Author Topic: Ideas for student loans  (Read 5592 times)

Raechelle73

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Ideas for student loans
« on: April 05, 2012, 10:24:26 AM »
As Jr. Mustachians, we're making progress.  I am staying home now raising 5 kids, and husband is working.  Went from 110K/year to about 55K.  Big adjustment.  Got rid of the cell phones, YMCA membership, rarely ever eat out, both cars are paid off (and we'll soon be selling one, just bought a geo metro!  yea!!!)  Learning how to be more frugal with food etc.  Still have a hard time using cloth diapers - I hate them.  Anyways -- we still have 98 grand in debt, AND 209K on the upside down mortgage.  (It's a tiny house - 1000 square feet, and there's seven of us.  I've looked into refinancing, selling, etc.  Not an option because I'm the owner, ((purchased before I met husband)) and not currently working.)  Upside down, (House is now worth only about 130K so I can't take out any equity.  We have 4K on an overdraft line of credit, 3k on a Visa (paid down from 9.5K), 2K on another credit card we used for legal bills (custody, emergency).  Of course we're snowballing the debt and getting it paid off.  (the debt for credit etc is 11K, everything else of the 98K is all student loans.  (As awful as it sounds, we've already paid off about 48K in the last couple years.  Making good progress and continuing to seek out challenges for how we can reduce our overhead each month and pay off our debt quickly.  I'm not an option for any "extra" income right now - with 5 kids, two with serious needs, AND two infants, and homeschooling, I'm beyond busy.  But that student loan debt is eating at me night and day.  Ideas for how to cut that down?  We're paying about 278/mo on one (total on that one is 48K) and that's INTEREST ONLY!!!  I can't tell you how mad that makes me!  That money is GONE every month, to INTEREST and the principal doesn't even MOVE!  We're willing to get drastic, but we've cut so much, I don't see where else we can cut?!  Husband was working 6-7 days/week for a while.  (Found that we can't keep that up.  Eventually get so tired we eat dinners out - too exhausted, start buying fancy coffee again, just to keep going - and it eats all our extra income - for example buying disposable diapers because we're too tired to do all the extra chores, using the car to drive the kids to school just down the block since I'm too tired to walk...  Since it's going to be a marathon, we decided to "cut back" to fewer overtime hours, so we don't get so overwhelmed.  Really would love ideas on what the heck to do with those student loans.  We want to be out of debt.  We want our freedom.  These loans... what to do?

wilk916

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Re: Ideas for student loans
« Reply #1 on: April 05, 2012, 11:30:35 AM »
Sounds like you have your hands full.

I'll start by saying that I am not a financial advisor, so take my comments with a grain of salt.

My wife and I recently accumulated a mountain of student loan debt and have been finding some interesting (and non-traditional) ways to lower the long-term costs.  These loans are all at 6.8% and have about 8 years left on them.  Here are two things that we did:

1. Like you, we owned our cars outright.  One of these cars was the truck I bought in my 20s when I had more money than sense.  It had low miles and a fair amount of equity.  It was also less functional with a new baby.  At the same time, our bank was offering used car loans at 2.99%.  We sold the truck and used the cash to pay off some of the 6.8% loans.  We then replace the truck with a used vehicle and borrowed all of the funds at 2.99% for 5 years.  I figured this will save us $3k-$4k over the next 5 years.  I'm trying to convince my wife that we should do the same with the second car and be a one car household, but no luck so far.
  NOTE 1: This only worked because the student loan debt was a collection of smaller loans (we had not consolidated).  This allowed us to pay off a subset of the loans in full thus reducing our monthly payment.  With the new auto loan our cash flow stayed about the same, but we are saving a ton on interest each month.
  NOTE 2: We had reached an income bracket where the interest on these loans were no longer tax deductible.  If this is not the case for you, then the savings will be less.
  NOTE 3: Sales tax on the car purchase will chip away at any savings as well.

2. We had family with some excess cash just sitting in money market accounts drawing next to nothing in interest.  I negotiated the "sale" of a few of the student loans to these family members.  At 3% we are saving money in interest payments each month, and the family member is getting a much better return on the money.  Note that this works because the family members trust us enough to take on the risk (our jobs are pretty secure).

