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Refinance Federal Loans?
March 5, 2015
3:38 pm
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March 5, 2015
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Hello,
I have about $28K left in student loans from my undergrad and master’s degree. I have a steady job with a decent salary and I’ve paid off about $10K in the last year and a half by living frugally and tutoring on the side. I only have Federal Stafford loans, and I have four different loan servicers. I’m 28 and would like to get my loans out of the way so I can focus on saving for long term financial goals and do some traveling without guilt. Two of my loans (adding to approximately $16K) are at interest rates of 6.25 and 6.55%. The rest are below 5%. Do you think it would be worth it to refinance the two higher interest loans with a private bank to get a lower interest rate? I know this breaks the ‘golden rule’ of student loan consolidation, but my plan is to aggressively pay down these two loans down anyway and it feels like I’m paying a lot of interest on them right now.
Thanks!

March 5, 2015
7:41 pm
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May 3, 2014
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Hi!

You are asking exactly the right questions. It does definitely appear as though you may be better off consolidating some or all of your loans.

If you are in a good credit situation and can afford to have a couple inquiries on your credit report (meaning you are not about to buy a home, etc.), I suggest checking out or list of student loan consolidation companies and applying to a few of them. (The list is here: https://studentloansherpa.com/student-loan-reviews/ )

Once you know how low your interest rate can be, do the math on how much you would save each month, and over the life of the loan. Then you have to weigh your options. Federal loans have perks that private consolidation loans don’t offer (IBR, forgiveness, etc.). These are programs that you probably don’t need right now, but if your finances quickly got ugly, you might need them.

I suggest viewing the extra cost of the federal loans as an insurance policy. Would you pay $5 per month as an insurance policy to make sure your student loans stay under control if your lose your job? That is probably a good deal, meaning it would be best to stick with the loans as is. What if it cost an extra $50 per month to keep the loans federal? At a certain point, the “insurance policy” benefits stop outweighing the cost. In my opinion, that is when you make the switch.

Good luck!

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