Hi Heather,

I have a friend who is having difficulty analyzing his student loan question.

He has $105K in student loan debt at a blended rate of 7.5%. He is currently in an income based repayment program but his income will likely rise later this year. He is trying to determine whether he should stick with IBR or if he should privatize his loan. He spoke with a bank this week and they said they could get him a rate as low as 5.19% inclusive of all discounts. The difference in rate would equate to 2.5% or ~$2500/year ($50K over 20 years).

What would your advice be to him for moving forward? He is an entrepreneur so there is a chance that he may find himself in a situation in a few years where he cannot afford to make his monthly payments.

Any help you could provide would be great.

Thanks.

-E

I can’t advise you or your friend directly.  I am delighted to provide free general information for student loan borrowers and the people who love them, but as an attorney, I must be very careful not to inadvertently establish a client-lawyer relationship with folks I don’t represent.  I am licensed to practice in the state of North Carolina only and lawyers are specifically prohibited from practicing in states in which we are not licensed.  Also, lawyers can establish a client-lawyer relationship even without agreeing to do so.  That’s why I can’t look at the particular facts of a borrower’s circumstances and offer an opinion based on those facts.  These “unauthorized practice of law” rules are pretty hairy, and even if they don’t always make perfect sense in today’s world, I am careful to follow them.

My perspective (a risk-averse perspective, granted) is that no amount of interest rate benefit would be enough to get me to consolidate my federal loans into a private one.  No. Way.  To me, the benefit of having access to federal borrower protections (discharge, cancellation) and flexible repayment plans (based on income, forgiveness, forbearance) are worth paying a higher interest rate.  But note that a few newer private loans have provisions that mimic (sort of) the federal protections) and that reasonable people can differ on this one.

Thanks Heather. Completely understand in re: to disclosures. I feel the same way as you. Just wasn’t sure if I was missing some big “a ha” cornerstone to the analysis. I also think that there’s possibly a changing tide in some fashion for these loans over the holding period depending on where political headwinds trend.

Thanks again! This website and your contributions are terrific and badly needed for Americans with student loan debt. A big hat tip from me.

E

Thanks, E. 

I agree that federal loan programs will change, but I strongly expect any reductions in benefits to be applied only prospectively to new borrowers.  Of course, I’m not in charge!