Student Loan Refinance

[Wild Bill]

A friend told me to check out a site called SoFI because he was able to refinance to get them to 3.2%. I checked it out, but it estimated me at 5.7% refinance, which I was surprised by. I haven't gone as far as entering my credit info (which should help because I have ~800 credit score), but I'm thinking SoFi isn't for me.

Any advice at all? Did you talk to your personal bank? Mine is USBANK. What are the tricks of the pros. Asking you guys because you are the best .

The 3.2% rate is most likely the variable rate they offer while the 5.7% rate is their fixed.

I would make certain to read the fine print on the refi. You may have benefits from your original lender that may not extend to your next creditor, i.e., income sensitive repayment, hardship deferral, hardship discharge options, etc.

I agree with Tussin and prefer investment rather than early repayment. The investments I made produce enough income now to fund my monthly loan payments, and will continue to grow long after my loans mature. If you're creative and eager to earn, use excess money to invest. Just one man's opinion.

Premature death or severe medical hardship may be something to consider as well. If I cut those pricks a $50k check and the next day I get hit by a mack truck, I'm not getting it back. It's not fun to think about, but it's something to consider IMO.

The tax deduction is nice too, assuming you qualify. It phases out at $75k, I believe.

 

[wizards8507]

I agree with Tussin and prefer investment rather than early repayment. The investments I made produce enough income now to fund my monthly loan payments, and will continue to grow long after my loans mature. If you're creative and eager to earn, use excess money to invest. Just one man's opinion.

What happens if you have an interruption in income? If you're debt free, you can press pause on your investing activities if you run into a difficult cash flow situation. If you still have loans out there (student, vehicle, whatever), those bills are going to keep coming and not give rip that you just lost your job and Junior needs braces. Leveraging debt is great when things are good but it leaves you extremely vulnerable and inflexible if times are bad.

Premature death or severe medical hardship may be something to consider as well. If I cut those pricks a $50k check and the next day I get hit by a mack truck, I'm not getting it back. It's not fun to think about, but it's something to consider IMO.

That's what insurance is for. Until you're self insured, everyone should have at least a $500K term-life policy and enough cash-on-hand to pay their medical deductible.

The tax deduction is nice too, assuming you qualify. It phases out at $75k, I believe.

Think about what that means. Assuming 5% interest on $50,000 of debt, you're paying the bank $2,500 in interest every year. Paying $2,500 in interest saves you $2,500 times your tax rate in income taxes. Assuming a 25% marginal tax rate, that's $625. Sending the bank $2,500 in order to not send the IRS $625 is NOT better.

 

[Wild Bill]

What happens if you have an interruption in income? If you're debt free, you can press pause on your investing activities if you run into a difficult cash flow situation. If you still have loans out there (student, vehicle, whatever), those bills are going to keep coming and not give rip that you just lost your job and Junior needs braces. Leveraging debt is great when things are good but it leaves you extremely vulnerable and inflexible if times are bad.

Assuming I lost my job, I could press pause on, or defer, student loan repayments and still collect a return on my original investment. Generally speaking, student loans are the easiest creditors to deal with if you have a legitimate economic hardship. They offer deferments and flexible repayment plans dictated by income.

I'm not suggesting early repayment is a bad idea. It's much better than frivolous spending. But for me, investing rather than early repayment has worked out.

Think about what that means. Assuming 5% interest on $50,000 of debt, you're paying the bank $2,500 in interest every year. Paying $2,500 in interest saves you $2,500 times your tax rate in income taxes. Assuming a 25% marginal tax rate, that's $625. Sending the bank $2,500 in order to not send the IRS $625 is NOT better.

Nobody would argue it's better. It's a factor that should be considered, especially when a debtor is paying interest back to multiple creditors.

 

[pumpdog20]

Join enlisted in the Army. You can get the student loan repayment bonus.

Plus when you're older and your grand-kid is sitting on your lap next to the fireplace and he asked you what you did in the great World War 3... you won't have to say, "Well, I shoveled shit in Louisiana".

 

[RDU Irish]

Sounds like years to go so saving 1% on interest rate is saving you $500/year initially - which means $500 more is going to principle. Kind of silly to pay more if you don't have to. Tax deduction needs to be considered in the real interest rate. Nobody really feels this though, just comes out in the wash on April 15th. Which, by the way, is a great use of tax refund money - throw it all at your debt!

I did my refi at the perfect time - no way I am paying my 1.2% student loans back any faster than I have to, even though the tax deduction is long gone. Much better uses for my money. I don't think the risk/reward is there today for anyone paying over 4 fixed. Variable rates on a 20 year debt are crazy unless you are on a very accelerated repayment schedule. Better have a decent risk tolerance too - because you going to have to take risk to beat that bogey.

