Author Topic: Should I re-refinance my student loans  (Read 1872 times)

OneCoolCat

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Should I re-refinance my student loans
« on: December 20, 2015, 06:43:48 AM »
With the Fed raising interest rates slowly and the consensus that this trend will likely continue through all four quarters of 2016, I'm left to question whether I should refinance my loans from 3.8% adjustable to 5% fixed.  In the alternative, I could try to pay my loans off in two years (40k).  Thoughts?

AlwaysLearningToSave

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Re: Should I re-refinance my student loans
« Reply #1 on: December 20, 2015, 07:44:00 AM »
I would pay them down aggressively without refinancing. Take advantage of the low interest rates while they are here. I doubt that the fed is going to raise rates very fast. There is a good chance you would have a relatively low account balance by the time your variable rate goes above 5%.

When we refinanced loans recently I eventually acquiesced to my wife who adamantly wanted the security of a fixed rate. But we still came away from the refinance with a significantly lower interest rate. You would be refinancing to pay MORE interest NOW in hopes of avoiding the uncertain risk that you might have to pay more later. You already assessed the risk once and committed to the gamble of the variable rate. Don't get spooked and change course just because of the fed lifting off.

Of course this is all my opinion and only hindsight can tell us which decision will ultimately be proven "correct."

OneCoolCat

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Re: Should I re-refinance my student loans
« Reply #2 on: December 20, 2015, 11:57:26 AM »
I would pay them down aggressively without refinancing. Take advantage of the low interest rates while they are here. I doubt that the fed is going to raise rates very fast. There is a good chance you would have a relatively low account balance by the time your variable rate goes above 5%.

When we refinanced loans recently I eventually acquiesced to my wife who adamantly wanted the security of a fixed rate. But we still came away from the refinance with a significantly lower interest rate. You would be refinancing to pay MORE interest NOW in hopes of avoiding the uncertain risk that you might have to pay more later. You already assessed the risk once and committed to the gamble of the variable rate. Don't get spooked and change course just because of the fed lifting off.

Of course this is all my opinion and only hindsight can tell us which decision will ultimately be proven "correct."

You're right, I should aggressively pay it down.  I calculated and it will probably take me closer to three years to pay off my loans if I continue to max my 401k, HSA, and IRA.  My current APR is set at a fixed rate plus the 1-month LIBOR index.  I'm not greatly familiar with how the LIBOR index is calculated but should I expect my rate will go up .25% this quarter?

AlwaysLearningToSave

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Re: Should I re-refinance my student loans
« Reply #3 on: December 20, 2015, 01:19:00 PM »
I would pay them down aggressively without refinancing. Take advantage of the low interest rates while they are here. I doubt that the fed is going to raise rates very fast. There is a good chance you would have a relatively low account balance by the time your variable rate goes above 5%.

When we refinanced loans recently I eventually acquiesced to my wife who adamantly wanted the security of a fixed rate. But we still came away from the refinance with a significantly lower interest rate. You would be refinancing to pay MORE interest NOW in hopes of avoiding the uncertain risk that you might have to pay more later. You already assessed the risk once and committed to the gamble of the variable rate. Don't get spooked and change course just because of the fed lifting off.

Of course this is all my opinion and only hindsight can tell us which decision will ultimately be proven "correct."

You're right, I should aggressively pay it down.  I calculated and it will probably take me closer to three years to pay off my loans if I continue to max my 401k, HSA, and IRA.  My current APR is set at a fixed rate plus the 1-month LIBOR index.  I'm not greatly familiar with how the LIBOR index is calculated but should I expect my rate will go up .25% this quarter?

If you are able to pay off your 40k in loans in around three years while also maxing those retirement accounts, then I'd say do that. Just flex your frugality muscles and get the balance as low as you can as fast as you can while the interest rates are still low. If the interest rates climb significantly, you may need to reconsider whether savings takes precedence over debt repayment. Hopefully by the time the calculus changes, your SL balance will be low enough that you can redirect the money you would otherwise be saving toward the loans and kill them in a short period of time.

I also don't know much about indexed interest rates... Perhaps another member does. My only observation is that with as slow and cautious as the fed was in lifting off, I have a hard time believing interest rates will climb very quickly

The Happy Philosopher

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Re: Should I re-refinance my student loans
« Reply #4 on: December 20, 2015, 01:23:36 PM »
One of the most informative discussions I have heard on student loans is on the Radical Personal Finance podcast. Don't remember all the details, but if I had student loans and was looking to refinance I would give it a listen. There is another podcast earlier in the year - same interviewee and topic you could find by searching the site.

http://radicalpersonalfinance.com/258-do-you-have-student-loans-heres-what-you-need-to-do-interview-with-attorney-jay-fleischman-host-of-the-student-loan-show/

Lanthiriel

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Re: Should I re-refinance my student loans
« Reply #5 on: December 20, 2015, 01:35:37 PM »
I would pay them down aggressively without refinancing. Take advantage of the low interest rates while they are here. I doubt that the fed is going to raise rates very fast. There is a good chance you would have a relatively low account balance by the time your variable rate goes above 5%.

When we refinanced loans recently I eventually acquiesced to my wife who adamantly wanted the security of a fixed rate. But we still came away from the refinance with a significantly lower interest rate. You would be refinancing to pay MORE interest NOW in hopes of avoiding the uncertain risk that you might have to pay more later. You already assessed the risk once and committed to the gamble of the variable rate. Don't get spooked and change course just because of the fed lifting off.

Of course this is all my opinion and only hindsight can tell us which decision will ultimately be proven "correct."

You're right, I should aggressively pay it down.  I calculated and it will probably take me closer to three years to pay off my loans if I continue to max my 401k, HSA, and IRA.  My current APR is set at a fixed rate plus the 1-month LIBOR index.  I'm not greatly familiar with how the LIBOR index is calculated but should I expect my rate will go up .25% this quarter?

Are you putting money into a Traditional IRA or a Roth? We decided to forego the Roth (we make too much to get a tax benefit from the traditional) because we figured we'd take our guaranteed return in the student loans over potential market gains given the lack of tax advantage. Just something to think about.