Loan refinance

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brk81144

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Curious what everyone is thinking right now in terms of fixed vs variable interest rates. I know the fed always talks about raising interest rates but I’m wondering what most are choosing in terms of student loan refinance.
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WCI has talked about this subject on his blog. If you plan on paying off your loans within 2 years, it's worth just going with a variable rate, they tend to be lower and are unlikely to go up that much in such a short time frame. Also, check your pm.
 
I was looking at his website but it’s from two year ago. I was thinking that the market may have changed in the past couple of years.
 
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I just refi’d with SoFi. The fixed rate they offered me was still only 3.2% so I went with that, but I’m down to the last 40K.


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Dude! I just got the SDN 15 year trophy. I think I've spent way too much time on here.

At any rate, my personal opinion is you ought to be out of student loan debt within 5 years of completion of residency. I mean you could have been done in 4 if you'd had the military pay for it. If you're going to drag it out for 10, 15, or even 20 years, you really made a mistake not having the military pay. I mean, you really want to have loans for as long as I've been posting on SDN?

So in order to get out of debt in less than 5 years, you need to live like a resident. Until the debt is gone. For some people, that's Halloween of the year they graduate. For others, a year. But for most people, it's 2-5 years.

In order to come out behind on a variable rate loan, rates need to climb both severely and rapidly. Consider if you're offered 3% variable or 4% fixed. If rates go up to 4% on the variable immediately, the two options are equal. If rates go up to 4% in a year, you still come out ahead on the variable. If you're paying of your loans over 4 years, and rates rise to 6% but don't do it until the last year, you still come out ahead. Besides, if you're making payments large enough to be done in just a few years, even if rates climb rapidly and severely, you're not going to have any trouble making the minimum payment. It just costs you a little extra interest. You gambled and lost, but no big deal.

But if it is all you can do to make the minimum payment on a 15 year loan because you just had to move into that doctor house as soon as you finish residency and you just had to drive a Tesla bought on credit as a new attending, well, you could get burned with a variable loan.

If it were me, it would be a 5 year variable loan and I'd pay it off in 2 years.
 
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I did a five year fixed out of residency but will actually end up paying them off a bit sooner because I made $100,000 selling a house. Probably should have done variable but that’s ok because I didn’t know I’d sell when I did! The difference between fixed and variable is pretty small in the end compared to not refinancing at all.

There are very few investments in this world that will net 3-4% with near zero risk (other than you dying and the money being gone but hey you’re dead so who cares!). This is why I am continually confused at people who pay off their loans over 10-15 years. If you view your loans like an investment they are very solid and have a great payoff. Don’t be fooled into small monthly payments over a long term. That’s just someone else making money off of YOU.
 
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Tenk said:
I did a five year fixed out of residency but will actually end up paying them off a bit sooner because I made $100,000 selling a house. Probably should have done variable but that’s ok because I didn’t know I’d sell when I did! The difference between fixed and variable is pretty small in the end compared to not refinancing at all.

There are very few investments in this world that will net 3-4% with near zero risk (other than you dying and the money being gone but hey you’re dead so who cares!). This is why I am continually confused at people who pay off their loans over 10-15 years. If you view your loans like an investment they are very solid and have a great payoff. Don’t be fooled into small monthly payments over a long term. That’s just someone else making money off of YOU.
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$100k invested in the S&P 500 in January 2012 with dividends reinvested would be worth $223.5k today. If you are paying 6-8% annual interest, sure pay off your loans. But I really don't understand the desire to quickly pay off low interest rate debt. The arguments for doing so generally favor psychological factors over math. Just like the oft repeated argument to not finance a depreciating asset (like a car). No, the advice should be to avoid spending a lot of money on a depreciating assets. But if somebody wants to loan me money at 2%, then I'm going to take it.
 
coachB said:
$100k invested in the S&P 500 in January 2012 with dividends reinvested would be worth $223.5k today. If you are paying 6-8% annual interest, sure pay off your loans. But I really don't understand the desire to quickly pay off low interest rate debt. The arguments for doing so generally favor psychological factors over math. Just like the oft repeated argument to not finance a depreciating asset (like a car). No, the advice should be to avoid spending a lot of money on a depreciating assets. But if somebody wants to loan me money at 2%, then I'm going to take it.
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You could have also lost a ****ton of money. It’s called risk. Reread my post.
 
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Tenk said:
You could have also lost a ****ton of money. It’s called risk. Reread my post.
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Yes, you could have. Of course the time period I used was a bull market and not reflective of average results. However, over almost any sufficiently long time period, the theory holds. I read your post. And it sure doesn't make much sense to look for "no risk" investments for a significant portion of your net worth when you are just starting your career if your goal is to accumulate wealth.
 
