skiridedrive wrote:Solicitation for Advice:
Thanks for the info so far everyone. Here is a situation, if anyone has advice/experience to add.
154K in loans - all federal
1 Year in Big Law
1.5 years outside big law
Paid loans fairly aggressively
125K plus 20% target bonus (almost certainty)
Current Federal Loans - 112k at weighted average of 7% (some at 7.65 some at 6.55)
Expected payoff in approximately 6 to 7 years.
Currently on 25 year repayment, paying minimum on all accounts except highest interest rate, dumping aggressively into high interest rate account (7.65%).
Never missed a payment on anything, ever. Assuming cred is good, but high debt (also owe 14,000 on vehicle).
Low risk, fixed rate (I can be talked out of either with solid reasoning). Going private scares me a bit as it does not offer the federal protection if by chance I lost my job. Not likely, but I am risk averse.
Plan moving forward:
Apply to SoFi, DRB, Common Bond - and see what rates they offer for 10 year fixed. I prefer 10 year since it gives me some flexibility moving forward. Assuming it will end up with something around 5% fixed for 10 years?
Thoughts on risks of private vs federal? Thoughts on any differences between the way the interest is calculated? Thoughts on fixed vs variable?
I would definitely refinance and would probably take the lowest variable rate available. Unless your expenses are high, you're earning enough to put away significant cash. You can either put that money into investments (likely mostly stocks or real estate since you're in the early stage of your career) or use it to pay down your loans more quickly.
The high-return play would be to pay the minimum on your loans and gamble for investment returns that outpace your loan interest. The low-risk play would be to put enough money aside to weather unexpected financial shocks (losing job, car replacement, medical expenses, etc) and then dump excess earnings into your loans to get the guaranteed ROI of reducing interest on the outstanding principal.
Standing pat with 7% loans is, in my opinion, simply wasteful given your position. I don't see how it's lower risk than refinancing to a lower rate private loan and keeping a rainy day fund to buffer any financial shocks. And standing pat is certainly more costly given the lower rate you could get by refinancing.
I would lean toward a variable rate because your debt to income ratio will likely be low enough that you'll have the option to pay off the principal quickly in the event that the interest rate increases significantly. You're going to be able to handle changes to the minimum payment amount, so I don't see a good reason to pay extra to fix your rate.