12 Student Loans: Calculating Payoff Right?

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HardHitter
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12 Student Loans: Calculating Payoff Right?

Post by HardHitter » Sat May 07, 2016 10:28 am

My wife has 12 different student loans over the course of her schooling and I'm trying to plan an aggressive pay-off and wanting to check my math as I'm sure I made a mistake in Excel with the formulas potentially. Here is what I've done, please let me know where I've gone wrong or if my math seems accurate.

EDIT: Just so people know, you make a single payment to the loan holder and then the money is applied to the highest interest rate loans first.

Out of the 12 loans, there are "Direct Unsubsidized" vs "Direct Subsidized"

- 5 Direct Unsubsidized loans
- 7 Direct Subsidized loans

Of the above, I then grouped each by the interest rate and have as follows

- All 5 Direct Unsubsidized Loans have 6.8% interest rate
- 1 Direct Subsidized Loan has 4.5% interest rate
- 2 Direct Subsidized Loans have 3.86% interest rate
- 4 Direct Subsidized Loans have 3.4% interest rate

With that said, here is the general breakdown of principal per each

- 5 Direct Unsubsidized Loans @ 6.8% = $18,570.28
- 1 Direct Subsidized Loan @ 4.5% = $3,191.59
- 2 Direct Subsidized Loans @ 3.86% = $2,353.34
- 4 Direct Subsidized Loans @ 3.4% = $12,218.18

In excel, I've created 4 different "loan payoff" tables for each of the amounts @ different interest rates. I can there play with the "term" I want to payoff and it will show me the total amount I'd need to pay each month and the cost of interest at that term.

If I have done this right, I am calculating that I need to make the following payments to pay it off in 2 years (24 months)

- 5 Direct Unsubsidized Loans @ 6.8% = $829.74
- 1 Direct Subsidized Loan @ 4.5% = $139.31
- 2 Direct Subsidized Loans @ 3.86% = $102.03
- 4 Direct Subsidized Loans @ 3.4% = $527.31

Total Per Month: $1,598.39
Cost of Interest: $2,028.80

Does this look accurate?

blueman457
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Re: 12 Student Loans: Calculating Payoff Right?

Post by blueman457 » Sat May 07, 2016 10:48 am

I have used this website in the past to calculate my student loan payoff schedule. Trialing it out just using the direct unsubsidized loans - your math is correct.

https://www.calcxml.com/calculators/pay-off-loan?skn=

If you're going to pay if all that quickly, you can consider consolidating all the loans into a short variable rate (2.4%) offered at SOFI and pay it off possibly even faster with less interest to pay overall.


Keep up the good work!

Blue Man

Grt2bOutdoors
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Re: 12 Student Loans: Calculating Payoff Right?

Post by Grt2bOutdoors » Sat May 07, 2016 10:49 am

HardHitter wrote:Of the above, I then grouped each by the interest rate and have as follows

- All 5 Direct Unsubsidized Loans have 6.8% interest rate
- 1 Direct Subsidized Loan has 4.5% interest rate
- 2 Direct Subsidized Loans have 3.86% interest rate
- 4 Direct Subsidized Loans have 3.4% interest rate

With that said, here is the general breakdown of principal per each

- 5 Direct Unsubsidized Loans @ 6.8% = $18,570.28
- 1 Direct Subsidized Loan @ 4.5% = $3,191.59
- 2 Direct Subsidized Loans @ 3.86% = $2,353.34
- 4 Direct Subsidized Loans @ 3.4% = $12,218.18

In excel, I've created 4 different "loan payoff" tables for each of the amounts @ different interest rates. I can there play with the "term" I want to payoff and it will show me the total amount I'd need to pay each month and the cost of interest at that term.

