The Ultimate Student Loan Hack for High Income Professionals

18

[Editor: How would it feel to totally dominate your student loans? Well, today’s guest post comes from Scotty Gadlin, M.D., a physician who did just that and tackled his student loan debt in under 5 years. I really appreciate what he’s done because it took creativity and some thinking outside the box (in a totally legal way.) For those with a large amount of debt, this might give you some great ideas. Take your time reading this, and I hope it inspires you like it did me. Also, feel free to check out my Student Loan Refi Page. Take it away Dr. Gadlin…]


Ok, I’ll admit it, I deep down want to be a hacker. I have very limited computer skills, but I am always looking for loopholes or other opportunities to better my financial well-being. Perhaps this began with the backdoor Roth IRA. It felt so cool to think that I was getting away with an unintended benefit. I then tried to find a better way to get rid of student loans, by “hacking them”. 

Student Loan Hack for High Income Professionals

I hate student loans!  

Once obtained, they provide no benefit and inhibit wealth accumulation and increased net worth. This article is intended to show you how you can save thousands of dollars by paying off your student loans early and creatively. I consider this my Ultimate Student Loan Hack. I will take you through my journey, and how I used this last year to really grind out my student loans, saving thousands of dollars.

Disclaimer: This is my story, it is not a recommendation or guarantee. Do your own research and see the “cons” list at the bottom. This is intended for new physicians and other high income professionals, however, you can use this information to make it work for any situation.

There is no magic secret, you have to save way more than you earn. After graduating medical school I had $300,000 in student loan debt. I made it a goal to pay it off in 5 years, however, I was able to do it earlier. Keep reading to see how…

Step One: (If you plan on not pursuing PSLF)

Refinance privately and for a lower interest rate, choose a 5-yr fixed or variable loan, your call. You will see your monthly estimated payment (for me it was around $4,200 per month). This is important because you need to plan around this number. It is important to start budgeting now – maybe you spend less on vacation, rent/mortgage, eating out, etc. I personally use mint.com for tracking spending and budgeting.

I initially signed up with Laurel Road (formerly known as DRB) and received a $300 bonus, I took a 3.5% 5-year fixed rate loan ($4,200 per month).

Step Two:

Make the monthly payments as scheduled, and other principal only payments if you desire for 1-4 years. I was able to direct bonuses from work to make principal only payments. After 2 years I was left with 85K on the loan. Once the loan is in double digits (<100k) and you believe you could pay off the loan in a year, move on to Step 3.

Step Three:

Refinance again! There is no cost to do it, the paperwork is fairly easy, and you will receive another bonus. You want to choose a variable 5-yr loan.

In essence, we are taking a loan with 1 year left on it, and refinancing it to a 5-year loan. We still are going to pay it back in 1 year, but now we will have a lower monthly payment (in my case, it went from $4,200/month down to $1,200 per month).

Because our time frame is really one year, it makes sense to take a variable rate for a lower initial interest rate. Chances are extremely likely that you will come out ahead over a fixed loan if the life of the loan is just one year. I was able to sign up at Lendkey – 5 yr variable for 2.5%.

Now we’re left with an additional 3k worth of cash flow we need to direct to the loan in order to pay it off in one year. We finally have the chance to apply the Ultimate Hack. Who will give us free money to encourage spending? Credit card companies of course. Let’s use credit cards to get cash back bonuses.  

Most bonuses require 3k-5k spending over 3 months, we can easily meet that demand in a single month. You can not pay student loans directly with a credit card. However, we can get around this with the Ultimate hack. Buy Gift of College Giftcards at Toys R Us, Babies R Us (update 3/22/18 no longer available due to nationwide closing RIP Geoffrey, hopefully more retail stores to come) or Fred’s Pharmacy. Load $500 on them for a $5.95 fee (1.19%). Redeem the cards to your online GOC account and GOC will send a check to your loan servicer usually takes 2-3 weeks to process.

Alternatively, you can buy $300 GOC gift cards online for the same 5.95 fee (1.98%, so not as good but couch-friendly).

Where to Start

1) It is a good idea to be organized prior to opening up a bunch of credit cards. Make a spreadsheet to organize your spending. Sign up for Credit Karma so you can monitor your credit. Note: once you have Chase, Amex, and others, they have services to provide you your credit score.