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coachB said:
Yes, you could have. Of course the time period I used was a bull market and not reflective of average results. However, over almost any sufficiently long time period, the theory holds. I read your post. And it sure doesn't make much sense to look for "no risk" investments for a significant portion of your net worth when you are just starting your career if your goal is to accumulate wealth.
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Ok since apparently you can’t read and just want to make things up I will break it down for you piece by piece. I never said dump all your wealth into your loans. I said that student loans are a stable worthwhile investment with zero risk. All other investments have risk. House has risk. Stock market has risk. I made $100,000 on my house I only lived in for two years so that beats the S&P 500 to ****. Was it no risk? Hell no. Was it a good investment in hind sight? Hell yes. I actually put my wealth into multiple markets and avenues rather than investing in just one area and I’d totally advise anyone to do the same. Paying off government loans over a 10-year period at a 7-8% interest rate is just plain stupid and you’d be better off refinancing and paying them off more aggressively. Sure you could technically make more money flipping houses or investing with that money in high risk endeavors but you could always lose more money. No risk >>> risk. Do whatever the hell you want though, it’s your life not mine. Peace.
 
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Tenk said:
No risk >>> risk.
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I hear everything you're saying. I think coachB does as well. Your above statement is the crux of what coachB (and I) would disagree with. Yes, it is important to see your loans as a guaranteed rate of return. However, arguing that someone is stupid for stretching out a refinanced loan at 2.5% so that they can instead invest in index funds over the long term which historically have made 7% after inflation and before tax loss harvesting is not a particularly defensible position. Yes,I know you stated a 7-8% government loan, but in the same breath you said you were better off both refinancing it and paying it down aggressively. The former is demonstrably correct. The latter is a matter of personal risk tolerance, as there are significant benefits to NOT pay it down aggressively once you've refinanced.
 
BoardingDoc said:
I hear everything you're saying. I think coachB does as well. Your above statement is the crux of what coachB (and I) would disagree with. Yes, it is important to see your loans as a guaranteed rate of return. However, arguing that someone is stupid for stretching out a refinanced loan at 2.5% so that they can instead invest in index funds over the long term which historically have made 7% after inflation and before tax loss harvesting is not a particularly defensible position. Yes,I know you stated a 7-8% government loan, but in the same breath you said you were better off both refinancing it and paying it down aggressively. The former is demonstrably correct. The latter is a matter of personal risk tolerance, as there are significant benefits to NOT pay it down aggressively once you've refinanced.
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I never said anyone is stupid for not aggressively paying off a 2.5% fixed rate loan. I said people are stupid for riding on government loans at 7-8% for 10+ years and not refinancing. You are much better off refinancing your loans. The more "aggressively" part was a comparison between riding government loans versus refinance. I didn't mean throw in all your extra wealth in addition to the refinance. I just meant it as a comparison between a 10 year government repayment versus something like a 5 year refinanced option which is a hell of a lot more aggressive in comparison. Also, maybe some of the confusion here is that people are thinking I put an extra $100,000 into my loans. I did not. I spread it around like I do with all my investments. House, loans, market, private, and my personal favorite: guns and ammo.
 
Tenk said:
I never said anyone is stupid for not aggressively paying off a 2.5% fixed rate loan. I said people are stupid for riding on government loans at 7-8% for 10+ years and not refinancing. You are much better off refinancing your loans. The more "aggressively" part was a comparison between riding government loans versus refinance. I didn't mean throw in all your extra wealth in addition to the refinance. I just meant it as a comparison between a 10 year government repayment versus something like a 5 year refinanced option which is a hell of a lot more aggressive in comparison. Also, maybe some of the confusion here is that people are thinking I put an extra $100,000 into my loans. I did not. I spread it around like I do with all my investments. House, loans, market, private, and my personal favorite: guns and ammo.
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Just to be sure, I reread your post again. That is definitely not what you said. Here is what you said:

Tenk said:
There are very few investments in this world that will net 3-4% with near zero risk (other than you dying and the money being gone but hey you’re dead so who cares!). This is why I am continually confused at people who pay off their loans over 10-15 years. If you view your loans like an investment they are very solid and have a great payoff.
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That definitely does not refer to government loans at 7-8% or the comparison between riding government loans versus refinance. If you think 3-4% is "very solid" with "a great payoff" then so be it. Thanks for now clarifying what you "meant" though.
 
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I am with tenk here. We are in the best bull market in recent history. Even bogleheads are going nuts. This will not last. Student loans at above 4% should be paid off aggressively. Bogle predicts real growth after inflation in TSM of 3% in the coming decades.

