Student Loan Payoff Assistance

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HardHitter
Posts: 307
Joined: Wed Jan 08, 2014 11:41 pm

Student Loan Payoff Assistance

Post by HardHitter » Fri Jul 15, 2016 9:46 am

My wife has a student loan which consists of 12 different student loans across 4 unique interest rates.

I wanted to focus on paying more money to the highest interest loans so I ended up consolidating those loans into a single loan (instead of 5 separate loans @ same interest rate) to ensure I knew how much was being put to them. Here is what I am looking at so far:

- Consolidated Loans
1 loan @ 6.875 interest rate - Principal Balance Remaining: $17,774.24

-Primary Loans
1 loan @ 4.5% interest rate - Principal Balance Remaining: $3,040.32
2 loans @ 3.86% interest rate - Principal Balance Remaining: $2,353.34
4 loans @ 3.4% interest rate - Principal Balance Remaining: $12,218.18

According to this website, it says the minimum monthly payments are $142 for the consolidated loan and $199 for the primary loan. I don't know what the term is of the loan that they are calculating these monthly payments, but I obviously want to pay these off way sooner with my focus on paying off the 6.875% loan aggressively.

With that said, if we can pay $765 a month towards the loan, should I just be paying the minimum of $199 to the primary and then $566 to the consolidated 6.875%?

If my math is correct, we'd be able to pay the 6.875% loan off in 3 years and then shift the $765/mo to the next highest interest rate, etc until they are all paid off.

campy2010
Posts: 853
Joined: Sun Nov 28, 2010 5:01 pm

Re: Student Loan Payoff Assistance

Post by campy2010 » Fri Jul 15, 2016 9:56 am

Everything you describe is exactly correct. Put the extra payment toward the highest interest loan, pay the minimum on the others until the high interest loan is paid off.

Have you tried refinancing the 6.X% loan with SOFI, DRB, Commonbond?

JGoneRiding
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Joined: Tue Jul 15, 2014 3:26 pm

Re: Student Loan Payoff Assistance

Post by JGoneRiding » Fri Jul 15, 2016 10:21 am

I actually might first focus on the 4.5% primary loan to simplify life. Its one loan fairly high rate fairly low balance, you could get that gone in 6 months if you wanted to. Just what I would do to remove a loan completely.

Shouldn't you have 7 min payments then? The consolidated loan looks like the balance is low enough you are forced to be on a 10 yr repayment plan schedule is that correct? I think if you can consolidate greater than 20k you can move to a 30 yr plan per federal rules or anywhere in between.

Elbowman
Posts: 455
Joined: Tue Apr 03, 2012 2:25 pm

Re: Student Loan Payoff Assistance

Post by Elbowman » Fri Jul 15, 2016 10:27 am

campy2010 wrote:Everything you describe is exactly correct. Put the extra payment toward the highest interest loan, pay the minimum on the others until the high interest loan is paid off.
+1

HardHitter
Posts: 307
Joined: Wed Jan 08, 2014 11:41 pm

Re: Student Loan Payoff Assistance

Post by HardHitter » Fri Jul 15, 2016 11:14 am

JGoneRiding wrote:I actually might first focus on the 4.5% primary loan to simplify life. Its one loan fairly high rate fairly low balance, you could get that gone in 6 months if you wanted to. Just what I would do to remove a loan completely.

Shouldn't you have 7 min payments then? The consolidated loan looks like the balance is low enough you are forced to be on a 10 yr repayment plan schedule is that correct? I think if you can consolidate greater than 20k you can move to a 30 yr plan per federal rules or anywhere in between.


In theory yes but the way it works is they calculate a minimum payment and then they take that and spread it across the loans themselves. That is why I decided to pull out the 6.X% loans and put it in its own separate consolidated loan because it'll be easier for me to track/know the payment amount is being allocated correctly. I could end up splitting out the 7 loans and consolidating into their unique interest rate so that I have 4 total consolidated loans at each unique interest rate, but it takes a while to process and my focus right now is just on the highest interest rate. Once we finish that, I will pay the min on the 3.86% and 3.4% and allocate the rest to the 4.5% until that's paid off, etc.

campy2010 wrote:Everything you describe is exactly correct. Put the extra payment toward the highest interest loan, pay the minimum on the others until the high interest loan is paid off.

Have you tried refinancing the 6.X% loan with SOFI, DRB, Commonbond?


Tried refinancing but my wife's credit is pretty poor so we got denied. Haven't though about co-signing yet but may be something to save $ on the interest.

wish
Posts: 23
Joined: Tue Feb 09, 2016 1:15 pm

Re: Student Loan Payoff Assistance -- 1st check how much accrued interest

Post by wish » Fri Jul 15, 2016 12:12 pm

Before deciding, you need to compare the amount of accrued interest on the various loans.
My daughter had 7 loans from 6.5 - 8.55% --some with much accrued interest and some with almost none.
We 1st paid off the 8.55% interest note. That was a mistake as interest is not compounded and any payments are applied to interest first. ie. I had to cut through ~16k interest before paying any principal. We should have paid on the 7.55% note 1st as there was almost no accrued interest.

