WWYD - student loan refinance

[wildrice]

My H owes about 104k in student loans through the federal government. Since they are 0% interest with the pause, I can't see what his actual interest rate is, but IIRC it's something like 6.5%. He was just going into repayment after finishing his PhD when COVID hit, and at the time was working for a PSLF qualifying employer, so we hadn't done anything about refinancing and obviously didn't want to during the 0% interest pause.

We do not want to keep them as federal loans forever - he is now working for a private employer and we'd like to pay them off in the next 10 years or less. I figured we'd refinance with a private lender once the payment pause ended, but that can keeps getting kicked down the road. Now interest rates are starting to climb. 

There is also the possibility of 10k, 50k, or all of it being forgiven if Biden or Congress ever decides to do anything about it. I am not sure how likely any of that is, but even 10k would be great.

Now that the pause has been extended again through August, I'm feeling more frustrated than anything! I think we will likely wait until they actually go into repayment to refinance, but if that means a much higher interest rate than we'd get now, is this a bad choice?

When I ran the numbers a couple of months ago, it looked like he could get about 2.5% so that's a significant difference from what he has now with federal loans.

Despite my own loans being forgiven recently, my rage about the whole system hasn't subsided. Federal loans are such a rip off!

[Susie]

This is a really hard crystal ball kind of decision, and IDK what to say.

MH refinanced his six figure law school loans a long time ago, so it's all private.  He has now been a government attorney of one flavor or another for 14 years.  From where we are now, was it a bad decision back then?  Maybe yes.  We made choices that took away any opportunity for SL forgiveness, even though he has sunk the required time in an eligible position.

OTOH, at the time we made these decisions, he was working in a position where his continued employment was contingent on his elected official boss staying in office, and that was not a sure bet by any stretch.  I thought it would be irresponsible under the circumstances to go into an IBR arrangement where the principal would balloon, only to maybe have him not even have the option to stay for long enough for forgiveness.  So we made the call and refi'ed to private, and paired that with aggressive repayment.

We've paid our SLs down from around $260k to around $77k, and we're going to be personally paying to the last dime.  I have mostly resolved to make the best decisions I can, at the time I need to make them, and to not beat myself up too much when 20/20 hindsight suggests I made the wrong call.  

In your case... it's a hard call.  Maybe consider splitting the difference and refinancing half of it?  That way you avail yourself of lower interest rates long term for half, and the other half you maintain the possibility of forgiveness?

[pumpkin]

Have you looked into consolidating them as a federal loan and what that interest rate is? I was able to consolidate all my fed loans (over 6 figures) into one fed loan when I graduated from law school and the interest rate was better than elsewhere. I’m guessing the fed rate isn’t as good, but wanted to make sure you checked.

Student loans are so frustrating and it’s hard to know the “right” path to take without that crystal ball. While I had consolidated fed loans I figured I’d pay every last penny of them myself after I wiped out my private loans. In this case things works out for me as I think I can get a third of them forgiven with the waiver, but I would never have foreseen that.

Good luck with your decision.

[wildrice]

pumpkin, unfortunately that IS the consolidated federal loan rate! He had a bunch of loans that ranged from 6-8% interest and I think the weighted average ended up around 6.5%. It's such a racket. There is no reason why the federal government should be loaning students money at a rate of 8%.

That's also why they gained close to 40k in interest while he was in school....

I do wish we had a crystal ball! Thought Susie's idea of splitting the loans is something I hadn't thought about and might be a good solution. If anything at all ends up forgiven, I do think it's unlikely that it will be the full amount. If we could get a good interest rate on even half of what he owes, that would save us thousands.

[pumpkin]

Apr 6, 2022 16:26:05 GMT -5 wildrice said:

pumpkin, unfortunately that IS the consolidated federal loan rate! He had a bunch of loans that ranged from 6-8% interest and I think the weighted average ended up around 6.5%. It's such a racket. There is no reason why the federal government should be loaning students money at a rate of 8%.

Wow! That’s crazy to me. Especially given where interest rates on everything else have been for the last several years. Ugh!

