Author Topic: Student Loan Refi Question  (Read 2116 times)

baffi

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Student Loan Refi Question
« on: July 22, 2015, 07:57:46 AM »
My sister is refinancing her husband's student loans and asked me for advice.  I'm not sure the best way to do it and hoped someone might have some advice.

Loans are currently broken up into 13 separate loans, totaling a balance of about 84k.  Most of the balance is currently at 6.8% interest.  A few of the smaller loan balances are at 4.25%.  She is using Darian Rowayton for refi b/c they gave her the best rates.

She plans to pay the loans off in 5 years but they only qualified for a 10 year and she has the choice between a fixed rate at 5.5% and a variable rate in which their starting rate will be 3.78% and varies based on LIBOR with a cap at 9%.  Their gross combined income is about 130k.  She wants to use the variable rate.  Does anyone have ideas on which choice is the better choice for them (working on the assumption that they won't pay it off faster than 5 years and that it will likely take them 5-6 years to pay it off).

MDM

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Re: Student Loan Refi Question
« Reply #1 on: July 22, 2015, 10:33:47 AM »
My sister is refinancing her husband's student loans and asked me for advice.  I'm not sure the best way to do it and hoped someone might have some advice.

Loans are currently broken up into 13 separate loans, totaling a balance of about 84k.  Most of the balance is currently at 6.8% interest.  A few of the smaller loan balances are at 4.25%.  She is using Darian Rowayton for refi b/c they gave her the best rates.
Has she tried Sofi?  No first hand experience but others here have reported good results.

Has she entered the loans into http://www.vertex42.com/Calculators/debt-reduction-calculator.html or similar, in order to calculate interest costs under various repayment strategies?

Quote
She plans to pay the loans off in 5 years but they only qualified for a 10 year and she has the choice between a fixed rate at 5.5% and a variable rate in which their starting rate will be 3.78% and varies based on LIBOR with a cap at 9%.  Their gross combined income is about 130k.  She wants to use the variable rate.  Does anyone have ideas on which choice is the better choice for them (working on the assumption that they won't pay it off faster than 5 years and that it will likely take them 5-6 years to pay it off).
The answer to that depends on what interest rates do.  Your guess is as good as mine.

ingrownstudentloans

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Re: Student Loan Refi Question
« Reply #2 on: July 22, 2015, 11:31:46 AM »
I went through this about a year and a half ago when I refi'd with SoFi.  I went variable because it was (same as your sister's husband's scenario) about 2% less.  My thinking was if I could get a few years at the lower rate before it crept up to the fixed rate then I would have won.  Even if it goes above the fixed in a few years, it is still lower than what you were paying before so it is still a win, especially because you will have hopefully chipped a significant amount off the principle by then. 

Maybe the rates will shoot up next week, I don't know, but I was willing to roll the dice then and probably still would roll the dice now.  I don't see the Fed raising the rate significantly before the end of Obama's presidency which buys you another year and a half (i know fed rate vs LIBOR...etc...but they are still somewhat tied together if not officially).

Sibley

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Re: Student Loan Refi Question
« Reply #3 on: July 22, 2015, 11:40:12 AM »
I refi'ed with Sofi earlier this year to a 5 year variable. I went with variable because I'm planning on paying it off by end of 2016.

The interest rate has gone up a little bit (0.01% I think) since then.

My parents just refi'ed their Plus loans to SoFi, they did fixed rate. I've taken over payment of "my" loan from them.

baffi

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Re: Student Loan Refi Question
« Reply #4 on: July 22, 2015, 11:52:14 AM »
Sofi is one of the ones she tried.  She definitely thought their application process was more streamlined but DR offered the better rates. That calculator looks like it would be really useful if she were keeping all the loans separate and making a plan of attack but she's definitely decided to consolidate and refinance them. 

To me it seems like a gamble either way with the fixed or variable since we can't predict future interest rates or LIBOR. 9% as a cap seems really high especially since it's higher than the not-great rate they already have on most of them.  But if it did shoot up, maybe that would push them to tackle it faster.  Or maybe just the idea that it could shoot up would be an incentive to hurry up to pay it off as fast as they feel like they can.  If I had a loan at 9% (or 7 or 8%) I'd pull money from stock investments to tackle it so I guess this is an option they would also have if it came to it (I think they've roughly got 30k in non-retirement stocks so they couldn't tackle the whole balance as it stands now).

Blonde Lawyer

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Re: Student Loan Refi Question
« Reply #5 on: July 22, 2015, 12:46:04 PM »
I went with fixed since I can't predict the future.

asiljoy

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Re: Student Loan Refi Question
« Reply #6 on: July 22, 2015, 01:29:21 PM »
My thinking was if I could get a few years at the lower rate before it crept up to the fixed rate then I would have won. 

This is why I went variable. I'm also with Sofi.