Student Loan Battle

[diesel]

Hi all,

I've been dabbling in the mustachian life for a couple years but I have decided it is time to get a little more serious about it.  The first mountain I need to climb is student loan debt.  Full disclosure I did the very un-mustachian thing and borrowed a lot of money for college.  I now have several different loans through several different servicers all with different interest rates.  I have decided to take action on the loans by refinancing and/or consolidating them.  My question is this.

Should I consolidate all the loans to have on payment and lock in a possibly slightly lower weighted interest?  Or should I keep them all separate so as to be able to free up cash flow as I go for investing etc? (and probably have a lower overall interest).

I attached a summary of all of the loans broken down as small as I can.

Thank you all so much in advance for your help now and in the future!

[LadyStache in Baja]

eek, that 15k loan at 8% interest looks tough! 

I would look at what kind of rate you can get if you consolidate.  Consolidate only the loans whose current rate is higher, especially the 6-8% ones!

I would leave the 3% loans.  That's a great rate (as far as I know).

[notactiveanymore]

I would absolutely recommend looking into refinancing the private loans. Those interest rates are rough.

Are the federal loans on IRB? How much extra do you have to put to the loans?

I'd put the federal loans all on the lowest payment possible and try and kill the private loans, even after they get refinanced. Once the private loans are gone, you could maybe check into refinancing some of the 6.55 loans.

[diesel]

I don't qualify for any income based repayment so no. 

I do however have several hundred extra dollars per month to pay them down so I am in the process of ramping that up.

When I refinance the 3 private loans, should I look in to refinancing them all separately to get the best interest rates possible or should I consolidate them?

Thanks for all the help already!

[NextTime]

If you have good credit, check out sofi. They have great rates, fixed and variable.

www.sofi.com

Search the mrmoneymustache site for his referral code and writeup on the company. It will get you $300 cash if you go ahead with the refi. Don't use anyone else's referral code on here as I think that only gets you $150 or so.

[robartsd]

I'd do one consolidation loan rather than several. I'd put all the loans that have a higher rate than the consolidation loan into it. The consolidated loan will likely free up a little monthly cash flow by 1) lowering interest rate and 2) extending repayment period. What to do after reducing your rates with a consolidation depends on what retirement savings options you have. Of your current loans, only the 12.875% rate is high enough to tempt me to pay extra principle if it meant I would have to forgo some 401k match. At 8.625%, your second highest rate might tempt me to pay extra principle before maximizing tax advantaged savings. The bulk of your loans are currently in a range 5-7% where I would certainly forgo taxable investments to pay them down, but wouldn't give up tax advantaged savings opportunities to do so.

[diesel]

Great insight.  One question.  Wouldn't extending the repayment period be somewhat anti mustachian?  I was under the thinking that if I kept them separate I could get the best interest rates possible and therefore pay off the loans quicker which would allow me to use the time benefit of investing.

[charis]

I'm curious about why you don't qualify for any federal income-based repayment plans? It appears that the REPAYE is available to almost all borrowers with federal loans.  I was going to suggest a direct loan consolidation (some types of federal loans aren't eligible for repaye but you can fix that with consolidation).   After that, back burner the fed loans and refi and kill the private loans (balanced with tax advantaged savings as suggested above).

[gliderpilot567]

Great insight.  One question.  Wouldn't extending the repayment period be somewhat anti mustachian?  I was under the thinking that if I kept them separate I could get the best interest rates possible and therefore pay off the loans quicker which would allow me to use the time benefit of investing.

Not necessarily. There are a couple schools of thought, kind of like with long duration mortgages. Taking out a very long term loan at a low interest rate is like shorting the dollar: you get some protection from future inflation, though admittedly inflation hasn't been much in the last few years.

Keeping them separate, however, will allow you to manage your cashflow as you describe. If you get a windfall, you could pick off individual loans and free up cashflow - if instead you applied the windfall to pre-paying the principal on a large, consolidated loan, you wouldn't reduce your monthly liability thereafter unless you again refinanced the remaining balance. (I would only consider keeping separate those federal loans at <6%; the high cost private loans need to go away and soon).

