Student loan payoff help

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OOlaf
Posts: 11
Joined: Mon Jan 02, 2017 5:31 pm

Student loan payoff help

Post by OOlaf »

I need some guidance with my wife’s student loans and paying them down aggressively. For a little back ground, we live in Texas and combined gross income is ~145000 a year. We have been paying on these together for a little over a year, and going forward we will have about $1500 a month to allocate toward them.

My wife is a teacher and is eligible for $17,500 federal loan forgiveness at the end of this school year.

Breakdown of loans:

Direct Unsubsidized

$3004 at 6.55%
$1765 at 6.55
$1450 at 6.55
$2443 at 6.55
$3973 at 6.55
$9510 at 6.55
$1876 at 3.61%
$4689 at 3.61%

Direct subsidized

$3479 at 3.15%
$5027 at 3.61%

So my main questions are can we re finance some of these individually from the others to pay them off early. I don’t want to disqualify ourselves from the federal loan forgiveness by refinancing them all. Our loan service provider (nelnet) will not let us make principal only payments. Is that standard? I would appreciate any advice moving forward to get rid of these!
totesmagotes
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Joined: Sat Nov 04, 2017 10:08 am

Re: Student loan payoff help

Post by totesmagotes »

What repayment plan are you currently on? What do you mean when you say she will be eligible for PSLF payoff at the end of this school year (or are you talking about a different type of loan forgiveness plan other than PSLF)? PSLF requirements are met after 120 monthly payments when on an eligible repayment plan. If you refinance into a private loan, you won't be eligible for PSLF. Then again, you may be able to get a better rate such that you'd end up paying less over the life the loans than you would if you continued to pay the requirement payment and apply for PSLF later.

Frankly, you'd just need to run the numbers here to see what works out best. If you are on an income-dependent plan (e.g., REPAYE, IBR, etc.), what is the required monthly payment? How long will it take you to pay it off at that minimum amount? Are you better off paying the minimum, investing the rest, and submitting for loan forgiveness after the required number of payments has been met? I'm in a similar position as y'all are, though my wife (who is not in a PSLF-eligible job) has more student loan debt than I do ($65k vs. $45k), which makes my situation a bit different. I've worked out that, for many combinations of market return rates, I'm better off paying the minimum amount, investing the rest of the money into a Roth IRA that I could put into the loans, and taking loan forgiveness in ~8 years. I can then, if I want, withdraw my contributions to the Roth IRA in ~8 years to make one large payment on the remainder of her loans, which would cover about 80% of what I'm projecting her loan balance will be at that time. In the meantime, the money I've put into the Roth IRA will grow (hopefully!)...

That said, it's almost break-even since many of my loans also have a 6.55% interest rate, but on balance it comes out a bit ahead this way. Of course, the lower-risk option is to pay all that I can into the loans and worry about investing later, and there certainly is some psychological benefit to paying off the loans entirely sooner rather than later. There's also the non-zero (but I think very small) possibility that PSLF is not around in its present form when I go to apply for forgiveness in ~8 years.
Amphian
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Re: Student loan payoff help

Post by Amphian »

Unfortunately, not allowing people to make principal only payments is common. Even places that claim they will let you make principal only payments won't actually tell you how to make the principal only payments (Sallie Mae, Navient, etc.). I believe you are right that consolidating them all would negate the chance of forgiveness. You might have to wait a year for the forgiveness to happen before you refinance. It might be worth it to contact the places where you would like to consolidate and Nelnet and see if they can do partials. (And I can bet what Nelnet will say... :( )
Thegame14
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Re: Student loan payoff help

Post by Thegame14 »

have you looking into consolidating the unsubsidized loans? Maybe you can get a lower rate and then just one payment on one loan.
TSR
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Re: Student loan payoff help

Post by TSR »

Sounds like you need some perspective more than you need advice: You two have $145,000 in yearly income and ~$37,000 in student loans. You're going to be fine.

Most of the refinancing places are offering at best 4.0% rates on loans these days if you're eligible, right? So realistically you've only got about $22,000 that'd benefit at all from such a refi (the ones at 6.5%), and there you're only getting 2-2.5% off. I don't know how much effort I would put into refinancing just to get 2.0% off my interest rate on an amount of loans I could easily pay off in under a year, especially if it could affect some sort of federal loan forgiveness.

