Student Loan Refinancing

formerlyGDaisy09 · February 2015

between H and myself we have a total of 9 student loans we pay every month with a minimum payment total of $821.41. we owe a total of $52,921 and our interest rates vary from 6.55%-1.33%.

There is a program through citizen's bank for refinancing loans, there are no fees for refinancing, the only down sides I see are that we'd loose eligibility for federal hardship programs (I don't forsee us needing those) and our whole payment would be due at the same time, while now payments are spread out over the month. I'm thinking this is a good idea...but i feel like i'm missing something.

here are details on our loans (Pinciple (interest rate) monthly payment):

Me:

Stafford1: $3,280.39 (5.8%) $56.59

Stafford2: $3,085.36 (6.55%) $60.40

Stafford3: $3,382.22 (5.75%) $61.08

Perkins: $5,562.62 (5.00%) $95.33

H:

Stafford1: $1,399.26 (5.8%) $30.33

SallieMae1: $15,721.41 (5.25%) $227.74

SallieMae2: $15,291.45 (3.75%) $211.10

SallieMae3: $4,031.66 (3.75%) $55.65

Stafford2: $1,166.68 (1.33%) $23.19 **this one would not be refinanced

What we need to decide between are a 5 year term or a 10 year term and a fixed rate versus variable rate.

5 year-Fixed- refinance just loans with interest over 5%, lowers our interest rate on those to 4.99%(we both have FICO scores in the 775-800 range)- does not change monthly payments

5 Year-Variable- interest rates starting rate would likely be around 2.8%, changes with the market...it says the maximum rate is the greater of 21% or the prime rate plus 9% (I'm not sure what this means). this would not lower our monthly out of pocket, but could potentially lower the interest on all 8 loans we're considering refinancing.

The interest rates on variable versus fixed are the same for the 10 year term, but the fixed rate lowers our monthly minimum payment by $187 and the variable rate could lower it by up to $308, there are no penalties for paying the loan off early, so we could make payments greater than the minumum, but this would open our monthly budget up just a little bit.

whatever way we go, we're planning to add $100 to our snowball once my raise goes through and $190 once we finish the basement and can drop PMI from our mortgage...I think we'll have this $52K taken care of in the next 4 years...I just can't figure the best way to do it.

formerlyGDaisy09 · February 2015

I don't know all the details on H's loans, but I believe that the 5 year option shortens the amount of time (if we make minimum payments, which we don't plan to) on all of them. the 10 year term extends time out some (again making minimum payments). We do not plan to make the minimum payment in the 10 year option, we have $821 built into our budget for SLs, plus the additional $290 we're planning to snowball in, we'd pay at least that, however it does take the edge off in the event of an emergency. I believe that when you pay more than the minimum all the "extra" goes straight towards principle, so I'm wondering if extending the loan out increases the power that the ~$1110 we'll have in our budget has on decreasing our principle balance. (they do offer 15 and 20 year terms...but that seems excessive)

H and I are thinking this through right now, but setting up a time to meet with someone at the bank...I'm just trying to get my head on straight.

abrewer5 · February 2015

Are you currently able to claim the interest on these loans on your taxes? If so, can you do that with the refinanced loan? Or would it show as personal loan versus student loan?

Another consideration is wether or not you or your H would be financially responsible if anything were to happen to either of you. It might seem morbid, but I believe there are protections that if I were to pass away for instance my H would not be responsible for paying off my student loans. Whereas if we refinanced them and put both of us on the loan he would still be responsible for paying it off. (Again, I believe this is the case, but I'm sure someone on this board can offer more insight if I'm mistaken)

In addition the new interest rate (at the least the fixed rate) is higher than some of the current rates, so would you actually be saving the long run? How long until you pay them off at the current arrangement versus the new arrangement? And how much does it actually save you? I would try running the numbers to see.

hoffse · February 2015

Prime plus is the Prime interest rate published by the Wall Street Journal (today it's 3.25%) plus whatever the extra percentage is (here it's 9%). The Prime rate is just an index, but it's one that's used heavily in lending since it can be tracked and standardized.

I keep hearing that the Fed is going to raise interest rates. They've been saying it for awhile, and it seems like it might really happen this year or next year. Keep that in mind when looking at variable rates.

I'm honestly not a huge fan of renfinancing student loans unless you can really save yourself a good bit on the interest. Once you refinance you are on the hook for one big loan, instead of a bunch of smaller loans. I prefer the flexibility of the smaller loans since you can focus on paying off one or two at a time. That allows you to slowly free up obligations from your cash flow as they are paid off. With a single lump sum, those smaller obligations are never out of your cash flow until the entire thing is done. I just prefer to keep my obligations as low as possible so that I have some wiggle room in a tight month.

formerlyGDaisy09 · February 2015

abrewer5 said:

Are you currently able to claim the interest on these loans on your taxes? If so, can you do that with the refinanced loan? Or would it show as personal loan versus student loan?
Another consideration is wether or not you or your H would be financially responsible if anything were to happen to either of you. It might seem morbid, but I believe there are protections that if I were to pass away for instance my H would not be responsible for paying off my student loans. Whereas if we refinanced them and put both of us on the loan he would still be responsible for paying it off. (Again, I believe this is the case, but I'm sure someone on this board can offer more insight if I'm mistaken)
In addition the new interest rate (at the least the fixed rate) is higher than some of the current rates, so would you actually be saving the long run? How long until you pay them off at the current arrangement versus the new arrangement? And how much does it actually save you? I would try running the numbers to see.