If you would like a copy of my spreadsheet template or have any questions, please email me at ultimatestudentloanhack@gmail.com

2) Start with Chase cards: Research the 5/24 rule – if you have already opened 5 cards of any type in 24 months, they will deny you. So let’s start with Chase. You want to look at bonuses and annual fees. For example, Chase Ink Preferred is 80,000 points ($800 if 1c per point) minus the $95 annual fee = $705 cash back. Chase Sapphire Preferred is also a good choice ($500 cash back), as well as Chase Ink Cash ($300 cash back).

3) Then move onto other credit cards. I personally prioritized them in the order of the largest bonus offer available. If you receive a statement credit as cash- back, this is fine as you can just buy additional GOC cards that will go to your student loan with the credit. Again, make sure to have a spreadsheet to keep track of everything. You will likely want to cancel or downgrade cards with annual fees 11 months or so after opening them.

4) If you have a spouse, open up the same cards for them and alternate months. Don’t be tempted to add them as authorized users, it is better for them to open a separate card as far as the sign-up bonus goes. Also on some cards, you can refer your spouse and will receive extra points for doing so.

Bonus points:

Consider selling points to a 3rd party broker to increase the value of $0.01 per point to $0.013 and up. This could end up being significant. For example, 200,000 Chase UR points = $2,000 from Chase vs. if you sold it @ $0.013 per point, that would = $2,600). However, do so at your own risk.

5) Obviously, pay off the credit cards in full each month. I set up auto payment to pay in full just in case. Never incur any interest penalty.

My Journey

(I have included Net Money gained below. This net amount includes expenses such as gift card fees and where appropriate, credit card annual fees.)

$300,000 debt → $85,000 over 2 years (7/2015-7/2017) with Laurel Road @ 3.5% (Net: $300 signup bonus)

Refinanced with LendKey for 2.5% variable and received a bonus (Net: $500 bonus)

Opened Chase Sapphire Preferred: (Net: $766.93). I sold points via 3rd party broker.

Opened Chase Ink Business Preferred: (Net: $1,017.83 + $275.89 for referring my wife) I sold points via 3rd party broker.

Opened Chase Ink Business Preferred (Wife): (Net: 1,017.83) I sold via 3rd party broker.

Opened Chase Ink Business Cash: (Net: $321.07)

Opened Citi Premier: (Net: $558.97I sold via 3rd party broker.

Opened Citi Premier (wife): (Net: $569.41) I sold via 3rd party broker

Opened Barclay Arrival: (Net: $398.53)  

Opened Barclay Arrival (wife): (Net: $433.50)

Opened Amex Premier Gold: (Net: $666.30)

Opened BB&T Spectrum: (Net: $1184.74)

Opened Chase Sapphire preferred(wife): (Net: $948.32)

Over a 6 month period, I made $8659.32.

Overall, I made 8,959.32 (including the Laurel Road bonus).

I look at it this way, the banks paid me almost $9,000 to pay off my student loans early.  I did this in 6 months, on $85,000 loan. Not even taking into account interest saved, my net worth ROI is:

Cons

There are some potential drawbacks to this strategy that I want to point out:

  • Takes some effort to keep up with all the accounts.
  • Buying gift cards can be awkward. You always can go the online route but returns will be slightly less optimized.
  • This may lower credit score marginally. Mine never dropped more than 15 points total and is actually improved from where I started. If you are planning for a mortgage or other loan/insurance, take that into consideration.
  • The instant gratification of seeing your balance become lower is delayed a few weeks.
  • Have to privately refinance student loans, takes away PSLF option.
  • Risk of having credit companies flagging your account. I experienced absolutely zero problems, but for good measure, I would mix in other purchases like gas and groceries, restaurants, internet bill, etc.
  • Using up bonuses on travel cards, if traveling is extremely important to you
  • Opportunity cost of not investing — Keep in mind you should still take advantage and fully max out your tax-privileged retirement accounts while paying off student loans.

If I could do it again, I might have performed Step 3 and re-refinanced my student loan earlier. I wanted to ensure I would be able to cash flow 5k in 3 months. I could basically do it in 1 month with my cash flow, and may have preferred to space it out. There were also more cards I could have gotten, so theoretically I could have earned more cash back.

Numbers

My journey: 2.5 years of payments

2015: $3,238.92 in interest
2016  $5,941.11 in interest
2017 $2313.18 in interest
——————————————–
Total Interest paid $11,493.21  

Interest Savings $167,856.10 (compared to 15 yr federal loan)

Interest Savings $15,958.20 (compared to 5 yr fixed @ 3.5%)

Plus $8,959.32 made off of using credit cards!

In net, I paid $2,533.89 in interest on a $300,000 student loan. I believe the effort is easily worth $9,000 in refunds (non-taxed income). I hope this inspires you to actively go after your student loans.