Wish we had done it differently.

MDfive21
Posts: 244
Joined: Thu Dec 09, 2010 9:16 am

Re: Student Loan Payoff Assistance

Post by MDfive21 » Fri Jul 15, 2016 12:49 pm

Never Cosign.

HardHitter
Posts: 307
Joined: Wed Jan 08, 2014 11:41 pm

Re: Student Loan Payoff Assistance -- 1st check how much accrued interest

Post by HardHitter » Fri Jul 15, 2016 1:11 pm

wish wrote:Before deciding, you need to compare the amount of accrued interest on the various loans.
My daughter had 7 loans from 6.5 - 8.55% --some with much accrued interest and some with almost none.
We 1st paid off the 8.55% interest note. That was a mistake as interest is not compounded and any payments are applied to interest first. ie. I had to cut through ~16k interest before paying any principal. We should have paid on the 7.55% note 1st as there was almost no accrued interest.

Wish we had done it differently.


The accrued interest is small each month typically. For example, we are about to pay this months payment and here is the accrued interest:

Consolidated Loan - $42.18
Primary Loan - $80.13

I'm assuming the monthly payment covers accrued interest first and then the rest to the principal

Tiffku08
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Joined: Wed Oct 22, 2014 10:10 am

Re: Student Loan Payoff Assistance

Post by Tiffku08 » Fri Jul 15, 2016 1:15 pm

I extended my student loans to the 25 year payment plan so that I could minimize my monthly payments. Then all excess payments went straight to the loan with the highest interest rate. Once I paid that one off, I continued with the loan with the next highest interest rest..etc. Took me a little over 3 years to knock out my student loans. :beer :beer

campy2010
Posts: 853
Joined: Sun Nov 28, 2010 5:01 pm

Re: Student Loan Payoff Assistance -- 1st check how much accrued interest

Post by campy2010 » Fri Jul 15, 2016 3:53 pm

wish wrote:Before deciding, you need to compare the amount of accrued interest on the various loans.
My daughter had 7 loans from 6.5 - 8.55% --some with much accrued interest and some with almost none.
We 1st paid off the 8.55% interest note. That was a mistake as interest is not compounded and any payments are applied to interest first. ie. I had to cut through ~16k interest before paying any principal. We should have paid on the 7.55% note 1st as there was almost no accrued interest.

Wish we had done it differently.


I don't want to thread highjack, but for federal loans accrued interest is capitalized (compounded) when you exit the grace period. So paying down the accrued interest first, you either saved it from being capitalized or it had already been capitalized and at that point it is just the same as principal. Either way, the 8.55% loan in the one that you want to get rid of first.

wish
Posts: 23
Joined: Tue Feb 09, 2016 1:15 pm

Re: Student Loan Payoff Assistance

Post by wish » Fri Jul 15, 2016 7:41 pm

According to the Nelnet website, the high interest loan was a non-subsidized Grad Plus loan which accrued interest from the outset (interest was simple and never capitalized) vs the slightly lower cost loans which were subsidized and therefore only started to accrue interest after graduation and payments started (i.e. the subsidy made it so there was no interest to capitalize).

We would have been better off prepaying the subsidized notes first despite the higher interest rate on the the earlier dated Grad Plus loans as the interest rates apply only to the outstanding principle, not to the accrued interest on each loan.

campy2010
Posts: 853
Joined: Sun Nov 28, 2010 5:01 pm

Re: Student Loan Payoff Assistance

Post by campy2010 » Fri Jul 15, 2016 8:29 pm

wish wrote:According to the Nelnet website, the high interest loan was a non-subsidized Grad Plus loan which accrued interest from the outset (interest was simple and never capitalized) vs the slightly lower cost loans which were subsidized and therefore only started to accrue interest after graduation and payments started (i.e. the subsidy made it so there was no interest to capitalize).

We would have been better off prepaying the subsidized notes first despite the higher interest rate on the the earlier dated Grad Plus loans as the interest rates apply only to the outstanding principle, not to the accrued interest on each loan.


You are mistaken about Grad plus loans having simple interest that is never capitalized. The interest on GradPlus loans is capitalized when you go into repayment after the 6 month grace period.

From https://studentaid.ed.gov/sa/types/loans/plus :

"If you receive a Direct PLUS Loan as a graduate or professional student, you don't have to make any payments while you're enrolled in school at least half-time, and for an additional six months after you graduate, leave school, or drop below half-time enrollment.

During any period when you're not required to make payments, interest will accrue on your loan. You may choose to pay the accrued interest or allow the interest to be capitalized (added to your loan principal balance) when you have to start making payments. Your loan servicer will notify you when your first payment is due."

wish
Posts: 23
Joined: Tue Feb 09, 2016 1:15 pm

Re: Student Loan Payoff Assistance

Post by wish » Sat Jul 16, 2016 5:36 pm

As per your quote, hers was not capitalized so any payment goes to interest first (the option before 'or'). Simple interest continues to accrue on the unpaid principle. Therefore, she accrues less interest by paying down chunks of principle on the notes where there is little accrued interest (also not capitalized) even though they are at lower rates.

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