Found out more about a debt

[jollygreen23]

I've been trying to get more information on a debt we owe--my husband's student loan. Besides the house, it's the only debt we currently have. Almost $500 has been coming out of our account automatically, but since becoming more Mustachian, I've been wanting to attack this debt a bit harder. So, I've been asking my husband for more information. How much, exactly, do we owe? How can I make extra payments? Things like that.

I keep reminding him, but he hasn't actually given me the information I needed. So I went digging and found out the name of the company and our account number. I was able to find the student loan website and log in without too much trouble.

That's how I found out that the $483 we've been spend each month is only the INTEREST and that we haven't paid down any principal. We owe more than the original loan: just over $36k.

I'm upset. I thought we were paying at least a little bit of principle with each payment. This whole time, we've been paying $6 a DAY just to hold onto this debt.

I'm looking at our finances and I'm not seeing a whole lot of options. On a good month, we'll be able to throw an extra $500 at this thing. But I'm 8 months pregnant. I'm about to start nursing school. That's going to come with tuition and child care expenses for a couple of years. Are we ever going to get out of this mess?

And, more importantly, how do I talk to my husband about this without sounding accusatory? I'm mad at him, but I know that talking to him in anger about this isn't going to help anything. I want him on my side, not defensive. (I think this is more a case of him being absent-minded about his own finances than anything else.)

Please help.

[andyp2010]

Do you own your own home? Can you add an extra $36k to your mortgage at something like 4% and pay that back rather than what must be 16% interest?

 If not, peer to peer lending might be an option, this way you might only be paying 10% or $300pm interest and, assuming you keep the same repayments, have $2200 coming off your principal annually.

Would a close family member be willing to pay it off for you in return for, say, 7% interest? Be careful with that one though.

[La Bibliotecaria Feroz]

Yikes! This is unfortunate--I'm sorry you got bad news.

That does seem like a high interest rate--see if you can, as PP suggested, reduce that. If nothing else, you might be able to "consolidate" it (even if it is just one loan). Getting the interest rate down will make it less painful if you can only put a little extra toward it every month.

As far as not being accusatory, just, well, don't be. Tell him what you found out, but make it more like WE didn't know than YOU didn't know, if that makes sense. We all know the feeling, right, of just not wanting to look at something? Procrastinating?

Just pay what you can. It may take a while because you have other priorities right now. In five years, your child will be in kindergarten (free child care!) and you'll be making real nurse money. In the meantime, take as many classes online as you can (I did a lot of library school work while sucking down coffee during baby's naptime), minimize childcare by scheduling classes around husband's work schedule, etc. Good luck!

Good luck!

[andyp2010]

Try approaching your husband with a solution, otherwise there's only a problem.

I'm not sure if you're interested in real estate but the one thing I've learned from it is creative financing and basic economics. The main thing I took away is that money is an illusion, an idea that you can manipulate in your favour all day long for great rewards. Your understandably annoyed as you feel it might impinge on your own ambitions but it's not worth risking good relationships on a mirage. 90% of the time there's a better way, you might just have not come across it yet and you can both have what you want.

If this is new information on his loans, perhaps suggest both putting all your cards on the table and going through your finances with a fine toothcomb. I'm sure between everyone on this forum, you and your husband, we can find ways of helping you out. :)

[AZDude]

What is the interest rate on that loan? Almost $500 a month in just interest... on only $36K? I left college with about $30K in student loans and paid roughly $200 a month, and that would pay off the loan in ten years time. Clearly the rate on this loan is exorbitant. If you have decent credit, refinance that loan ASAP.

[jollygreen23]

The interest rate is 6.55%. I talked to my husband. He says the amount we're paying right now includes deferred interest. So basically, he put off setting up any kind of payment schedule, accrued interest, and now we are paying that off in addition to regular interest?

[jollygreen23]

And the loan is broken down into several smaller loans. I think they may have just been taken out at different times.

[scapegote]

From my understanding of ours all payments first go to accrued interest and then will pay off principal (by law I believe). So if you weren't paying on them for a while, but they were still accruing interest your payments would go to interest for a while. You should be able to get a breakdown of non-capitalized interest on each loan to see where you stand. If you are caught up on interest then I'm not sure what's happening. The amount you are paying is more than 6.8% on that amount of loans (it'd be more like 15% if I did my quick math right)

[scapegote]

He says the amount we're paying right now includes deferred interest. So basically, he put off setting up any kind of payment schedule, accrued interest, and now we are paying that off in addition to regular interest?

