Author Topic: Student Loan Refinance - Help me decide on total amount.  (Read 1384 times)

therethere

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Student Loan Refinance - Help me decide on total amount.
« on: April 19, 2016, 04:33:37 PM »
I just received approval for a student loan refinance today from Earnest. Where was this 9 years ago?! The sliding payment and rate calculator is killing me though. Its overwhelming me with too many options.

As for what's left on Student Loans.
270/month  - 19750 - Private Loan - Current at 3.53% variable. **Initially this was the target loan to refinance since it was variable anyway.
135/month - 14000 - Federal Loans - 4.125% fixed
170/month - DH (not considered for refinance) - 18000 - 4.825% fixed

Since the beginning of last year, instead of paying extra directly towards the loans I have been contributing to a brokerage account earmarked for loan payoff. When the account contributions equaled the balance left on the loans, I was going to consider them paid and go crazy (really I can't imagine life without the suffocating anxiety of loans and loan repayment so I likely will go crazy). Right now, if I could scrounge up $600 and make minimum payments this will be accomplished at YE2016. I was not planning to actually use the money in the brokerage account to pay off the loans directly, but rather let it grow and continue to pay the minimum payments of 577/month until the loans were actually paid off (estimate YE2024). Thus, leaving me with no loans and ~80k in a brokerage account.

The private loan was the target for the refinance since it was variable anyway. Initially I was thinking to just do that one and make the payment the same as it is and just accept the lower rate (quoted 2.38% for these exact terms). But then the math side of me comes out and starts thinking of the possibilities. Mainly, choosing a minimum that gives me a rate equal to what I have now, but ~150 less of a payment. I think I've already decided against the lower payment option even though it seems contradictory to my plan of optimizing rates and earnings.

Where it gets tricky is adding in my federal loan with the same payments ($400 total) would give me a rate of 2.59% var. Having huge loan balances in 2007-2009 that were variable and tied to  LIBOR with rates of 8+% has me wondering if I should be giving away the security of the fixed rate on the federal loan. I expect sometime within the 7 years the rates will raise enough that it will be higher than the fixed rate I have now. Part of me says yes, you'll have the money to pay it off if it surpasses the magic 5% number so no worries. Part of me says I should keep it simple just do the one loan. And another part of me says, screw this complicated plan and just pay off the damn loans already!

Any advice on the 10,000x options I put out there?
--> Mainly I'm looking for your thoughts on moving my federal loans away from a fixed rate to a variable rate within the context of the plan outlined.

-->Secondly, am I making this way too freaking complicated and should I just payoff the damn loans and get them out of my life? Is the extra money I'm saving/earning worth it?

***UPDATE*** Just went with in-kind refinance of the private loan with the same payment. I can't think about this anymore!*****
« Last Edit: April 20, 2016, 09:41:05 AM by therethere »

Sibley

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Re: Student Loan Refinance - Help me decide on total amount.
« Reply #1 on: April 20, 2016, 09:15:29 AM »
Yeah, that was complicated and my brain refused to take it all in.

My advice - take that brokerage account and use it pay off the highest interest loan(s). Refinance the rest if it'll get you a lower rate, then pay them off. You are seriously over complicating things. Full disclosure: I like my finances to be simple and straightforward.

Oh, when you go crazy because you paid them off - set a max amount you're willing to spend to celebrate (like $50 or $100) and go crazy with that. Plenty of free/inexpensive things you can do to stretch out your going crazy time. :)

therethere

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Re: Student Loan Refinance - Help me decide on total amount.
« Reply #2 on: April 20, 2016, 09:40:09 AM »
Yeah I tend to overcomplicate things just a tad... The rational side of me needs to have everything completely optimized with no uncertainty. But then there is this nagging emotional part of me in the back of my brain that I just try to ignore which tells me to pay stuff off! My finances have been overly complicated for the past 10 years in schemes to lessen the interest paid on these loans. Think balance transfers, sometimes daily payments, risk reduction, credit card rewards, etc. Seriously its been a long road this is 50k remaining but we started with over 240k so its a HUGE deal. I crave simplicity but at the same time feel extremely guilty if its not optimized since I have a lot of lost time to catch up on.

This bothered me all night. First thing at work this morning I just went the simple way and refinanced the private variable loan in-kind with the same payment. Too many other options to wrap my head around with the uncertainty of how much the LIBOR will raise over the next 5 years. Oh well not optimized. Telling myself it is still okay.

« Last Edit: April 20, 2016, 09:42:45 AM by therethere »

Sibley

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Re: Student Loan Refinance - Help me decide on total amount.
« Reply #3 on: April 20, 2016, 10:19:23 AM »
Good, you've simplified some. Now, the best way to lower the interest you paid is to not need to pay it at all. Once the refi has gone through, take your brokerage account or whatever extra cash you have that's dedicated to SL debt and make a big payment.

I'm guessing you have an amortization schedule? If not, find one. They're pretty easy to make in excel if you how they work. Specifically, you need to tell both the logical and emotional sides that if you make a lump sum payment now, you are permanently reducing the amount of interest you'll pay. Make a payment of $1000 now? Look at what that does to future interest charges. Change it to $5k - what does that do? Spoilers - it lowers it. Don't wipe out our EF to do this, but whatever you've got saved up that will go towards SL debt - use it.

Also, it's ok to pay attention to your emotions. Obviously, you still want to analyze things, but we are not machines. Emotions are part of us and we can't change that. Work on the emotional side of things, I bet it'll make life a little better overall for you. (this bothered you all night... you crave simplicity but feel guilty...) Maybe you started with 240k, great you're down to 50k! So, you're going to refi to a lower rate (hopefully), that will help with interest a little.

What happened in the past is done, you can't undo or change it, all you can do is learn from it and try to improve in the future.