Floor 20: Refinance Loans?

I graduated law school with three loans: a Direct Grad Plus loan at 7.8%, a Stafford loan at 6.8%, and a loan directly from my law school at 8%.  Each of these loans corresponded, very roughly, to a year of law school.

We’ve now killed the Direct Grad Plus loan.  The Stafford loan is on life support.  However, the loan from my law school is (alas) alive and well.  And accruing interest daily on its $44,700 principal.

I’ve been considering refinancing this loan from my law school for a number of reasons.  First, I’m paying an 8% interest rate on it.  This is practically usurious in my opinion.  Second, the loan is annoying to pay – the school sends me a bill through the mail each month, and I mail back a check.  Third, there is no instant gratification of making a large loan payment.  I can’t check the balance on-line, or hook it up to my Mint account.

I poked around, and have applied for a five-year variable rate loan from Sofi.  This kind of refinance is clearly not for everyone – I am only considering it because (1) we intend to pay off the loan entirely in the next nine months; (2) I don’t expect LIBOR – which it is pegged to – to do anything crazy in that time period; and (3) if LIBOR did go crazy, the rate of the loan is capped at 10%, which is not too dissimilar from the 8% I am already paying.

After running the numbers, I’ll pay about $1,500 in interest at the current 8% interest rate over the next nine months on this loan.  With a Sofi refinance, I’ll pay about $700.  I’m still thinking about whether to take the plunge, but so far, it seems like an easy way to save about $800 with about two hours worth of work.

I asked Dog DebFreeJD her opinion about whether to refinance.  She expressed her approval by asking for a belly rub.

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Anytime, Dog DebtFreeJD.

4 thoughts on “Floor 20: Refinance Loans?

  1. Cecilia@thesingledollar

    I have never refinanced anything, but I have done balance transfers, and I sometimes wonder if the balance transfer fee makes it “worth it.” Is there any kind of similar fee that would reduce what you’d save?

    But having the ability to hook it up to your mint account would actually be great. It feels so much better to visually see the things dropping.

  2. DebtFreeJD Post author

    There isn’t an origination fee or pre-payment fee (normal, as I understand it, for most kinds of student loans). The variable rate nature is definitely a risk – the loan is pegged to LIBOR (the London Interbank Offered Rate). Although LIBOR is low right now, and has been for some time, there’s no guarantee that it will stay that way. Nevertheless, after talking with a friend that knows what he’s talking about, it seems likely LIBOR will stay low for the immediate future. Also, we feel pretty sure that if LIBOR suddenly skyrocketed, we could rearrange things to pay off the loan in pretty short order, if need be.

  3. Mr. LawSchoolDebt

    The 8% interest rate is really a killer. Given the rates banks are paying, it seems very unfair.

    Although I don’t have a cool high concept like your Empire State Building idea, you’ve inspired me to create my own law school debt blog. There’s strength in solidarity and numbers!

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