Missed this before posting the above. Yes, any accrued interest must be paid off before you can pay towards the principal. (According to Great Lakes who manages mine/my wife's student loans this is a law). Should be able to get a breakdown of how much interest has accrued, with Great Lakes this is available on the website.

[Dee18]

Check out the Pay As You Earn repayment plan also.  I know it is being expanded to cover more early borrowers this December.  It takes into account the number of children in the family in determining your monthly payment. It's worth a look, although you may not want to stretch the repayment out to 20 years.

[jollygreen23]

Okay, so it turns out, we have $684 in accrued debt. The loan is from October 2014, but we've only been paying it for the last 6 months. (**I'm pulling out my hair right now.**)

The loan balance is $36,130.12
The principle balance is $35,446.13

So we pay until we catch up to the accrued interest, and then we get to make regular payments that actually include principle. Right now, we accrue about $6.50 PER DAY on this loan! So, nipping this in the bud is crucial.

[YoungInvestor]

Correct me if I'm wrong, but isn't accrued interest the same thing as principal for the practical purposes of paying down this loan?

I don't get getting worked up over the specific nature of the balance.

[Setters-r-Better]

Correct me if I'm wrong, but isn't accrued interest the same thing as principal for the practical purposes of paying down this loan?

I don't get getting worked up over the specific nature of the balance.

Yes. So ther $500 payments actually would be making progress beyond the currently accruing interest.

[SingleMomDebt]

Is there the possibility of paying the due. Then applying the rest of $500 payment to a specific account with words "principal only". Many companies will allow you to do this.

[Zaga]

Once you get all the accrued interest paid off, and you're almost there, you'll start paying down the principle.  My experience with this is that if you pay extra, the extra will be evenly spread across all of your loans and the only way to get it applied to just one loan is to call them every month after the payment goes through and have it reapplied to just one loan.  It was annoying, but we did that.  It's nice to now have just one loan remaining in our student loan mess. 

In your shoes I would try and pay a bit extra, those student loans can hang around for an awful long time if you're not careful.  I'd figure out what payment you'd need to make to get them paid off  in 5 years and in 10, see what you can fit into your budget considering nursing school and baby, and once you decide what to pay set that as your "minimum".  That way it won't hang around past when your own kids are in college.

[Cpa Cat]

I ran an amortization table on this loan, you're scheduled to have it paid off in around 9 years at your current payment. That seems ok, given the timeline you've indicated - a normal student loan payment plan runs 10 years.

So even though it may seem shocking and disheartening to someone who is debt-adverse - there is nothing particularly odd or outlandish about the terms of your payment plan.

Your choice now is to try to make extra payments - knowing that you probably can't get rid of this debt very quickly, but are shortening your 10 year time horizon. Or wait until you're finished nursing school and are flush with new income and tackle the student loan debt then.

If you have extra cash after baby and nursing school expenses and emergency fund, then throw it at the loan. It's not a bad rate of return. If you don't have extra money, it's not the end of the world - just make it a priority down the road when you're a nurse.

Edit: attached your amortization table.

[Cpa Cat]

Here an amortization table of the same loan where you make an extra $500 payment per year. As you can see, it shaves about 10 months off the loan term.

[jollygreen23]

Here an amortization table of the same loan where you make an extra $500 payment per year. As you can see, it shaves about 10 months off the loan term.

Cool! Thank you!

Our plan right now is to 1) make sure we have enough to pay for nursing school, then 2) throw everything else at the loan. With the extra $250 a month coming at the end of the year (when we stop seeing the chiropractor), the school expenses should be covered. Once child care becomes a necessity, we'll have to slow down on the loan payments. But after that, I'll be earning an income, hopefully. There's light at the end of the tunnel. Thank you, everyone.

[asiljoy]

You guys look into Sofi or any of the other student loan refinance places? We ended up with Sofi, took about a half hour of my time and I managed to cut my interest to 3.5% from 6.8%. They offered the same interest rate for a 10 or 15 year loan, so I opted for the 15 for the lower monthly payment and just pay extra when I can(we've already cut the term back down to 11 years with extra payments), but the actual monthly payment is only $340 on a $45,000? loan.

[Thegoblinchief]

+1 to refinancing unless you think there's a good possibility of needing the "benefits" paid for by the fed's higher interest rates like IBR. Keeping in mind that in a true worst-case you're better off having refinanced since the now-private loan can be discharged in bankruptcy AFAIK.

[jollygreen23]

Husband is on a mission to look into refinance on Friday. :)