RE Sequoia - Any fund taking those kinds of bets is open to getting burned. Always look at the top 10 holdings and see what kind of concentration is there - Sequoia has 25% in Valeant and the next largest position is 6% - better understand wtf Valeant Pharma is all about if you are going anywhere near that fund.

 

[BleedBlueGold]

Wiz keepin it 100. Listen to him.

Ironically, I went a similar route, Koon, only at a younger age. When I graduated, I had $55k in student debt. I bought a house and rented out two of the rooms. I basically used that extra income to blast through my student loans. I broke each loan down into the individual amounts, set up my Debt Snowball, and went to work. I paid it all off in less than two years.

The finance pros will always give advice that looks good on paper, but you need to balance the risk/reward factor (which is different for every person...no one has the same life).

 

[dudexcore]

Give ten dollar hand jobs at a rate of ten per day, pay off your debt in a little over a year. You're welcome.

 

[woolybug25]

Give ten dollar hand jobs at a rate of ten per day, pay off your debt in a little over a year. You're welcome.

$10???

Obviously you have never gotten a hand job from Koon.... I wouldn't pay a dime over $5....

 

[koonja]

Give ten dollar hand jobs at a rate of ten per day, pay off your debt in a little over a year. You're welcome.

I'm thinking $15 for regular. $10 for family.

 

[RDU Irish]

Wiz keepin it 100. Listen to him.

Ironically, I went a similar route, Koon, only at a younger age. When I graduated, I had $55k in student debt. I bought a house and rented out two of the rooms. I basically used that extra income to blast through my student loans. I broke each loan down into the individual amounts, set up my Debt Snowball, and went to work. I paid it all off in less than two years.

The finance pros will always give advice that looks good on paper, but you need to balance the risk/reward factor (which is different for every person...no one has the same life).

You hang out with shitty financial pros then - or listen to too much Dave Ramsey who thinks only his ELPs are the way to go (maybe because they pay big referral fees for the implied endorsement). A linear analysis of returns is complete crap, in order to get a 10% return you would have to accept deviations ranging from -40% to +40% - the guy who gets lucky stepping into an up market will tell you how smart he is and the guy who steps into 2008 will shut up and pretend he isn't listening when you ask opinions.

Anyone needing a financial professionals opinion should skew heavily toward paying down the debt aggressively (once a basic emergency fund is built up). They just don't have the risk tolerance to deal with the potential bad outcome and will fold their tent and lock in losses as soon as they hit a rough market - and if following an advisor's direction then go look for a new advisor who will rinse and repeat the whole process after convincing the poor investor they have some magic bullet the other guy didn't. Better to be lucky than good if you are going gambling.

 

[wizards8507]

Wiz keepin it 100. Listen to him.

Ironically, I went a similar route, Koon, only at a younger age. When I graduated, I had $55k in student debt. I bought a house and rented out two of the rooms. I basically used that extra income to blast through my student loans. I broke each loan down into the individual amounts, set up my Debt Snowball, and went to work. I paid it all off in less than two years.

The finance pros will always give advice that looks good on paper, but you need to balance the risk/reward factor (which is different for every person...no one has the same life).

It was $65K in debt for me. $25K from school, $25K from my car, and $15K for my wife's car.

 

[BleedBlueGold]

You hang out with shitty financial pros then - or listen to too much Dave Ramsey who thinks only his ELPs are the way to go (maybe because they pay big referral fees for the implied endorsement). A linear analysis of returns is complete crap, in order to get a 10% return you would have to accept deviations ranging from -40% to +40% - the guy who gets lucky stepping into an up market will tell you how smart he is and the guy who steps into 2008 will shut up and pretend he isn't listening when you ask opinions.

Anyone needing a financial professionals opinion should skew heavily toward paying down the debt aggressively (once a basic emergency fund is built up). They just don't have the risk tolerance to deal with the potential bad outcome and will fold their tent and lock in losses as soon as they hit a rough market - and if following an advisor's direction then go look for a new advisor who will rinse and repeat the whole process after convincing the poor investor they have some magic bullet the other guy didn't. Better to be lucky than good if you are going gambling.

I don't follow. Did you misread my post? Or did you just take offense to my broad statement regarding financial pros? It's a generalization, no doubt, but it took less than an hour for someone to post something regarding paid interest vs gained interest. I can't tell you how many finance professionals try to use that argument and it's pure garbage (like you already pointed out).

Koon should pay down the debt and build an emergency fund. It's as simple as that.

 

[BleedBlueGold]

It was $65K in debt for me. $25K from school, $25K from my car, and $15K for my wife's car.