I can't speak to the question about federal loan forgiveness, but if you get actual money out of someone to pay off her loans I'll be impressed -- I've rarely seen it.

As for how to do it, just pick off those high-interest loans one at a time until they're done. Then go after the smaller ones. More than anything, don't get freaked out. There's not a lot of debt here and great income. Prioritize the debt and you'll be done very quickly. Finally, don't miss out on tax-deferred savings (401k, etc.) while you work on this. You'll do way better there than you will on early loan repayment.

Good luck!
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Nate79
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Re: Student loan payoff help

Post by Nate79 »

You are only able to pay $18k per year on a $145k income???? Do you have any other debt?

I would get the loan forgiveness and then kill these loans in about 6 months.
Amphian
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Re: Student loan payoff help

Post by Amphian »

TSR wrote: Wed Sep 05, 2018 5:09 pm As for how to do it, just pick off those high-interest loans one at a time until they're done. Then go after the smaller ones.
The problem is they can't payoff the loans directly - the lender won't allow extra principal payments. Take the $3004 loan. If they send a check for $3004 for that loan, the lender will say, "Thanks, that takes care of these loan payments including interest until XX/XX/XXXX, when you will owe the next payment." The lender won't apply the money to the loan and be done, they just count you as having made those payments plus interest for the next X years. The borrower needs to refinance to make payments directly to the principal. (Yes, this should be illegal.)
Topic Author
OOlaf
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Re: Student loan payoff help

Post by OOlaf »

Amphian wrote: Wed Sep 05, 2018 5:19 pm
TSR wrote: Wed Sep 05, 2018 5:09 pm As for how to do it, just pick off those high-interest loans one at a time until they're done. Then go after the smaller ones.
The problem is they can't payoff the loans directly - the lender won't allow extra principal payments. Take the $3004 loan. If they send a check for $3004 for that loan, the lender will say, "Thanks, that takes care of these loan payments including interest until XX/XX/XXXX, when you will owe the next payment." The lender won't apply the money to the loan and be done, they just count you as having made those payments plus interest for the next X years. The borrower needs to refinance to make payments directly to the principal. (Yes, this should be illegal.)
Thank you all for the replies. Unfortunately, this is exactly correct. I cannot just pay off the loans one at a time like I would prefer to do. Amphian is exactly toght. So while the $37k with our income doesn’t seem too bad, I was hoping for some knowledge on how to tackle this with paying the least amount of interest.
Topic Author
OOlaf
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Re: Student loan payoff help

Post by OOlaf »

Nate79 wrote: Wed Sep 05, 2018 5:15 pm You are only able to pay $18k per year on a $145k income???? Do you have any other debt?

I would get the loan forgiveness and then kill these loans in about 6 months.
$1500 is a conservative estimate, it will likely be around $2000 per month. For debt we have just a mortgage ($1800) and low interest car payment ($360$ plus we our trying to live a little and take some vacations before children.
Amphian
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Re: Student loan payoff help

Post by Amphian »

If you feel confident the $17.5K forgiveness will come through at the end of the 2018-2019 school year, then I would spend this year preparing. Find out everything you can about claiming the forgiveness so that you can do it at the earliest possible moment and get it applied to the loan account. Save up all the extra money you can in a high yield savings account. By the time the forgiveness hits, you should be able to payoff and close the entire account if the servicer allows that, or refinance and immediately pay off the balance (or most of it) if they don't.
MSchleicher
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Re: Student loan payoff help

Post by MSchleicher »

I know others are casting doubt on the loan forgiveness, and although it isn't guaranteed to continue to exist, I did receive loan forgiveness last year for similar eligibility ($5,000 for elementary school teachers after 5 years).
campy2010
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Re: Student loan payoff help

Post by campy2010 »

All student loans can be repaid early so I don't believe you got the right answer from Nelnet when you heard "you can't make a principal payment". With student loan companies, I have noticed that if ask the question differently then you'll get a different, hopefully correct answer. What you want to ask is how to make a separate payment to the account number for Loan #1 rather than loans #2-#8. When I was a Sallie Mae customer, the individual loans could be separated into loan groups and then paid individually. I assume there is a way to accomplish the same with Nelnet. That said, it may take some effort to figure it out.
Topic Author
OOlaf
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Re: Student loan payoff help

