Determining Term When Refinancing Loans

[Woody C]

I recently graduated from residency with $351,000 in student loan debt (on top of my and my wife's consumer debt & her student loans). I am looking to refinance the loans and I am trying to determine how many year term to refinance for my debt.

I know that WCI recommends 5 year due to lower APR and to get it off quickly, but I feel that this is great for people $150,000-$200,000 in debt who's repayment isn't going to be $7,000 a month with the 5 year plan. I would love to get the debt off my back ASAP, but don't want to live below the poverty line to do so, especially with a wife and kid(s).

So my question is, how would you calculate or determine how long the repayment term should be when refinancing your loan?

[thedoc23]

Hello Woody,

 

I too have this very same question. I just finished residency with around 400K in debt. My dilemma  right now is do I refinance a 20 year loan with SOFI or do income based repayment. If I did the 20 year refinance my min payment would be 3K a month. I would try to pay close to 5K but if needed to could pay less. But I feel at that rate I will never pay it off. So, at the moment Im lost as what to do. Any thoughts?

[jhwkr542]

I would take the difference of your monthly aftertax pay when you get a paycheck or two and then add it to your current monthly loan payment to figure out your max monthly payment and get as close to that number as possible. This is essentially the definition of "live like a resident". You may want to budget out big expenses (larger tax bill, vacation, backdoor roth, etc). I wouldn't factor in bonuses because those are just lump sums where you wouldn't be able to make that payment monthly. Just throw them at loans when you get them.

[Sergio Estavillo]

Woody C wrote:

I recently graduated from residency with $351,000 in student loan debt (on top of my and my wife’s consumer debt & her student loans). I am looking to refinance the loans and I am trying to determine how many year term to refinance for my debt.

I know that WCI recommends 5 year due to lower APR and to get it off quickly, but I feel that this is great for people $150,000-$200,000 in debt who’s repayment isn’t going to be $7,000 a month with the 5 year plan. I would love to get the debt off my back ASAP, but don’t want to live below the poverty line to do so, especially with a wife and kid(s).

So my question is, how would you calculate or determine how long the repayment term should be when refinancing your loan?

Click to expand...

Most refinancing lenders (First Republic, Sofi, DRB, etc.) don't assess a prepayment penalty.  You could initially request a 10-year repayment period and prepay as resources allow.  A 10-year, 4% interest rate at $351k results in payment of ~$3,553/month.  Also, some lenders have a ceiling on the amount eligible to refi.  Good luck!

[Sergio Estavillo]

thedoc23 wrote:

Hello Woody,

 

I too have this very same question. I just finished residency with around 400K in debt. My dilemma  right now is do I refinance a 20 year loan with SOFI or do income based repayment. If I did the 20 year refinance my min payment would be 3K a month. I would try to pay close to 5K but if needed to could pay less. But I feel at that rate I will never pay it off. So, at the moment Im lost as what to do. Any thoughts?

Click to expand...

Hi thedoc23,

If you're considering remaining in the federal system via one of the income driven repayment programs (PAYE, REPAYE or IBR),  we need some additional information:

• What's your loan principle balance, accrued interest, and interest rate? Is all federal student loan debt? Check on www.nslds.ed.gov


• Were you in an IDR repayment program while in residency?  If so, for how long?


• What's your attending AGI?  Can you estimate projected AGI?


• Are you married?  If so, does your spouse have any federal student loan debt and spouse's income?


• Any children?


• Any other significant financial obligations?

Thanks!

[Joy Sorensen Navarre Navigate]

Hello Woody and thedoc23,

Your questions are complex because they have immediate AND future impact. It's important to get the perspective of your peers and a professional financial planner. I recommend asking the advice of Joanna Fox Turner. She's a moderator of the Forum. Her profile includes contact information. She understands the complex world of physicians.

All the best,

--Joy

[Joy Sorensen Navarre Navigate]

You may like to see an example of recent rates. Last week a client received these refinance rate offers on $310k medical education debt:

Citizen Bank  5.79% 5 year fixed

College Ave 5.13% 5 year fixed

Sofi 3.99% fixed 5 year rate and 4.50% fixed 7 year rate

Commonbond Hybrid Loan 10 year plan. First 5 years fixed rate 4.59%, last 5 years variable

[DMFA]

I'm guessing you don't work for a 501c3 or public institution...

Obv shorter term = less $ wasted, but it entirely comes down to how much you want to delay gratification or not. The best mathematical scenario isn't necessarily the best overall.

Def sit down with or teleconference with a planner. It sounds like you've got a lot on your plate.