Variable interest rate for student loans

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Aku09
Posts: 64
Joined: Wed Jan 09, 2019 11:29 am

Variable interest rate for student loans

Post by Aku09 »

Currently have a 3.39% fixed 5 year student loan with a balance of 87k. I have been offered to refinance to a variable at 2.05% for a 5 year with another company. Regardless of the loan I will pay 3k a month towards balance. Shouldn’t take more than 2.5 years to pay off in full and I hope to have it paid off in roughly 26 months (end of 2021).

I’ve never had a variable interest rate loan, but it is a significant drop in rate (at least currently). Also comes with a refinance bonus of $300 which I would apply to the loan. With the interest rates recently dropped and my relatively short repayment period it looks like there is a good chance I would come out ahead on this.

Anything I’m missing that someone would like to add?
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FiveK
Posts: 10343
Joined: Sun Mar 16, 2014 2:43 pm

Re: Variable interest rate for student loans

Post by FiveK »

Under what conditions (e.g., starting in month X? Any others?) may the variable change? Maximum change allowed?
Erwin007
Posts: 411
Joined: Tue Aug 19, 2008 8:29 am
Location: Intermountain West

Re: Variable interest rate for student loans

Post by Erwin007 »

I would do it. The rate would have to increase more than 1.34% over the next 2.5 years of planned payoff for you to be even with where you are now. Could it happen? Sure. But as you pay off more of the loan, the amount the rate would have to increase for you to be behind gets even higher if you average out the interest cost per $1000 of the loan.
Topic Author
Aku09
Posts: 64
Joined: Wed Jan 09, 2019 11:29 am

Re: Variable interest rate for student loans

Post by Aku09 »

Thank you.

It is based on the LIBOR 1 month and I was told it can change monthly. On the lender website it says the cap is 8.95%. When I called asking about how often it changed and such the lady told me the cap was actually 4.8% because of my starting loan rate of 2.05%. Nowhere have I seen that on the website though and I take that with a grain of salt as the representative didn’t seem to be very knowledgeable. I haven’t done the hard pull or looked at actual loan documents yet though.
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