Post by OOlaf »

MSchleicher wrote: Wed Sep 05, 2018 7:52 pm I know others are casting doubt on the loan forgiveness, and although it isn't guaranteed to continue to exist, I did receive loan forgiveness last year for similar eligibility ($5,000 for elementary school teachers after 5 years).
This is exactly what we will be applying for, but she is a special education teacher at a low income school (which qualifies her for the higher amount of forgiveness ) Did you have a hard time with getting the forgiveness? Did you apply right at the end of your 5th school year!
Topic Author
OOlaf
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Re: Student loan payoff help

Post by OOlaf »

Amphian wrote: Wed Sep 05, 2018 7:46 pm If you feel confident the $17.5K forgiveness will come through at the end of the 2018-2019 school year, then I would spend this year preparing. Find out everything you can about claiming the forgiveness so that you can do it at the earliest possible moment and get it applied to the loan account. Save up all the extra money you can in a high yield savings account. By the time the forgiveness hits, you should be able to payoff and close the entire account if the servicer allows that, or refinance and immediately pay off the balance (or most of it) if they don't.
Thank you again for the advice. This is one idea I was considering as we already keep our savings at ally. Would it make more sense to save all year and earn 1.85% while making the minimum payment? Or put everything extra toward the loans knowing that we are paying interest first. I guess I’m not sure how to calculate which makes sense mathematically
TSR
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Re: Student loan payoff help

Post by TSR »

OOlaf wrote: Wed Sep 05, 2018 7:27 pm
Amphian wrote: Wed Sep 05, 2018 5:19 pm
TSR wrote: Wed Sep 05, 2018 5:09 pm As for how to do it, just pick off those high-interest loans one at a time until they're done. Then go after the smaller ones.
The problem is they can't payoff the loans directly - the lender won't allow extra principal payments. Take the $3004 loan. If they send a check for $3004 for that loan, the lender will say, "Thanks, that takes care of these loan payments including interest until XX/XX/XXXX, when you will owe the next payment." The lender won't apply the money to the loan and be done, they just count you as having made those payments plus interest for the next X years. The borrower needs to refinance to make payments directly to the principal. (Yes, this should be illegal.)
Thank you all for the replies. Unfortunately, this is exactly correct. I cannot just pay off the loans one at a time like I would prefer to do. Amphian is exactly toght. So while the $37k with our income doesn’t seem too bad, I was hoping for some knowledge on how to tackle this with paying the least amount of interest.
I'm sorry, but I think (I hope?!?) you have misread this. I believe that Nelnet will always take any overpayment and direct it first toward all interest owed on all the loans -- I think that may be the only way to do it by law. But if you request a payoff amount for an individual loan group, they will give you that. You should be able to click on "Make a Payment" and then click "Payoff Quote" to get a quote on what it would take to knock out an individual loan entirely. In other words, if you partially overpay a loan then yes, it will just push the clock forward (which is still better than not doing that if you keep making your monthly payments), but I think they're always happy to have you pay off the loan entirely.

See the Payoff Information section here: https://www.nelnet.com/faqs
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jimb_fromATL
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Re: Student loan payoff help

Post by jimb_fromATL »

TSR wrote: Thu Sep 06, 2018 10:38 am
OOlaf wrote: Wed Sep 05, 2018 7:27 pm
Amphian wrote: Wed Sep 05, 2018 5:19 pm
TSR wrote: Wed Sep 05, 2018 5:09 pm As for how to do it, just pick off those high-interest loans one at a time until they're done. Then go after the smaller ones.
The problem is they can't payoff the loans directly - the lender won't allow extra principal payments. Take the $3004 loan. If they send a check for $3004 for that loan, the lender will say, "Thanks, that takes care of these loan payments including interest until XX/XX/XXXX, when you will owe the next payment." The lender won't apply the money to the loan and be done, they just count you as having made those payments plus interest for the next X years. The borrower needs to refinance to make payments directly to the principal. (Yes, this should be illegal.)
Thank you all for the replies. Unfortunately, this is exactly correct. I cannot just pay off the loans one at a time like I would prefer to do. Amphian is exactly toght. So while the $37k with our income doesn’t seem too bad, I was hoping for some knowledge on how to tackle this with paying the least amount of interest.
I'm sorry, but I think (I hope?!?) you have misread this. I believe that Nelnet will always take any overpayment and direct it first toward all interest owed on all the loans -- I think that may be the only way to do it by law. But if you request a payoff amount for an individual loan group, they will give you that. You should be able to click on "Make a Payment" and then click "Payoff Quote" to get a quote on what it would take to knock out an individual loan entirely. In other words, if you partially overpay a loan then yes, it will just push the clock forward (which is still better than not doing that if you keep making your monthly payments), but I think they're always happy to have you pay off the loan entirely.

