Author Topic: Should I refinance my student loan?  (Read 1737 times)

djballer

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Should I refinance my student loan?
« on: December 17, 2016, 07:25:51 PM »
I recently refinanced a huge chunk of my student loans to 2.37% [2% margin + 1 month Libor]. The rate reflects a direct deposit discount of 0.25%. The bank I am refinanced with offers a 3.99% fixed rate, which I qualify for. I know interest rates are going up the next few years. My balance is 118k and I've paid 52k in the last 12 months. At this rate, I should have a manageable balance if interest rates jump up. My only investments are 401k (maxed out) and ROTH IRA (maxed out). 

cincystache

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Re: Should I refinance my student loan?
« Reply #1 on: December 18, 2016, 11:53:21 AM »
Paying 52,000 per year (awesome job btw!) makes this kind of a wash. You'll be done in ~ 27 months either way. If you plan to slow down your repayment I would probably get the fixed rate.

When you say a "huge chunk", does that mean you have more student loans than this? If that is the case, depending on the interest rates of your other debts, you might consider locking in a 4% rate for a longer term and throw the 52,000 per year at the other higher interest debt.

Great job maxing out 401k and IRA as well.
« Last Edit: December 18, 2016, 11:55:02 AM by cincystache »

GetItRight

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Re: Should I refinance my student loan?
« Reply #2 on: December 18, 2016, 04:17:36 PM »
Your estimated time to repayment is important. If you plan to put around $52k/yr toward it then don't bother, you're as optimized as you're likely to get. If interest rates rise (a sign of a healthy economy) it won't make much difference on that rapid of a repayment plan. Personally I will not be maxing my retirement accounts until my student loans are paid off, but I value the flexibility and freedom of no debt over that. Kudos to you for sticking it to the government by minimizing your taxes though, I'd like to do that but can't justify the lower student loan payments currently. In any event, your choices are very commendable. Keep up the good work with paying this off.

khangaroo

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Re: Should I refinance my student loan?
« Reply #3 on: December 18, 2016, 09:17:38 PM »
Similar to what GetItRight mentioned, have you thought about holding off on your 401(k) and Roth IRA until you pay off the debt? That's another $20k+ that could be going to debt payments and I'm sure you could knock it out in <2 years. My opinion is fueled by Dave Ramsey as his principles are the basis of my financial foundation. Here's how I handled my student loan debt and maybe you can gain some insight from it.

I had $59k in student loans and I paid it off in 1 year. Things got really rolling when I decided to stop my 401k contributions even though I was losing that sweet ass company match but I had a laser beam focus of getting debt-free so bye bye 5%. As for my Roth, that was a different story. So I got debt-free right before the contribution deadline and there was no way I was going to generate $5,500 in a few weeks to maximize the account; I only had $1,000 in savings. I didn't want to lose on the one year of contributions so I went against Dave Ramsey and took out a $5,500 loan from LightStream to max my Roth IRA and then paid it off in 3 months.

Sorry that the response strayed from if you should refinance your loan or not but from your numbers you should be able to pay your student loans off in 2 years then you don't even need to worry about interest rates.

dcozad999

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Re: Should I refinance my student loan?
« Reply #4 on: December 19, 2016, 07:41:37 AM »
You should never, ever, ever, miss the company match on your 401k.

It is an immediate 100% return on your money.

I liked Dave Ramsey's program, but that is one of the dumbest things he ever suggested.

GetItRight

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Re: Should I refinance my student loan?
« Reply #5 on: December 19, 2016, 07:40:21 PM »
I'll add that while I don't max my 401k I do contribute enough to get the match. I was tempted to drop it previously but you can't beat the ROI.

spicykissa

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Re: Should I refinance my student loan?
« Reply #6 on: December 19, 2016, 09:29:35 PM »
I would not refinance to the fixed rate. When went back to school in 2013, I was advised by many people to get a fixed rate student loan because "rates are about to go up!". Well, I paid off my 100k+ in loans last month, and I think rates have been raised exactly once since then--I still would have come out ahead with the variable rate on my short payoff time line. You have the added hassle of more paperwork to switch it. Don't bother--just keep paying it off quickly!