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7,10, or 15 year refinance?

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  • 7,10, or 15 year refinance?

    I am wanting to refinance my student loans. Currently they are $215,000. Household income is $228,000. I’m 30 years old, in a high cost of living area with a wife and baby.


    7 year fixed is 2.8% - $2835 per month
    10 year fixed is 2.99% - $2092 per month
    15 year fixed is 3.35% - $1541 per month

    I currently max out my 401K. If I did the 7 year I wouldn’t be able to do that.

  • #2
    I would do the shortest term while still being able to max at all my tax-advantaged accounts. It likely isn't the best financial move but it isn't a bad one. Personally, I preferred to get rid of my loans as fast as I could and I never regretted it.

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    • #3
      I feel like I may have been in a similar "predicament" at one time... However, with some serious soul searching I was able to realize that I could afford to refi my loans into a 5 year repayment plan and still max out two 401ks and maximize other tax deferred accounts. Only other debt at this time is mortgage debt. I'm in a relatively low cost of living area so I have to empathize with you being in a higher cost of living locale. You could also look at the options for a variable rate loan... I know everyone thinks interest rates are about to go up but it did work out for me (this was 3 years ago though).

      Best of luck!!

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      • #4
        I think prioritizing tax-advantaged accounts is important. However, it would be nicer to see a broader budget for you to get a better idea for any areas of wiggle room. My husband and I absolutely don't regret paying off my student loans ASAP (and our debt:income ratio was much higher than your is, with 2 kids at the time).

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        • #5
          I would follow the 20% retirement savings and then see what I could do. The spending includes loan repayment.
          $228k x 20% = $45.6k. - $20.5k = $25.k additional needed for retirement.Not what you wanted to hear I am sure.
          Gross - taxes-retirement (20%) = spending.
          Use the 15 year and manage your spending. Shorting the retirement savings another decade will come back to bite you.

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          • #6
            You could refinance to a 10 year and plan to make extra payments to top up to $2400/month (or whatever your budget will allow after you have maxed out your tax-advantaged accounts), in effect, creating an 8 or 9 or whatever year refinance.

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            • #7
              Originally posted by CordMcNally View Post
              I would do the shortest term while still being able to max at all my tax-advantaged accounts. It likely isn't the best financial move but it isn't a bad one. Personally, I preferred to get rid of my loans as fast as I could and I never regretted it.
              ^^^

              This is great advice. I think its extremely important you pay yourself (retirement accounts) and pay down your loans as quick as you can.
              Helping student loan borrowers manage their student loans. StudentLoanAdvice.com. [email protected]

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              • #8
                Originally posted by Andrew StudentLoanAdvice View Post

                ^^^

                This is great advice. I think its extremely important you pay yourself (retirement accounts) and pay down your loans as quick as you can.
                Yes, both are important. However, is the retirement at 20% more important than SL’s?
                How to tax efficiently fill 20% is different than retirement/SL choice.
                That is why “filling out tax advantaged accounts” causes me indigestion. Depends what is available.
                Maxing out 401k at $20.5 is not close. Less than 10%. I don’t think retirement and SL are equal.
                The typical trade off is between SL and housing.
                This OP is not different. HCOL with wife and a baby.

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                • #9
                  I also cannot decide if I should wait to refinance closer to May and see if they extend the forbearance.

                  Comment


                  • #10
                    Originally posted by Tim View Post

                    Yes, both are important. However, is the retirement at 20% more important than SL’s?
                    How to tax efficiently fill 20% is different than retirement/SL choice.
                    That is why “filling out tax advantaged accounts” causes me indigestion. Depends what is available.
                    Maxing out 401k at $20.5 is not close. Less than 10%. I don’t think retirement and SL are equal.
                    The typical trade off is between SL and housing.
                    This OP is not different. HCOL with wife and a baby.
                    It really depends how OP feels about debt. I'm in more of the debt averse category and we paid of our loans super quickly. I'd probably do the 10 year with maxing out 401k and then once loans are paid off begin contributing the 20% to retirement.
                    Helping student loan borrowers manage their student loans. StudentLoanAdvice.com. [email protected]

                    Comment


                    • #11
                      Originally posted by DDStigers View Post
                      I also cannot decide if I should wait to refinance closer to May and see if they extend the forbearance.
                      Well, if you don't want to wait you could refinance now. Rates are low and it wouldn't hurt you much in the long run. You would be throwing away a couple months of 0% interest but you'd likely get a lower rate now then waiting until the end of the year when rates will most likely be higher.

                      I'd get quotes in April and if payments resume go ahead and refi. If they get pushed back to later this year then I would pause refinancing until they resume.
                      Helping student loan borrowers manage their student loans. StudentLoanAdvice.com. [email protected]

                      Comment


                      • #12
                        Originally posted by Andrew StudentLoanAdvice View Post

                        It really depends how OP feels about debt. I'm in more of the debt averse category and we paid of our loans super quickly. I'd probably do the 10 year with maxing out 401k and then once loans are paid off begin contributing the 20% to retirement.
                        Leaves a big hill to climb. Starting 20% retirement savings at 40 seems to be path to a long road. SL are part of the spending, short the retirement and hope it works out. Of course at 40, maybe the house and college short the retirement again. Not living within your mean and rationalize it as debt a 3% interest.
                        I prefer matching the debt with the asset, which was the income earnings stream and save for retirement. No debt available for that.
                        Respectfully disagree. Bypassing Roth x2 at a minimum would seem to be a mistake.

                        Comment


                        • #13
                          Originally posted by Andrew StudentLoanAdvice View Post
                          I'd probably do the 10 year with maxing out 401k and then once loans are paid off begin contributing the 20% to retirement.
                          I strongly disagree with waiting ten years after finishing training to start saving 20% of gross income towards retirement. You should manage your affairs so you can save at least 20% towards retirement while killing off your student loans within 2 to 5 years. Assuming you are physically and mentally fit, you’d be better off from a financial perspective to take an HPSP service commitment than to incur med school or dental school debt that you can’t pay off within five years while saving sufficiently for retirement. (If you’re going for public service loan forgiveness, it’s reasonable to take ten years, but you should save 20% towards retirement and also have a PSLF pay off side fund fully funded on a ten year timeline in case PSLF doesn’t work out for whatever reason.)

                          You can choose to live in a high cost of living area, a low cost of living area, or something in between. You and your spouse can choose to have your spouse work full time, part time, or not at all. You make your choices, but you don’t get a pass on the math necessary to pay off your student loans and eventually retire. Typically it’s far more comfortable to live like a resident (or a dental student) for a few years, kill off your loans, and then increase your lifestyle spending. Far worse to ramp up your lifestyle as soon as you start working as a fully trained doc, save inadequately for retirement and keep your student loans long term, then tighten the belt and retire in relative penury. Crock pot food and homemade lasagna is better for a few years when you’re starting out versus tins of Alpo when you’re retired.

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