Paying off student loan debt

[Sugaboogie]

I wish I came across WCI years ago to handle mine and my husband's student loan debt.  I'm hoping for some advice from others.

My husband just finished EM residency and is a new attending. I'm working in government and have an MPH degree. We need to pay down our student loan debt. Combined with our undergrad, grad and medical school loans, we have about $405K in debt. My loans have a 6.25% interest rate and my husband’s are 6.5%. We have already done consolidation with FedLoans and I signed up for PSLF. I already have 2/10 years of qualifying PSLF payments.

Now our combined income before taxes is approx. $360K. Now that our income has gone up significantly due to promotion for me and new attending salary, and with the uncertainty of PSLF, what are others in similar situations doing to pay off exorbitant student loan debt?

[hightower]

Depends on the interest rates in my opinion.  If you have ultra low rates (3% or less?), you have the option of taking your time.  For me, I would want them gone.  I paid off my high interest debt last year (approx. 130k at rates as high as 7.25%) and this year I'm paying off the low interest loans (another 102 k at 2.6%).  I personally just want to be debt free as soon as possible.  That's my plan for the next 12-15 months.

405K is a hefty amount.  You guys make good money and could afford to pay them off pretty quickly (assuming you're not living above your means).  I would just get rid of it quickly.  8 years is a long time to be making student loan payments, but that's just me.

However, others are going to want to know the rates and terms of your consolidation in order to give you a better answer

[Sugaboogie]

Thanks for the response and sorry I forgot to mention the interest rates.  My loans have a 6.25% interest rate and my husband's are 6.5%.

[AnotherSecondOpinion]

Sugaboogie wrote:

Thanks for the response and sorry I forgot to mention the interest rates.  My loans have a 6.25% interest rate and my husband’s are 6.5%.

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6.25-6.5% are pretty high rates still, I'd try to refinance those as soon as you can.  Interest alone is adding ~$26,000/year onto what you owe so you would need to pay >$2,000/month just to keep what you owe from going up even higher.  Refinancing will give you a little more of a cushion, but doesn't change the fact that you need to start paying that debt down soon.  Paying the minimum due each month will not get you to where you need to be.

In the meantime, you were used to living off his resident's salary, so you should probably continue to do so for a few years so you can focus on getting that student loan debt under control (you can no longer write off interest paid since you're making so much now).

[Anesthesia84]

I would refinance with one of the recommended companies on this website (SoFi, Earnest, etc). My husband and I both refinanced ours a couple of years ago from 6.8% to a variable rate (now up to about 3.3%) when I became an attending..... But we kept living like residents. We had about 600k of student loans and on a combined salary of about 350k (he was still a fellow) we have managed to cut it down to about 400k. It feels great to see that number go down and our net worth go up!

[Sugaboogie]

Thanks everyone for the info.  We met with our CPA to discuss paying off the student loans asap, but he was not savvy about federal student loans.  He also could not give us any better advice other than budget and pay more towards the principle balance (like we didn't know this already).  So that was a waste of our time.  I also discovered my husband has a 7% interest rate and not 6.5% like I thought.

Anesthesia84 did you refinance with SoFi?  Did they only offer you both a variable interest rate?  I mentioned refinancing to my husband but he's wary of refinancing with a variable rate, even if its lower than our fixed rate.  Can you or anyone speak to if any of the vetted refinance companies offer fixed rates?

[AnotherSecondOpinion]

Sugaboogie wrote:

Thanks everyone for the info.  We met with our CPA to discuss paying off the student loans asap, but he was not savvy about federal student loans.  He also could not give us any better advice other than budget and pay more towards the principle balance (like we didn’t know this already).  So that was a waste of our time.  I also discovered my husband has a 7% interest rate and not 6.5% like I thought.

Anesthesia84 did you refinance with SoFi?  Did they only offer you both a variable interest rate?  I mentioned refinancing to my husband but he’s wary of refinancing with a variable rate, even if its lower than our fixed rate.  Can you or anyone speak to if any of the vetted refinance companies offer fixed rates?

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I refinanced a few years ago with SoFi and found it to be a very smooth process.  I did go with a variable interest which obviously climbed a little each month. Once it got above 4%, I refinanced with another company into another variable rate loan which is still in the low 3%.  The longer you wait, the more interest they are happy to charge you.

[Dreamgiver]

I refinanced 14 months ago with Earnest at 2.6% variable rate, slowly climbed up to 3.1% last month, just refinanced with elfi with variable at 2.39%. Going variable has saved me a lot of money compared to fixed. Of course, you run the risk of the rates going up much faster than they have been. I do not see that happening any time soon based on the current economy. And, even if it were to happen, I would just pay off my balance quickly. More risk=more gain. You pick your comfort level within that equation. Also keep in mind that many variable loans have a ceiling beyond which the rate won't go so it is a controlled risk.

[HandFellow]

WCI did a podcast on the risks and benefits of refinancing at variable rates vs. fixed rates.  It was about 6 weeks ago, if i recall.  Realistically, a variable rate would have to explode to approach 7%.  You can never predict when rates will increase and if you get wary of the rates increasing, you can always refinance to a fixed at that time.  It is a gamble, but as a high salary couple, you should be able to mitigate that with a faster repayment.  Either way, refinance to something.  Regardless of what you do, it is better than your current rate

[Dru]

They do all offer fixed rates too. I've used SoFi x2; they put the rates side by side (e.g. 5yr variable, 5yr fixed. 7yr variable, 7yr fixed, etc).

[The White Coat Investor]

Sugaboogie wrote:

Thanks everyone for the info.  We met with our CPA to discuss paying off the student loans asap, but he was not savvy about federal student loans.  He also could not give us any better advice other than budget and pay more towards the principle balance (like we didn’t know this already).  So that was a waste of our time.  I also discovered my husband has a 7% interest rate and not 6.5% like I thought.

Anesthesia84 did you refinance with SoFi?  Did they only offer you both a variable interest rate?  I mentioned refinancing to my husband but he’s wary of refinancing with a variable rate, even if its lower than our fixed rate.  Can you or anyone speak to if any of the vetted refinance companies offer fixed rates?

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I'm not sure it was a waste of your time. Just because the answer isn't complicated doesn't mean it isn't the right answer. The way you get rid of debt is by throwing a lot of money at it. Yes, there are some things you can do that help a little on the edges, but for the most part, it's all about spending less and directing more of your income at the loans.

Since your husband is not going for PSLF, for sure refinance his loans. Pick 2 or 3 companies off this list: https://www.whitecoatinvestor.com/student-loan-refinancing/ and apply (it's very easy after the first one). Take the one with the lowest rate. Make a written plan to pay enough toward them that they're gone in 2-5 years. Now, if you're willing to do that, you can run the interest rate risk yourself and take a 5 year variable loan which offers the best rates. You might get something in the 3% range. So that probably saves you something like $10K in interest this year. That's nice and it helps a little, but it doesn't make nearly as big a difference as throwing $10K a month at the debt all year.

Your loans are a little more complicated because you are working for government. If you're okay with being in debt for 8 more years and think that for sure you'll keep working for government and that you're highly likely to be grandfathered in if PSLF changes, then I guess you could stretch them out for 8 more years paying the minimum and then get a little bit forgiven at the end. But I suspect your loans are much smaller than his, and given his income, I wouldn't be surprised to see you pay them off right after you all are done with his in a few years.

To answer your question, yes the companies offer fixed rates that are better than 7%. But if I were in your situation, I'd run that interest rate risk myself and get an even lower rate because I would be planning to be rid of that debt so soon the interest rate wouldn't be a big deal.