[wildrice]

Apr 6, 2022 18:05:44 GMT -5 pumpkin said:

Apr 6, 2022 16:26:05 GMT -5 wildrice said:

pumpkin , unfortunately that IS the consolidated federal loan rate! He had a bunch of loans that ranged from 6-8% interest and I think the weighted average ended up around 6.5%. It's such a racket. There is no reason why the federal government should be loaning students money at a rate of 8%.

Wow! That’s crazy to me. Especially given where interest rates on everything else have been for the last several years. Ugh!

Right? Though in this particular case, I don't think he's borrowed anything since 2014, but I don't think the rates went down significantly after that, either. 

We are paying 2.5% on our mortgage. It seems so backwards that education should have that much higher of an interest rate.

[wanderingback]

Apr 6, 2022 18:05:44 GMT -5 pumpkin said:

Apr 6, 2022 16:26:05 GMT -5 wildrice said:

pumpkin, unfortunately that IS the consolidated federal loan rate! He had a bunch of loans that ranged from 6-8% interest and I think the weighted average ended up around 6.5%. It's such a racket. There is no reason why the federal government should be loaning students money at a rate of 8%.

Wow! That’s crazy to me. Especially given where interest rates on everything else have been for the last several years. Ugh!

Yeah federal interest rates have been that high for awhile, at least since around 2007/2008. My over $350,000 federal consolidated loans are at 6.8% I believe.

[ellipses84]

Apr 6, 2022 18:05:44 GMT -5 pumpkin said:

Apr 6, 2022 16:26:05 GMT -5 wildrice said:

pumpkin, unfortunately that IS the consolidated federal loan rate! He had a bunch of loans that ranged from 6-8% interest and I think the weighted average ended up around 6.5%. It's such a racket. There is no reason why the federal government should be loaning students money at a rate of 8%.

Wow! That’s crazy to me. Especially given where interest rates on everything else have been for the last several years. Ugh!

Seriously! I feel like low interest rates should be a huge part of student loan reform. It’s ridiculous that a mortgage or a car loan can be significantly lower than SLs. It really crippled a generation. There are so many people who couldn’t afford high monthly payments so they got on income based payment plans and now owe more than when they first borrowed. I was lucky to have fairly low interest rates like 2-4% and I barely made a dent in mine the first 15 years of payments, paying the equivalent of pricey car payment every month.

For OP, I’d probably wait or only refinance half. Interest rates will drop again and you can refinance the rest. I’d hate for you to miss out on SL forgiveness. I think $50k is optimistic but could depend on what happens in the senate during midterms and $10k was a campaign promise…

[treschic]

Apr 6, 2022 21:53:15 GMT -5 ellipses84 said:

Apr 6, 2022 18:05:44 GMT -5 pumpkin said:

Wow! That’s crazy to me. Especially given where interest rates on everything else have been for the last several years. Ugh!

Seriously! I feel like low interest rates should be a huge part of student loan reform. It’s ridiculous that a mortgage or a car loan can be significantly lower than SLs. It really crippled a generation. There are so many people who couldn’t afford high monthly payments so they got on income based payment plans and now owe more than when they first borrowed. I was lucky to have fairly low interest rates like 2-4% and I barely made a dent in mine the first 15 years of payments, paying the equivalent of pricey car payment every month.

For OP, I’d probably wait or only refinance half. Interest rates will drop again and you can refinance the rest. I’d hate for you to miss out on SL forgiveness. I think $50k is optimistic but could depend on what happens in the senate during midterms and $10k was a campaign promise…

Yes, I don’t understand why this isn’t suggested as a solution more by politicians. They should just forgive interest paid and I think I’d probably be close to having it paid off!!

[simpsongal]

Just coming to second the interest rate insanity. I was throwing away old tax returns and looked at numbers. I paid like $11k in interest on my loans in 2010. When I was a baby lawyer earning a modest salary. It was a crazy percentage of my take home.

Wish I had the sl crystal ball… I paid my fed ones off years ago (I’m a fed, didn’t do pslf). Still paying private ones….