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Student Loan Payoff
DasBoot
Registered User regular
Registered User regular
I'm looking for some advice on paying off the remainder of my student loans. I've done some research about the options, but I thought I'd pick the fine brains at H/A.
So, I have $19,743.51 remaining in student loans. They're all Stafford Un/Sub loans. Currently I have about 30k in available cash. From what I've read there's three options that seem the most commonly suggested.
1. Pay it all off. Buy a six-pack. Throw a party.
2. Pay off everything with interest rates over 5%. Invest the money you aren't paying into loans anymore into personal investments or 401k. Doing the math, that's $16719.61 of what I have... and at that point, why not just pay it all?
3. Just stay on the loan schedule and do something else with the savings, like buy a house. The loan payments aren't overly onerous with my current wages, so I can see an argument for just riding it out and taking my student loan interest deduction during tax time (assuming that's even an option in the future).
Just wondering if anyone else has had any experience in this and had an opinion on the best way forward. I can think of pros and cons of each option.
Thanks!
So, I have $19,743.51 remaining in student loans. They're all Stafford Un/Sub loans. Currently I have about 30k in available cash. From what I've read there's three options that seem the most commonly suggested.
1. Pay it all off. Buy a six-pack. Throw a party.
2. Pay off everything with interest rates over 5%. Invest the money you aren't paying into loans anymore into personal investments or 401k. Doing the math, that's $16719.61 of what I have... and at that point, why not just pay it all?
3. Just stay on the loan schedule and do something else with the savings, like buy a house. The loan payments aren't overly onerous with my current wages, so I can see an argument for just riding it out and taking my student loan interest deduction during tax time (assuming that's even an option in the future).
Just wondering if anyone else has had any experience in this and had an opinion on the best way forward. I can think of pros and cons of each option.
Thanks!
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My Little Game Blog - http://profundospielen.blogspot.com/
My Little Game Blog - http://profundospielen.blogspot.com/
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You could also pause whatever you are doing savings wise and just pay down your loans more aggressively starting with the highest interest one, so you can keep most of your savings intact.
i can tell you that just paying it all off does wonders for your credit, and can directly impact your house buying goals
when I paid off my vast student loan debt lump sum, my credit shot up quite a bit, and that can mean a lot for your mortgage
i recommend 1 if you can do it. in the financial world, the elimination of high interest debt would be characterized as a "guaranteed rate of return", and it's good policy if you can accomplish it without harming yourself otherwise
we also talk about other random shit and clown upon each other
Since student loan debt is is almost impossible to get rid of (even in a bankruptcy) without paying it off or dying, and has very few deferments available for the life of the loan during periods of financial difficulty, etc...for me, my student loans were one of the most important things to get rid of ASAP.
[edit snip]
If the remaining $10k is enough for you to have a 3-6 month emergency fund, I'd suggest paying them all off with the other $20k. If not, I'd pay off as much as possible (again, aim for the most expensive loans), while leaving that 3-6 month fund, and just continue on a normal monthly schedule afterwards.
One last thing to consider is that if the current administration manages to change the tax law, you may not be able to deduct the interest paid on your student loans anymore. This is one of the things that could make the option of paying off your loans all at once more attractive, because the amount of interest you pay will be much less than if you continue to make regular monthly payments.
Once it's paid off, consider taking all (or some) of your student loan payment and investing it.
If you absolutely are going to leave loans on the table, pay off all of your private student loan debt, and leave the federal. If it's only federal, pay off the unsubsidized loans first (or the ones with the higher APR), assuming their balances are close (within 8kish).
Don't just look at it in economic terms. This is peace of mind. This is removal of a bit of worry and stress.
Nope. Nooooooooooope.
ALWAYS pay down the higher interest one first.
What feels better to you? If you wake up tomorrow and the loans are paid, will that feel better? Or will you have a pang of regret for "lost" income from playing the arbitrage game?
Only you can answer that question.
Similarly, is there something else that this money could/should be used for? Do you need a new car soon, or do you want to move out of your current living situation? Do you have a vacation planned, or do you want to take one after you reach a certain goal? Do you want to start an emergency fund?
Again, all questions only you can answer, and you should consider.
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Now, with ALL of that being said, I would personally take the first step of checking to see what sites like SoFi or MagnifyMoney or LendingTree are offering for consolidation loans (those are just examples; there are MANY other places that offer student loan consolidation). If I could not make a significant hit on the interest rate, I would either pay it all off, or I would pay a substantial portion and plan to pay the rest off in installments over the next 3 years or less.