Again, these strategies might not work for you, but it gives you an idea of the opportunity for "interest rate arbitrage" due to the large gap in interest rates in the market (6.8+% for former students and 0.001% for banks).

One last comment (that may be obvious) is: Always pay off the most expensive debt first (net of any tax deductions).  Credit cards are probably the biggest expense.  The beauty of student loans is that they are fairly easy to defer.  Defer the cheapest debt whenever possible and aggressively/diligently pay off the most expensive debt.  Once the credit card debt is gone, defer only the cheaper student loans and diligently pay off the most expensive student loans.  Repeat as necessary until they are gone.

Good Luck.

velocistar237

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Re: Ideas for student loans
« Reply #2 on: April 05, 2012, 11:33:47 AM »
What are the interest rates and amounts?
How much is yours and how much is your husband's?
Do you plan to return to work within the next 25 years?
Does your husband work for a non-profit?
Have you heard of Income Based Repayment and Public Service Loan Forgiveness?

(We live in a 1000 sqft house, too! Right now, we have the in-laws with us, which brings the total to 4 adults, 2 kids, with another on the way. It doesn't feel too tight, at least not yet!)

AJ

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Re: Ideas for student loans
« Reply #3 on: April 05, 2012, 11:35:39 AM »
Wowsa! I'm impressed that you're plugging forward despite your difficult (and busy!) situation. I have friends that would put their heads in the sand and not even want to think about it.

You don't list expenses, so I'm just going to assume they are already bare-bones. Can you get a paper route in the mornings before hubby has to leave for work? In my area, these are done with cars and pay $600-800 a month. Could you two donate plasma? That pays another $100 or so each a month, and I bet you could bring a book and give you some downtime from the kids (if you took turns). Can you babysit on Friday and Saturday nights for other couples who want to have dates? You are obviously too busy during the day with 5 of your own, but if some or all of them were in bed you could make a bit extra.

Also, have you tried asking for hardship deferment on the student loans? If some of them are subsidized, I believe that would halt the accumulation of interest so at least your payments would be going to principle.

AJ

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Re: Ideas for student loans
« Reply #4 on: April 05, 2012, 11:38:27 AM »
(We live in a 1000 sqft house, too! Right now, we have the in-laws with us, which brings the total to 4 adults, 2 kids, with another on the way. It doesn't feel too tight, at least not yet!)

In college, we lived in an 800 sq ft house with 6 adults and 1 bathroom and it was fine as well. But I think it would be different with lots of kids, since adults can keep to themselves and don't make such a mess (well, some adults, anyway :) )

the fixer

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Re: Ideas for student loans
« Reply #5 on: April 05, 2012, 01:59:05 PM »
I'm no expert on this, but if you're in the US, remember you can deduct at least some of that student loan interest from your taxes. You might not have been able to do that before if your combined income was $110k but at $55k you should be eligible for the full deduction. That might help you out come tax time. Even if you don't have any tax obligation because of the mortgage and kids, it might still help because IIRC at least one of those tax credits you get with kids can contribute to a larger refund. So you might be in a place where the more deductions you have, the more money you get from the government.

+1 for PSLF. As I understand it the 15-second over-simplified version is you work for the government or a nonprofit for 10 years then your loans are paid off for you. Do the math in both scenarios.

Raechelle73

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Re: Ideas for student loans
« Reply #6 on: April 05, 2012, 03:16:00 PM »
Wilk916 - thanks for the ideas - wow, you are really thinking!  Love the idea of "selling" the loans.  Yes, we have been very fiscally responsible (myself always, and husband for at least the last 5 years) so that is something to think about.  Unfortunately, of our family, we are the ones who are in a better scenario than others.  Sad to see my family still making dumb decisions. 

the fixer - Yes, we have always withheld a lot in taxes and always got big returns back, which we've always put towards our debt, big chunks at a time, which is how we managed to pay off lots in the past.  Great idea, and if we weren't already doing that, that would be my first move! (Now, we're trying to NOT have big refunds, and instead pay more each month.  Before, with both of us working, we just couldn't trust ourselves not to spend any extra money.  Because we were always too tired,  we used money for conveniences like fast food, which wasn't "budgeted."  So, to be "safe" the money just went to taxes, then came back for a big refund, which we put on our debts each March.  Now, with more time = energy, we can be "trusted" to stick to our tight budget much better, so a few extra dollars go where they should.  (So no "free loan" to uncle sam!)