I did some math and for me as a w2 nonprofit hospital employee I chose to stay with pslf over paying my loans off in 3 years with refi. The risk is +/- 60k if it falls through with baseline as refi. Diversify

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So I went 5 year fixed at 3.3. Decided I didn’t want to take the risk of the variable for what would come out as ~5000 savings over the 5 years if it takes that long to pay them off
 
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brk81144 said:
So I went 5 year fixed at 3.3. Decided I didn’t want to take the risk of the variable for what would come out as ~5000 savings over the 5 years if it takes that long to pay them off
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I like that you looked at the risks and made a conscious decision. Seems like a easy way to pocket $5K to me though!
 
I followed WCI's advice and refinanced at a variable rate. Am putting substantially more towards the loan each month than required and expect to be paid off 2 years out of training.

I will say that I found some interesting differences between the companies. SoFi, for instance, wouldn't let me combine my wife's loans (masters in education) with mine. So, would have had to refinance twice. Commonbond not only let me combine them so that it is just one payment, but has a policy that if I die, all the loans are forgiven since they are in my name. That includes my wifes loan. Pretty sweet deal, though there rate was about 0.25% higher than SoFi.
 
brk81144 said:
Curious what everyone is thinking right now in terms of fixed vs variable interest rates. I know the fed always talks about raising interest rates but I’m wondering what most are choosing in terms of student loan refinance.
Click to expand...
 
yeah so not seeing the rates from 2017 anymore when refinancing even with a very good credit score
 
The White Coat Investor said:
Dude! I just got the SDN 15 year trophy. I think I've spent way too much time on here.

At any rate, my personal opinion is you ought to be out of student loan debt within 5 years of completion of residency. I mean you could have been done in 4 if you'd had the military pay for it. If you're going to drag it out for 10, 15, or even 20 years, you really made a mistake not having the military pay. I mean, you really want to have loans for as long as I've been posting on SDN?

So in order to get out of debt in less than 5 years, you need to live like a resident. Until the debt is gone. For some people, that's Halloween of the year they graduate. For others, a year. But for most people, it's 2-5 years.

In order to come out behind on a variable rate loan, rates need to climb both severely and rapidly. Consider if you're offered 3% variable or 4% fixed. If rates go up to 4% on the variable immediately, the two options are equal. If rates go up to 4% in a year, you still come out ahead on the variable. If you're paying of your loans over 4 years, and rates rise to 6% but don't do it until the last year, you still come out ahead. Besides, if you're making payments large enough to be done in just a few years, even if rates climb rapidly and severely, you're not going to have any trouble making the minimum payment. It just costs you a little extra interest. You gambled and lost, but no big deal.

But if it is all you can do to make the minimum payment on a 15 year loan because you just had to move into that doctor house as soon as you finish residency and you just had to drive a Tesla bought on credit as a new attending, well, you could get burned with a variable loan.

If it were me, it would be a 5 year variable loan and I'd pay it off in 2 years.
Click to expand...

I really disagree with losing liquidity and early investment opportunities due to student loan debt. Sorry, but expedited payment of student loans when your interest rate is 3-4 percent is not advisable in my opinion. In all likelihood, your investments will yield at least 6-7% and that balance will be governed by the law of compounding interest such that it will multiply quicker with the presence of a higher earlier balance/principle investment.

I don’t get the phobia of debt. Sorry.
 
Tenk said:
I did a five year fixed out of residency but will actually end up paying them off a bit sooner because I made $100,000 selling a house. Probably should have done variable but that’s ok because I didn’t know I’d sell when I did! The difference between fixed and variable is pretty small in the end compared to not refinancing at all.

There are very few investments in this world that will net 3-4% with near zero risk (other than you dying and the money being gone but hey you’re dead so who cares!). This is why I am continually confused at people who pay off their loans over 10-15 years. If you view your loans like an investment they are very solid and have a great payoff. Don’t be fooled into small monthly payments over a long term. That’s just someone else making money off of YOU.
Click to expand...

But then YOU get to make money off of other endeavors/investments due to the improved liquidity.
 
Isn’t interest on student loans tax deductible? Why do people pay them off so fast and not extend them 30 years?
 
Here is why I'm paying everything off (including mortgage):
1. Possibility of big reimbursement cuts.
2. High likelihood I don't want to work (or be required to work) 16+ shifts/month in the future, unless (1) happens, in which case I'll be in a more comfortable position.