If I have done this right, I am calculating that I need to make the following payments to pay it off in 2 years (24 months)

- 5 Direct Unsubsidized Loans @ 6.8% = $829.74
- 1 Direct Subsidized Loan @ 4.5% = $139.31
- 2 Direct Subsidized Loans @ 3.86% = $102.03
- 4 Direct Subsidized Loans @ 3.4% = $527.31

Total Per Month: $1,598.39
Cost of Interest: $2,028.80

Does this look accurate?


The first 2 payments are accurate. The last two, I calculate $102.05 and $527.32 per month.
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campy2010
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Re: 12 Student Loans: Calculating Payoff Right?

Post by campy2010 » Sat May 07, 2016 12:01 pm

If I am interpreting your approach correctly, you're planning to repay each loan equally over 2 years. Since loan #1 has the highest interest rate I would put all of the extra payments toward loan #1 until it is paid off, while paying the minimum on loans #2-4. Then move on to loan #2 and so on.

HardHitter
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Re: 12 Student Loans: Calculating Payoff Right?

Post by HardHitter » Sat May 07, 2016 2:43 pm

Do you think we should leave the loans as is or try to refinance into just a single interest rate?

campy2010
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Re: 12 Student Loans: Calculating Payoff Right?

Post by campy2010 » Sat May 07, 2016 3:55 pm

HardHitter wrote:Do you think we should leave the loans as is or try to refinance into just a single interest rate?


I would definitely refinance the 6.8% loans and maybe the 4.5% loans. The <~4% loans are on the bubble because you may or may not qualify for a lower interest rate. And there is a tangible benefit of the subsidized loans if you were to have a job loss or if you were to go back to school. But it definitely doesn't hurt to apply to see what rates you are offered.

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BL
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Re: 12 Student Loans: Calculating Payoff Right?

Post by BL » Sat May 07, 2016 8:00 pm

campy2010 wrote:If I am interpreting your approach correctly, you're planning to repay each loan equally over 2 years. Since loan #1 has the highest interest rate I would put all of the extra payments toward loan #1 until it is paid off, while paying the minimum on loans #2-4. Then move on to loan #2 and so on.

+1
Knock off 1high-rate loan at a time, paying minimum to the rest. Then when that one is paid off, pay that extra amount to the second, etc.

HardHitter
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Re: 12 Student Loans: Calculating Payoff Right?

Post by HardHitter » Sun May 08, 2016 12:28 am

BL wrote:
campy2010 wrote:If I am interpreting your approach correctly, you're planning to repay each loan equally over 2 years. Since loan #1 has the highest interest rate I would put all of the extra payments toward loan #1 until it is paid off, while paying the minimum on loans #2-4. Then move on to loan #2 and so on.

+1
Knock off 1high-rate loan at a time, paying minimum to the rest. Then when that one is paid off, pay that extra amount to the second, etc.


Appreciate it all so when looking at the details, it seems as though it may be best to consolidate into a single loan. Here is how they are applying the "extra money"

* If there are multiple loans in an account, after all interest and late fees are satisfied, any remaining amount is applied pro rata to the unpaid balances. For example:

You have two loans—one with an outstanding balance of $3,000 and the other $2,000.
Let's assume after all accrued interest and late fees are satisfied, that $50 remains.
$30 will be applied to the $3,000 balance and $20 will be applied to the $2,000 balance.
To get the ratio:

Add the loan balances $3000 + $2000 = $5000.
Then divide $2000 by $5000 = 0.40 and divide $3000 by $5000 = 0.60.
Those amounts are multiplied by $50 to determine the amount of the payment applied to each loan. $50 x 0.40 = $20 applied to the $2000 loan and $50 x 0.60 = $30 applied to the $3000 loan.


What I'd really want is that the entire $50 be applied to either the $3,000 or $2,000. Whichever of those two loans have the higher interest rate. Doesn't seem like that is what this Company is doing.

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BL
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Re: 12 Student Loans: Calculating Payoff Right?

Post by BL » Sun May 08, 2016 1:06 am

It is possible that this is just the default, and that you can direct where it is to go. But they make the rules!