All that said, if you do nothing else, you should apply to refi those private loans NOW, (almost) regardless of the rate and term - pretty much anything you get today will be better than 8% or 12%. Those are your hair-on-fire loans - until they are refi'd you should be throwing as much money as possible at them while paying minimum on the federal loans. Sell things if you can!

[diesel]

I'm curious about why you don't qualify for any federal income-based repayment plans? It appears that the REPAYE is available to almost all borrowers with federal loans.  I was going to suggest a direct loan consolidation (some types of federal loans aren't eligible for repaye but you can fix that with consolidation).   After that, back burner the fed loans and refi and kill the private loans (balanced with tax advantaged savings as suggested above).

I guess I shouldn't speak too soon.  I'll be honest I'm not very familiar with the other repayment plans.  My current total gross salary is around 72k.  I'm not sure if there are any plans that would lower my payment or not.

I attached another pic below that has the federal and private broken out and shows the payments I am currently making.  Maybe that will help paint a little clearer picture.

Also thanks everyone so much.  I'm already learning and the dialogue is much better than just sitting around tossing ideas around in my head!

[charis]

I'm curious about why you don't qualify for any federal income-based repayment plans? It appears that the REPAYE is available to almost all borrowers with federal loans.  I was going to suggest a direct loan consolidation (some types of federal loans aren't eligible for repaye but you can fix that with consolidation).   After that, back burner the fed loans and refi and kill the private loans (balanced with tax advantaged savings as suggested above).

I guess I shouldn't speak too soon.  I'll be honest I'm not very familiar with the other repayment plans.  My current total gross salary is around 72k.  I'm not sure if there are any plans that would lower my payment or not.

Then why are you assuming that you don't qualify for income-based repayment?  I'm missing something here.

[Proud Foot]

Are the payments you are making the minimums or are they more than that? For the federal ones is it one payment you make and they are then split between the loans? If so and you are paying more than the minimums, if you submit the payment from their website can you specify how the payment is allocated? 

 Also I would second what others have said and look into refinancing your loans.  At least for all the private loans.

[NoStacheOhio]

I would leave the federal as-is. It looks like they're direct loans anyway, so you might be able to go to REPAYE. If you work in non-profit or public sector, PSLF wipes out remaining federal loans after 120 on-time income-driven payments (IBR, REPAYE, others).

It's worth looking into refinancing the private loans though.

[diesel]

I'm curious about why you don't qualify for any federal income-based repayment plans? It appears that the REPAYE is available to almost all borrowers with federal loans.  I was going to suggest a direct loan consolidation (some types of federal loans aren't eligible for repaye but you can fix that with consolidation).   After that, back burner the fed loans and refi and kill the private loans (balanced with tax advantaged savings as suggested above).

I guess I shouldn't speak too soon.  I'll be honest I'm not very familiar with the other repayment plans.  My current total gross salary is around 72k.  I'm not sure if there are any plans that would lower my payment or not.

Then why are you assuming that you don't qualify for income-based repayment?  I'm missing something here.

I'm so sorry.  I wasn't being clear.  When I first started to repay the loans, either someone who didn't know what they were talking about told me my salary was too high or I stupidly just assumed so.  Total oversight and I need to go back and see what the income-based repayment would look like.

Are the payments you are making the minimums or are they more than that? For the federal ones is it one payment you make and they are then split between the loans? If so and you are paying more than the minimums, if you submit the payment from their website can you specify how the payment is allocated? 

I make one payment that is allocated across all the loans.  I can go in manually and change how the payment is allocated when I'm making a one time payment but I'm not sure if I can do that for the auto debit.  The "standard repayment" payment per month is $354.xx and I am paying $360.

[Miranda]

Just google "IBR calculator."  It will take you to the page where you can log in to view your federal loans, put in your income, and it will tell you which payments you qualify for and what the payments would be for each.  It's a really easy to use site.  Regardless of whether you qualify for any income based plans for the federal loans, I agree with everyone else to pay the minimum on them, while you refi the private loans and pay them off asap.

[charis]

Just google "IBR calculator."  It will take you to the page where you can log in to view your federal loans, put in your income, and it will tell you which payments you qualify for and what the payments would be for each.  It's a really easy to use site.  Regardless of whether you qualify for any income based plans for the federal loans, I agree with everyone else to pay the minimum on them, while you refi the private loans and pay them off asap.