These are great questions to ask when we meet with the bank, they crossed my mind, but I haven't been able to find the answers on their website. they are still qualified as Student loans. Even combining some of them (so if we kept ours separate) would save some on the interest rate.

In the case of the fixed rate being higher than the rates on some of them, in that case we'd only combine the loans with interest rates higher than the rate the bank is offering.

formerlyGDaisy09 · February 2015

hoffse said:

Prime plus is the Prime interest rate published by the Wall Street Journal (today it's 3.25%) plus whatever the extra percentage is (here it's 9%). The Prime rate is just an index, but it's one that's used heavily in lending since it can be tracked and standardized.

I keep hearing that the Fed is going to raise interest rates. They've been saying it for awhile, and it seems like it might really happen this year or next year. Keep that in mind when looking at variable rates.

I'm honestly not a huge fan of renfinancing student loans unless you can really save yourself a good bit on the interest. Once you refinance you are on the hook for one big loan, instead of a bunch of smaller loans. I prefer the flexibility of the smaller loans since you can focus on paying off one or two at a time. That allows you to slowly free up obligations from your cash flow as they are paid off. With a single lump sum, those smaller obligations are never out of your cash flow until the entire thing is done. I just prefer to keep my obligations as low as possible so that I have some wiggle room in a tight month.

That's why I'm looking at the 10 year term as a potential. as it is now, even throwing in that $290 into our snowball (which won't happen for several months), we're at least a year away from freeing up anything substantial, and with snowballing it'll take us a year and a half to free up $200. There are so many sides to consider with this it's making my head hurt. doing nothing is an option, but it's hard every month to watch that $800 in minimum payments go out the door and not feel like we've made any real progress.

Xstatic3333 · February 2015

Personally, even though I don't foresee needing federal hardship programs either, I like that they are there too much to give them up. I tend to think in worst case scenarios. TTC is on the horizon for us, and I like that I could take advantage of those programs if, say, bed rest or a child with special needs kept one of us out of work for longer than planned. Although our jobs are secure right now for a couple of years, there are certain federal budget cuts that could wipe us both out. They're unlikely (we both have at least some USDA funding, which is among the more stable agencies) but you never know. I'd also prefer the small loan approach if I were in your shoes, although I personally just have one huge one. I see the benefits too, just playing devil's advocate.

formerlyGDaisy09 · February 2015

Xstatic3333 said:

Personally, even though I don't foresee needing federal hardship programs either, I like that they are there too much to give them up. I tend to think in worst case scenarios. TTC is on the horizon for us, and I like that I could take advantage of those programs if, say, bed rest or a child with special needs kept one of us out of work for longer than planned. Although our jobs are secure right now for a couple of years, there are certain federal budget cuts that could wipe us both out. They're unlikely (we both have at least some USDA funding, which is among the more stable agencies) but you never know. I'd also prefer the small loan approach if I were in your shoes, although I personally just have one huge one. I see the benefits too, just playing devil's advocate.

Thanks! we're on the TTC train right now. and one of the things I keep thinking of, while at least a year off, is child care costs. we're fortunate that we'd only need care 4 days a week from 8am to 10 or 11am...so a part-time nanny situation would work out well for us (I've checked care.com average cost for a nanny in our area is $13.75/hour). But, we're still probably talking ~$800 a month.

I'm just looking for ways that our budget wouldn't be maxed out once we get there.

Xstatic3333 · February 2015

Gdaisy09 said:

Xstatic3333 said:

Personally, even though I don't foresee needing federal hardship programs either, I like that they are there too much to give them up. I tend to think in worst case scenarios. TTC is on the horizon for us, and I like that I could take advantage of those programs if, say, bed rest or a child with special needs kept one of us out of work for longer than planned. Although our jobs are secure right now for a couple of years, there are certain federal budget cuts that could wipe us both out. They're unlikely (we both have at least some USDA funding, which is among the more stable agencies) but you never know. I'd also prefer the small loan approach if I were in your shoes, although I personally just have one huge one. I see the benefits too, just playing devil's advocate.

Thanks! we're on the TTC train right now. and one of the things I keep thinking of, while at least a year off, is child care costs. we're fortunate that we'd only need care 4 days a week from 8am to 10 or 11am...so a part-time nanny situation would work out well for us (I've checked care.com average cost for a nanny in our area is $13.75/hour). But, we're still probably talking ~$800 a month.

I'm just looking for ways that our budget wouldn't be maxed out once we get there.

I hear you there. Daycare is bonkers! I get so jealous on these boards when I see people post the rates from LCOL areas. Having some buffer room once it starts will be a plus. Best wishes with TTC!

vlagrl29 · February 2015

I personally like fixed rates. I had all my loans combined thru sallie mae so we only get 1 bill a month.

formerlyGDaisy09 · February 2015

vlagrl29 said:

I personally like fixed rates. I had all my loans combined thru sallie mae so we only get 1 bill a month.

all H's sallie mae loans actually come to us in one bill. if we go the fixed rate route we'd be plucking out the one loan with the higher rate to refinance to a lower rate. I think 0.26% makes some difference on $15K.

Like everything I think we may end-up doing some hybrid...refinancing only the loans with higher interest, granted it's actulally H's sallie mae loans that kill us. or we may end up doing nothing, though I'll feel better if I convince myself that we're really following the best plan

Student Loan Refinancing

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