Author Topic: Stuck on student loans - which to pay off first?  (Read 2868 times)

slb59

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Stuck on student loans - which to pay off first?
« on: October 03, 2016, 06:00:47 AM »
So, I had a much more complicated question here, but I think it was a little overcomplicated, and it probably just boils down to this -

I have two chunks of student loan debt, which one am I better off putting extra cash toward?: the chunk with a 6.625% rate or the one with a 6.875% rate and half of the interest subsidized? I know you're supposed to go after the higher interest rate first, but then I get totally stuck on whether or not (and how) to adjust for the subsidies. Like, the 6.625% is effectively higher now, but then the 6.875% one will be higher when it goes into repayment, so which one to pay down?

For what it's worth, the 6.875% one will have interest subsidized for another year and a half, and it'll take us probably 5-7 years after that to pay both chunks down. We took out WAY too much in student loans, and managed to do it when interest rates were at the highest :( I haven't been paying them down very efficiently, and am really nervous I'm making another stupid mistake with how I'm allocating our extra payments...
« Last Edit: October 04, 2016, 06:31:53 AM by slb59 »

Proud Foot

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Re: Stuck on student loans - which to pay off first?
« Reply #1 on: October 04, 2016, 09:54:41 AM »
Since your higher interest rate is subsidized (half, effective rate approx 3.9%) I would focus on the one with the 6.625% rate and see if you can get it knocked out in the year and a half the other one is still subsidized.  Once the subsidized one ends I would switch to focus on that one.  It also wouldn't hurt to look into refinancing the 6.625% rate loan and see if you can get a lower interest rate. For the portion of the 6.875% loan that is not subsidized you should see if you can pay the interest that accrued while the other part is subsidized, particularly if the interest is capitalized once you begin repayment.

Bracken_Joy

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Re: Stuck on student loans - which to pay off first?
« Reply #2 on: October 04, 2016, 10:00:17 AM »
+1- whatever you do, just be sure you pay the interest before it capitalizes. Beyond that, either option is a good choice. Personally, I would attack the non-subsidized and see if you can pull out all stops to get it gone in the next 1.5yrs.

if you need inspiration, I highly recommend posting a case study: http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/
People here can squeeze blood from a stone in terms of budget ideas. =P

MishMash

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Re: Stuck on student loans - which to pay off first?
« Reply #3 on: October 04, 2016, 10:29:30 AM »
+2

If it makes you feel any better I had 100k in student loans, all in the 5-7% range.  It IS possible to pay them off, and rapidly.  Life may suck for a couple of years working a couple of jobs, but the feeling is better then anything on the planet.  Seriously, we celebrated paying those bitches off more then we have any other financial milestone since.

Jack

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Re: Stuck on student loans - which to pay off first?
« Reply #4 on: October 04, 2016, 10:36:57 AM »
It depends on how quickly you plan to pay the loans off. If it's quickly enough, it's better to pay the unsubsidized loan first, but there is a break-even point beyond which it becomes better to pay off the subsidized loan first. There's no way to know which side of that break-even point you're on without posting additional information (the loan balances and how much money per month you can afford to pay on them) and doing some math.

Bracken_Joy

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Re: Stuck on student loans - which to pay off first?
« Reply #5 on: October 04, 2016, 10:41:13 AM »
+2

If it makes you feel any better I had 100k in student loans, all in the 5-7% range.  It IS possible to pay them off, and rapidly.  Life may suck for a couple of years working a couple of jobs, but the feeling is better then anything on the planet.  Seriously, we celebrated paying those bitches off more then we have any other financial milestone since.

I was pretty high up there too- $60k+, with $15k of that above 6%. The highest was 7.8%. We've paid off everything above 5% now, and have $20k left. I graduated May 2015. It can be done! =) Admittedly, we lived in 500sq ft and then in the ghetto in a 100+ yr old un-renovated house to make it happen, but we did that AND saved to put about 12% down on a house. (Not as much as I would have liked, but our timeline got moved up to buy).

You can do eeeet.

MishMash

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Re: Stuck on student loans - which to pay off first?
« Reply #6 on: October 04, 2016, 12:07:43 PM »
+2

If it makes you feel any better I had 100k in student loans, all in the 5-7% range.  It IS possible to pay them off, and rapidly.  Life may suck for a couple of years working a couple of jobs, but the feeling is better then anything on the planet.  Seriously, we celebrated paying those bitches off more then we have any other financial milestone since.

I was pretty high up there too- $60k+, with $15k of that above 6%. The highest was 7.8%. We've paid off everything above 5% now, and have $20k left. I graduated May 2015. It can be done! =) Admittedly, we lived in 500sq ft and then in the ghetto in a 100+ yr old un-renovated house to make it happen, but we did that AND saved to put about 12% down on a house. (Not as much as I would have liked, but our timeline got moved up to buy).

You can do eeeet.

Yup you could be my twin, 525 sq feet, basement apartment, in the ghetto of Atlanta at the time, my boyfriends (now husband) father actually mailed me a taser after someone broke in while I was sleeping (brand new large foster dog took care of that one right quick I got a ccw shortly thereafter).  I also grew most of my vegetables in containers on the patio to keep food costs down as well. 

slb59

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Re: Stuck on student loans - which to pay off first?
« Reply #7 on: October 04, 2016, 01:28:02 PM »
Thank you!! So good to know others have managed to get out from under these things in less than twenty years <shudder>.

I think I'll go ahead and put this month's into the 6.625%, then put up a case study as soon as I have a free evening. I've made some major changes to my budget since I discovered this blog (and these forums), but hopefully there's more money to squeeze out that I'm not seeing.

And great point about there being a breakeven point if you can do the math right. I played with some calculations a couple of months ago (take out new student loans at 5.4% to pay off ones half-subsidized at 6.875%?), and got hugely different results depending on how many years I was working with. Between that and the couple of errors I made (that I found), I kind of gave up on being able to get a clear answer on this.

Easye418

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Re: Stuck on student loans - which to pay off first?
« Reply #8 on: October 05, 2016, 06:12:03 PM »
Thank you!! So good to know others have managed to get out from under these things in less than twenty years <shudder>.

I thought the max was a 10 year term.  We decided to live life a little and gambled on salary increases in near future. Ended up happening so now (Friday) will be focusing on Student Loans again. Hoping to hit them with $2,000 a month.

slb59

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Re: Stuck on student loans - which to pay off first?
« Reply #9 on: October 06, 2016, 06:53:32 AM »
Quote
I thought the max was a 10 year term.

Oh, no. If you consolidate, you can do up to 30 years. I know, because that's where my husband's are at. Plus, he went back to school shortly after they went into repayment, so they're in deferment and we still have most of those 30 years left. At least I'm putting money toward them every month so they are gradually shrinking. A little.

I can't wait until he finishes his doctoral degree and gets a full-time job so we can refinance and start hitting ours with $2000 a month, too!