Student Loan Re-financing (SoFi, others?) for friend

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Texanbybirth
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Joined: Tue Apr 14, 2015 12:07 pm

Student Loan Re-financing (SoFi, others?) for friend

Post by Texanbybirth » Tue Apr 24, 2018 11:49 am

Hi all,

I've got a friend-couple with some staggering (to me) student loan debt. Total combined is $278k @ a simply weighted-average rate of 5.96% (high of 7.2, low of 4.63). (As an aside, I could copy and paste each individual loan info if that would help.) These loans were incurred for education (dual MD household) before they were married. They've asked me to help with this situation if I can. (Neither has the time, patience, or know-how to navigate these kinds of things, and they understand this pursuit might come to nothing: meaning they just repay as usual. Their words, not mine. I've repeatedly tried to refer them to the WCI website, and even his specific articles for physicians getting out of debt, budgeting, etc.)

Goal: payoff all student loans ASAP. They're itching to help start a clinic in Central America, and these loans stand in their way. They plan to work 3-6 mo out of the year, then spend the other time down there.

Plan: Their AGI was $307k last year, though they work in MA and RI, and live in RI, so taxes are quite a burden. Budgeting is an issue, but they are eager to achieve their goal and get on with their life. They each save for retirement, but only up to company match. We have discussed the tax savings of 401k/403b contributions. They choose to payoff the loans. $11k per month is comfortable for them, but I've encouraged them to get closer to $15k/mo payments. I think they'd like to be done no later than end of 2019, sooner would be better of course. Hence, the conversation about refinancing has repeatedly come up.

It seems that SoFi has 5-yr rates around 3.25%, or even lower for variable loans.

Some questions:
- would re-financing/consolidating help them?
- can they as a married couple consolidate all their individual loans into one re-fi? Or would each have to go through it separately?
- has anyone done so through the likes of SoFi, etc? Would you recommend them?
- one of the loans was from a hospital in NY that stipulated one of them HAD to work for the hospital upon graduation. Since they didn't, the loan kicked in. (I'm not clear on this, but friend states it's due at some point.)
- are there any references/stories you could give to share for them to read similar to their situation? I know they probably won't read it, but they're both highly intelligent so I'd like to send them more information rather than less.

Thanks for reading, and any help provided.

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neurosphere
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Re: Student Loan Re-financing (SoFi, others?) for friend

Post by neurosphere » Tue Apr 24, 2018 12:10 pm

At it's simplest, the best solution is to refinance to lower interest loans and pay them off as soon as possible. Whether to pay less towards loans in order to take advantage of retirement accounts might be a question left for another day. It doesn't sound that's what they want to do. Ok.

A few observations:

-- The loan from the hospital may not count as a student loan, and may not be able to be refinanced with conventional student loans. Chances are this loan is variable. But, anything is possible. Put extra money preferentially towards the highest interest loans.
-- Encourage your friends to get quotes from Sofi and DRB (now known as Laurel Road). It doesn't sound like they'll take the time to shop around, so stick with these two (for no particular reason) and just choose the best rate. I have no personal experience with refinancing student loans.
-- I do not think they can combine loans, but if they have the cash flow there is probably no real benefit to doing so other than one payment instead of two. But I'm not really sure.
-- Not sure what references or stories might benefit them. It seems they have the income/savings to rapidly pay off their loans. They just need to minimize their interest by refinancing if possible, and pay them off. :D

dsmil
Posts: 564
Joined: Tue Sep 08, 2009 10:51 am

Re: Student Loan Re-financing (SoFi, others?) for friend

Post by dsmil » Tue Apr 24, 2018 1:07 pm

My wife and I used SoFi to refinance student loans and it was a smooth process. I think that they'll have to do everything separately as we did. We were not offered close to the lowest rate as marketed on their website (the 3.25% that you mention) even though we have great credit scores, so I'm not sure how they determine their rates.

Texanbybirth
Posts: 914
Joined: Tue Apr 14, 2015 12:07 pm

Re: Student Loan Re-financing (SoFi, others?) for friend

Post by Texanbybirth » Tue Apr 24, 2018 2:26 pm

dsmil wrote:
Tue Apr 24, 2018 1:07 pm
My wife and I used SoFi to refinance student loans and it was a smooth process. I think that they'll have to do everything separately as we did. We were not offered close to the lowest rate as marketed on their website (the 3.25% that you mention) even though we have great credit scores, so I'm not sure how they determine their rates.
Thanks, that's what I have heard elsewhere. At this point, they're very much, "is it worth my precious time?" kinds of people. If they went through the whole process to get a 6% rate, then it would be a wasted effort in their opinions. Plus, I'm not certain they have excellent/great credit scores anyway.
neurosphere wrote:
Tue Apr 24, 2018 12:10 pm
At it's simplest, the best solution is to refinance to lower interest loans and pay them off as soon as possible. Whether to pay less towards loans in order to take advantage of retirement accounts might be a question left for another day. It doesn't sound that's what they want to do. Ok.

