Should I Refinance My Student Loans?
Lisa and her husband are on Baby Step 2. All of their debt is student loans. They're considering a refinance of the loans. Is that a good idea? Dave lays out some guidelines for doing a refinance.
QUESTION: Lisa in Arizona and her husband are on Baby Step 2. All of their debt is student loans, and they owe $65,000. They’re considering a refinance of the loans and just received an offer in the mail from a private company offering to do that for a lower rate. Is that a good idea? Dave lays out some guidelines for doing a refinance.
ANSWER: The private company would be facilitating you in doing a refinance of your government loans; I don’t think it’s going to become a private student loan. Here are a couple of things to watch for.
First, you are only able to do a Sallie Mae refinance one time. The second thing is that you have to get a fixed rate. The third thing is that the fixed rate has to be lower than your total aggregate rate, which is your weighted average rate of the loans you have now.
Based on the rates you gave me, you wouldn’t do your refinance at much higher than 6%. In other words, you don’t want to pay more total interest when you’re done than what you are paying now. You can calculate what you’re paying with the interest rates from all the loans and add that up as your annual. Then if you add up the new rate and multiply it by the total of all of them combined equals a certain dollar amount. That is comparing your aggregate, or weighted average, rate.
You have to be careful because you could end up paying more interest just to have one check, and it’s not worth doing that. I actually like them being broken down into little ones because I can knock them out. If you can get the whole bunch on a 5% fixed rate, I would do it.
No balloon rates or variable rates, just a fixed rate. Then just keep going after it.