  Probably.  But, remember, personal finance is personal.  I valued the flexibility in knowing that a certain portion of my paycheck didn’t have to go out the door for money I borrowed a long time ago.  And it’s amazing to not have to think about one more bill each month.

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I don’t recommend committing robberies in order to pay off your student loans.

One caveat.  I know that the amounts I paid isn’t something that a lot of people can do.  There’s no secret to paying off student loans beyond spend less than you earn, and use the rest to pay off your loans.  This post shows you exactly what you need to pay if you want to do what I did.

If you’re struggling with a ton of debt and not enough income, then you need to figure out a way to raise your income. Pick up a side hustle if you need it.  Just don’t give up and think that you have no options.  There’s a huge world out there and you have more options than you think.

It was really interesting to see how much I actually paid to my student loans.  If you’ve never done this exercise before, I say give it a shot.  See how much you’ve paid on your loans.  I bet you’ll be surprised (and shocked) at the number you see.

22 Comments

  1. Great job killing those loans in short order! It’s great to have it paid off early on and get a more financially stable start!

    My husband and I had about $40,000 in student loans (a long time ago – we’re old). We had purchased a house, bought cars, and started a family before we even started to work on them. Hindsight is always better, I guess, but I wish we would have put the student loans as a priority sooner. At least they’re gone now!

    • Hey, at least you don’t have those loans anymore! Was really freeing to get rid of the student loans. I know a lot of people who are still stuck doing jobs they hate because they need the paycheck.

  2. An awesome achievement. I have a lot of friends who still complain about their student debt. But as you showed, if you want to get rid of it you just have to work towards that goal.

    I went the other route of paying them slowly and investing extra cash. But as you said personal finance is personal, and you are way ahead of the game any way you dice it.

    • It’s definitely another route I could have taken, and would have been nice to have an extra $100k invested. The main thing that makes me happy about paying off these loans is the freedom. I needed to work the miserable job and get the big paycheck in order to keep paying the loans. Without the loans, I’ve got a lot more flexibility. Not financially independent by any means, but sorta a different quasi type of independence, I suppose!

  3. Wow, I did not know about the interest beginning to compound in the repayment period and otherwise accruing essentially straight-line during the deferral period. That’s good to know. So if you start paying your student loans early, pick one loan and stick with that one. Especially if you can pick one with a fairly small balance that also has one of the higher interest rates.

    Nice work on the 50% scholarship! I chose my law school based on a 50% scholarship, too. My school had a merit-based system that allowed me to increase my scholarship based on class ranking in subsequent years. I busted my butt and ended up with a 60% scholarship in year 2 and 70% in year 3. That was freaking sweet.

    • Yep. The interest starts accruing right away for most student loans. When I was in school, they had federally subsidized loans where the feds paid off the interest for you, but they got rid of federally subsidized loans during my second year of law school. Since you have a ton of loans, you have thousands of dollars of accrued interest by the end of the 3 years. And then when you don’t pay them off before the loan is due for repayment, they just capitalize it and throw it right into the principal.

      And the scholarship was pretty important. Most lawyers today are graduating with six figures of student loan debt, so I came out relatively unscathed when you think about it.

      Did you manage to get out of law school with no debt?

  4. Great job, FP. Feels great not having to make that payment every month, eh? I personally can’t wait for that day to come. I’m about halfway through paying off my monstrous student loan debt.

    I also like that “just in case” move you pulled. It showed that you had not only the foresight to slightly alter your financial plan, but also the discipline to not spend that extra money on “nice things”.

    • It’s a terrific feeling. Really love knowing that my JD is all paid for. You’ve got crazy debt, but I’ll bet you’ll be through with it faster than you think. Keep track of your payments if you can. I’d really love to know how much you ended up paying for the MDs!

      And yeah, the “just in case” move was an interesting one. If the interest rate on your loans is low enough, I see some value in doing the “just in case” fund. Once you pay student loans, that money is gone forever, so you lose a bit of flexibility in that sense. If you keep a “just in case” fund, you can handle issues if something catastrophic comes up.

  5. That is awesome! It is nice to see that you were laser focused in paying your student debt off. I hear that SoFi helps with loan consolidation as well and have pretty good rates.

    • Another great thing with SoFi are the free dinners you get. In most cities, they do quarterly meet ups at fancy restaurants. I’ve been able to eat at some nice places because of that.

  6. Wow I love the detail! Obviously your focus and commitment came into play here. I also appreciate you pointing out that how much you earn absolutely comes into play. It drives me insane when people don’t mention that!

    • Glad you enjoyed it David! Exactly right, your income matters a ton! If you have six figures of student loan debt and are making 30k a year, you’ll never get anywhere, no matter what you do. The math just simply cannot work out. You need to figure out a way to get that income up.

      Generally, if you’re taking on a ton of student loan debt, you’re hopefully in a job that will earn the requisite income necessary to pay it off. If you took out a ton of debt for a job with no prospects, that’s another story for another day. But in the end, if you want to pay off student loans fast, you need the income to be able to make A LOT of payments. And then you need the discipline not to spend all of the income you’re bringing in. A lot of doctors, lawyers, dentists, etc – they don’t understand this and all of their income flies out the door.