velocistar237 - Yes, we did fine in our tiny house even as recently as last year before the newest baby.  (Also w/ virtually no yard) But rambunctious 9 year old boys, wrestling matches among 11 year olds, and such - it's not the same.  I find myself losing my temper with the screaming and yelling and wrestling.  SO motivated to have a larger space for little bodies to grow and move.  Adults can control their bodies and their energy better, and usually don't find a need to "throw down" as they are walking through the living room and come across another human.   :-)

Also - Velocistar:
Yes, I looked into the public service forgiveness and should have qualified to have my $20,000 loan forgiven, as I am a school teacher in science.  However, after fighting to prove that I qualify because of our district's high need status, (going through re-organization.  Finally made headway only to learn...) that because I'd had a $500 loan forgiven about 10 years prior, I didn't qualify.  Geez.  :-( 

Ok, here's my monthly budget (In order of repayment, based on snowball method, not interest rates)
GAL (guardian ad litem - for court for custody) 50/mo, owe 600 total
Attorney (for custody) 100/mo, owe 1500 balance
BECU visa $57/mo, $3012 total, 10.9%
SECUWA Visa $74/mo, 3098 total, 9%
LOC $68/mo, $4345 total, 6%
Student loans:
Husband $80/mo, $5,047,  (have to look this one up)
Mine $136/mo, 5525 total (I think this is about 2%, it's Sallie Mae, subsidized)
Mine $273/mo, 22,714  (need to look up, subsidized, I think)
Husband (two combined, paid currently by Father in law, as their way of helping his education - 30 and 25/mo, 6441 total) 7.45 and 3.85%
Husband $271/mo, 48,877 (This is interest only!  ARG!!! 7.25%)
*How can I not know my interest rates?  All but two have been sold and re-sold recently, and we decided to follow the snowball method, even though it's not interest based, but total-based, so I quit looking at that, so I wouldn't get more frustrated.  Lol! 

Mortgage:  1592/mo, 209,235 total 5.75%, don't qualify to refinance, have checked and rechecked over and over and over, looked at a bunch of ways of doing this. 

Living expenses:
Frontier landline and internet $49/mo
Util:  $207 (varies, of course)
Life insurance $29/mo
net flix $7.50
Car insurance $140 (3 cars, about to sell one, then will also reduce one to liability only, will drop cost.)
Food and gas - trying to set this now.  Selling truck, and bought Geo metro, for less gas expense.  24 mile commute (about 50 round trip, 5 days/week, at about 12miles/gal)  New work schedule starting in one week - working 4 days/week, with Geo metro, (lowest should be about 24 mi/gallon)  Should improve gas budget, especially with mom walking all but one day/week, errands and shopping.
Food - 7 people (my "little" kids eat as much as my husband and I.  Not kidding.  We use Costco and Winco, and together they're cheaper than couponing, we've found after diligent research.  Purchasing potatoes, rice etc in bulk, milk and eggs in bulk, freeze bread, etc.   I need to determine a monthly budget for food.  Started with household budget of $1200/mo, (for food, gas, entertainment etc) and want to get that down to about half, including gas, birthday celebrations, pet costs etc.  (Pets are about $75/mo.) 




Raechelle73

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Re: Ideas for student loans
« Reply #7 on: April 05, 2012, 03:29:45 PM »
Sorry, didn't answer:  I am currently looking into income-based repayment and unfortunately, no, husband works for a regular company, not a not-for-profit.  We've been busy with the car scenario, and need my husband to do the leg-work for his loans, and he's only now having days off at home.  We'll check into income-based repayment pronto.)  Love the car selling scenario also, as a way to lower interest rates.  Does anyone know, can I sell my loans to another company for lower rates?  (Heck, the banks sell them all the time, why can't I?) 

I'd like to know more about deferring the cheaper, and paying off the others - Can this be done with non-subsidized loans, or will it just continue to earn interest, which only hurts us further?  Not sure....  So...you're saying pay off the highest interest first, or the largest total outstanding? 

