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Paying off student debt

slickfree 108 December 4, 2012 at 09:21 AM
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I graduated this past May and starting this month I have to pay off my student loans. I have three loans under my name, Stafford Sub $12k @ 4% and Stafford Unsub $4K @ 6.8% ( Stafford Loans grace period ended in Nov) and Perkins loan. I was going consolidate all three but my Perkins doesn't accrue interest until April of next year and if I were to consolidate I would have to start paying everything off now.

Now my parents helped me pay as well with Direct Parent Plus Loan, which is 18,000 @ 7.9 % and $5,000 @ 7.9% . I made the mistake of dorming Freshmen year to get the college experience so that's why the loan is so high. I was thinking of paying off my parents Direct Plus 4K right now since its at 7.9% and around April pay off the Stafford Unsub. Between Checking and Savings I have 10K.


Any opinions on how I should go about paying off student debt?

Now I can't consolidate Direct Parent Plus with my loans.

I live with my parents, so only expense I have is going out to the bar getting something to eat with friends and buying Metrocard and gym membership, so my total monthly expense might be anywhere from 100-200. I make 40k a year.

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#2
What other debts do you have? What's your income? What other expenses (rent/mortgage, utilities, food, etc)? If these are your only debts, pay as much as you can towards the highest rate ($5k at 7.9%), and minimums on everything else. Once that $5k is paid down, take that entire payment and add it to the minimum you were paying on the $18k at 7.9%. Rinse and repeat, paying the debt with the highest interest rate each time.
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L6: Expert
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#3
Quote from mmathis View Post :
What other debts do you have? What's your income? What other expenses (rent/mortgage, utilities, food, etc)? If these are your only debts, pay as much as you can towards the highest rate ($5k at 7.9%), and minimums on everything else. Once that $5k is paid down, take that entire payment and add it to the minimum you were paying on the $18k at 7.9%. Rinse and repeat, paying the debt with the highest interest rate each time.
Thanks for the reply. I live with my parents, so only expense I have is going out to the bar getting something to eat with friends and buying metrocard and gym membership, so my total monthly expense might be anywhere from 100-200. I make 40k a year. I was thinking of paying off the 4K @ 7.9% in full which I can and then minimum on everything else, then in 3-5 months pay off the 4K @ 6.8 in full.

What you think?
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#4
Quote from slickfree View Post :
Thanks for the reply. I live with my parents, so only expense I have is going out to the bar getting something to eat with friends and buying metrocard and gym membership, so my total monthly expense might be anywhere from 100-200. I make 40k a year. I was thinking of paying off the 4K @ 7.9% in full which I can and then minimum on everything else, then in 3-5 months pay off the 4K @ 6.8 in full.

What you think?
Start with the highest rates and work your way down. In your case, that's the two 7.9% loans. You could probably easily put over $1000, maybe close to $2000, towards debt repayment each month (actual amount depends on your taxes, take home pay, etc). The $5k at 7.9% would be gone in a few months, and a big dent made on the $18k at 7.9% after that.

Don't pay the 6.8% loan until you've paid both 7.9%, even though it's a smaller balance. You'll wind up paying more in interest.
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#5
I'd pay off the highest as others have said, and then consolidate when you're able to, assuming the rates are worth it.

Just to ask, are your parents able to help you out any more and then you have a private loan (fully documented with your car or something as colateral) with them at some better rate? If my kid had a loan at 8% and I had $ available you better believe I'd offer it to them at 4% Big Grin
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#6
keeping some loan amounts may help you come tax time. you may want to look into that.
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#7
tax deductions <<<<<<< tax credits

pay it off
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#8
Quote from mmathis View Post :
What other debts do you have? What's your income? What other expenses (rent/mortgage, utilities, food, etc)? If these are your only debts, pay as much as you can towards the highest rate ($5k at 7.9%), and minimums on everything else. Once that $5k is paid down, take that entire payment and add it to the minimum you were paying on the $18k at 7.9%. Rinse and repeat, paying the debt with the highest interest rate each time.

This.
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L6: Expert
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#9
Thanks so much for the advice, I will work off paying the 7.9% loan first and pay minimum on the other two and once after that consolidate perkins with the Stafford.
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#10
Quote from LivninSC View Post :
I'd pay off the highest as others have said, and then consolidate when you're able to, assuming the rates are worth it.

Just to ask, are your parents able to help you out any more and then you have a private loan (fully documented with your car or something as colateral) with them at some better rate? If my kid had a loan at 8% and I had $ available you better believe I'd offer it to them at 4% Big Grin
You will end up paying more interest if you consolidate. They will blend your rates and prevent you from selectively paying down the principal on the higher rate loan(s).

I agree with the poster above with regard to asking your parents for a loan. Use your parents' help if they are willing and have equity in their house. PenFed is right now offering a 1.99% HEL with a 5 year term. Figure out how much you can comfortably pay over the next 5 years without over-leveraging yourself and ask your parents to borrow that amount and then lend it to you. Use the proceeds to pay off your highest interest loans and you can then make the payments on the HEL. They will also get a tax benefit from it.

If you go this route, I'd suggest running it by an accountant to ensure all the tax implications are thought through.
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#11
Quote from RedbirdsJ View Post :
You will end up paying more interest if you consolidate. They will blend your rates and prevent you from selectively paying down the principal on the higher rate loan(s).
When my wife consolidated her consolidated loan was at a rate lower than all the individual loans. Still though, it could be higher and not worth it I suppose.
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#12
Quote from jaqnabox View Post :
keeping some loan amounts may help you come tax time. you may want to look into that.
it will help reduce your tax liability however it's a deduction not a credit meaning you're far better off not paying interest in the first place than counting on a tax benefit.
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#13
Quote from LivninSC View Post :
When my wife consolidated her consolidated loan was at a rate lower than all the individual loans. Still though, it could be higher and not worth it I suppose.
Did she consolidate pre-2008? I haven't found anyone who will do this on favorable terms since then.
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#14
Quote from RedbirdsJ View Post :
Did she consolidate pre-2008? I haven't found anyone who will do this on favorable terms since then.
I don't think so. Probably within the last couple years.
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#15
Quote from RedbirdsJ View Post :
You will end up paying more interest if you consolidate. They will blend your rates and prevent you from selectively paying down the principal on the higher rate loan(s).

I agree with the poster above with regard to asking your parents for a loan. Use your parents' help if they are willing and have equity in their house. PenFed is right now offering a 1.99% HEL with a 5 year term. Figure out how much you can comfortably pay over the next 5 years without over-leveraging yourself and ask your parents to borrow that amount and then lend it to you. Use the proceeds to pay off your highest interest loans and you can then make the payments on the HEL. They will also get a tax benefit from it.

If you go this route, I'd suggest running it by an accountant to ensure all the tax implications are thought through.
My parents want me to pay off my loan ASAP and are willing to help, I talked to my dad, he mentioned refinancing my student loan and have a lower interest rate on all my loans. Is this possible, we own a house but still owe mortgage on it.
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