I graduated from law school in 2012 with approximately $240,000 in federal student loans and $40,000 in private undergraduate loans. The interest rate on my federal loans is 7.25%. Initially, working in public service with a modest salary of $45,000 per year, the interest on my federal loans accrued, increasing my debt to $300,000 at one point. Upon transitioning to private practice with a higher income, I began aggressively paying down the interest and managed to reduce my federal loan balance to about $270,000 before the pandemic struck.
During the pandemic, I focused on paying off my private loans (currently owe less than $5,000) and saved an additional $60,000, which I plan to apply towards my federal loans when payments resume.
My current salary is $180,000, and my husband earns $270,000 annually, with approximately $120,000 in bonuses each year before taxes. My husband does not have any student loans. Due to our combined income, it appears we will no longer qualify for Income-Driven Repayment (IDR) when I recertify next year. While filing taxes separately might allow me to remain eligible for IDR, it could result in higher tax payments.
To minimize the total interest paid over the life of the loans, I am considering paying down the loans aggressively. I’m also contemplating refinancing my federal loans if interest rates decrease, although I’m uncertain about the benefits compared to federal loan advantages.
What interest rate would make refinancing federal loans a sensible option, if at all?