My $55k was student debt only. I had $30k from a car, $5k in medical, $5k in credit cards. I paid down a massive chunk....and then got married, adding another $25k in the process. We buckled down and got completely out of debt in the first year of our marriage.

 

[Henges24]

My $55k was student debt only. I had $30k from a car, $5k in medical, $5k in credit cards. I paid down a massive chunk....and then got married, adding another $25k in the process. We buckled down and got completely out of debt in the first year of our marriage.

...eating Ramon every day along the way.

 

[RDU Irish]

I don't follow. Did you misread my post? Or did you just take offense to my broad statement regarding financial pros? It's a generalization, no doubt, but it took less than an hour for someone to post something regarding paid interest vs gained interest. I can't tell you how many finance professionals try to use that argument and it's pure garbage (like you already pointed out).

Koon should pay down the debt and build an emergency fund. It's as simple as that.

As I said, you must hang with crappy pros. Those are called brokers and their only focus is freeing up cash for gambling with on your behalf. Trust me, I clean up plenty of other people's messes to appreciate the volume of complete garbage out there and a lot of it comes from trusting some putz who is fun to hang out with but whose only financial training consists of passing a licensing test - or worse and insurance agent who isn't even securities licensed hawking indexed annuities like an equity investment.

Big difference between saying "a lot of the time" versus "will always" do something. One is a generalization and the other is a bit more than that.

 

[BleedBlueGold]

...eating Ramon every day along the way.

No.

Sticking to budget, which included plenty of room for fun and good food, was key. It was hard, but worth it.

 

[BleedBlueGold]

As I said, you must hang with crappy pros. Those are called brokers and their only focus is freeing up cash for gambling with on your behalf. Trust me, I clean up plenty of other people's messes to appreciate the volume of complete garbage out there and a lot of it comes from trusting some putz who is fun to hang out with but whose only financial training consists of passing a licensing test - or worse and insurance agent who isn't even securities licensed hawking indexed annuities like an equity investment.

Big difference between saying "a lot of the time" versus "will always" do something. One is a generalization and the other is a bit more than that.

I don't disagree. My bad with the poor choice in phrase then.

 

[FightingIrishLover7]

No.

Sticking to budget, which included plenty of room for fun and good food, was key. It was hard, but worth it.

And your salaries must have been nice.

 

[RDU Irish]

Yeah, kind of jumped down your throat there and jumped on a soap box. My apologies.

 

[BleedBlueGold]

And your salaries must have been nice.

The student loans got paid off via my tenants. I posted earlier that I used their rent money to pay down that debt.

The rest was all my wife and me. We lived on what we needed and the rest of our income went towards debt. Tax refunds, bonuses, raises, birthday money, whatever we came across we threw at it, too. It's not just about salaries (although, yes, having a decent salary helps).

You'd be surprised on how little money it takes to provide you with only necessities. Sprinkle in a little fun money so you don't go insane and let it ride.

Just to clarify some math here: My other post said I paid down student debt in two years. Then I posted about the rest and it being paid off in the first year of marriage. Those are separate....so three years total (probably closer to three and a half now that I think about it). Essentially averaged $3000/month towards debt for about 42 months. Give or take. I've heard way more impressive rates, but I just wanted to clear that up. Again, if you keep your expenses really low, you'd be shocked how much extra money you'll have to pay off debt --> save --> invest.

 

[RDU Irish]

And your salaries must have been nice.

Big misconception. Some people never make enough and some never make too little.

 

[NDRock]

One thing I'll say is that you need to do what fits your personality best. You've basically been given two options.

1) Pay off the debt as soon as possible.
2) Pay your normal payment and use any extra money towards investing.

I hate being in debt and only owe on my house. I originally tried the 30 year route with the idea of investing extras money above what I normally do. I hated seeing how little progress I was making on the mortgage so went back to what fits me more (paying down debt quickly).

I'm good at scraping together extra money to put towards the house. My investments (IRA) on the other hand come automatically out of my checking account every month. If you're better at saving than going that route may be for you. Just don't do what many people do which is.

3) Pay minimum on your student loans and blow the extra money on other crap.

 

[koonja]

You guys are so damn smart. FWIW, I have ~ 10K in car debt, and ~270K in mortgage debt. My escrow is $1,900, which my 3 roommates cover (I pay all utilities which have been ~$400 a month).

Actually I have a $2k home depot loan, but that'll be paid by end of February so that doesn't really matter.

So assuming nothing comes up with home, my monthly's:

$500 for housing expenses
$500 for student loans
$300 Car payment
$100 cell phone
$100 (rounding) car auto insurance

 

[palinurus]

Koon's a single guy with three roommates. In 10 years he might be a married guy with three babies.

Or he might still be hanging around here with 300 babies.