Hi, I am a medical resident with hefty federal student loan from med school (170k). Only about 30k of which is subsidized and the rest are unsubsidized stafford at a average rate of 6.55%. I have been paying down the debt quite aggressively. As you can imagine, I am having to pay quite a bit of interest on these loans as well. I am pondering on using one of the refi companies to lower the interest rate to make the principal pay down more effective. My question is regarding the subsidized loans. As you are aware the sub loans come with the benefit of the government paying interest (anything extra after my required payment) for three years. I still have this benefit for about 2.5 years. I was wondering if it is wise to move all the loans (including the subsidized ones) to private refi or just the unsubsidized ones?
May 3, 2014
If you are getting the interest on the loans subsidized, it means that you are not paying any interest on the loan… and that is a pretty sweet deal and something that would be hard to pass up.
However, if you are paying over 6.5% on your other loans, there are definitely opportunities to save a bundle on interest.
Based upon your situation (i.e. assuming that you won’t be going after federal student loan forgiveness or have trouble paying off your loans), your best bet might be to consolidate your unsubsidized loans now, and then revisit the issue in about 2.5 years. At that point you can either bundle all of your loans together with a new company at hopefully an even lower rate, bundle just the subsided loans (leaving you with two consolidated loans) or aggressively pay off whatever is left of the subsidized loans.
The one caveat to this suggestion would be if you are about to buy a house or will be doing it in 2.5 years. Securing a mortgage should take priority over student loan refinancing because a lower mortgage rate will likely save you more in the long run. (Applying for a number of types of credit weakens all of your applications, so you want to put your best foot forward on the type that will save you the most)
Part of the reason I make the suggestion to consolidate now is that we are currently in a very competitive lending environment and there are several companies with interest rates below 2%. (A full list is available here: https://studentloansherpa.com/student-loan-reviews/ ) Now is a great time to refinance, and it doesn’t make sense to wait on all of your loans just because you have a couple subsidized loans that you don’t want to waste.
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