Pay Off or Refi Student Loans? Recent refi experiences?

[Kayad]

I'm ~7 years through a standard 10 year loan repayment track.  I haven't refinanced (rates are 6.5-7.6%!) or accelerated payments due to the requirements of a generous repayment assistance program through my alma mater.  As my income has increased, however, I've phased out of eligibility for that program (good problem to have!) and on Jan 1 I'll lose eligibility.  At that point, loan balance will be 22k. 

I had been saving up to just kill the loans on Jan 1.  I'm in position to do it.  It will pretty much deplete our emergency fund, but our jobs are stable (gov employees) and our cash flow is good, so I'm not worried.  I set up a HELOC as a backup for any short term cash flow problems, and we could always cash out investments if push came to shove.

But... reading someone else's case study, it occurred to me that it is a better financial decision to refinance with SoFi/Earnest.   Supposedly I could get rates in the low 3%.  It would have to be a 5 year term, but I could accelerate payments.  Doing that would, for example, let us max our Roths this year (401ks are already maxed).

Question 1:  I know this is kind of a "how much do you hate your debt" question (and I do hate these student loans), but I'm interested in people's thoughts and if I'm overlooking any important considerations.

Question 2:  Has anyone refinanced student loans recently?  How was your experience?  Did your final rates match the rates from your soft pull?  I see that Earnest was bought out by Navient, which is a terrible company.  And when you dig a little bit, negative reviews of almost every one of these companies abound.  My experiences with incompetent loan servicers is part of why I was so excited to hammer in the stake.

Thanks for your thoughts!

[LightStache]

I'm in a similar boat to you @Kayad with $54k in loans that I could now pay off due to sale of a rental property. Literally yesterday morning I was approved for First Republic's sweet 1.95% deal, but I won't sign until next week. My plan is to pay the minimum and then pay the remaining balance in month 47 to get the 2% ($1000) back.

Even if you get a rate in the 3-4% range, the investment order (praise be) would still point you to refinance and max your Roth IRA. But there's a more important emotional consideration. What maximizes your happiness, having your student loan debt at 0 or optimizing your financial plan?

For me it's a balance. When I run my long term financial plan, it's optimal to keep my current 25 year, 6% repayment. That's because alternative uses of the money return more than 6%. But it makes me unhappy to think about paying those loans for so long. A 48 mo, 1.95% payoff is still not optimal, but balances my emotional desire to get the loans paid off.

[SquashingDebt]

I refinanced with SoFi and then again with Citizen's (that one was about 1.3 years ago), and both were shockingly easy.  A few online forms and a few phone calls.

[frugaliknowit]

Pay it off.  In real life, the concept of having debt to stay more invested doesn't appropriately weight the risk involved. 

A ~6% guaranteed return (by paying off the debt) is FABULOUS!  30 year govt bonds don't even pay 4%.  Muni bond funds pay ~2% or so...!

[Dicey]

Pay it off.  In real life, the concept of having debt to stay more invested doesn't appropriately weight the risk involved. 

A ~6% guaranteed return (by paying off the debt) is FABULOUS!  30 year govt bonds don't even pay 4%.  Muni bond funds pay ~2% or so...!

Dunno, losing out on the Roth could cost way more in the long run.

[ShoulderThingThatGoesUp]

Well, the Roths will only take $11,000 so the rest should go to the debt.

Edited to remove unneeded apostrophe

[outdoorsyfreedom]

I have refinanced my student loans twice, most recently was earlier this year with Lendkey to 3.15%. The process was very easy and quick. The rate was what I was told with the pre-approval.  I think it really depends on how important it is to you to max out your Roth this year. Your balance seems pretty manageable based on the fact that you have the money to pay it off. So if you refinanace so you can contribute to your Roth, how fast can you pay it with accelerated payments? Less than a year? Then maxing out your Roth and refinancing may be worth it. Personally, I’d pay off the loans and start the year fresh without them and without the mental stress they bring me.

[Bean05]

May I ask if you’re the student, and if you’re still in school?

I had a Parent Plus loan for my daughter, and once she was done with school no one would talk to me about a refi. I didn’t get it.

[peggster]

Others have given you great feedback about whether to refinance, but I wanted to address your question about refi experiences. I refinanced my student loans from grad school just about a year ago, when I was paying 6.8% interest. I looked at just about every company I could find info about. I saw an awful lot of recommendations for SoFi, but the rate they offered me was nowhere close to what their website talked about - I think the final offer was around 5-5.5% fixed. I'm still not sure why it was so much higher than what others were reporting or what SoFi claimed to offer on their website. My credit is pretty good (800+ FICO at the time), so I don't think it was that. I suspect it may have been my line of work: I'm a CPA, so not law/med/tech. I ended up going with PenFed, which offered a fixed rate of 3.5%, and the refi process was pretty seamless.

Good luck!

[therethere]

I would max out the Roth IRA's and refinance the loan. Then depending on the new rate and the stress/uneasiness loans gives you I would consider just keeping them around while paying minimums until it's paid off (likely 5 years to get the refi best rate). Invest the annual excess (above maxing the IRAs and 401ks) into a brokerage fund.

