Question:
Dear Steve,
I am a primary care doc who has paid down a 300,000 private loan to 180,000 from a med school in illinois.
Interest rate is variable initially at 7.5 but now at 5 for the last 5 years. I have been paying approx 3000 a month since 2010. I am scheduled to pay until 2023. I make a decent living in underserved (but not hpsa) area.
I make approx 130000 after taxes (single until this year) and deductions. I have a 1800 mortgage 700 car note, 1500 daycare and ten percent tithe to church.
I have saved 100000k (bonuses..which are leaner and 1-2000 from paycheck) over the past 8 years.
My question is with a child in the picture… I would like to work less which means a pay cut which I can’t afford with my current loan payment. I’ve maxed out forbearance and a reduced payment for maternity leave. Any other attempts at a reduced payment or interest rate with the institution have been shut down. I looked at external private refinancing options and they don’t seem any better. My bank wasn’t interested either.
How can I approach student loans to get them to work with me. I would rather not touch savings (but would consider) and have a 5% matched retirement plan through work.
W
Answer:
Dear W,
I’m afraid there is no wonderful answer here that is going to eliminate your loans for less unless you default and try to settle them. But in that case you would probably have to access your savings to make the settlement.
However, if you wanted to lower your monthly payment you could refinance your private loans with a company like SoFi. While this may lower your monthly payment it can increase the overall amount you would pay since in extending out the loan further it will mathematically lead to more interest building over time.
For example, at the current fixed rates the lowest SoFi rate is 5.25% for 20 years. If you refinanced your balance your approximate monthly payment would be $1,200. Over the next two decades you’d wind up paying about $108,000 in interest on the extended loan.
However, while it does give you a higher overall cost, it also allows you to make the life changes, spend more time with your child, and leave the retirement alone to grow.
Nobody can give you the definitive answer on what solution you should pursue because your situation involves personal life choices and not just math. Ultimately I can give you a framework of information in which you can make the right decision for you.
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
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Question asked.