Borrower beware! (Student Loans)

[chocoholic]

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the money you have already paid in interest is gone no matter what. When you refinance, your payoff will be based on outstanding principle and unpaid interest accrued through the date of payoff; you stop paying interest to lender #1 and you start paying interest to lender #2. If you were paying 7% interest to lender #1 and you are paying 5% interest to lender #2, then obviously you are going to come out ahead.

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<p>That’s not all there is to it. Look at any amortization schedule. On a 30-year loan, the front end is very heavily weighted with interest payments, and a miniscule amount goes towards principal. And that weighting causes you to have principal=interest right around Year 22. Every time you refinance, you are paying mostly interest in the first 75% of the loan-term. Therefore, you are “throwing away interest” faster than you are reducing principal. </p>

<p>And whoever is clubbing me with itstoomuch; please don’t; I can’t understand him either.</p>