Anonymous User wrote:
Anonymous User wrote:I'm too risk averse to refi my entire debt load with SoFi.
I followed your thinking until I actually sat down with my SoFi offer. I had a lot of debt too and thought about only financing a portion of my loans. The more I thought about it though, the less it made sense. In order to preserve any sort of "safety" net from IBR/PAYE, you need leave your high interest rate federal loans outstanding and pay down your lower rate SoFi loans first. If you don't you're still screwed if you lose your job because all of your loans are private (even though SoFi has a deferral program and some assistance if you lose your job).
The second prong of my reason to refinance basically all of my loans was that my rate cap from SoFi was 8.95%. That was less than 2% higher than the overall rate on my federal loans. Worst case I would wind up paying a few hundred bucks more a month than I would have to the feds. In reality though, it's extremely unlikely that I'll hit the rate cap anytime soon and in the meantime I get a net benefit of saving 3%+ in interest payments each month. That makes it easier to pay down the overall principal faster anyway, which minimizes my interest rate risk if rates do rise.
TL;DR - I think it's worth refinancing all of your loans at a favorable rate (fixed or variable is up to you) rather than splitting the baby and only refinancing part of your federal loans.
Quoted anon here: Yeah...I get it and I agree that I am potentially losing some upside by not refinancing all of my debt with SoFi. For me, thats okay. My analysis treated IBR/PAYE as insurance. The question was very much "how much insurance do I want to "buy" by not refinancing some of my loans?"
My decision was based on trying to balance a spectrum of risk marked by three "nodes" if you will. (i) On the very left side of the spectrum is the possibility of getting 2008/09 fucked and losing my job unexpectedly. If that happens, I am screwed if I have any SoFi loans outstanding (not considering their deferral program since its yet to be put through its paces). (ii) In the middle of the spectrum, economy is okay, growing but not "New York to 190" or anything crazy, and I get pushed out of or otherwise leave big law around year 4, 5 or 6. (iii) On the very right side of the spectrum, the economy flourishes and I end up staying at the firm for the next 20 years, making partner along the way and buying a house in Westchester. In this scenario, any of my loans not refinanced with SoFi are counted as a loss as I've left interest savings on the table and never really needed IBR/PAYE insurance anyway.
Now, I think that the second possibility is most likely. I don't know how likely, but for the sake of illustration, for me, perhaps 70% likely given the firm I am at, my appetite for big law, location of family, etc. I think the chance of "New York to 190" and/or making partner is less than 5% and the chance of being Lathamed, again given a variety of factors, including the economy, the firm I am at and their past behavior and current behavior, is 20%. So, just like buying insurance from Flo at Progressive, I thought about the possibilities and their relative likelihood, rounded risk and likelihood up a bit for the sake of being conservative, and decided to refinance $100k. The combination, I think, given my situation(s) and tolerance for risk, is a rational balance struck with the objective of balancing the gain of saved interest and the risk of lost IBR/PAYE safety net. If everything goes well in the next 5-7 years then I will lose money I would have otherwise saved by refinancing all of my loans....I am okay with that in exchange for the peace of mind that I am not completely fucked if I get laid off and have only SoFi's untested deferral program to rely on.
TL;DR: No right answer here for everybody. Refinance what makes you comfortable with the understanding that you may or may not be leaving money on the table. I overbuy car insurance too. Even if I'm never in a catastrophic car accident...I'm cool paying more and knowing that I'll be okay if I am ever so unfortunate.