NightDragon is right, this shit isn't a one-size-fits-all deal and this isn't always good advice depending upon the circumstances.
Yup, it's a mindthink thing too. You pay off a loan and it feels like a reward, so you're more likely to keep paying off loans.
So paying off the $1500 loan versus the $20,000 loan feels better, even though the 20,000 loan might technically have the higher APR, it's going to take much longer to reach the goal and paying off the smaller one keeps you involved and makes you feel good, even though you might lose a few hundred dollars over the next 10 years with not dumping more money into the 20k loan first.
But if they're all similar amounts and interest rates, just knock the highest APR first.
Explain, please?
Steam: Elvenshae // PSN: Elvenshae // WotC: Elvenshae
Wilds of Aladrion: [https://forums.penny-arcade.com/discussion/comment/43159014/#Comment_43159014]Ellandryn[/url]
If you pay off a $5000 loan with a lump sum instead of putting all the $5,000 against a $10,000 loan with a higher APR, you will pay out slightly more interest over the course of the $10,000 loan's lifespan.
But It's not a hugely significant difference. The impact of paying off a loan, even if it has a lower APR, might mean you end up paying the other loans more quickly too because you feel good about eliminating debt and it sorts of feeds back off itself.
It's entirely on the person and how they want to tackle their debt. You're probably talking the difference of maybe a few hundred dollars at the end of the lifespan of the longest loan.
I'm sorry to be so strident but I can’t stress how wrong you are. You should delete or edit your post because all you are doing is spreading financial illiteracy that will actively misinform and harm others.
(1) interest rates are stated annually. almost all loans are paid in monthly installments. in a monthly payment plan,1 an interest rate of 8% means it accrues 1/12 * 8% on principal as it stands that month, i.e. 0.0067 of principal is added to the loan.
see e.g. https://www.fool.com/knowledge-center/how-to-calculate-monthly-accrued-interest.aspx
https://www.thebalance.com/calculate-monthly-interest-315421
See Truth in Lending Act rules in how annual interest rates must be stated: http://files.consumerfinance.gov/f/201306_cfpb_laws-and-regulations_tila-combined-june-2013.pdf
I don't even know how you can think this - if interest worked as you described, you'd pay 96% of principal in debt service payments over a year-long 8% interest loan. You don't - you pay 8%. Interest rates are annual interest rates. If you've ever had a loan you'll notice that your're not paying the principal amount in interest payments every year.
(2) it doesn't matter that you don't understand how interest compounds, because even using your examples, as long as you're calculating interest consistently across loans the math demonstrates you're wrong.
that's because if you put money towards the higher-interest loan, your marginal benefit is higher because pay less money in interest overall than if you had put that money towards the lower interest loan.
example using your incorrect understanding of how interest accrues:
if you have $150 to pay towards all your loans at the beginning of a month
If you pay 100% of it towards the $200 loan, the principal remaining is $50. You then pay 8% on $50, or $4.0
The $3000 loan accrues interest at 4%. You pay $120. Total interest payment for the month: $124
If you instead pay 100% of your amount towards the $3000 loan, you pay as follows:
$200 loan @ 8% = $16
$2850 = $114
Total payment: $130
As you probably know, $124 < $130. So you can see the clean math on why you pay down higher-interest loans first to maximize savings, regardless of relative principal amounts.
Sorry about any confusion to everyone else.
My Little Game Blog - http://profundospielen.blogspot.com/
If you still have loans you’ll see that some fraction of your payment goes towards interest and the rest towards principle. The amount towards interest should be 1/12 of the interest rate multiplied by the principal. Hopefully this will relieve some heartache you were having about your loans!
PM'd you my Venmo #, I'll take care of all of it for you.
More seriously, if you don't have a Roth IRA, Regular IRA, or some other type of retirement thing going, you should look into starting one as well as rebuilding your savings.
Shouldn't it be as simple as mailing a check for the entire balance if your provider's web portal doesn't give you good options?
Payoff balance is usually somewhat different due to interest. If you call the loan provider that can give you the number that's valid for x amount of days.
Steam: Elvenshae // PSN: Elvenshae // WotC: Elvenshae
Wilds of Aladrion: [https://forums.penny-arcade.com/discussion/comment/43159014/#Comment_43159014]Ellandryn[/url]