AJ

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Re: Ideas for student loans
« Reply #8 on: April 05, 2012, 04:00:56 PM »
Non-subsidized loans will just continue to accrue interest during deferment. It would only help if they were subsidized and the government was picking up the tab. You can't officially "sell" your loans because you don't own them. A loan note is an asset, which belongs to your bank. I think Wilk916 meant they arranged to borrow money cheaply from family and pay the smaller student loans off - which is effectively like "selling" the loan.

You don't have to sell a car and buy a new one to obtain financing, tho. You can get a loan on a car you own outright, if it is new enough. PenFed has a 1.99% online car loan rate right now, so you may look into that.

Winco is awesome! Especially the bulk bins. Have you ever read Tightwad Gazette? If not, I highly recommend it. It is older, and inflation has made the numbers in it inaccurate (and it was written before the internet was as ubiquitous) but the concepts in it are great. You can probably get it from the library.

Raechelle73

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Re: Ideas for student loans
« Reply #9 on: April 05, 2012, 04:45:08 PM »
AJ - I've heard of tightwad gazette several times, but haven't looked into it yet.  Yes, I will check it out at the library next time we go - thanks for the heads up!  Yes, I understand what was meant by Wilk916- I understand he had a family member buy it.  What I meant by selling my own loans was that I recall a conversation with a co-worker where they were talking about having another company buy their student loan from the current loan holder, and getting a lower interest rate.  Anyone know anything about this?  It was specifically for student loans, not just getting a regular personal loan. Still impressed by the creativity of some folks though!  Love the ideas!  That's what I'm looking for! :-)

slugsworth

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Re: Ideas for student loans
« Reply #10 on: April 05, 2012, 06:51:45 PM »
I know you asked about student loans, but you have other debt as well.

One of your options, and I would not take it lightly, is to short sell your home and rent something cheaper. It obviously would have serious repercussions to your credit, but I figured it should be mentioned since you are so far underwater.  Also, I would double check the tax rules to make sure you don't have phantom income. . . especially if you take this course of action after 2012 when the tax laws changes in this regard. 

Obviously with the smaller monthly payment you could make more headway on the student loans and CC's.

The other arbitrage situation that might help is to use a 0% interest credit card to reduce your interest if you can pay off the debt during the 0% time period. There is usually a 3% interest fee right off the bat, so take that into consideration when determining if this makes any sense. This might be a useful strategy to use as part of your snowball.

Nancy

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Re: Ideas for student loans
« Reply #11 on: April 05, 2012, 07:23:00 PM »
AJ - I've heard of tightwad gazette several times, but haven't looked into it yet.  Yes, I will check it out at the library next time we go - thanks for the heads up!  Yes, I understand what was meant by Wilk916- I understand he had a family member buy it.  What I meant by selling my own loans was that I recall a conversation with a co-worker where they were talking about having another company buy their student loan from the current loan holder, and getting a lower interest rate.  Anyone know anything about this?  It was specifically for student loans, not just getting a regular personal loan. Still impressed by the creativity of some folks though!  Love the ideas!  That's what I'm looking for! :-)

I'm not a financial professional, and I think you would really benefit from talking to a reputable financial adviser. In response to your question, it sounds like your coworker may have been talking about loan consolidation, but you should be wary. If you have federal loans-not private loans, do NOT even consider consolidating your federal student loans with a private lender for a lower rate. You will lose all of your protections, including income-based repayment and economic hardship deferment. That leads to my question of: do you have private loans or are they federal loans or is it a mix? If you have federal loans, have you considered applying for economic hardship deferment or forbearance? If you could put some of your debt in deferment, then you could really attack your credit card/other debt and save up a good emergency fund. You said yourself that this is a marathon. With 7 people living on $55K income, you will not be able to pay off your loans quickly. I do not think that you should take on any sort of risky debt payment situations (like using credit card advancements, etc.). Your situation is too precarious with many dependents relying on only one earner. Good luck!

wilk916

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Re: Ideas for student loans
« Reply #12 on: April 06, 2012, 09:28:33 AM »
You don't have to sell a car and buy a new one to obtain financing, tho. You can get a loan on a car you own outright, if it is new enough. PenFed has a 1.99% online car loan rate right now, so you may look into that.

Good info.  I was completely unaware of this.