Student Loans, Interest Rates, Refinancing Options

[thurston howell iv]

A few months ago I realized that the time for repayment had come upon DW and I. I knew we had amassed a huge debt but it had not really sunk in. Now that I know we can refinance, I'm trying to get the best bang for the buck and am seriously considering the 5 year variable. Some banks are offering rates as low as 1.9%. However, my concern is that the economic climate these days is iffy and I fear that the interest rates might climb and put us back in the same boat.

So, I figured I'd put up a little poll and see what others thought of this situation.  My goal is to be finished with the repayments within 2.5-3.5 years.

Clarification: low rates like 1.9% are advertised for short term variable.
The longer term fixed get upwards of 6%... Most of the stuff lands in the 3.9- 4.5% range.

[forummm]

I voted based on not having the interest rates you were quoted.

Get a fixed 10 year and don't pay it off early. Invest the extra repayment dollars instead. You will almost certainly be able to beat your student loan interest rate (minus tax deduction) with the market returns.

[KCM5]

Is 1.9% the rate for a fixed ten year?

If so, I second the fixed ten year and pay the minimums.

[churchill]

Having looked into this myself, the 1.9% is definitely for the variable rate. Even if the rates were to bump up a few percent in the near future (unlikely) you'd be fine given that you're intending to pay down within 3-4 years. Interest rates will not jump overnight, nor will it be by much. My rule of thumb is that if you get a low enough fixed rate at or under whatever fix rate mortgages are going for then it's not worth paying off too early, except for psychological purposes.

http://www.nerdwallet.com/blog/refinance-consolidate-student-loans/ has plenty of good resources for lenders.

[thurston howell iv]

I've talked to Sofi and Common Bond, IIRC they can adjust their variable rates on a monthly basis.
DRB adjusts quarterly.

[midweststache]

When we do refinance, we'll request a 10 year fixed. I like the security of knowing my monthly payment, and our balance is large enough that we couldn't do a 5-year term with the flexibility in our budget that we'd like (i.e. a low standard monthly payment, but the ability to throw LOTS extra at the balance when available).

Even if it's a 4-5% interest rate, that's infinitely better than the 7.125% we're at now, and we'll be able to more aggressively pay off extra principle (and pay off the loan well before the 10 year period).

[TrulyStashin]

I faced this question recently and did a variable for 10 years for the following reasons:

1)  I owe a LOT of money (law school) and could not afford the 5 year variable payments.
2)  There is a cap on the total possible interest rate that could be charged -- even in a worst case scenario, my interest rate would go no higher than 7.9% and I was already paying 7.6%.   

My goal is to pay it off much sooner than 10 years.  Next year, I may refinance again with SoFi to switch from the 10-year variable to the 5-year variable.  We'll see....

[thurston howell iv]

The current cap on variable is like 9% IIRC.

As for the debt load, trust me it's huge. I would dare to say, it is one of the largest on this forum...
DW's rates are from 5% to 6.8% so the refi need is desperate and necessary.

My debt load is huge too but much more manageable at 2.75% (I locked in some time ago)

So, right now the focus is on deciding which way to go. I liked the idea of 10 years repayment as a just-in-case fallback but I think the 5 year keeps me on a tight leash. My plan is 2-3 years or thereabouts so we will be throwing everything we have at it.  I just didn't want to get all glassy-eyed with the 1.9% variable and then get whacked in three months with a 5% because of something the Fed did.

My understanding, limited as it may be, is that the fed has no plans to hike rates any time soon.

Can anyone give any more insight on this?

[Sibley]

Things to consider before refinancing:

--Possibility of forgiveness (public service, etc)
--Current types of debt
--Amount of debt
--Current interest rates
--How long you think you'll need to pay it off
--Offered interest rates
--Number of loans you have

I recently refi'ed with Sofi. I picked 5 year variable, because I plan on paying it off by end of 2016. My risk because it's a variable rate is limited as a result. If it was going to take me longer, I would have gone with fixed rate.

If you have a list of 15 different loans with different rates, then it might make sense to pay off certain ones outside of consolidation (federal or otherwise) because the rate/amount is small enough.

If you have an opportunity to get the balance forgiven after x years, then don't screw that up. My sister has $150k in loans. She'll be going on a income based payment plan, then after however many years the whole thing will be forgiven due to whatever program.

The decision of when, how and where to refinance student loans is not black and white. You need to carefully consider your options and do what makes the most sense given your specific situation.

