Author Topic: Refinancing Student Loans  (Read 2958 times)

OneCoolCat

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Refinancing Student Loans
« on: January 31, 2015, 07:20:38 PM »
I currently have >47,500 in student loans at around 6.2% fixed rate interest.   I applied to Sofi and got approved for a fixed rate of 5.325% for a 5 year repayment.  I wasn't too excited about this rate and was really hoping for something closer to 4% so that I could comfortably make minimum payments and invest in my 401k or IRA.  I called sofi and they told me I was approved for a variable rate at 4.05% for either a 5 or 10 year repayment plan.  Should I take the variable 10 year plan or is the risk of interest rates going up a big concern?  I was leaning towards just taking the 4% variable rate (will be 3.80% after I set up direct deposit) with the 10 year repayment plan but I thought I could get other advise here as well.  I don't want to get a co-signer. 

Is it possible to negotiate with sofi for a lower rate?

kpd905

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Re: Refinancing Student Loans
« Reply #1 on: February 01, 2015, 07:33:10 AM »
I went with a five year variable plan for the lower rate, but I do plan to pay them off in under 2 years.  So even if the rates jumped, it wouldn't matter very much.

The rate they give you depends on your credit score and your debt to income ratio, so I think you could try for a better rate again in 6 months or a year when the balance drops.

OneCoolCat

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Re: Refinancing Student Loans
« Reply #2 on: February 01, 2015, 01:31:41 PM »
Got a formal offer:  Current rate will be 3.85% + 1-month LIBOR (currently .17%) which comes out to 4.045%.  With the autopay incentive it will be at 3.795%.  Rates have a ceiling of just under 9%, which is scary.  Unless someone talks me out of it, I will be accepting this tomorrow.  My plan is to make minimum payments each month ($480.00 at current rate), max out my 401k, max out my IRA, and invest the rest in a taxable account (if there is anything left).  If rates go up, I will aggressive pay off the student loans early. 

My purpose in refinancing is that I think its better to pay off my loans over a longer period of time while aggressively investing my remaining income, but getting a lower interest rate is essential to make this worthwhile.
« Last Edit: February 01, 2015, 01:35:06 PM by OneCoolCat »

kpd905

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Re: Refinancing Student Loans
« Reply #3 on: February 01, 2015, 06:25:37 PM »
3.79% is solid, especially if you can deduct interest at your income level.  And as long as you have a bunch of money in a taxable account in case rates jump, I think you're in good shape.  I chose to pay mine aggressively even after my new rate of 4.17%, but it was a tough choice between that and maxing out all the tax advantaged accounts possible.

OneCoolCat

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Re: Refinancing Student Loans
« Reply #4 on: February 01, 2015, 07:26:25 PM »
3.79% is solid, especially if you can deduct interest at your income level.  And as long as you have a bunch of money in a taxable account in case rates jump, I think you're in good shape.  I chose to pay mine aggressively even after my new rate of 4.17%, but it was a tough choice between that and maxing out all the tax advantaged accounts possible.

Did you sign up for a 5 or 10 year plan?  I take you are saving a pretty penny by aggressively tackling your loans even after refinancing?

Sofi says there are no prepayment penalties, but they word their disclosure oddly.  My docs read, "If you pay the loan off early, you will not have to pay a penalty.  You will not be entitled to a refund of part of the finance charge."  The finance charge is the interest I will pay over the course of 10-years.  Wouldn't this be reduced if I elect to pay my loans off over the course of three years instead?

PencilThinMustache

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Re: Refinancing Student Loans
« Reply #5 on: February 02, 2015, 08:26:09 AM »
This is a personal decision.  I refi'd with sofi a few months back (June 2014) and took the fixed rate ~4% instead of variable ~3%.  In the end, its not gonna matter for me b/c I got a raise and threw every penny at it and will pay off 86k refi in less than a year...so the extra I will have paid in interest is negligible. 

I would only plan to "bleed it out" over 5-10 years if your income allows you to deduct the taxable interest (I paid 35k in taxable interest in 2014 and couldn't deduct a penny!).  Using your excess income to "invest on the margin" is a risky move.  Think of every dollar paid towards loans as a "guaranteed return" equal to your interest rate.  What other return guarantees 3-4 percent? 

good luck