As I start getting back into blogging now that the bar is over (YAY!!!) the first conversation the spouse and I had was whether we wanted to try to refinance my student loans to try to get a better interest rate. As you can see, at least half of my loans are at nearly 8%, which is just ridiculous. I took my loans before the rates fell, and since federal loans can’t be refinanced through the federal government, I’m basically stuck with that rate.
On the plus side, I could possibly qualify for a rate around 4% or 5% which would save around $30,000 in overall payments, which is nothing to sneeze at.
However, with federal loans, our minimum payments are $1,000 on all my loans, plus another $700 for the spouse’s loans, so $1,700 altogether. We actually pay $4,300 per month, or $2,600 “extra”each month. In addition, because of the way federal loans work, we are paid so far ahead we don’t actually have to make any payments until July. So if something comes up between now and July we actually have about $3,600 each month in emergency money. If we need, we can take the payments down to basically nothing, and have thousands of dollars to throw at whatever emergency comes up.
If we refinance, however, much more of that monthly emergency ability will be taken up by required monthly payments. For example, LendKey would allow me to refinance up to $175,000 at 5.47% for 10 years. The monthly payments would be just under $1,900. The minimum for the same federal loans was $900 (just to keep up with interest, the real minimum is lower). That would mean our monthly payments would be at a minimum $1,900 + $700 (spouse loans) + $450 = $3,050. And it might be even higher depending on what the income requirements are on the remaining federal loans. If we overpay on the loans again up to $4,300, then we would really only have about $1,300 in emergency money each month, which could mean more risk.
At this point, the spouse and I talked about the risk of not having the ability to pull back on payments when necessary, and considering that we consistently live so close to the edge of our ability to pay, we decided that it was more important to keep that ability, and maybe look at refinancing later on down the road when our incomes are higher. Each time we add income, we just put it toward debt, rather than increasing lifestyle, so the more that we pay off, and the more income we have, the larger the difference between our overpay and the required minimums, providing more of a safety blanket.
As an additional, and somewhat macabre thought, because the loans were all incurred before marriage, and they’re federal, my husband won’t be stuck with them if I die. If we refinance, and his name is on them, he may not be able to get out from under, but since the person who benefited from the loans would be dead that doesn’t seem fair, does it?
Its not the “best” plan in terms of efficiency and total payments, but we think it’s the best for now. Especially since most of the refinancing companies won’t allow us to refinance the total amount we’d need refinanced ($225,000 roughly) so we should probably get some paid down before trying anyway.
As a side note, SoFi does something particularly dumb, in that they’ve decided that despite us living in a community property state, and despite the fact that both the spouse’s income and mine would go towards debt repayment, they don’t count the spouse’s income in their refinancing calculation. Only mine, and then the spouse is a “cosigner.” So we couldn’t even qualify between the two of us, let alone get another cosigner. Some of the other companies are better, but still limit the amount they’ll refinance for, and the interest rates are still around 4% or 5%, which just frustrates me since both the spouse and I have over 760 credit ratings, and we’ve made all our payments and more. But that just doesn’t matter.