Student Loan Repayment Question

my no brainer would be loan 5... tied with highest APR and lowest amount so it will be paid off faster...that simple satisfaction of paying off a debt is great

Followed by loan 4, loan 1, loan 2, loan 3

highest interest first

5-4,1,2,3

agreed, highest interest first.

I'm with everyone else. Pay off the highest interest ones first and work your way down. Your higher interest ones are also your lowest, so you'll get two payed off fast!

Thank you for all the input I greatly appreciate it. Would anybody be able to tell me if loan 3 will accrue more interest monthly then loan 4? I understand it has a lower interest rate but the principal is higher? Wouldn't that mean that those loans are accruing more interest?

Thanks again

Quote from rkolenov : Thank you for all the input I greatly appreciate it. Would anybody be able to tell me if loan 3 will accrue more interest monthly then loan 4? I understand it has a lower interest rate but the principal is higher? Wouldn't that mean that those loans are accruing more interest? Thanks again

Per dollar it will not accrue more.

Don't think about the interest each loan individually generates each month. Think of the amount of interest each individual dollar generates each month instead.

If you've got a $100 debt at 12% interest and a $10,000 debt at 5%, sure the $10,000 loan is accruing over $40/mo in interest, but per dollar it is only generating $.0041. The $100 debt is only generating $1/mo in interest, but per dollar that is $.01 - over double the cost of the other loan.

I tell you to think of it that way because it all adds together in the end. The highest interest rate is always the best to pay back when you're looking at it from a monetary standpoint and overall savings is the goal.

Paying off the $1 at 12% is going to prevent that dollar from continuing to accrue that higher interest next month. Even if the individual loan is generating more interest in dollars, your payment doesn't go as far in preventing more dollars from accruing next month if you don't focus on the highest rate loan.

Also, these look like Sallie Mae loans - sign up for autopay for a .25% interest rate reduction. They'll take your min every month and you can pay as much as you like on top of that.

what's the point of the subsidized note? if you're in repayment, it doesn't matter. If the subsidized loans are still deferred, don't bother paying them because interest is not accruing.

I've come into some more cash on a monthly basis (will finish off a car loan soon) and initially thought I'd start paying down a direct loan I have (I am still in school PT and won't have to start paying it for around another year) but then stopped and thought.... why the hell would I do that when it's subsidized? No interest is accruing or capitalizing - I'd rather have that $$ in my bank account than pay off the gov't early.

Quote from Formless : Per dollar it will not accrue more. Don't think about the interest each loan individually generates each month. Think of the amount of interest each individual dollar generates each month instead. If you've got a $100 debt at 12% interest and a $10,000 debt at 5%, sure the $10,000 loan is accruing over $40/mo in interest, but per dollar it is only generating $.0041. The $100 debt is only generating $1/mo in interest, but per dollar that is $.01 - over double the cost of the other loan.

I agree with this statement if the OP is paying only the minimum amount, but since OP's going to be paying $1,000/month and only has $18,000 in debt, the OP will have these loans paid off in about 2 years instead of 15. So, using your above example, that $10,000 debt would accrue $960 in interest and the $100 debt would accrue $24 in debt. I think there has to be some tipping point in time where the high balance + low interest rate on one loan will cost more than the low balance + high interest rate on another loan, I think that's why the OP is asking this specific question.

Quote from RammsteinNicCag : I agree with this statement if the OP is paying only the minimum amount, but since OP's going to be paying $1,000/month and only has $18,000 in debt, the OP will have these loans paid off in about 2 years instead of 15. So, using your above example, that $10,000 debt would accrue $960 in interest and the $100 debt would accrue $24 in debt. I think there has to be some tipping point in time where the high balance + low interest rate on one loan will cost more than the low balance + high interest rate on another loan, I think that's why the OP is asking this specific question.

This doesn't make sense.

