Best Strategy for Repaying Student Loans

Paying for College
1

<p>I'd like some opinions on the best strategy for repaying student loans for my oldest, who graduated in 2011. She has several, but some are small, $500 to $1000, others are the full amount. What we did while she was in college, was to figure the absolute minimum in loans she could take and get by and then if the situation called for it, she did the paperwork in the middle of the semester to get some of the amount she had turned down. Major car repair, she fell while skateboarding and cracked her elbow, problems scheduling work study around classes, etc.. caused her to need a little more during some semesters. Most of her loans are with the same servicing company, Nelnet, but for some reason she has one oddball with the North Texas Higher Education Servicing Authority. </p>

<p>My advice to her, which is what she did, was to set them all up on the IBR plan, she's an art teacher, working in her field, but with 2 part-time jobs, the hours are growing, but slowly. This would allow me or any other family member to make payments, with my thought being to pay off the smallest ones first. She has both Sub and Unsub and her loans were made during the period where the interest rate changed every year, so her interest rates are all over the place. She's been getting phone calls about that special consolidation opportunity lately, but it's my understanding she can consolidate her loans at anytime, so I'm not sure what's special about this opportunity. She's considering grad school, either MFA (which is a tough admit) or a master's in Art Education, and I know her undergrad loans can be deferred if she's in school, so my thinking is to wait to consolidate until after grad school, if that's the path she takes. </p>

<p>Am I correct in thinking you can only consolidate once, it's not once for undergrad and then again for graduate loans is it? Or would you have two separate consolidated loans? Apart from being able to pull in the one oddball loan, Nelnet tells us the only way they can do that is to consolidate the loans, having only 1 loan, 1 interest rate, and 1 payment what are the advantages. I know a lower payment, but on the IBR plan, I don't know if the payments would be lower for a consolidated vs each individual loan. There is not much information out there as to the pros and cons of each. I know the IBR plan will increase the amount paid and time paid, but she has less than the undergrad limit, there are no parent plus loans or private loans, so after I get her brother through college, I plan to help both of them with their loans. I never intended for my kids to have any loan debt for college, my parents put us through, and their parents put them through, it's just viewed as part of parental responsibility. I know not everyone sees it that way, it's one of those things that each family decides for themselves. However life has a way of throwing you a curve when you least expect it, and so there are loans, but as long as I can I plan to help with the payments. So what's the best plan? How has worked out best for your family? Thanks</p>

2

<p>Can’t really speak to it, both my D’s are still in school, one in undergrad, the other finishing grad school next month. She did take four years off to work before entering grad school, so I imagine she was paying on loans.
This explains loan consolidation
[Loan</a> Consolidation Help](<a href=“http://www.nela.net/borrowers/Pages/loanconsolidation.aspx]Loan”>http://www.nela.net/borrowers/Pages/loanconsolidation.aspx)</p>

3

<p>Michelle Singletary who writes about Personal Finance for the Washington Post has written extensively about the “Pay off the Smallest Loans First” plan. For many people being able to see that one loan is completely gone is more inspiring than watching several loans disappear more slowly. This strategy includes paying the minimum required payment on all of the loans, but putting any extra cash toward the smallest loan until that one is gone. As soon as it is gone, what would have been applied to that loan is thrown at the next smallest in addition to the regular minimum. With this methodology, that $500 loan could easily be already gone by now and just one less thing to worry about.</p>

<p>Some people prefer to put the big money toward the higher interest loans, and there’s nothing wrong with that strategy either. Your daughter should choose the one that makes her feel most successful at dealing with her debt.</p>

<p>To be perfectly honest, I don’t see any big advantage to consolidating the loans. If you can pay separate rent/gas/electric/landline/cellphone/car insurance/car payment/renter insurance/etc. bills each month or each quarter, you certainly are capable of paying more than one student loan bill each month or quarter.</p>

4

<p>happymom, That’s what I was thinking, she’s a late 2011 grad, so loans are just entering repayment, and my thoughts were pay off the small ones first, so you could see progress and then work up. She’s a very much; want to see results for my efforts; kind of kid. But it seems every other day there’s a voicemail or email saying; don’t miss the chance to take advantage of this special consolidation offer; so I wondered if there was some advantage to consolidation that we weren’t considering because I can’t figure out why they’re pushing it so hard, unless possibly with upcoming changes, that option won’t be available anymore. Who knows.</p>

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<p>Consolidation is just getting a new loan to pay off the old loans, so actually by improving her credit rating by paying off the smaller loans, she will be eligible for preferred interest rates down the road.</p>

6

<p>If you have the time and the inclination, it would be worth while to iist the loans and the payments and see what the consequences are of each direction. Though, yes, paying the smallest loans off first can give a psychological relief, if the interest rates on any of the larger ones are significantly higher, it might make a difference as to how soon she gets the debt monkey off of her back. The same with consolidation. That’s the only way you can see what is the best way to go. If the difference is negligible then go the way that is the most convenient, uplifting to you.</p>