Student Loan Refinance/Consolidation?

[Glimmer1991]

Hello, all!

Please help educate me. I know there is a lot of worry among dental students about not only the high cost of dental school, but also the interest rates of those loans and how much extra money we will have to pay back.

I was browsing dentaltown, and saw a post about refinancing/consolidating student loans. In the threads I have read on SDN about dental school loans, everyone just seems to assume that your loan will be at the ~5.4% interest rate for its lifetime. However, as I understood on dentaltown, you can actually refinance/consolidate (are those things done simultaneously?) your loans to have a lower interest rate.

Does anyone know about how this is done and how feasible it is? For example, about two weeks ago, one poster on dentaltown said that he consolidated his federal loans through a program called "graduate leverage" and is now paying about 1.85%. (He did graduate in 2006, though... so that's probably why it is so low.) Even though this example is extreme for someone graduating nowadays, why isn't everyone doing this if it could mean a lower interest rate?! Or is everyone doing this and I just don't know about it? I admittedly have very little experience with finances, but I am trying to become as knowledgeable as possible before I start making financial decisions.

Thank you for your help!

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[amfassz]

Good luck getting that kind of rate anywhere! That was a thing of the past during the economic downturn around that time. At this point, your options are a lot more limited and less companies are willing to refinance/consolidate federal student loans and the market still may change in the next 4-5 years. Your best bet is always to just pay them off as quickly as possible.

 

[sacapuntas]

There have been lots of rule changes, higher default rates, and program cuts since 2006. My first student loans, which really weren't THAT long ago, were about 2%! I am not aware of any refinancing on student loans that even approaches the current 5.4% interest rate, but if in the future someone/a bank deems you such a low risk that they will pay off your student loan in full and refinance to you at a lower rate, then you could do it. You surely should not plan on that being an option though, as it seems unlikely at best...unless there is a program I am not aware of.

 

[Bereno]

Man, it would be nice to do that, but I would imagine that such scenarios are on an individual basis only. Plus, I would assume that they likely require x percentage of the loan to be serviced already (say 50% or so), an established job, and would likely have a higher interest rate than 1.85% in today's market (4.5% maybe?). I could be wrong, but I don't think these are established programs, but rather individual contracts set up by a bank. Would love to hear more about it though. Link to DT thread?

 

[Glimmer1991]

Man, it would be nice to do that, but I would imagine that such scenarios are on an individual basis only. Plus, I would assume that they likely require x percentage of the loan to be serviced already (say 50% or so), an established job, and would likely have a higher interest rate than 1.85% in today's market (4.5% maybe?). I could be wrong, but I don't think these are established programs, but rather individual contracts set up by a bank. Would love to hear more about it though. Link to DT thread?

I knew 1.85% was probably just a thing of the past, but even something in the 4.5% range would be fantastic. With such large loans, even a little difference counts!

The person in the thread (tricuspid) mentioned it briefly here: http://www.dentaltown.com/MessageBo...&f=214&t=220124&g=1&st=2006 graduate leverage

 

[Bereno]

As a note, where large loans (such as student loans) hit someone the hardest is in the first few years of payment. This is when your job is not very stable, income is low, and you are trying to save as much as you can for a practice. This is when the high interest payment is a very large portion of your paycheck. This means the interest rate (which affects the monthly payment) is by far the most important in these first few years. However, this lowered interest rate is likely only obtained after some years of servicing your loans... That said, you are right that 4.5% would be fantastic, but since it is likely to come later when income is higher and your job is more established, its not all that special (though very nice lol). Now if we were able to get that same interest rate for the first 3-4 years or so, I would be ecstatic lol.

Also, the thread on DT is talking about using large assets such as your house to act as collateral (a pseudo guarantee of payment) for the loans. That is a little different than simply consolidating loans at a lower interest rate alone. Consolidation is usually the merging of many small loans into a single loan, often times (not always) with a lower interest rate. There are always other perks that can come with the consolidation such as no penalty for early payment, etc, but for the most part it is a convenience thing as well as a lower interest rate thing. Hope that helps 🙂

 

[Glimmer1991]

Thank you, Bereno! I'll admit that I really didn't read the rest of the thread... I just saw that one post, and it made me go off researching in 20 different directions! Hah!

So, even if getting a lower interest rate is a no-go, do people still consolidate their DS loans into one payment? That would be convenient instead of having four, especially if there are perks like you mentioned.

 

[Bereno]

I'm not totally sure to be honest. It would be a great convenience to consolidate them IMO, if for no better reason than convenience. However, the big draw for me is a lower chance of a missed payment, which can really be a PITA. I would love a single payment because then I will likely set up automatic payments on it and just let it do its thing lol.

 

[sacapuntas]

Thank you, Bereno! I'll admit that I really didn't read the rest of the thread... I just saw that one post, and it made me go off researching in 20 different directions! Hah!

So, even if getting a lower interest rate is a no-go, do people still consolidate their DS loans into one payment? That would be convenient instead of having four, especially if there are perks like you mentioned.

The same loan servicer will likely own all of your stafford loans when it's all said and done. They do change hands once in awhile, I had loans move from 'Great Lakes' to 'ACS', but stafford loans taken out at the same school all moved together. I am not sure about the Grad Plus, a different loan servicer may own those after you are done with school. I am anticipating, at most, 2 separate payments when done with school (one for stafford, one for grad plus). Convenience alone would be unlikely to be a motivating enough force to consolidate your loans, especially when you consider how easy auto-paying your bills is.


edit: but as you an see above, different people will have different thoughts on the same issue as it appears bereno would consolidate a few payments into one payment for convenience.

 

[Bereno]

edit: but as you an see above, different people will have different thoughts on the same issue as it appears bereno would consolidate a few payments into one payment for convenience.

