Hey everyone, just looking for some advice on what to do with my student loans. I graduated a few years ago and currently have $45k in student loan debt split between federal and private loans. The federal loans are at 3.5% interest and the private ones are at 6.8%. I make about $65k a year, and I've been paying the minimums so far but I've saved up a decent emergency fund of about $15k. I'm thinking about either refinancing the private loans to get a better interest rate or throwing more money at them to pay them off quicker. I've heard mixed opinions about refinancing—some say it's a lifesaver, others say it's not worth it. Also, my car's getting pretty old and might need replacing soon, and I'm a bit worried about diverting too much cash into loans in case something like that comes up. What would you guys do in my situation? Would love to hear from anyone who's been through this or has some insights!
Should I refinance my student loans or pay them off aggressively?
byu/slava_sokolovg07lu inpersonalfinance
Posted by slava_sokolovg07lu
4 Comments
Don’t refinance those 3.5% loans, and don’t pay extra towards them.
For the 6.8% loans, if you can refinance them to a lower interest rate, do it. Then evaluate if that interest rate is low enough to justify not paying extra towards them. If you can’t refinance them, then these would be a good candidate for paying aggressively towards so long as you don’t have other, higher interest rate debts that should be attacked first.
I have personally never refinanced a loan because all the fees always seemed to negate the lower rate. I just paid off my highest interest loans aggressively using the debt snowball method and it worked for me. When I had extra money, that’s where it would go.
Don’t touch the federal loans, especially at 3.5%. Just pay the requisite amount.
Other than them, no reason you can’t do both. Refinance anytime you can get a meaningfully better rate (assuming no fees). At 6.8%, putting extra money towards is a good idea. A guaranteed 6.8% return is not something you’re going to find elsewhere.
If you expect that an auto loan would have a high interest rate (9% or more, perhaps), then there might be merit in establishing a car fund using some of the money that would otherwise go towards extra student loan payments. Just make sure to leave it in a place where it’ll generate some decent interest with minimal to no volatility, such as a HYSA, CDs, or short term bond fund. You could put it in the same place as your emergency fund, but make sure to remember how much of it you’re not to touch.
>I’ve heard mixed opinions about refinancing—some say it’s a lifesaver, others say it’s not worth it
I did a [federal loan consolidation](https://studentaid.gov/loan-consolidation/) back in 2010 and it was completely worth it. The payment was far more manageable when I started my career, and I was able to accelerate the payoff as I made more money. Private loans stayed as-is since their rates were ~3% (for some reason, but the federal loans were absolute robbery on some of them). Verify the available rates and monthly payment and other rules, but that’s what I did.
>cash into loans in case something like that comes up.
my car’s getting pretty old and might need replacing soon
You can always overpay every month, not the entire thing all at once. You pay it down faster without giving up TOO much of the benefit of lower rates and you keep your cash handy.
>The federal loans are at 3.5% interest and the private ones are at 6.8%
Like what u/Default87 said, keep them as-is if they’re pretty low. I will present one counter argument: loans with co-signers should be paid off first, no matter the interest rate. Unless you both agree it can be deprioritized, let them off the hook by paying it down: they’re putting their financial future at risk for your gain until it’s gone.