[Annie101]

Pay it off.  In real life, the concept of having debt to stay more invested doesn't appropriately weight the risk involved. 

A ~6% guaranteed return (by paying off the debt) is FABULOUS!  30 year govt bonds don't even pay 4%.  Muni bond funds pay ~2% or so...!

I second this!

[frugaliknowit]

Pay it off.  In real life, the concept of having debt to stay more invested doesn't appropriately weight the risk involved. 

A ~6% guaranteed return (by paying off the debt) is FABULOUS!  30 year govt bonds don't even pay 4%.  Muni bond funds pay ~2% or so...!

I second this!

You've had these loans for OVER 7 years.  Haven't you had enough?

[therethere]

Pay it off.  In real life, the concept of having debt to stay more invested doesn't appropriately weight the risk involved. 

I second this!

Do you have data to back this up? I put all my "extra" student loan payments into VTSAX in a brokerage fund. After 4 years I'm ahead over 12k in stock gains compared to paying off my loans at the bottom of the recent market drop. That is after subtracting out the extra interest paid on my loans by only paying the minimum. If you refinance under 5%, and have no problems with cash flow, it's the mathematically correct answer. Now, if the monthly student loan payments cause cashflow problems for you it's not a great idea. Or if you are mentally more motivated to payoff the loan then go for it. But otherwise I don't see why you wouldn't do it. I would almost argue there is LESS risk doing it this way. I can cashout my brokerage account and pay off my loans in full if I ever get sick of them. Or if I have a dire emergency and need cash. You can't ask for you extra student loan payments back from the loan company.

I have had no issues with the Earnest to Navient turnover. Most of the complaints about Navient are issues with income based repayment and subsidized interest forgiveness type stuff. If your on a standard repayment and just sending extra payments you won't have any issue. I've had Navient since 2007 and have paid off over 80k of loans through them with absolute zero issues. I even sent daily and weekly payments for awhile and none were misapplied or missed. 

[Lady SA]

I think that there is zero harm in exploring refinancing. The only downside is a very temporary credit score ding for the pull, but unless you are planning on a major house purchase in the next few years, its nothing to concern yourself over.

So poke around. If you get a lower offer, I would take it, and then you have bought yourself the time/flexibility to decide how you want to best pay off the loans. You can ALWAYS pay off your loans in full, whether it is Jan 1, a few months after that, or a few years after that. But I suggest exploring if there is a way you can extend your time and be able to use your money for investment opportunities that you would otherwise miss out on (IRA contributions for the year is nothing to sneeze at). This of course is contingent on your confidence that you would invest your money instead of frittering it away!

I don't know how recent of stories you are looking for, but I refinanced my loans through Earnest 3 years ago. They have been a dream to work with. Zero complaints. I got a fixed rate of under 5%, which tipped the scales towards investing instead of paying them off. Now, we have built enough assets to pay off the loans many times over, and I am content to continue this way. I know that if the day ever comes that I can't stand having debt, I can wipe them out in a few hours. But I don't NEED to yet.

I will say that my rate did change only slightly between the initial quote and the actual real pull. The first is just a pretty good guestimate, but the pull gives them actual data and information about you to base on. So I would expect the end rate to change a bit. But the quote was pretty close to the end rate so I didn't mind.

Like I said - you won't hurt anything by seeing if you can find a better rate... you are keeping your financial options open. You don't have to take the refinance offer if it doesn't suit you, and you have a good fall back option of wiping them out next month. You're in good shape either way you slice it. You just have to decide whether you want to optimize for the math or for the feeling of debt freedom. I personally went for the math and am *really* glad for it now, 3 years on.

[Kayad]

Thanks to everyone for their input and ideas!

I ended up splitting the baby (seems to be my decisionmaking and risk tolerance sweet spot).  I maxed out our Roths for 2018, paid off 5k of the student loans and refinanced the rest of the loans.  Unfortunately, I don't live where I can take advantage of that great First Republic refi.  I went with Earnest, where I have a sub 3% rate (though variable) on their shortest term loan (5 years).  The plan is to max out tax advantaged accounts and then roll everything else to the SL, should be free in <2 years.

Best refi bonuses I found were here at www.studentloanplanner.com/refinance-student-loans/ .  $400 for Earnest, for instance.

I was looking forward to making a "share your badassity" post after I paid the loans off in one fell swoop.  I'll make a more modest share here:  This is the first year we have maxed out both 401ks & Roths.  And then, still had enough to pour 5k into SLs.  This in a year where we had a baby (including a short trip to NICU), bought a new (used) car in cash, and had a rental turn into a year long cash suck.  We are pretty mediocre mustachians on the frugality front, but we are crushing it on the income front.  Pretty happy with our progress!

[LightStache]

Congrats! Balanced decisions aren't the most exciting, but I think your decision was really smart. Keep crushing it!

[Dicey]

Hooray!