As of today I have $31,341.30 in student loan debt. Like most people in the throes of paying off their loans, I want it to go away. Yesterday. Every month when that Mohela notification shows up in my inbox I just want to
I will readily admit that my debt burden is light. I have family whose loan payments take more than 50% of their post tax income. At its highest my monthly minimum required 10% of mine and now it’s down to 6%. Nearly 80% of that money goes to principal. And to keep it one hundred, I could write the payoff check today if I wanted.
It’s not really a problem, more like a dilemma. So I already established why I am keeping my student loan debt for now. Basically, it’s math. Foregoing 8%+ growth to avoid 3.5% interest? Those dollars don’t make sense. My student loan is like an annoying mosquito buzzing in my ear while I sleep. I want to kill it but it’s not killing me. Since I’ve made the decision to hold the debt I now must decide how I’m going to service it.
I currently have a ridiculously low interest rate. However, it is variable and rising steadily. Before my job was eliminated my plan was to use cashflow from my bonuses and the increase in post tax income from September thru December in order to finish paying the loan by early 2018. Well I made plans and God was like
I will no longer be throwing gobs of money at my loan. Keeping cash on hand during periods of (f)unemployment is the right move. I also will not be deferring my loan payments. Because I have a variable rate this sets up my own personal game theory quandary. I can either do nothing, keep my $365/month minimum payment, and hope interest rates don’t spike; OR I could refinance to a low fixed rate but raise my monthly payment by more than $200/month.
While I do not want to increase any of my monthly payments if I will be out of full-time employment for six months or more, I also do not want the financial equation of keeping the debt to flip during that time. If it does, due to having no income I would not be in a position to use the gift of good credit to renegotiate more favorable terms. If I’m going to refinance it has to be done now while I am still an employee. Since I now have two full years of bonus payments that can be calculated into my income I should be able to qualify for a 3.6% rate (3.1% with discounts) on a 5 year loan. Although I could make the $579/month payment work within my budget, I’m debating whether the certainty of having a fixed rate is worth the hit to cashflow.
In discussing my impending layoff with a colleague he was adamant that I not pay off the loan. The loan is cheap, cash on hand matters more than eliminating debt, and my money was better off being invested. Intellectually, I know that this is all true. However, the cloud of “what if” makes me nervous. What if my interest rates stop making the slow climb in .1% increments and spike to 5 or 6%. What would that do to my monthly payment? What would it do to the overall repayment picture? Does it make sense to make a hedge now? Is it really not that deep either way?
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