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January 25, 2014 – Comments (4)

I'm in the process of refinancing my student loans from grad school.  My FedLoan rate is currently about 7.2%.  (This is a blended rate - I have a handful of loans at 7.9% and a handful of loans at 6.8%.)  It compounds monthly.

I'm refinancing through SoFi.  They've given me 2 options:

A fixed rate (5.9%) for 10 years.

A variable rate (3.75% + 1 month LIBOR) for 10 years.

I'll make consistent monthly payments, paying the minimum payment, plus a bit extra toward the principal every month.

If I pick the variable rate, and the LIBOR continues to stay nice and low for a few more years, I'll save a bit more over the life of the loan repayment (and have my loans paid off much more quickly).

If I pick the fixed rate, I won't save as much, but I'll sleep better, blah, blah, blah. 

So my question is: is there a reasonably high percent chance that LIBOR is going to rise to 2, 3, 4% within the next 3-4 years?

I'm pretty sure that I've already chosen which rate I'm going to take, but I wanted to get perspective from the brilliant minds of the CAPS blog.  :)

Thanks to all.

Doug 

4 Comments – Post Your Own

#1) On January 26, 2014 at 12:09 PM, awallejr (81.59) wrote:

Well you will have a better chance at an answer when the Fed meets and Yellen speaks this week.  Until she does it is a roll of the dice for you.  For a 10 year loan I personally would prefer fixed.

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#2) On January 26, 2014 at 1:38 PM, portefeuille (99.60) wrote:

Maybe your income increases with a rising LIBOR (as that might go hand in hand with "good economy", rising prices, rising corporate profits, ...). Thus you might be "hedged" to some degree.

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#3) On January 27, 2014 at 3:09 PM, Lordrobot (92.67) wrote:

Why don't you buy a cheap fannie may house, get a home equity loan at 3.5% pay off your Gender Studies student loans, then you can deduct the 3.5% interest from your mortgages. That effectviely converts your student loan interest into a tax deduction. You could do fixed or ARMs, since the Fed will keep interst rates low.

More simply my concept is convert your student loan debt into primary domicile debt so you can deduct the interest from your income. Plus you can always declare bankruptcy on a home loan but not on a student loan. 

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#4) On January 28, 2014 at 12:21 AM, ElCid16 (95.82) wrote:

I appreciate the feedback, gentlemen.  I ended up going with the fixed rate, afterall.

Porte - I'll cross my fingers for that "income increase"  :)

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