I should mention that my fondness of a single payment alone would not be enough driving force for me to consolidate; I would want a lower interest rate or early pay-off option, etc. I am just mentioning that the added convenience would be a wonderful thing lol 🙂

 

[Schwanz]

You should talk to the financial office at your school to help understand the loan situation. They will probably be willing to sit down with you before you matriculate into dental school and offer better advice than you're going to get from this website. Consolidation (especially of federal loans) can be really stupid, many times people will lose benefits when they consolidate, such as forbearance and no prepayment penalties.

 

[sjv]

Saw this today but more towards private loans: http://www.reuters.com/article/2014/02/03/column-weston-refinancing-colu-idUSL2N0L510F20140203

 

[Glimmer1991]

@Bereno @sacapuntas --You have been summoned! 😀

Just saw this: https://studentloanhero.com/featured/5-banks-to-refinance-your-student-loans/
Looks like Darien Rowayton Bank will let you refinance federal loans.
And if you go to the bank's page, if you are willing to repay at a fixed rate for 5 years and use electronic funds transfer, you can get an interest rate of 4.75%.

Huh. I know 5-year is probably very aggressive, but it is actually just about the time period I'm considering for paying mine off.

Thoughts? Too good to be true? Obviously, I know things will be different in 4 years when I graduate... but assuming I was graduating now, would something like this be a good option?

 

[Bereno]

IMO 5 years would be very, very hard to do with a fixed payment. Then again, if your loans are low enough, and your starting salary is high enough, you might be able to pull it off. Personally, I really don't think its worth it, even if it is true at face value. For me, I would MUCH rather the 5.25%, 10 year option. After about 2 years when my income is up, I would then see if they still offer that 5 year option (for a total of 7 years repayment). Running my numbers through it (350k, $110k starting) it simply will not work for 5 years. Just remember, it is not the overall amount you are paying that is most important. The most important thing is the amount of cash flow per period you have. Sure, paying it off sooner will let you pay less overall, but it will also potentially limit or delay your practice growth/purchase/startup/whatever. I will gladly take the longer payment option if it frees up some working capital to invest in my practice. To be honest, my biggest priority is owning a practice, which will increase my income far faster than the amount saved paying off my loans early. Just my opinion though. 🙂

 

[Glimmer1991]

IMO 5 years would be very, very hard to do with a fixed payment. Then again, if your loans are low enough, and your starting salary is high enough, you might be able to pull it off. Personally, I really don't think its worth it, even if it is true at face value. For me, I would MUCH rather the 5.25%, 10 year option. After about 2 years when my income is up, I would then see if they still offer that 5 year option (for a total of 7 years repayment). Running my numbers through it (350k, $110k starting) it simply will not work for 5 years. Just remember, it is not the overall amount you are paying that is most important. The most important thing is the amount of cash flow per period you have. Sure, paying it off sooner will let you pay less overall, but it will also potentially limit or delay your practice growth/purchase/startup/whatever. I will gladly take the longer payment option if it frees up some working capital to invest in my practice. To be honest, my biggest priority is owning a practice, which will increase my income far faster than the amount saved paying off my loans early. Just my opinion though. 🙂

I will likely have less than 100k in loans, and my future husband will have none (going to law school next year).

Low-balling it and assuming my starting salary is 100k and his is 50k, do you think 5 years would be possible?

According to your spreadsheet and assuming a debt of 100k, at 5.4%, monthly payments would be $2262.83 with a total paid of $135,769.73.
At 4.5%, monthly payments would be $2152.44 with a total paid of $129,146.58.

Not a huge difference in payment amount there with such a short-term loan. I'm looking to associate for 3-4 years before buying a practice. (And I'm willing to wait 5 or so years to buy a home, too.) Hmm. It's hard to balance where the best place is to put your money! 🙂

 

[Bereno]

Holy moly! At less than 100k with a dual income, 5 years seems quite doable then lol. In your case you are quite golden with the 5 year plan I would imagine.

 

[Expert]

I will likely have less than 100k in loans, and my future husband will have none (going to law school next year).

Low-balling it and assuming my starting salary is 100k and his is 50k, do you think 5 years would be possible?

According to your spreadsheet and assuming a debt of 100k, at 5.4%, monthly payments would be $2262.83 with a total paid of $135,769.73.
At 4.5%, monthly payments would be $2152.44 with a total paid of $129,146.58.

Not a huge difference in payment amount there with such a short-term loan. I'm looking to associate for 3-4 years before buying a practice. (And I'm willing to wait 5 or so years to buy a home, too.) Hmm. It's hard to balance where the best place is to put your money! 🙂

Just out of curiosity, how much is your cost of education w/o living expenses?

 

[Glimmer1991]

Just out of curiosity, how much is your cost of education w/o living expenses?

Overall educational cost should be around $37,950 for D1, and this number goes down in D3 and D4 by a few thousand.

A forgivable loan through the state (NC has a fantastic new scholarship called the NC FELS) and a merit scholarship through UNC knocks that down to $13,950 a year.

$13,950 (for simplicity's sake) x 4 = $55,800.

Edit: When I add up what the total costs *actually* are listed at for D1-D4, it comes out to $50,590. However, since tuition goes up every year, the 56k is probably a better estimate.

 

[Expert]

Overall educational cost should be around $37,950 for D1, and this number goes down in D3 and D4 by a few thousand.

A forgivable loan through the state (NC has a fantastic new scholarship called the NC FELS) and a merit scholarship through UNC knocks that down to $13,950 a year.

$13,950 (for simplicity's sake) x 4 = $55,800.

Edit: When I add up what the total costs *actually* are listed at for D1-D4, it comes out to $50,590. However, since tuition goes up every year, the 56k is probably a better estimate.

Wow, thats way cheaper than TX.