[Hoberto]

I recently refinanced $186k with DRB.  I chose 5yr variable because I was starry eyed about the 2.483% rate.  My credit score is 820s so I was surprised I didn't get a lower rate.  Turns out that my debt-to-income ratio hurt my offer. 

[thurston howell iv]

Yeah, we found out about the DTI issue as well so I held off and sold a house, reduced the loan balance, and paid the CC. No more debt except the student loan. 800+ credit score. Hope the lower rate is on the table this time.

[anneinpdx]

Just a heads up not to get too excited about the lowest advertised rate.  I just attempted a refi with DRB.  Had my husband cosign as I work part time and he makes the majority of our income.  I planned to refi my last remaining student loan.  Currently is 24k at 4.5% which isn't horrible but the idea of a sub-2 rate was appealing.  Plan was to pay off rapidly if rates rise and over 5 years if they stay low.  However despite 150k in gross income and both of us with >800 credit scores we were only offered 2.7% variable.  No non-mortgage debt and ~200k in home equity.  Not sure what the underwriting qualifications are for the lowest rate but they appear to be quite stringent. 

[ingrownstudentloans]

I refinanced with a certain company a year and a half ago.  When I sent them my information/documentation for the application they said that they needed a different form and sent me an example in word.  When I opened the word document I realized that there were white text boxes left over the other dude's information including name, address, amount owed, etc...  I promptly called and asked to speak to a manager and had a discussion about their organization, whether I could trust them with my info etc...  After a few days of negotiating, I was able to get a 10 year variable loan for over $70k at the advertised 1.91%.  They had originally qualified me for closer to 4% with the same terms despite my high credit score.  I doubt they have ever given the advertised rate before that.

Moral of the story, you can negotiate the rate they give you.  But you may not be able to negotiate that much without a mistake on their part.

[little_brown_dog]

we are looking into refinancing my federal loans (43,000 at 6.8%) with a 10year fixed interest rate. i figure if i can get anything between 4- 5% its a strong win compared to keeping the loans where they are currently.  for the reasons mentioned by pp, i'm hesitant to go with the variable rate and like the security of the fixed.

[kpd905]

I refinanced with Sofi and chose the 5 year variable.  I plan to have them paid off in about two years or so.  My rate dropped from 6.55% to about 4%.  So while it could increase, there is a cap on the increase that is pretty close to whatmy rate was in the first place.

If you want to know what the refinance process is like, I wrote a thread about it here: http://forum.mrmoneymustache.com/reader-recommendations/my-experience-refinancing-student-loans-with-sofi/

[thurston howell iv]

I've been reading all I can on the refi options.

I've spoken with sofi but their sales pitch is too "pitchy"- like they're trying to sell me something - and when I asked about rate negotiability, they claimed it was impossible.

I've spoke with Common Bond and they seem a little in line with what I want but their requirements were quite stringent as well. I think best offer was somewhere around 4.5% including the .25% "discount" for auto pay.

I plan on talking to DRB as well to see what they can do.

If anyone has other thoughts please post up.

[TrulyStashin]

Just as an FYI, SoFi ties its variable rate to the 1-month LIBOR, which is aligned with the European economy.   Since I refi'd in December, 2014, my initial rate has gone DOWN.

[thurston howell iv]

I recently sold a house that was on a 5/1 ARM. It went variable around the same time the property values put us under water (2007/2008).  I was concerned about it going through the roof but that never happened. The payment seemed to go lower and lower every year.

My fear, however, is now that the market seems to be doing better, there has been chatter about rates going up as they can't stay so low forever. So, while it is entirely possible that they don't go up in the next few years, I try to plan for the worst case scenario and if I can squeeze an extra% or two of savings on this insane debt, I'd like to try it. I just don't want to get a face punch within the next year and have the rate shoot to 9% and be in a worse position than I am now.

My understanding is that an initial refi and be refi'd again at a later date but, what is the banks incentive to give you a better rate if they've got you over a barrel at 9%? 

I'm just trying to flesh out all the possible scenarios so that whatever happens is not a surprise.

[Hoberto]

Just as an FYI, SoFi ties its variable rate to the 1-month LIBOR, which is aligned with the European economy.   Since I refi'd in December, 2014, my initial rate has gone DOWN.

DRB does this as well, except it is the 3-month LIBOR instead.


As far as if the rate were to climb significantly, I will just work on getting it refinanced again.