<p>I post this here as I'm guessing most parents have a bit more experience when it comes to paying off student loans.</p>
<p>My lender has started sending me letters about repaying my loan. Not sure how common my situation, but here's what I've done. I've taken out 4 loans all with the same lender. These were federal stafford subsidized loans. The loans are as follows with fixed interest rates:
$2,625 at 6.8%
$4,500 at 6.8%
$5,500 at 6.0%
$2,750 at 5.6%</p>
<p>I'm wondering what's the best way to approach paying off my loans. One person mentioned consolidating my loans, but I'm not sure how that would work. Would I have to pay 6.8% interest on the loans with lower rates? Is consolidating loans recommended? The next big question is how early I should pay off my loan? According to the letter, I'd be paying $5,389.80 in interest on the $15,375 I took out. To me that's nuts. Would it be bad for my credit score if I pay my loan off quickly? Anything else to consider when paying the loans off?</p>
<p>My daughter’s still in school, so we’re not at that point yet, but:
No it will definitely not be bad for your credit score if you pay off your loans quickly. If anything, it will improve your credit score.
Not sure of the benefit of consolidating the loans unless you get a lower interest rate. Plus they’d probably charge a fee to consolidate, so of course they’ll encourage it.
If you can afford it, paying it off as quickly as possible is generally best. Really keep track of your payments to see that you aren’t ripped off, i.e., your extra payments are properly applied to the principle and interest is charged only on the outstanding balance. As far as I know, there’s no prepayment penalty on Stafford loans.</p>
<p>If you can consolidate without fees (or if they are minimal) and you don’t wind up with unfavorable terms (like prepayment fees), then it’s probably worthwhile but you’d want a good interest rate. It wouldn’t be a bad idea to see what rates are. If they’re a lot worse, then you might stick with what you have.</p>
<p>If you do pay down ahead of time (instead of all at once), make the required payments but pay down the higher-rate loans faster. I believe that there is a tax deduction for student loan interest so you might benefit from that.</p>
<p>$15K in loans isn’t bad - you’re about $5,000 under the average loan amount.</p>
<p>I wouldn’t bother consolidating. I would concentrate first on the higher interest rates by making bigger payments there. For instance, try to pay that $2625 off ASAP. Get that one out of the way…then work on the $4500.</p>
<p>You might find out if payments can be made automatically from your banking acct…saves on writing checks and postage. You can set the amounts of the payments to come out each month. Just make sure the money is in the acct! :)</p>
<p>You can set the minimum for each payment and then - when you can - have larger payments sent.</p>
<p>No debt is good debt so pay it as soon as possible. It is no brainer which to pay first but only after making minimum payment to others.</p>
<p>Other option might be to move these to credit card that offers 0% interest for a limited time (6 mths to 18 mths) and finish off the loan in that time frame.</p>
<p>I would recommend having contacting a student loan consolation firm and see what they can do for you. I don’t know today, but when my wife graduate she consolidated her 1 loan into another single loan and got a much better interest rate. A student loan consolidation firm can tell you more about your options today. </p>
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<p>Welcome to life! You’ll end up paying a huge amount of interest on something, whether it be a car loan, a home loan, or something else. So I wouldn’t worry about the $4,389.80 because it’s a heck of a lot better than the $439,000.00 number you will see on your mortgage.</p>
<p>Your student loan interest you pay is tax deductible, so it helps reduce your cost.</p>
<p>My suggestion would be to pay it off as quickly as you are comfortable, while still saving for retirement and setting aside extra money for an emergency fund. I would make extra loan payments as you are able to, but setup the payback time for 10 years to give yourself plenty of time to pay it back. You will have lots of bills and other expenses in the future.</p>
<p>How is he supposed to pay off a $15,000 loan in 6 months? This is actually terrible advice, because chances are he won’t be able to pay it off and then will get stuck paying 22% interest.</p>
<p>BP- what is your current income, what are your other debts, and what do you have in assets? Don’t take advice from strangers who don’t take the time to understand your entire financial situation.</p>
<p>Do you have health insurance through work? Have you started a career type job or are you tending bar and just making ends meet? Are you planning on grad school down the road? Are you single? Do you have a financial safety net (some savings in a CD or a bank account, or parents/siblings/aunts who can bail you out in a hurry if you needed 5K for an emergency car repair or whatnot?</p>
