Student Loan Refinance Options

[Jets28]

Hey everyone,

I'm new to this site and the finance world in general, thus looking for advice on my loan situation. I'm currently a PGY1 with ~230k in loans with interest ranging from 6.2-6.8% and was looking to refinance as I will not be pursuing PSLF and ideally would like to have my loans paid off within 2-3years after residency. I applied through all of the companies listed on this site and with my max monthly payment ~$1900 my best options are:

20yr 5.44% Fixed $1600/month

20yr 3.9% Variable $1400/month

15yr 3.7% Variable $1700/month

Now my question is basically which one? Long story short I am inclined to go with the variable given everything I've read about variable vs. fixed, but I'm hesitant given the current trend of interest rates (variable here based on 1 month LIBOR). Obviously I'm aware of the "risk" of choosing the variable, but my question is - is that risk substantially higher now given the current state/uncertainty of things?

Thanks for the help in advance!

[East coast]

Is option four - Enter REPAYE for the remainder of training to get some assistance w the interest, followed by refinancing directly after you finish w an attendings salary to get a better rate an option?

Also, how long a residency are you in? If it's a 5 year residency and thus a 7-8 year payoff horizon, that's an awfully long time for a variable rate to change. I wouldn't be able to stomach that given the payment's potential to ballon beyond the $1900/month limit.

[MaxPower]

Yeah I think it depends on the length of the residency/fellowship. When I did the analysis, going variable with a rate of 2.67% (now up to 3.01%) compared to 6.8% fixed was a no brainer. To make it worse for you, variable rates would have to rise above the 6.2-6.8% average you have (since some would be paid off at the lower interest rate, your weighted average could still be less even if rates go above 6.8%).

But again, the length of the residency is key in making this analysis.

[Jets28]

I'll be in residency for three years (EM) and most likely not doing a fellowship afterwards, so in all I would hope to have everything paid off in 5-6 years from today.

I thought about option 4, but to be honest I'm still slightly confused by it. I understand the 50% (all my loans are unsubsidized) interest assistance through REPAYE but, and correct me if I'm wrong, if I want to pay off the loan as soon as possible/allowing the least amount of interest to accrue my thought is to put as much into the loans per month that I am comfortably able too, which in the past few months I believe has covered the interest (again, I'm really new at this so I could be way off). Therefore I won't necessarily benefit from the interest breaks from REPAYE?

[The White Coat Investor]

I agree with the others. Refinance private loans now, put federal loans into REPAYE and refinance it all again when you have an attending contract in hand and can refinance to a 5 year, probably variable, loan you can pound out in 2-3 years of living like a resident.

I think you will benefit from the REPAYE interest break, but run the numbers to see just how much. If it is really a tiny break, then you may want to refinance, but I doubt it. Plus, staying in REPAYE keeps PSLF on the table, just in case you decide academia is for you.

[DMFA]

You might want that money for something else while you're in residency, since unless you live with your parents, that $1400/month is going to be a very large percentage of your disposable income.  RePAYE should be at max $300/mo now (if you only earned for half of 2016, then it should be like $83).

If you stick with RePAYE all the way through (should be about $300/mo now), I estimate you'll spend about $344,273 over the life of the loan.

If you do RePAYE in residency and refi when you make attending (more money to spend and prob better interest rates) and pay it off over 5 years (I'll still use 3.7%), you'll pay $282,220 over the life of the loan while paying $4,506.63 per month ($54,080/yr) as an attending (1/6 your income).

This assumes you're single, make about $55,000 as PGY1, will make about $325,000 out of residency (right around EM average), won't do PSLF, and don't live in AK/HI.

Attached is an image with my calculations.

[Jets28]

Perfect, thank you for all of the help! I'll stick with RePAYE and then refinance at the end of residency. My last question then is about maximizing the interest breaks with RePAYE. I have four different federal loans with the interest rates above, if I pay the minimum for each loan and then add additional funds to just one of the loans, the other three will still receive the tax benefit?

So I should essentially put extra payments toward my lowest interest rate loan first (since I will be covering the interest), so that the others receive the 50% break? Seems backwards...

[DMFA]

The interest subsidy only applies to unpaid interest each monthly period on each loan.

[Sergio Estavillo]

Jets28 wrote:

Perfect, thank you for all of the help! I’ll stick with RePAYE and then refinance at the end of residency. My last question then is about maximizing the interest breaks with RePAYE. I have four different federal loans with the interest rates above, if I pay the minimum for each loan and then add additional funds to just one of the loans, the other three will still receive the tax benefit?

So I should essentially put extra payments toward my lowest interest rate loan first (since I will be covering the interest), so that the others receive the 50% break? Seems backwards…

Click to expand...

The REPAYE interest subsidy is based on required payment, not actual payment.  The interest subsidy will only decrease if your targeted payments are sufficient to pay down principal.

Another strategy is to pay only the minimum and save the remaining in an interest bearing account (Ally or Synchrony Bank).  Because accrued interest is not capitalized while in REPAYE, generate some interest and delay payment until you opt out of REPAYE.