Hi all,
My wife and I just had our first child and she is staying home to take care of him at least for the first year, possibly more. She has a very large student loan balance from both undergrad and grad school, about $110K in total, all federal. The blended rate is about 6.5% and is not tax deductible at my income level (this also makes her inelgible for IBR). She was working part-time and making just enough to clear the monthly payments (about $1250). I'm taking responsibility for paying the loans while she's home with our child.
This year I've been in super saving overdrive. I've been maxing both our Roth IRAs and my 401k and 'staching about $3k per month in taxable as well. Our savings rate has been about 65%! I want to keep up with this because it's been
incredibly motivating watching these balances grow.
We own our home and have an unused HELOC in my name with available credit of $106K at a rate of 4.25% and would be tax deductible and so effectively 3% (25% federal, 10% state/city). I have been thinking of rolling the student loan balance onto the HELOC. However, this would pretty much require us to pay off the balance in about three years because we are planning on moving to a forever home in a better school district and would be using the home sale proceeds as down payment on the more expensive houses in the town we are targeting. By my calculations we should be able to pay off this balance in three and a half years by suspending taxable investment contributions, so it is feasible given our plans, at the expense of FI date.
So here's my question: Do we refinance student loan into the HELOC and pay if off as fast as possible or keep investing and pay the minimums?
Pros:
- Much lower interest rate, 3% vs 6.5%
- Gives us a concrete three year plan to kill this debt
- Guaranteed rate of return
- Psychological benefit of being debt-free sooner
Cons:
- Lose federal student loan protections
- I assume legal responsibility for the debt
- Delays FI date
Right now I am leaning towards leaving the loans where they are but the interest rate is obnoxiously high and the sheer size of it makes me uncomfortable. Mathematically I know that refinancing is the smart move, but there are so many question marks around it. I would appreciate any advice, thanks!