  7. I loved following your journey. I was incredibly fortunate not to have any student loans but know many people struggle in this area. I think you hit the nail on head when you said you have to figure out various ways to pay off your debt if you aren’t making income. I know it’s not easy but living in debt isn’t easy either.

    • Thanks MSM. Glad you enjoyed the post. I think it was most helpful to see how much I actually had to pay in order to pay off my student loans that fast. When I thought about it, I thought I was paying way less than I actually did.

  8. This post is awesome! That $15k interest is crazy.

    I’m on the last leg of paying my $55k in Student Loans off. I currently have paid off $45k in 2.5 years making less than $50k gross annually. I will probably do what you did and reach out to the student loan companies for a transcript of all payments. I track my total payments in Mint but it would be interesting to see how much paid in interest vs principal.

    Just curious, How much did you keep your emergency fund during your loan repayment period? Also, did you invest in a 401k or similar retirement plan during this time?

    Currently, I’m investing in my companies match (6%) and have about two months expenses saved up because my focus has been debt payoff. If I continue at this rate, I will have about 4.5 months left until I’m done. However, as you were in 2015, I am thinking about changing jobs, and part of me feels like I need to beef up my emergency fund to 3-4 months at least but the other part of me just wants to pay off everything ASAP.

    • That’s awesome Gary. This was a great exercise. I totally underestimated what I had paid in my student loans. Turned out I had paid way more than I thought.

      I typically kept around $5,000 or so in emergency fund money. When I started out, I was trying to get my emergency fund up to around $18k, then realized I likely didn’t need that much cash and started pulling money out of there and towards my debt. In 2013, I didn’t invest anything in my 401(k). I wasn’t eligible to contribute. In 2014, I contributed the default contribution rate of 5% that my employer set. I didn’t know anything about how a 401(k) worked, and didn’t really understand where that money was going. In 2015, I upped my contribution rate to 10%. Then in 2016, I set it to 15% or so to put me on pace to max it out for the year. My employer offered no match.

      I took a bit of a calculated risk as well by keeping my emergency fund low while I was in the midst of a job change. One potential solution is to do a “just in case” type fund. If you have a decent interest rate on your loans, then instead of paying off your loans, you could just pay the extra to yourself and save it in a high yield savings account. At some point, you’ll have enough in your savings to just wipe off the debt in one fell swoop, if you want. And if something comes up, you’ll still have that money, “just in case” you need it.

  9. Wow that’s a great achievement, congratulations! One thing that I do wonder is how you were able to score raises, if you don’t mind me asking 🙂 I’m a newly graduate and entering the workforce for the first time and always wondered how people have scored raises.

    • Thanks Finance Solver! So in the law firm world, raises are actually automatic for the first few years. We’re in what’s called “lockstep” compensation. Basically, everyone starts out making the same amount of money the first year, and moves up the exact same amount each year. So I didn’t really have to do anything to get my raises other than to not get fired.

  10. WOW refinancing three times! I actually like to try out companies too just because I’m a fintech nerd. I paid off my debt prior to refinancing but I’m thinking about taking some of my parent’s debt into my name through Sofi. Congrats on crushing your debt! You’re killing it!

    • Thanks Julie! I’m a totally fintech nerd too and I am also one of these schemer type people who’s always trying to snag free stuff. All of these companies offered money for refinancing with them, so I couldn’t resist. And as a benefit, I have first hand experience with each of these companies now. A downside is that you get a hard credit inquiry. It didn’t really hurt my credit score, but credit junkies will tell you it’s not good to let that happen. I wasn’t smart enough to think about that when I refinanced three times.

      And you should totally figure out some way to get a refinance through SoFi! They hold quarterly dinners at fancy restaurants, so I’ve been able to snag free dinners with Ms. FP four times a year. It’s awesome! We’ve got one scheduled for next month.

  11. You gave those loans a smackdown! Great job, and great job on breaking it down.
    I know the extra $15K hurt. But what if you kept the loans another 5 years only making minimum payments and then decided to pay off the total in one shot. Any idea what that would look like?

    • Really liked smacking down those student loans! It felt awesome, and I was surprised to see how much I had been putting into them each month. If you had asked me, I thought I was paying much less each month.

      That’s an interesting question you ask and I really am not sure how to do the math on it. So my minimum payments at the beginning of 2016 wouldn’t have allowed me to keep the loans another 5 years. When I refinanced my loans, my minimum payment dropped down to around $554 per month. I had already paid so much of it off that, even paying just minimum payments, the loans would’ve been gone in a year and a half.

      If I had instead taken the remaining balance and refinanced it to a smaller amount, let’s see what it’d look like for a 5 year period. Assuming around the same interest rate of 2.17% (note that this was variable, so it would go up eventually), I’d only pay a minimum payment of $264 per month. A tiny amount really in the long run. My total interest I’d pay would only be around $850 or so. Again, a really small amount. So I guess my answer is, I have no idea.

      In retrospect, I probably could have refinanced my loans again and then just started throwing some extra into investments, leaving the student loans around to linger. The only thing putting a snag in this plan was my desire to get a different job – one that would force me to take a paycut. There’s a lot of ways to play around with debt, but just for my own personal reasons, I wanted to get rid of it. Makes me feel like I got what I needed from my JD.

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