See the Payoff Information section here: https://www.nelnet.com/faqs
I’m with poster TSR. There is a major misunderstanding here about the process for paying extra on student loans. Nelnet’s own site indicates that (like most other student loan servicers and lenders) they do allow extra payments on the principal to reduce the principal balance faster and save interest and time in debt.

However, it is true that any single payment will not actually be all principal alone. That’s because interest is calculated on a daily basis. Therefore, ANY extra payment you make above the minimum required will have at least some interest accrued since your last payment. [see note 1 below]

…And you do need to communicate with the lender or servicer to make sure they know that’s what you want done with the extra money. Nelnets’s site and others typically allow you to instruct them to apply the extra principal to specific loans. However, Nelnet and others typically default to pay any extra principal on the highest rate loan or group of loans – which will result in the best use of your extra money anyway.

Here are some more places to read about paying extra on student loans in general, about Nelnet in particular, and PSLF and teacher loan forgiveness: So … in the OP’s case, it’s not a question of whether they can pay extra principal. They can. But a more important question is whether they should pay extra on the student loan debt at all; and if so, how much?
OOlaf wrote: Wed Sep 05, 2018 7:30 pm
$1500 is a conservative estimate, it will likely be around $2000 per month. For debt we have just a mortgage ($1800) and low interest car payment ($360$ plus we our trying to live a little and take some vacations before children.
To put your money to best use to build future wealth and financial well-being, be aware that you should NOT pay down the student loans faster unless you are already contributing the max allowed to virtually all possible tax-deferred and tax-advantaged retirement account such as a 401(k), 403(b), and IRAs for both.

Next, you it appears that --especially wiith what I assume is the $17,500 teacher/student loan forgiveness next year -- you're not going to pay a lot of interest anyway.

In fact it appears that if you postpone or reduce any tax-deferred retirement contributions in order to afford to pay down the student loans faster, you'll probably pay more in income taxes during the remaining life of the debt than you willl save in interest on the debts. Then you'll lose the time value of all the money and tax advantage that you will never be able to make up because of the yearly limits on tax-advantaged retirement contributions.

Furthermore, if you pay $2000 per month toward the loans now, it appears that you will owe less than $17,500 after 9 months. In that case you will lose some of the teacher/public service loan forgiveness amount.

To me it makes no sense to blindly pay down the debts too fast if it's going to end up costing you more money out of pocket by losing some of the loan forgiveness. And to me it makes no financial sense to pay taxes prematurely and potentially lose literally decades of extra compound interest earnings by reducing or postponing contributions to retirement just to feel good about paying off the debt a little faster.

-- more about the consequences of postponing retirement contributions to pay off the debt too fast --

You cannot make up for lost time in earning compound interest. Plus, any contributions to a tax-deferred retirement plan will let you avoid paying taxes in your highest bracket now. But with the standard (or itemized deduction) and graduated steps in tax brackets, chances are you'll pay less tax on your retirement income than you're getting to defer now.

Even if you pay off your loans early, the limits for contributions to tax deferred plans will usually prevent you from being able to make up for the time you lost for earning compound interest on the taxes you pay prematurely and the compound interest you'll never earn.

So … when you spare money in your budget, and assuming your debts are manageable, you're more likely to come out a lot better in the long run to contribute the maximum allowed to any available tax-advantage retirement accounts like 401(k)s and IRAs before you pay any extra on debts like mortgages and student loans … which are really short term compared to the rest of your life -- with any luck at all.

