it’s hard to overstate how valuable it is to keep your personal burn rate low. it probably 10x’s interesting opportunities available to you.
— Sam Altman (@sama) August 15, 2014
Founders do lots of things to save money and lower their personal burn rates. We’ve seen founders rent out their apartments on Airbnb, sell their cars, do consulting work, or even take on night jobs as drivers. However, before you go to such extremes, you should consider trying to save money on your student loan payments.
Credible, a Founders Network company, which helps graduates refinance their student loans, recently revealed to us that the average graduate who has refinanced with them saves over $11,000. That’s an astounding number given that the process takes less than 30 minutes of your personal time.
With that in mind, we asked Credible Founder Stephen Dash if he would give us some tips just for founders about how to manage and refinance your student loans. Here are the six tips that they thought were most important.
Pick a goal: to maximize long term or short-term savings
Lowering your monthly payment as much as possible could mean opting for a longer term (15-25 year) refinancing option while picking the shortest possible term (or even prepaying your loans) will get you a lower possible rate and save you interest payments. If you’re bootstrapping, it can’t hurt to look into elongating your payments with a longer-term option as you can always refinance again back to a shorter-term option after you’re on more sound financial footing.
Refinance when your income is high
If you have a relatively high income at the moment as the result or your job or some other income source, it’s worth looking into refinancing ASAP. Your debt to income ratio is one of the key factors lenders consider, so you’re a better candidate when you’re eating gourmet lunches at Twitter rather than eating ramen on your couch.
Refinance when interest rates are low
The rates offered by lender directly correspond to market interest rates so you’ll usually get better offers when interest rates are low (like NOW!).
Rates and terms offered by different lenders in the student loan refinancing space vary significantly from lender to lender. Find out which lenders offer the best rates for the loan types (fixed vs. variable interest rates or short loan term vs. long loan terms) that you are most interested in. Also, apply to at least two lenders, as each lender’s underwriting model is different. (Shameless plug: a shortcut for this part of the process is to use Credible. We are free and similar to Kayak for student loan refinancing – showing you personalized offers from multiple lenders. Tell your friends!).
Consider adding a cosigner
If you’ve just taken a massive pay cut to start a company, consider adding a cosigner with strong credit as you can increase your chances of getting a low interest rate or reducing your monthly repayment. You can always have that cosigner removed later when your income is higher.
Don’t try to refinance without a salary
If you just quit your job or have little or no income, wait until you have an income again as most lenders won’t refinance anyone making less than $20,000. (If you have a cosigner with a strong financial profile, some might consider you.)
In closing, refinancing your student loans is an easy way for many founders to find savings. If you have questions about specifics, email Credible as they see tens of thousands of borrowers every month. Their email is firstname.lastname@example.org and of course, they’ll give FN members the white glove treatment!