Quote from RammsteinNicCag : I agree with this statement if the OP is paying only the minimum amount, but since OP's going to be paying $1,000/month and only has $18,000 in debt, the OP will have these loans paid off in about 2 years instead of 15. So, using your above example, that $10,000 debt would accrue $960 in interest and the $100 debt would accrue $24 in debt. I think there has to be some tipping point in time where the high balance + low interest rate on one loan will cost more than the low balance + high interest rate on another loan, I think that's why the OP is asking this specific question.

Not to be rude, but you're wrong. This is bad advice.

See this thread and my post in it.

Paying off the highest interest rate first will always net you the most savings - no matter which account or which balance it is.

If you're having trouble picturing it, think about it as a credit card. You can have multiple balances at multiple rates all on one card. Example:
-$10,000 Balance at 2.99%
-$5,000 Balance at 7.99%
-$1,000 Balance at 19.99%

When you go to make your payment, would you allocate your additional (that above the minimum) payment to the $10,000 balance because it accrues $25/mo in interest, or the $1,000 balance that also generates $17/mo in interest?

Ignoring the $5000 balance, lets look at the results of an additional payment. Lets say the min is $100/mo but you're going to pay $500. I'm not going to discuss the allocation of your min payment because it isn't really relevant (because the lender is going to allocate it based on law and your note's guidlines). So that extra $400 goes to which balance?

If it goes to the $10,000 balance, that means that next month you pay $1 less in interest on that entire balance. If the $400 goes towards the $1,000 balance, you'll pay almost $7 less in interest next month. Which would you prefer?

The assumption that a loan which generates more in interest every month because it is a higher balance is the better choice to pay off is absolutely incorrect. Paying off the highest rate first will always net you the lowest interest paid back and the most savings possible.

As I said before, think of it as individual dollars. Each dollar borrowed has a specific cost. You want to pay back the dollars that cost the most first.

As a disclaimer, the figures are rounded. I did use a calculator, but I didn't feel like writing in the change every time.

paying off high interest should always be better. either way, they will probably be insignificant amounts overall. To ease your brain, I would suggest running a scenario of it using amortization schedule worksheets. for example, look at my attached a spreadsheet showing the difference of paying off minimum payments but applying an extra 500 to the high interest rate loan first then the high balance loan an vica versa.

Quote from Formless : Not to be rude, but you're wrong. This is bad advice. See this thread and my post in it. Paying off the highest interest rate first will always net you the most savings - no matter which account or which balance it is. If you're having trouble picturing it, think about it as a credit card. You can have multiple balances at multiple rates all on one card. Example: -$10,000 Balance at 2.99% -$5,000 Balance at 7.99% -$1,000 Balance at 19.99% When you go to make your payment, would you allocate your additional (that above the minimum) payment to the $10,000 balance because it accrues $25/mo in interest, or the $1,000 balance that also generates $17/mo in interest? Ignoring the $5000 balance, lets look at the results of an additional payment. Lets say the min is $100/mo but you're going to pay $500. I'm not going to discuss the allocation of your min payment because it isn't really relevant (because the lender is going to allocate it based on law and your note's guidlines). So that extra $400 goes to which balance? If it goes to the $10,000 balance, that means that next month you pay $1 less in interest on that entire balance. If the $400 goes towards the $1,000 balance, you'll pay almost $7 less in interest next month. Which would you prefer? The assumption that a loan which generates more in interest every month because it is a higher balance is the better choice to pay off is absolutely incorrect. Paying off the highest rate first will always net you the lowest interest paid back and the most savings possible. As I said before, think of it as individual dollars. Each dollar borrowed has a specific cost. You want to pay back the dollars that cost the most first. As a disclaimer, the figures are rounded. I did use a calculator, but I didn't feel like writing in the change every time.

the discrepancy in logic is that the difference in interest paid ($) depends solely on the interest rates, not the outstanding principals. (just elaborating your point)

general rule of thumb for where to put your money, whether it's paying down loans or into investments - put $$ towards the highest interest rate (other considerations like emergency fund, etc, exempted)