A few observations:

-- The loan from the hospital may not count as a student loan, and may not be able to be refinanced with conventional student loans. Chances are this loan is variable. But, anything is possible. Put extra money preferentially towards the highest interest loans.
-- Encourage your friends to get quotes from Sofi and DRB (now known as Laurel Road). It doesn't sound like they'll take the time to shop around, so stick with these two (for no particular reason) and just choose the best rate. I have no personal experience with refinancing student loans.
-- I do not think they can combine loans, but if they have the cash flow there is probably no real benefit to doing so other than one payment instead of two. But I'm not really sure.
-- Not sure what references or stories might benefit them. It seems they have the income/savings to rapidly pay off their loans. They just need to minimize their interest by refinancing if possible, and pay them off. :D
There's no question for another day. They don't want to contribute to retirement beyond company match. I've tried many times to show them the math, but the student loan debt (along with more short-term life goals) is their #1 priority.

I have no clue what this loan from the hospital is. I'm not a doctor, not related to one, and know very little about how doctors offices/hospitals work, so I'm not really advising them on this beyond pay it off ASAP. As more details emerge, I will research and try to hone in my advice.

They don't want to hear that paying off what amounts to a mortgage on a very nice house (where me and my friend grew up) in two years require gargantuan effort/sacrifice. Or at least, they don't like to hear it. :happy I'm only partly kidding. They're smart, hard-working, loving and dedicated people. I think they're just itching to get on with things, while this debt holds them back.

Nate79
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Location: Portland, OR

Re: Student Loan Re-financing (SoFi, others?) for friend

Post by Nate79 » Tue Apr 24, 2018 6:09 pm

If they have grand plans for part time work and starting a clinic in Central America and thus taking a massive hit to their income they are right to hit their student loan debt hard and fast and stop all retirement saving except for up to the match. This is a life choice they are making that they need to clean up their mess before having the option to have a massive salary reduction.

momikey
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Joined: Wed Apr 18, 2018 4:08 pm

Re: Student Loan Re-financing (SoFi, others?) for friend

Post by momikey » Tue Apr 24, 2018 10:39 pm

If they are in RI, they should look into citizens bank. We refi’d my wife’s pharmacy school student loans with them. Originally through Wells Fargo at 8% variable the citizens rate is 3.5% locked in with auto debit from our citizens account.

They do up to $160k of private and public loans combined in the refi.

We get letters from sofi every month and their variable rates usually seem to be higher than our current. I think we both had around 790 credit scores when we applied.

I think with the minimum payment through Wells Fargo (30 year term) vs Double payments we are doing with citizens the interest savings should be a few hundred grand. Pretty crazy stuff.

inbox788
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Joined: Thu Mar 15, 2012 5:24 pm

Re: Student Loan Re-financing (SoFi, others?) for friend

Post by inbox788 » Thu Apr 26, 2018 3:50 pm

Texanbybirth wrote:
Tue Apr 24, 2018 11:49 am
I've got a friend-couple with some staggering (to me) student loan debt. Total combined is $278k @ a simply weighted-average rate of 5.96% (high of 7.2, low of 4.63). (As an aside, I could copy and paste each individual loan info if that would help.)
These days, $200k isn't unusual for an MD graduate, so combined, they may be below average as far as debt. It's a burden, but they should be able to manage it well. Even at 6%, a 10 year repayment is easily managed with $300k/year income. Some docs have had to do 20 or 30 year repayments and survived.
Plan: Their AGI was $307k last year, though they work in MA and RI, and live in RI, so taxes are quite a burden. Budgeting is an issue, but they are eager to achieve their goal and get on with their life. They each save for retirement, but only up to company match. We have discussed the tax savings of 401k/403b contributions. They choose to payoff the loans. $11k per month is comfortable for them, but I've encouraged them to get closer to $15k/mo payments. I think they'd like to be done no later than end of 2019, sooner would be better of course. Hence, the conversation about refinancing has repeatedly come up.
If 3% interest on $300k loan is $9k/year, the first payment of $10-15k/month is mostly going towards interest. If the interest is 3% more, you'd need an extra month of payments. While $9k is a big chunk of change, and is worth refinancing, in the whole scheme of things, it's not that big a deal, and it represents the upper range if payments go as planned. Using the Avalanche strategy, the benefit of refinancing is reduced. https://www.investopedia.com/terms/d/debt-avalanche.asp

Paying off a loan that size (amount and relative to income) in 3 years ($11k/month) is very aggressive, and in 2 years ($15k/month) is super aggressive. It's a good thing to be debt free, but 5 or 10 years are acceptable options facing life choices. At 7.2% it pays more to be more aggressive, but at 4.63% or 3.25%, you begin to ask if there are better alternatives.
- would re-financing/consolidating help them?
Yes, a little to some.
- one of the loans was from a hospital in NY that stipulated one of them HAD to work for the hospital upon graduation. Since they didn't, the loan kicked in. (I'm not clear on this, but friend states it's due at some point.)
Why not pay it off sooner than later?

It's simpler to just get the loan paid off before taking on other commitments, but if they've got steady jobs, going with a 5 or 10 year payment plan can mean they purchase a home sooner or begin their other projects earlier. It's certainly more risky, but IMO, they've got additional capacity should they choose to use it.
Nate79 wrote:
Tue Apr 24, 2018 6:09 pm
If they have grand plans for part time work and starting a clinic in Central America and thus taking a massive hit to their income they are right to hit their student loan debt hard and fast and stop all retirement saving except for up to the match. This is a life choice they are making that they need to clean up their mess before having the option to have a massive salary reduction.
Yes, it makes a huge difference in planning if they're projecting the $300k+ annual income into the future or not.

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