Refi student loans vs making extra payments

[LizFK]

I'm trying to get some clarification here.  Is there a difference in total costs between refinancing a student loan and making additional payments/bulk payments over the life of the loan?

I was under the impression that even if you make extra payments, you are still paying the same additional interest on the original consolidated loan, and that by refinancing, the total amount of interest paid is lower.  I would rather refi to 4% or 4.5% (for 7 or 10 years respectively) with a similar interest rate that we have now and higher monthly payments and then make additional payments when able (bonuses, tax refunds, etc).  My husband wants to keep the consolidated loans at 4.65% for 30 years and just make higher payments towards that loan. 

Please help explain the total costs of the interest in both situations.  Thank you.

[RWD]

There's no reason why you can't do both. With the same monthly payment the lower interest loan will be paid off sooner.

Some example numbers (assuming $10k student loan starting balance, scale appropriately):

4%, $137/month. Paid off in ~7 years. $1434 total interest paid.
4.5%, $137/month. Paid off in ~7.2 years. $1655 total interest paid.
4.65%, $137/month. Paid off in ~7.2 years. $1723 total interest paid.
4.65%, $52/month. Paid off in ~29.3 years. $8232 total interest paid.

Insert your own numbers into unbury.us if you want to experiment for yourself.

I personally wouldn't bother refinancing from 4.65% to 4.5% unless you have a very high balance. Not enough difference if you're aggressively paying it down. Refinancing to 4% could make a bigger difference.

[LizFK]

The balance is $250,000.  Do you consider it worth it?  Sofi numbers say that a 10 year at 4.5 saves $118,243 from what we are currently paying, and a 7 year saves $143,172.

[RWD]

Wow, that's a huge balance. You should definitely refinance to the lowest rate possible.

[Lady SA]

Tell your husband that extra payments do not negate the interest added to the loan. Interest is calculated with the rate * principle. At the massive principle amounts you're talking, a few extra payments make almost zero impact to the amount of interest you pay. But if you can significantly lower your rate, that actually does make a difference.

Yearly interest:
250k * 6% = $15k
248k * 6% = $14,880k (lowering your principle a tad only lowers your yearly interest paid by like $120)
compared with -
250k * 4% = $10k (a HUGE reduction from $15k paid YEARLY - you save $5k PER YEAR)

Do the best of both worlds. Check out Sofi or Earnest (link in my sig) and get the lowest possible rate, AND apply extra payments toward that refi'd loan.

edit: I swear I read the OP like 3 times but still missed that your current rate was 4.65%, so ignore the math above. If you get a refinance offer of 4.5, meh. I'd seriously consider if it got down to around 4 or lower, though. It all depends on how stable and high-paying your jobs are. If you can afford the higher/more payments now and are confident you will be able to continue that for the foreseeable future, you can still save a few thousand by refinancing for a lower rate.
My DH and I had $150k in student loans and stable jobs. We refinanced to lower rates (some just a bit lower than originally but we still jumped on it) and shorter terms because we knew we could afford the payments. If our jobs had been less stable, we might not have done it as aggressively.

[SimpleCycle]

So your current rate is already 4.65%?  If so, you're talking about a .65% interest rate reduction, or $1625ish a year.  It is worth it to do both, but only if you are ABSOLUTELY sure you can handle the higher payments the refi would lock you into.  Basically you're trading a slightly lower interest rate for flexibility.

[Blonde Lawyer]

I did both.  I did the refi with Sofi (story in my sig) and made lots of extra payments.  I paid off $70k in 2 years after my refi.  The lower interest rate was key to me being able to do that.

[KungfuRabbit]

That's a misleading number. If our are cutting interest from 4.6 to 4.5 percent you don't save $100,000. It's cutting the term from 30 yrs to 10 years that is saving 98% of that.  "Saving" is also debatable, if you get into the age old debate of investing vs paying off debt (especially if your income allows you to deduct the interest from taxes).

I am of the debt free mind set, though do regret one decision I made.  When deciding between a 15 year and 10 mortgage (who would even consider a 30...) I went with a 10 because it had 0.125% less interest. That savings is a few hundred $$ / year, but leaves me with an extremely high monthly payment. I'd rather have a lower payment in case times go tough, but then pay extra when times are good.  O well, two years down and times are good so far  :)