See note2 below for some links to several threads where my posts show examples of how delaying your tax-advantaged retirement investing and paying taxes prematurely in order to pay down manageable debts too fast can --depending on your age, income and tax brackets -- literally cost anywhere from tens to hundreds of thousands to sometimes millions of dollars out of your future retirement income in exchange for saving only a tiny fraction as much interest on the relatively short term debts.

jimb



note 1
  • Incidentally, although interest is calculated on student loans on a daily basis, the minimum payment is initially calculated as though it were 12 equal payments per year similar to mortgage and other loans. A difference is that for mortgages and car loans the interest is typically calculated at 1/12 of the annual rate for each month as of a specific posting date (usually the 1st) no matter when the payment is received. In other words, if you make next months’ minimum payment early for a mortgage or car loan, you do not save any interest. The only way to save any significant amount of time and interest on your debt is by paying more than the minimum payment.

    For student loans (and some HELOCs and other loans and lines-of-credit with some banks and credit unions, the payment is posted as soon as practical after it is received, typically within a day or two So even with only the normal amortized payment, you will save a few bucks in interest by paying it as early as possible. However, whether interest is calculated daily or monthly it averages out to be approximately 1/12 of the yearly rate per month on the unpaid balance. And any significant savings in time and interest will still be because of paying more than the minimum payment – as much extra as you can as soon as you can.
note 2

My posts in these threads are some of many that go into more details and numeric examples of potential consequences of postponing or reducing retirement contributions in order to pay off debts too fast.
trumpet83
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Re: Student loan payoff help

Post by trumpet83 »

We had about 43k of Nelnet loans and paid them off in about 2 years making around 100k. You can probably do it a whole lot faster depending on budget margin.

I know you can wait on the Loan Forgiveness programs, but I’m glad we didn’t. Just put your nose to the grindstone and get the damn things over with. In our case, we backed way off on investing to free up cash. The loans did allow principal payments and once we got close enough we would do full payments of individual loans so they would no longer accrue interest.

Several friends and family members have spoken recently about Loan Forgiveness, and yes, of course, put in the paperwork, but I don’t want to wait around for someone else to handle things for me. Simplifying your life is worth a lot.
MSchleicher
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Re: Student loan payoff help

Post by MSchleicher »

OOlaf wrote: Wed Sep 05, 2018 9:13 pm
MSchleicher wrote: Wed Sep 05, 2018 7:52 pm I know others are casting doubt on the loan forgiveness, and although it isn't guaranteed to continue to exist, I did receive loan forgiveness last year for similar eligibility ($5,000 for elementary school teachers after 5 years).
This is exactly what we will be applying for, but she is a special education teacher at a low income school (which qualifies her for the higher amount of forgiveness ) Did you have a hard time with getting the forgiveness? Did you apply right at the end of your 5th school year!
It took some time to process, but the paperwork was simple. I think I applied over the summer after my fifth year.
JGoneRiding
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Re: Student loan payoff help

Post by JGoneRiding »

Amphian wrote: Wed Sep 05, 2018 5:19 pm
TSR wrote: Wed Sep 05, 2018 5:09 pm As for how to do it, just pick off those high-interest loans one at a time until they're done. Then go after the smaller ones.
The problem is they can't payoff the loans directly - the lender won't allow extra principal payments. Take the $3004 loan. If they send a check for $3004 for that loan, the lender will say, "Thanks, that takes care of these loan payments including interest until XX/XX/XXXX, when you will owe the next payment." The lender won't apply the money to the loan and be done, they just count you as having made those payments plus interest for the next X years. The borrower needs to refinance to make payments directly to the principal. (Yes, this should be illegal.)
I thought it was for student loans? Maybe they are confused on the terms . All SL payments apply first to any interest and then to the balance while at the same time moving the due date fwd. It if you do the math it has in fact reduced the principal.
junior
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Re: Student loan payoff help

Post by junior »

You should check if you wife is eligible for loan forgiveness.

The federal site says:
If you want to qualify for Public Service Loan Forgiveness now or in the future, complete and submit the Employment Certification form as soon as possible. Too many borrowers wait to submit this important form until they have been in repayment for several years, at which point they learn that they have not been making qualifying payments. In order to ensure you’re on track to receive forgiveness, you should continue to submit this form both annually and every time you switch employers.
https://studentaid.ed.gov/sa/repay-loan ... ic-service

If she is refinancing will make her ineligible so don't do that.
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