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Fixed vs. Variable rate student loans

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  • Fixed vs. Variable rate student loans

    Trying to decide the best way to refinance our student loans. I have about $115,000 and my wife about $185,000. We have been approved for the following rates to refinance through SoFi:

    5 year: variable 2.14%, fixed 3.5%

    7 year: variable 2.44%, fixed 4%


    I don't know if we can afford the monthly payments at 5 years, so we'll probably go 7 year repayment. Which plan would you go with?

    I know interest rates are historically low, and I can take advantage of the initial low variable rates for the early part of repayment when the principal is highest. I just don't know how likely it is that the rates go up high enough that I'd lose out using the variable rates. I could also hedge my bets and go with fixed for one of ours and variable for the other I suppose.


  • #2
    I just did this again, for the third time. I went with the variable, rates have been lower every time I refi, and if they get above the fixed amounts for a sustained period very quickly I'll be pretty shocked, and you have options of course to change it if needed.


    • #3
      How quickly do you plan on paying the loans back? If it is going to be a relatively short period of time, I would go variable and look to aggressively pay them down.
      Lawrence B. Keller, CFP, CLU, ChFC, RHU, LUTCF


      • #4
        I think the fastest we can do is to try to get them paid off within 5-7 years.

        I just don't know how likely it is that the rates go up significantly in the first year or two causing us to finish behind where we'd be with the fixed rate.


        • #5
          I have a similar issue. I have a PharmD and finished my PGY1 2 years ago. Now with my wife, our combined income is $200k.

          Is it worth the trouble to switch to a variable rate student loan compared to a fixed rate? ? I’m just trying to come up with ways to motivate ourselves to be as aggressive as possible in paying this off. I wonder if it’s worth checking the other lenders as well if I’m already getting 4%.

          Background: We refinanced $152k student loan at 4% (after including the autopay bonus) over 7 years repayment with SoFi about 6 months ago. Now we’re paying it off aggressively. At this rate, we should be done in 3.5 years or maybe even shorter if we budget right.

          I went back to see if SoFi can give me a better rate (ended up getting another hard pull – bummer!) and SoFi offered a 5 year term with variable interest rate starting at 2.94%
          (Caveat is “The interest rate may increase or decrease over the life of the loan, but will never exceed 8.95% for 5 or 10 year loans, and 9.95% for 15 or 20 year loans”)

          By my calculation, it looks like we’re be able to shave off over $4k or more in interest over the course of the entire loan if we continue on our 3.5 year track or maybe even down to 2 years if we're on rice and beans budget. Is that worth the variable rate risk and I wonder if it's possible for us to do better than 2.94%?



          • #6
            Personally, I'd go variable for both. The variable rates would have to go up quite a bit in a short period of time to lose money. I think it's worth the risk.


            • #7
              We went with variable.  Looks like rates have come down quite a bit!

              If you have the income to make paying them aggressively a possibility, I would go with the variable.  They are unlikely to go up very fast.