<p>Help us understand the big picture before we start throwing random bits of advice your way.</p>
<p>OP: Unless there are no fees involved (including any that increase the balance due) or you get a significant drop in the interest rate (which I somewhat doubt), I wouldn’t worry about consolidating. Your loans are actually have interest rates that are very close to each other, so I wouldn’t worry about that either.</p>
<p>In terms of figuring out how to pay it back, first find out what you MUST do, and whether there is any problem with making additional payments against principal. I’d be wary of setting up any plan where you commit to much more that you have to unless your job situation is very secure. Assuming you can make additional principal payments, I would do so. I don’t know if the lender allows you to specify which loan a specific payment is applied to, but if the lender does allow that, I’d work on the $2,625 loan first to get it killed off. You’ll feel really good as you knock each one off, and I think that gratification really helps with the motivation to keep making additional payments.</p>
<p>I’m a huge, huge fan of automatic payments and additional payments – when the money is routinely taken out of your checking account without you needing to take any action, you’re more likely to let it go without interruption. (That doesn’t work if you’re a person who overdraws your checking account, though.) One person I worked with was able to set it up with his bank that on the day after his paycheck arrived each month, a certain amount was automatically transferred into a separate account he’d set up for loan repayments and monthly recurring bills, and all of those expenses were automatically paid from that second account – he’d had some problems with overdrawing his main account and then having car payments bounce, and this really solved that problem for him, because when he looked at the balance in the main account he no longer needed to remember whether the car payment had or had not yet been taken out.</p>
<p>I second the advice of making sure you setting aside some money every month in both a retirement account and an emergency fund. We also followed the practice that 50% of any “special” money (bonus, tax refunds, gift checks,…) was always applied to reducing debt. That left enough for extras, but really allowed us to pay off our mortgage and our cars a lot sooner than we otherwise would have.</p>
<p>The very fact that you’re thinking about how best to pay off your loans is a really, really good sign. Good luck!</p>
<p>Thanks for the advice so far. Let’s see if I can respond to most of the comments in one post.</p>
<p>-I did not know that the interest was tax deductible. That’s great news to know.</p>
<p>-I’ll look into consolidating if it makes sense based on the info you have all provided, but it sounds like it’s most likely not going to be beneficial.</p>
<p>-I actually intended to pay off my loans in one shot, but my financial situation won’t allow that. I do have a job right now which is pretty stable that I know of. With the job and my savings, I could probably pay off the loan within a year.</p>
<p>-The good thing is that I’ve been saving up since my last semester and Uncle Sam was very nice to me this tax season. I don’t have any bills or anything of that sort to deal with at the moment. The only concern I have really is saving up for grad school since I’ve enrolled into an MBA program. But I have 3 years to defer that and during that time I’m looking to see how I can manage not to pay out of pocket.</p>
<p>-I’ll look into setting up automatic payments. I’m big on online banking.</p>
<p>-Also the letter I got explained about paying off and fees. Apparently the lender has some sort of benefits program where every time I meet certain milestones I get some interest rate reductions. There are no fees for paying early and they simply discount from the principal.</p>
<p>-As far as taking out another credit card, I am in good standing with the cards I have at the moment. I’m not looking to take out a card every time a situation arises that I can get short term benefits. I know people who have fallen into that trap and it really bites them in the ass later. Plus I have no guarantee that I will pay off the loan in 18 months (realistically as stable as my job is now, I never know what can happen down the line).</p>
<p>Again thanks for the advice. Hopefully other soon to be grads can make use of this thread.</p>
<p>be sure that you investigagte the type of loans you may have, some may be at a variable rate others at a fixed rate. A consolidation may move the amortization from the 10year amortization (Stafford, Ford, Perkins) to a 15 yr loan, which means a lower payment but allows you to apply more $ toward principle hence payoff loan faster and cheaper than a 10yr and more payment flexibility.
Consult a loan officer-at least 2.</p>
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