You can use or create an account at studentloans.gov and use https://studentloans.gov/myDirectLoan/repaymentEstimator.action.  I can kind of understand the confusion concerning income-based programs, most others depend on how much you make.  That is not the case with federal student loans IB plans.  I have a higher income than you and it doesn't effect my eligibility for the IBR or REPAYE (the only plans for which I am eligible, for reasons unrelated to income).

[Molzy]

I will say, when I looked into and applied for IBR (I had $50,000 in loans and was only making $34,000), I found it didn't help me. This is because, like the OP, I had a mix of federal and private loans (oddly my private loans are the lower interest ones). Because I only had $30,000 in federal loans, my IBR payment was only a little cheaper than my normal one.

Now, I did not apply for any of the options that change the loan term from 10-years, obviously that would have a bigger impacts. Also, I was still eligible, but I'm guessing I was on the cusp since it didn't drastically change my payments.

[Proud Foot]

Are the payments you are making the minimums or are they more than that? For the federal ones is it one payment you make and they are then split between the loans? If so and you are paying more than the minimums, if you submit the payment from their website can you specify how the payment is allocated? 

I make one payment that is allocated across all the loans.  I can go in manually and change how the payment is allocated when I'm making a one time payment but I'm not sure if I can do that for the auto debit.  The "standard repayment" payment per month is $354.xx and I am paying $360.

No sense in doing it for $6 but if you were paying an extra of $50+ each month I would go in and manually allocate the payment to one of the higher interest loans.

[charis]

I will say, when I looked into and applied for IBR (I had $50,000 in loans and was only making $34,000), I found it didn't help me. This is because, like the OP, I had a mix of federal and private loans (oddly my private loans are the lower interest ones). Because I only had $30,000 in federal loans, my IBR payment was only a little cheaper than my normal one.

Now, I did not apply for any of the options that change the loan term from 10-years, obviously that would have a bigger impacts. Also, I was still eligible, but I'm guessing I was on the cusp since it didn't drastically change my payments.

Whether income-based will lower your payment is certainly situation specific.  A lowish AGI with kids and a spouse with federal student loans tends to help.  But the REPAYE sets payments even lower than IBR (10% v 15%)

[Slow&Steady]

I really like www.whatsthecost.com you can put in different scenarios of your debt and interests rates to determine how to pay them off the fastest and the cheapest.  It is really eye opening when you see a list that extends in to the 2020s or further. 

Do one scenario that list all our debts as they are right now.

Do another scenario that consolidates/refinances all your private loans.  You will need to input an interest rate so do a little research on what is being offered right now.

Do another scenario that consolidates all your federal loans.  If you have a mix of subsidized and un-subsidized loans I believe that have to be kept separate, but maybe that was my misunderstandings when I consolidated.  If it was a misunderstanding it worked out for the better now that my subsidized loans are not gaining interest as I take Masters classes.

[diesel]

Hi all,

I was out of town for the holidays but wanted to update everyone and get some more advice.

I have been using whatsthecost.com extensively and it has helped tremendously.  I have been able to get the worst of my loans (sallie mae) refinanced through SOFI.  I am looking to get the rest of my private loans refinanced and I have a question.

I am trying to decide between variable vs fixed.  I know it can kind of be a crapshoot as we don't know what will happen but I wondered if anyone had any experience or could offer any advice to someone who is looking to take out a new loan that will most likely be around for the next 5 years...or more.

Thanks so much for all your help everyone!

[NoStacheOhio]

Hi all,

I was out of town for the holidays but wanted to update everyone and get some more advice.

I have been using whatsthecost.com extensively and it has helped tremendously.  I have been able to get the worst of my loans (sallie mae) refinanced through SOFI.  I am looking to get the rest of my private loans refinanced and I have a question.

I am trying to decide between variable vs fixed.  I know it can kind of be a crapshoot as we don't know what will happen but I wondered if anyone had any experience or could offer any advice to someone who is looking to take out a new loan that will most likely be around for the next 5 years...or more.

Thanks so much for all your help everyone!

Fixed is probably a better bet. Unless the Fed goes to negative interest, rates can't really get much lower. The Fed just raised their interest rate, which usually (eventually) leads to higher interest everywhere.