HardHitter
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Re: 12 Student Loans: Calculating Payoff Right?

Post by HardHitter » Thu May 12, 2016 8:21 pm

Hello All,

I looked into consolidating all of the loans and they are proposing to change the following

- 5 Direct Unsubsidized Loans @ 6.8% = $18,570.28
- 1 Direct Subsidized Loan @ 4.5% = $3,191.59
- 2 Direct Subsidized Loans @ 3.86% = $2,353.34
- 4 Direct Subsidized Loans @ 3.4% = $12,218.18

Into this consolidated amount

- 1 Loan @ 5.375%

When I do my calculations, there isn't even any type of savings behind it. I actually end up paying a little more interest (couple hundred, potentially due to rounding) over the life of the loan.

Regardless, should I at least consolidate the similar interest rate loans into a single?

For example, instead of having 12 total loans, consolidate all 5 6.8% loans into 1, the two 3.86% into 1 and the 4 3.4% into 1. That way, I only have 4 loans.
Last edited by HardHitter on Thu May 12, 2016 8:30 pm, edited 1 time in total.

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grabiner
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Re: 12 Student Loans: Calculating Payoff Right?

Post by grabiner » Thu May 12, 2016 8:26 pm

HardHitter wrote:I looked into consolidating all of the loans and they are proposing to change the following

- 5 Direct Unsubsidized Loans @ 6.8% = $18,570.28
- 1 Direct Subsidized Loan @ 4.5% = $3,191.59
- 2 Direct Subsidized Loans @ 3.86% = $2,353.34
- 4 Direct Subsidized Loans @ 3.4% = $12,218.18

Into this consolidated amount

- 1 Loan @ 5.375%

I feel as though I'd be better off keeping the separate loans but what are your thoughts?


The consolidated loan would have a slightly higher average rate than the existing loans (5.375% versus 5.264%), so you won't save anything in interest. And if you want to pay down the higher-interest loans first, you will lose this option if you consolidate.
David Grabiner

campy2010
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Re: 12 Student Loans: Calculating Payoff Right?

Post by campy2010 » Thu May 12, 2016 9:08 pm

To me it looks like this is a federal loan consolidations, which is simply a new loan that is the weighted average of your current interest rates. So you would lose the ability to repay the highest interest rate loans early AND the benefits associated with the subsidized loan. No upside here.

What you want to research is a private loan consolidation with SOFI, Commonbond, DRB, etc. These companies will probably offer you a variable rate and a fixed rate.

Also, you should be able to repay each of these loans separately. My lender referred to it as separating the loans into "billing groups".

HardHitter
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Re: 12 Student Loans: Calculating Payoff Right?

Post by HardHitter » Fri May 13, 2016 8:07 am

I agree. When I calculate out the cost of interest at that rate, I am actually paying more so there is no upside.

Here is the interesting thing, when I do my calculations and put the amount over the term of the loan (120 months) it says my payment a month should be $390.70, but on their website, they say my monthly payment is $441.

What is causing this difference?

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FiveK
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Re: 12 Student Loans: Calculating Payoff Right?

Post by FiveK » Fri May 13, 2016 8:12 pm

HardHitter wrote:With that said, here is the general breakdown of principal per each

- 5 Direct Unsubsidized Loans @ 6.8% = $18,570.28
- 1 Direct Subsidized Loan @ 4.5% = $3,191.59
- 2 Direct Subsidized Loans @ 3.86% = $2,353.34
- 4 Direct Subsidized Loans @ 3.4% = $12,218.18

Total Per Month: $1,598.39
Cost of Interest: $2,028.80

Using the spreadsheet you can download from http://www.vertex42.com/Calculators/deb ... lator.html, and assuming the minimum payment on all loans is based on a 10 year payback, putting $1598.39/mo toward these loans using "minimum payment on all, plus extra toward the highest interest loan" costs $1746.33 in total interest.