If my debts were gone, I could cut my shifts by more than 1/3 today and be in the same cash flow and retirement savings position.
MaximusD said:
I really disagree with losing liquidity and early investment opportunities due to student loan debt. Sorry, but expedited payment of student loans when your interest rate is 3-4 percent is not advisable in my opinion. In all likelihood, your investments will yield at least 6-7% and that balance will be governed by the law of compounding interest such that it will multiply quicker with the presence of a higher earlier balance/principle investment.

I don’t get the phobia of debt. Sorry.
Click to expand...
 
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MaximusD said:
But then YOU get to make money off of other endeavors/investments due to the improved liquidity.
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Thanks for quoting me from November, 2017.

Actually, I couldn't agree more with what I said after having finished paying off my loans earlier this year. So much stress lifted and I feel so free financially. Also, I taught myself how to live on half my after tax income and "invest" the rest. Very few attendings my age have the financial fortitude to save half their take home salary after taxes (while still building 401k/403b) which is a skill I will carry on into my future.

Sure, investing the difference may have saved me a few % in the long run but having less stress in my life may save me an MI or a stroke in the shorter run. You only live once, best to enjoy it.
 
I've of the philosophy that people get wealth usually out of cash flow, not leverage. If you fill your life with debt payments, you have no margin to invest, and you give Murphy the options to ruin your life.

You'll make better career decisions if you have no student loans.
 
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MaximusD said:
I really disagree with losing liquidity and early investment opportunities due to student loan debt. Sorry, but expedited payment of student loans when your interest rate is 3-4 percent is not advisable in my opinion. In all likelihood, your investments will yield at least 6-7% and that balance will be governed by the law of compounding interest such that it will multiply quicker with the presence of a higher earlier balance/principle investment.

I don’t get the phobia of debt. Sorry.
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Why is it always either or? Sure max out your retirement account but you need to pay off your debt as fast as you can. Also you haven't fully done the math because you have to subtract taxes and the growing debt at 2-3%.

Also the debt vs investment thing isn't really math. You don't start off with 250k in investments you do start off in 250k in debt. With 4% interest on 250k making minimum payments will mean you pay 113k extra for that loan guaranteed. So you have to subtract that while you make large monthly investment payment.
 
I recently finished 301K between 5% - 6.8% in < 5 years. Basically doubled and tripled my payments. I saved a tremendous amount of interest doing this. Probably 30-50K.

Best thing I ever did.
 
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Man, we really raised this thread from the dead.

I'm also a big proponent of paying off loans early. I paid my 400K off similar to @thegenius and man....it's an incredible feeling when you get that albatross off your neck. I had originally applied to SOFi and this was back when they were new on the market. They kept giving me the run around during the application process and finally I was like "screw this...I'll just pay the damn thing off as soon as I can". I'm so glad I did. Sure, it delayed retirement saving but I never have to pay another student loan payment for the rest of my life. I can't stand debt.
 
Do you guys know if it would be a good idea to refinance for the remainder of residency (currently PGY3) with someone like SoFi to have a reduced payment? I am newly married as of last year and my payment is now going from $75/month to $630 after filing jointly. I know I'll probably get a better interest in the future, however want to avoid paying that much in general period. No attending contract as of yet.

Is there any cost/penalty to refinance for a better rate after I have graduated from residency and started working as an attending?
 
The only cost is your time, which is minimal. Do it
Restart13 said:
Do you guys know if it would be a good idea to refinance for the remainder of residency (currently PGY3) with someone like SoFi to have a reduced payment? I am newly married as of last year and my payment is now going from $75/month to $630 after filing jointly. I know I'll probably get a better interest in the future, however want to avoid paying that much in general period. No attending contract as of yet.

Is there any cost/penalty to refinance for a better rate after I have graduated from residency and started working as an attending?
Click to expand...
 
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Restart13 said:
Do you guys know if it would be a good idea to refinance for the remainder of residency (currently PGY3) with someone like SoFi to have a reduced payment? I am newly married as of last year and my payment is now going from $75/month to $630 after filing jointly. I know I'll probably get a better interest in the future, however want to avoid paying that much in general period. No attending contract as of yet.

Is there any cost/penalty to refinance for a better rate after I have graduated from residency and started working as an attending?
Click to expand...

The only potential downsides (and I emphasize potential because they may or may not be important to you) that may make refinancing a bad idea are:
  • Private loans are not eligible for PSLF if you are electing to go that route
  • Some federal loan protections (such as forbearance, etc.) are not available to you if you refinance
  • Look at what happens if you become permanently disabled or die with your refinanced loans, since federal loans are forgiven under this circumstance and private loans may or may not be'
Once you refinance you cannot "go back" to federal loans, so I would just make sure the above items are not critically important to you. If you were planning on aggressively paying them off and the above items aren't of specific concern to you, then refinancing absolutely makes sense for most people.
 
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