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[Lanbeast]

My father in law notified me that Citizen's Bank is now offering to refinance student loans at a lower interest rate. You can check it out here for yourself.

I wanted to see if anyone here more knowledgeable about variable interest rates could give me some advice.

My situation: Currently I have about $17,600 in student loans at a 6% interest rate. I'm currently paying around $800 a month towards them, and may raise that closer to $1,000-1,100 since I just took a promotion. I want to get rid of these as soon as possible since my wife and I may start trying for a baby next year.

According to their website, their variable interest rate is currently as low as 2.31% and based on LIBOR. If I'm planning on making the proposed payments above, I should have the loans paid out in a year and a half or maybe a little sooner. Even if I went for the fixed rate, it would probably be lower than my 6% (they propose as low as 4.74%).

My credit is very good and I have about 5 years of payment history to FedLoans.

Question: Is it worth going after the variable interest rate, or is there a lot of risk involved in doing so? I understand how one works, I just don't have any experience with them to know if I'm taking a risk over a 1.5 year (or so) loan.

Thanks, GAF!

 

[whytemyke]

Last time I looked into it, I remember seeing that the laws were rewritten so that your interest rate can only be an average of your current ones combined.

Also, if you refinance, even death can't save you from the debt, as the banks would get permission to go against your estate, and basically take your student loan debt from your loved ones should you die.

The banks just absolutely ruin this country and I almost regret ever taking out loans in the first place.

Plus, you're out of your mind, imo, for even considering a flexible rate after the crap that went on with the housing market a few years back.

I mean, I know it's different sectors, but damn.

 

[lobdale]

Over that small of a remaining time period and payments as big as you're going to make on a (relatively) small balance it's not going to make a huge difference if you switch or not. At any rate it's not likely you get burned more than a few percent if at all.

 

[Bubba T]

My father in law notified me that Citizen's Bank is now offering to refinance student loans at a lower interest rate. You can check it out here for yourself.

I wanted to see if anyone here more knowledgeable about variable interest rates could give me some advice.

My situation: Currently I have about $17,600 in student loans at a 6% interest rate. I'm currently paying around $800 a month towards them, and may raise that closer to $1,000-1,100 since I just took a promotion. I want to get rid of these as soon as possible since my wife and I may start trying for a baby next year.

According to their website, their variable interest rate is currently as low as 2.31% and based on LIBOR. If I'm planning on making the proposed payments above, I should have the loans paid out in a year and a half or maybe a little sooner. Even if I went for the fixed rate, it would probably be lower than my 6% (they propose as low as 4.74%).

My credit is very good and I have about 5 years of payment history to FedLoans.

Question: Is it worth going after the variable interest rate, or is there a lot of risk involved in doing so? I understand how one works, I just don't have any experience with them to know if I'm taking a risk over a 1.5 year (or so) loan.

Thanks, GAF!

The risk with variable rates is if the LIBOR index increases, your rate can increase as well. If you plan on having the loan paid within 18 months, a small rate change shouldn't be that big of a deal. However, if you were to be on a 10-30 year repayment plan, this would have a big impact on your monthly payments.

Unless there is a economic event that causes rates to rise substantially within the next year and a half, I don't really see the risk of going variable. Of course if your plans change and you need to stay on a longer repayment plan, coupled with the global economy growing therefore raising prices all within the next 18 months, then fixed terms seem to be the 'safer' choice.

Last time I looked into it, I remember seeing that the laws were rewritten so that your interest rate can only be an average of your current ones combined.

Also, if you refinance, even death can't save you from the debt, as the banks would get permission to go against your estate, and basically take your student loan debt from your loved ones should you die.

The banks just absolutely ruin this country and I almost regret ever taking out loans in the first place.

Plus, you're out of your mind, imo, for even considering a flexible rate after the crap that went on with the housing market a few years back.

I mean, I know it's different sectors, but damn.

Please spare us the rhetoric. The OP plans on paying off his loan in a short amount of time and is seeking on paying the least amount of interest in the meantime.

The deal with the housing market is completely different from what OP is trying to do. Those people were purchasing ARM loans with no plan to pay it off in a short amount of time. OP isn't doing so.

 

[Lanbeast]

The risk with variable rates is if the LIBOR index increases, your rate can increase as well. If you plan on having the loan paid within 18 months, a small rate change shouldn't be that big of a deal. However, if you were to be on a 10-30 year repayment plan, this would have a big impact on your monthly payments.

Unless there is a economic event that causes rates to rise substantially within the next year and a half, I don't really see the risk of going variable. Of course if your plans change and you need to stay on a longer repayment plan, coupled with the global economy growing therefore raising prices all within the next 18 months, then fixed terms seem to be the 'safer' choice.



Please spare us the rhetoric. The OP plans on paying off his loan in a short amount of time and is seeking on paying the least amount of interest in the meantime.

The deal with the housing market is completely different from what OP is trying to do. Those people were purchasing ARM loans with no plan to pay it off in a short amount of time. OP isn't doing so.

Great response, thank you. I didn't figure I was putting myself out to too much risk by taking the variable loan due to the time frame but I just needed an outside voice or two to push me to do it.

 

[Zaraki_Kenpachi]

If it's that short then variable interest rate should be fine but if it's longer I wouldn't touch variable at all.

 

[aerts1js]

This is pretty timely; I was looking into doing this as well..

 

[BoboBrazil]

Isn't student loan interest a tax write off? What's the benefit of a refinance? Also, never do a variable rate apr. They try to make it sound appealing, but it is the worst thing you could ever do.

 

[pj]

Bumping because my situation is almost exactly the same as OP's.

Anyone done this and have recommendations for which bank to use? I heard mixed things about SoFi so I put in an application with this place, and now I'm waiting for them to approve my paperwork.

https://student.drbank.com/index.php

Isn't student loan interest a tax write off? What's the benefit of a refinance? Also, never do a variable rate apr. They try to make it sound appealing, but it is the worst thing you could ever do.

Student loan interest is deductible, meaning if you paid $2,000 in interest last year, and had $50,000 in income, your adjusted income would be $48,000. There is also a $2500 limit on the deduction, and it starts phasing out at $60,000 income and is gone if you make more than $75,000. I believe you retain the tax benefits if you refinance federal student loans with a private bank, but you do give up the deferment and forgiveness options.

For me the benefit of refinancing is solely the reduced interest rate. I plan to repay the rest of my student loans in the next 3 years and the drop in interest rate from 6% to ~2% will save me around $1500.

I think the main risk is picking a shitty bank to work with. The 3 month LIBOR that these variable rate loans are indexed to have not been over 1% in nearly 6 years (it's been under 0.3% for 2 years). Even if the market goes nuts and it jumps to 4%, the rate I pay will still be around 6% which is what I'm already paying.


P.S. DRBank has a $200 referral program so if anyone wants to refinance their loans hit me up and we can split it