Would you go 5 or 10 year repayment term on student loan refi with these rates?

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Topic Author
letahl
Posts: 218
Joined: Fri Apr 19, 2019 9:17 am

Would you go 5 or 10 year repayment term on student loan refi with these rates?

Post by letahl »

My husband is 44 and we are refinancing his $100k in student loans since the interest moratorium on federal loans is about to expire. We can afford the 5 year while still maxing our tax-advantaged accounts (except for the 529s, which aren't technically maxed). But the 10 year fixed rate isn't that much higher than the 5 year. I do anticipate hyperinflation so like the idea of carrying low-interest debt somewhere other than our residential mortgage.

We are young 40s timeline-wise, because we have a lot of young kids and he just started his advanced career. I don't like the idea of him having student loans he's paying off in his 50s, but at the same time that's a great rate on a 10 year student loan refi. I wouldn't be able to carry the mortgage, household expenses AND the student loan payment comfortably if something weird happened with his job, but we have emergency reserves and equity elsewhere so I'm not particularly worried about that aspect (and his career path is secure so that's just theoretical - and I'm not sure the difference in payments between the 10 and 5 year would make that much of a difference in that ).

So how would you decide between a bunch of low-interest options? I don't want to do variable at this time (although I would have a year ago). Mortgage is at 2.5% on a 15 year with 13.5 years left. We'll start the college parade when the mortgage gets paid off.

Refi amount: $103,292

$1,000 a month - 10 year – 2.87% fixed - $15,753 total interest.
$1,350 a month – 7.1 year – 2.75% fixed - $10,639 total interest.
$1,500 a month – 6.3 year – 2.74% fixed - $9,441 total interest.
$1,845 a month – 5 year – 2.58% fixed - $7,088 total interest.

Neither one of us really know how to decide - feels like a total coin toss. Maybe take the 10 and put the rest in a non-tax-advantaged account (it'd be VASGX in that) or just pay extra? Or just get out from under it and move on? Other thoughts?

Thanks.
Silk McCue
Posts: 8951
Joined: Thu Feb 25, 2016 6:11 pm

Re: Would you go 5 or 10 year repayment term on student loan refi with these rates?

Post by Silk McCue »

I’d go with the 10. I’d rather be saying I could have saved some money with a lower interest rate by committing to a shorter payoff 10 years from now than saying I wish I hadn’t bitten off more than I can chew by being overly optimistic and getting jammed up. The rate difference is not compelling for me given the potential downside risk.

Sleep well.

Cheers
BestCoast123
Posts: 124
Joined: Fri Jul 17, 2020 4:45 pm

Re: Would you go 5 or 10 year repayment term on student loan refi with these rates?

Post by BestCoast123 »

Go with the 10-year the rate difference is miniscule. So many of the "conservative" / debt is evil / pay it off fast crowd place no value on the optionality you get with longer duration debt. In this case you have the option every month of deciding what to do with an extra $845/month. You can choose to pay-down debt (including student loan debt), invest it (HSA/Roth IRA/529 plans/emergency fund/taxable savings), save it for a rainy day / dry powder, spend it some months (Thanksgiving/December).

But go with the 10-year and just be productive with the excess cash flow.
Topic Author
letahl
Posts: 218
Joined: Fri Apr 19, 2019 9:17 am

Re: Would you go 5 or 10 year repayment term on student loan refi with these rates?

Post by letahl »

Yes, I think you all are right and I can get it down to 2.55% fixed on the 10 year with another lender as well. I am also excited to have learned the term "dry powder" as it applies to finances/money. :)

Thanks all.
02nz
Posts: 10508
Joined: Wed Feb 21, 2018 2:17 pm

Re: Would you go 5 or 10 year repayment term on student loan refi with these rates?

Post by 02nz »

If the 7-year is a comfortable monthly payment, that seems a very reasonable middle ground: a much lower payment than the 5-year and much less interest paid than the 10-year.
Topic Author
letahl
Posts: 218
Joined: Fri Apr 19, 2019 9:17 am

Re: Would you go 5 or 10 year repayment term on student loan refi with these rates?

Post by letahl »

Update. Thank you all. Went with 10 year fixed. And then the feds continued the interest moratorium for all of eternity. :P
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