Author Topic: Prioritizing student loan repayments  (Read 1260 times)

rufustache

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Prioritizing student loan repayments
« on: March 01, 2016, 08:10:09 AM »
Hello all, I am new to the forum and attempting to grow a stache!  I'm getting serious about debt and savings, and I am going all-in on paying my wife's student loans.  Currently, we have about $75K spread across the loans listed below:

Lender A
$1,264 at 6% fixed, subsidized
$1,251 at 5.6% fixed, subsidized
$1,686 at 6.8% fixed, unsub
$1,902 at 6%, subsidized
$1,247 at 5.6%, subsidized

Lender B
$4,038 at 4.5 variable
$14,516 at 4.5 variable
$3,398 at 4.25, variable
$12,296 at 4.5, variable
$12,134 at 4.5, variable

Lender C
$18,212 at 4.5, variable

Lender D
$720 at 8.5, fixed
$3,319 at 8.5, fixed

Initially, I was thinking I would pay the higher interest first, but now I'm not quite sure what strategy we should take.  I reviewed her recent minimum payments, and the higher fixed rate loans (lenders A and D) were covering a good amount more principal than interest, while the minimum payments on the bigger loans with lower, variable rates (lenders B and C) were covering about 45% principal and 55% interest.

My thought process now is to tackle those big loans first since we are paying more in interest, and keep making the minimums on the smaller, higher rate loans. 

I've got a good chunk of money coming to throw at these - I'm closing a CD with about $8500 in it, withdrawing a roth IRA with about $7500 (former employer retirement plan rollover, contributed $7650 in 2013 and never made contributions, so if I'm understanding correctly, will be a penalty/tax free withdrawal), and selling my clown truck to net about $5000-6000.  I plan to go car-less (and thus auto insurance-less) until we get these loans paid off.  We both make pretty decent incomes and have reduced a ton of unnecessary spending.  We are in a position where she can pretty much put all of her take home pay to her loans, so we should be able to tackle this in a matter of a few years.  I just want to know which plan will be more efficient.

Also, I am not interested in investing as opposed to making extra payments.  I want to eliminate this debt, so any extra money will be going to these loans.  I have considered using SoFi for refinancing/consolidating, but was curious what you guys thought about that as well.

Thanks in advance!

dleavitt

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Re: Prioritizing student loan repayments
« Reply #1 on: March 01, 2016, 09:17:27 AM »
I am in a situation similar to yours.  My wife came in to our marriage with about $120k of student debt.

I didn't run the math, and we don't have enough info to do so anyway, but I would go by interest rate.  In your case, this corresponds pretty well to the balance of the loans as well.  This will free up cash flow faster than paying down the higher balances, giving you more money to put towards debt and more flexibility should unexpected expenses come up.

We looked at Sofi, but they gave my wife a rate of over 7% for a fixed rate note.  Check it out, your situation is of course different and you may qualify for a better rate. 

Pros of Consolidating:
-Ability to get one rate for all debt, and the opportunity to convert variable rates to a fixed rate.
-Only one payment to make.
-Potential to reduce overall interest rate.
-Ability to change the term of the loan.  Really this only matters if you want to extend the term for a lower minimum payment.  As long as you have the discipline to keep paying extra, the only downside to this is the higher interest rate.

Cons:
-Could result in a higher overall rate depending on qualifications.
-Your minimum payment is your payment for the life of the loan.  Without consolidating, your monthly minimum goes down as the individual loans are paid off.

Bracken_Joy

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Re: Prioritizing student loan repayments
« Reply #2 on: March 01, 2016, 09:24:52 AM »
Well, the rates with lender D are obscene. I would kill those right out, whatever tactic you take otherwise- they are both low balance and high interest rate, so they're the first to go in my eyes.

It doesn't sound like you need to free up cashflow, which is one major advantage to the "snowball" (smallest balance first) rather than "avalanche" (highest interest rate first) method.

I don't see any downside to seeing what rates SoFi will offer you, unless you need to avoid a hard pull on your credit. Just be sure you look carefully at the gov benefits you're giving up, in terms of IBR and REPAYE and similar. They can be a nice safety net on the federal loans (which I'm assuming Lender A loans are, giving the subsidized vs unsub distinction).

Since all your loans are in repayment, subsidized vs unsubsidized doesn't matter unless she goes back to school.