I thought it was smart to refinance higher-interest debt with my student loan. Here’s what I learned about good vs. bad debt.

When I graduated in 2006, I had about $7,000 in federal student loan debt, all of it accumulated over my last summer in college. I’d been lucky until then—my parents had a college savings account for me that footed the bill through two semesters at a private university, two years at community college, and finally the state university where I finished my Bachelor’s degree.

But through my own lack of initiative, plus the lack of communication from my advisor, I reached the end of what was supposed to be my last semester still six credits shy of my degree requirement. I had also exhausted the college savings account.

I didn’t think much about the terms of the student loans I took out to pay for summer school. One was subsidized and one wasn’t—that’s all I knew. I needed to finish college and this was the means of doing so. I also had friends who were in much worse positions, with parents who couldn’t or wouldn’t pay their tuition bills. So I went to the financial aid office, signed for my loans, and went on with my life.

Three years later I started my first semester in a Creative Writing graduate program. Since I didn’t have one of the coveted teaching scholarships, I was trying to pay my way through by taking fewer credits and working part-time in the Registrar’s Office. By then, I’d made some progress on paying off my undergraduate debt, but now that I was a full-time student again, it was in deferment and I didn’t bother making the interest payments. Now, I find myself wishing that I had known about refinancing my student loans through loan marketplaces like Credible

In my second year of graduate school, I received a partial tuition scholarship and could’ve finished my MFA with very little added to my previous student loan balance. Instead, I made my biggest financial mistake.

I thought student loans were “good debt”

My Biggest Financial Mistake: That Time When I Refinanced $20k In Credit Card Debt With A Student Loan - I thought student loans were “good debt”

After talking to dozens of people about their student loan debt for my article on this national crisis, the one thing I wish I could tell every high school student is this:

There is nothing good about student loan debt. In fact, it may be one of the worst kinds of debt because it’s virtually impossible to get rid of.  

But I didn’t know this back in 2010 when I decided to take out the maximum federal graduate student loan limit in order to “refinance” about $20,000 in credit card debt. 

My reasoning was simple: student loan debt had a much lower interest rate than credit card debt.

What I didn’t realize was that a student loan debt balance can balloon just as quickly and perniciously as a revolving credit card balance.

Refinancing your debt doesn’t mean you paid it off

When I was 18, I got my first credit card with a $500 limit and promptly maxed it out at the mall. My mom offered to help me pay off the balance if I cut up the card and didn’t get another one. I kept that promise through my early twenties and developed strong negative feelings about credit card debt in general. 

When I met my husband and learned of his own credit card debt, I wanted to get rid of it as quickly as possible. Unfortunately, refinancing credit card debt into a student loan is not the same thing as paying it off. I may have felt satisfied, but in the end, all I’d done was move the debt around – to a lower interest rate, sure, but it was still there. And I hadn’t addressed the patterns and habits that caused the debt in the first place.

What happens when you can’t afford your student loan payments?

My Biggest Financial Mistake: That Time When I Refinanced $20k In Credit Card Debt With A Student Loan - What happens when you can’t afford your student loan payments?

Research shows that optimism can have a negative effect on finances. For example,

“Americans tend to believe in their future progress and success, and think they will have higher income in the future then they do now,” according to Psychology Today.

This was certainly true for me, as I envisioned getting a full-time college teaching job after grad school. Instead, I fell into the purgatory of adjuncting, never cracking $30,000 on my annual tax return.

This didn’t matter that much before I became pregnant, since my husband had a full-time job with health insurance. But when I had to take time off to have the baby, and our expenses increased with the new addition to our family.

I put my student loan debt, now consolidated through fedloan into one monthly payment of about $500-$600, into forbearance. When I started working again and could afford to make the payments, the unpaid interest had capitalized into the loan balance and my monthly minimum payment was higher.

I’d been making student loan payments on and off for eight years but my balance was higher than what I’d started with. In the meantime, I’d racked up some credit card debt again to cover the difference between our income and expenses.


Last fall I was able to pay off my remaining student loan balance of about $36,000 thanks to the sale of our first house. Without that bit of luck, I’d still be plugging away at it, making monthly payments of about $800, nearly a rent or mortgage payment.

I’m living within my means and saving money for the future. Now, when I hear people talking about doing what I did—using graduate school loans to refinance higher-interest debt—it’s all I can do not to scream “don’t do it.”

If you can’t pay your mortgage, you can sell your house. If you can’t make your credit card payments, you can file for bankruptcy. But student loans, like marriage, are til death do us part. The only way around that kind of debt is through it.

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About the author

Elizabeth Spencer
Total Articles: 34
Elizabeth Helen Spencer is a personal finance and travel writer based in the Philadelphia area. She holds an MFA in Creative Writing and still nurses a secret fiction writing habit on the side. When not writing for work or pleasure, she loves to sweat it out in a hot yoga class and find new books to read. Elizabeth lives with her husband and two children and has reached the conclusion that "having it all" is a myth.