HardHitter
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Re: 12 Student Loans: Calculating Payoff Right?

Post by HardHitter » Sat May 14, 2016 9:56 am

Once again, thank you all for the assistance.

I've looked into refinancing the loans to consolidate and get a lower rate, but doesn't look as though she really has the credit to do that right now.

As such, I am trying to decide if it makes sense to see if I can just use the current loan agency (Great Lakes) and consolidate the similar interest rate loans. At the moment, there are 12 separate loans across 4 different interest rates. Wouldn't it make sense for me to apply to have all 12 loans consolidated into their respective interest rate bucket? That way, when we make a payment, I can easier track where the extra money is going to so I can ensure it is being applied correctly?

E.g. Min payment $500, we make $1000 payment, the additional $500 is appropriately being applied to the highest interest rate balance.

blueman457
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Re: 12 Student Loans: Calculating Payoff Right?

Post by blueman457 » Sat May 14, 2016 10:13 am

Bummer that she won't quality for a lower rate.

In theory you are correct that you can consolidate the same interest rate loans and pay off the higher interest rate ones first.

But when you pay online, how are you making extra payments? Are you lumping it into the scheduled due payment or making a separate transaction? Do you have the option of making a separate transaction and directing it to a specific loan? It may allow you to be accurately track your payments.

HardHitter
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Re: 12 Student Loans: Calculating Payoff Right?

Post by HardHitter » Sat May 14, 2016 10:25 am

blueman457 wrote:Bummer that she won't quality for a lower rate.

In theory you are correct that you can consolidate the same interest rate loans and pay off the higher interest rate ones first.

But when you pay online, how are you making extra payments? Are you lumping it into the scheduled due payment or making a separate transaction? Do you have the option of making a separate transaction and directing it to a specific loan? It may allow you to be accurately track your payments.


Definitely is a bummer that she doesn't qualify for the lower rate. I had a earlier post asking if I should co-sign (I have no debt other than my mortgage) but people said that I shouldn't. Regardless, doesn't really matter to me because I have a plan to pay it off in 2 years (vs the default 10 years).

I just applied through the Great Lakes consolidation site to consolidate the 5 6.8% loans into one. It raises the interest rate to 6.875 but I could care less as it comes out to less than $10 of extra interest in the life of the loan. I rather pay that extra $10 for the ease of having a single loan and easier to track/manage.

The way we are making the payment at the moment is min monthly was $441 or something similar. She has been paying $500 each month in 1 payment. So in theory, the extra $59 a month should be going to one of the 5 6.8% loans.

Going forward, I'm planning on paying around $1,000-$1,500 a month. $441 for the monthly payment and then instructing all remaining $559 - $1059 to go to the 6.8% loans. Hopefully the application gets accepted so I don't need to track how that extra money is applied to those 5 6.8% loans and I can just see 1 consolidated 6.8% loan and make sure the principle is lowered by the extra $ amount.

If the 5 6.8% loans get consolidated, then I'm going to submit the same consolidation application for the remaining of her loans

2 @ 3.86%
4 @ 3.4%

That way, I go from 12 loans to 4 easily manageable loans

1 @ 6.8%
1 @ 4.5%
1 @ 3.86%
1 @ 3.4%

campy2010
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Re: 12 Student Loans: Calculating Payoff Right?

Post by campy2010 » Sat May 14, 2016 5:38 pm

AFAIK, Great Lakes is a federal loan servicing company and as such offers federal consolidation loans, which are always the weighted average of the interest rates of the underlying loans. If you want a lower rate you have to refinance with a private loan company like SOFI, Commonbond, and DRB.

ETA: I also wouldn't consolidate the low interest subsidized loans because you won't save any money on interest and would lose all of the benefits of the subsidized loans. Loans with the same interest rates can be grouped together so paying the group of loans is like paying a single loan.

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