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:
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:
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:
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.
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:
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:
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:
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:
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:
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
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.
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.