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Should I Get a CommonBond Loan to Refinance My Student Loans?

By on November 7, 2017

Question:

Dear Steve,

I have been paying my private and federal student loans for about 7 years now. I’m just starting to see the glimmer of my interest rate dwindling. Not to mention, I now have a great credit score.

I have been approved for a 5.4% fixed interest rate 7-year refinance option through Common Bond without much difference in my monthly payment. This seems desirable seeing that my other payoff options don’t leave me debt-free until around 2031.

My question is about how interest rates are applied in this situation. If I am currently about to hit the point that nearly all of my payment applies to the principal, would it be dumb to start that over again by refinancing?

How does that work?

Emilee

Answer:

Dear Emilee,

You’d have to look at the interest rates you are paying on your current loans. It’s actually pretty easy to play around with the length of a loan and interest rates to hit a target monthly payment. If you had a higher interest rate all you have to do is extend out the length of the loan to get your smaller target monthly payment. However, doing that will cause you to spend more overall in interest in the longer loan.

The gamble you take by converting federal student loans to a refinanced private loan is you will lose access to the federal income based repayment plans that would be beneficial if you were to experience a reduction in income for any reason.

If that’s not a concern to you then selecting a 7 year repayment plan is up to you. With your current loans you could always send more than the minimum required each month to pay the current loans off early.

Based on what you’ve shared it sounds as if the CommonBond student loan consolidation offer would cost less money overall but you just have to be willing to take the risk on losing federal repayment options it does not appear you are using now.

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

One Comment

  1. Emilee

    November 7, 2017 at 3:37 pm

    Question asked on student loan refinance with CommonBond.

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