HELP! To refinance or not to refinance? PART 2

Again, I very much understand that COVID-19 has dramatically affected how people across the world are living their day to day lives, including financially, and that people are dying. I apologize if my post comes off as inattentive to what folks are feeling at this particular moment in time. My student loan balance carries with it a great deal of anxiety and shame for me, and writing about it is one of the ways I manage those feelings. Which is why I’m still writing.

As of today, I have not applied for a refinance of my federal student loans. As I hinted at in the post that is now a de-facto PART 1 of this series, I was a bit worried about giving up the protections and benefits of federally held student loans. And this concern was somewhat legitimized this week when the Trump Administration announced that it would be freezing interest on federally held and serviced student loans. An article in Forbes, by Adam S. Minsky, Esq., broke down exactly what the freeze does and does not do. I have abbreviated it below:

What it DOES

  • Temporarily halts interest accrual on certain federally held and serviced student loans.
  • The freeze only applies to loans held and serviced by the federal government and it’s agencies such as the U.S. Department of Education.
  • The freeze is applied automatically to all eligible federally held and serviced student loans.

What it DOESN’T 

  •  Loans not held or serviced by the federal government, such as private student loans, or federal student loans consolidated or refinanced through private lenders, are not covered by the freeze.
  • Federally-guaranteed loans whose originating institutions are not the federal government, such as state or university programs, are not subject to the interest rate freeze.
  • The freeze does not change payment obligations and minimum payments must continue.
  • The freeze does not affect already accrued and/or capitalized interest.
  • The freeze will not stop collections on student loans currently in default.

Yea…so, that $75,483.15 I have in student loans (yes, the interest saw the balance increase by $165.00 between March 1st and today) will not accrue any additional interest during the temporary freeze. My initial response was the tiniest sighs of relief. Because I am not currently making payments on my federal student loans, interest accrues at an alarming rate. However, if I were making payments on my student loans, during the freeze, the payments would now be going directly towards past interest and principal.

For the moment, I think this freeze just means 1) I get a temporary reprieve from interest and its attached financial guilt/shame during this period, 2) I stick to my current plan and pay off private student loans 1 & 2 this year before my income based deferment on my federal student loans comes to an end, 3) I begin making minimum payments on my federal student loans in December while continuing to pay off all of my privately held student loan debt.

UPDATE: So…yea. By the time I actually got ready to publish this post, the Fed decided to cut the interest rate to near zero (0.25%) for the first time in 11 years. While this means good things for the portion of my loans at variable interest rates, for the loans at high fixed rates (University loans at 8% or federal loans at 6.8%), there really isn’t a better time to re-finance. Ugh…I thought this calculation was over. Nope.

Cr UPDATE: So the suggestion I got from Cr was “Maybe just refinance the University loans and leave the federal ones alone for now?” This was sound advice and along the lines of advice given to me by my bestest friend who has WAY better financial acumen than I do. However, what I shared with my friend on the phone today is that I am also reluctant to refinance the university held student loans which appear below:

univ

For the record, it should be stated that I could have been financially savvy and avoided taking out these loans all together if I knew better. However, my university is exceptionally generous in its servicing and repayment terms:

1) All university loans are serviced in-house by the university. The people servicing the loans are actually the folks sitting in the bursar’s office. I have literally met the woman who is my account representative in person. I think the university’s wealth and the human-to-human connection is what contributes to…
2) Exceptional customer service AND
3) EXCEPTIONALLY generous repayment terms

  • There is virtually unlimited qualified forbearance and deferment
  • They are very generous in terms of what qualifies one for a forbearance/deferment; when I got into an auto accident and to scrounge up money to pay my deductible (cause I didn’t have an emergency fund then) they differed my student loan payments for six months
  • NO interest accrues during deferment. My student loans did not accrue a dime of interest while they were deferred for almost all of my twenties.
  • They automatically apply any in-school deferments, income-based deferments, hardship deferments granted by the DOE through the National Clearinghouse
  • They discharge in the instance of death or permanent disability.
  • The minimum payments are low relative to amount owed.

The university is perhaps so generous because 1) it is a well-funded private university and 2) in 2009 they joined other universities who no longer include loans in their financial aid packages.

In any instance, right now, I am hard pressed to want to give up these benefits because as my best friend said, “You can’t buy those benefits.” I am going to try to take a step back and make a rational choice but I wanted to explain why it wasn’t just a cost-savings calculation for me.

Thanks for the comment Cr!

3 thoughts on “HELP! To refinance or not to refinance? PART 2

  1. Maybe just refinance the University loans and leave the federal ones alone for now? Since the interest is frozen you're not in worse shape, and if it unfreezes, you can rethink them then. I doubt interest rates are going to get much higher for the rest of this year, if not the next year as well.

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  2. Thank you for your thoughts. This is sound advice. \”I doubt interest rates are going to get much higher for the rest of this year, if not the next year as well.\” I talked to a friend with much better financial acumen than I do and she pretty much said the same. However, what I told her but didn't share with you is that I am also really reluctant to refinance the university loans. I am going to call this the \”cr update\” and update the post above to reflect this additional information.Thanks again for connecting.

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  3. I also didn't look at your chart before commenting — the university loans are quite small, too, so the interest savings wouldn't be nearly as big as they would on the many-tmes-larger federal loans. I'm changing my advice; hold steady at least until the federal interest freeze is over.

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