Best of luck in building your future, free of student loan debt!

If you would like a copy of my spreadsheet template, or any questions please email me at ultimatestudentloanhack@gmail.com

Interested in this strategy? Anybody else used some creativity to pay off your student loans early?

18 COMMENTS

  1. Thanks for publishing PIMD. I am happy to answer any questions or comments. I hope you found value out of the article and that it inspires you to pay off your student loans faster and more efficiently.

  2. “In net, I paid $2,533.89 in interest on a $300,000 student loan.”

    So, none of that initial 300k balance was interest that had accrued since you had taken out the loans prior to refinancing them?

    • I was wondering the same thing. Clearly, a chunk of that $300K was capitalized interest.

      Regardless, I love hearing stories like this about people who are paying attention and finding creative ways to make the financial system work for them.

      • See my reply to Ed, it was 300k after residency not medical school. Sorry for the error

        “Regardless, I love hearing stories like this about people who are paying attention and finding creative ways to make the financial system work for them.”
        -Exactly the point, thanks!!!!!!!

  3. How did you manage to pay $4,200 a month straight out of medical school? I’m a resident and that’s more than my monthly take home pay. I imagine you 1. Didn’t do residency straight out of medical school, 2. Actually started payments after residency, or 3. Had a spouse who supplemented your income. In any case, it would be good to note your circumstances so that others can set reasonable expectations.

    • ED, ZC
      You guys are correct it should of stated out of residency. That is my mistake as I wrote this for all high income professionals and sort of incorrectly chose medical school as I thought more people would understand that as opposed to residency. I will go back and correct it if possible.

      Payments started after residency when I refinanced after doing IBR during residency.

      Reasonable expectations are to get a substantial monetary benefit (in my case above $9,000) for making the decision to pay extra on your student loans. How much extra principal payments and how quickly will determine how much money in total interest you will save. My circumstances as a family we were making around 325-400k. We made the conscious decision to “live like residents” for a few years to really get aggressive with our debt payments. Using this strategy gave me the extra incentive to pay down debt, and increase my net worth as rapidly as possible. I had the guaranteed investment in interest savings, and got the added benefit of cashback rewards (see my net worth ROI). It was also kind of fun to do

  4. I want to cry seeing those Chase UR and Citi TY points being sold for 1-1.3 cents each. Otherwise great article and congratulations!

    • Thanks Nathan,
      I just don’t value traveling that much right now, and I valued having extra cash to accelerate the debt snowball. Certainly you can use this strategy to offset the cost of future travel, but I rather have cash in hand now than holding for an expense that is more than a few years on the horizon. Especially if I don’t plan to keep cards with an annual fee.

  5. SG,

    Thanks for the information Very creative!

    You must have chosen an area of the country with a relatively low cost of living. Can you comment on this selection and how you believe this played in your ability to keep living expenses low?

    Regards

    • Thanks for your comments.

      I live in a suburban area with relatively low cost of living. I choose to rent a 3 bedroom house for about 1100 a month. I made the majority of my meals to keep food costs low. I continued to drive my 2006 MDX which I bought for cash 4 years previous. If you take care of the two biggest costs housing and transportation, it is remarkable how much better your cash flow open up. The key is to know that your sacrifices for a short period of time will pay off exponentially in the future. Playing defense (decreasing expenses) can be just as if not more important than offense (income).

    • Good question Natasha,
      As I mentioned in the article my credit score never dropped more than 15 points. It actually increased as I have such a small credit usage ratio. Cards with no annual fee I will keep long term to increase my credit length history, and those with a fee that I will not continue I will call and try to change them to a no annual fee card (thus keeping the credit history time length).
      So to sum it up, I made thousands of dollars, my score improved, and I now get more and more offers from credit card companies for lucrative signups. If you are considering a mortgage or insurance changes you may want to take into account that you could have some dip in your credit score when beginning.

  6. Hello cool article, had no idea about selling points via a 3rd party broker. what sites do you recommend? Also a word of caution on federal loans at least, as of 2018 no gift cards are taken as they now scan as credit cards. However you can use a service like Plastiq for the same fee. Plastiq charges your card then cuts a check to the lender

  7. Stupid article because the net Positives from the CC opening are completely independent from the premise of the article.

    I.e. whether or not you had debt you could open those cards and get intro bonuses

    It would be like saying I won a lottery ticket or I worked 100 hours and got $X so my loan scheme is Ubergood when really those are two independent activities

LEAVE A REPLY