Help beach figure out how to pay off his loans fast

Discuss various money matters here. Loans (federal and private), scholarships, lottery winnings, or other school finance related information and queries.
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Ruxin1
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Re: Help beach figure out how to pay off his loans fast

Postby Ruxin1 » Mon Apr 22, 2013 4:12 pm

You have LEEWS? I'll buy it off you bro.

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beach_terror
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Re: Help beach figure out how to pay off his loans fast

Postby beach_terror » Mon Apr 22, 2013 4:13 pm

guano wrote:
beach_terror wrote:I have not - can I do that through whatever company owns my loans? Should I do it?

The advantage to consolidating is that you get a slight interest rate reduction
The disadvantage is that you can't personalize your repayment terms (as I described above)
If you currently plan on paying down aggressively, but might pay less per month in the future, I'd recommend not consolidating, as it removes any flexibility.

The plan is to aggressively pay for at least 3 years right now. I want to get the loans down to a reasonable number (40k-60k) with a low interest rate before I start reducing my monthly payments to, say, 2-3k.

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magp90
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Re: Help beach figure out how to pay off his loans fast

Postby magp90 » Mon Apr 22, 2013 4:41 pm

guano wrote:
magp90 wrote:
beach_terror wrote:
magp90 wrote:If you can, I would recommend trying to pay off the interest that had accrued after each year. This seriously reduces the amount you wind up paying overall, and your monthly payments will be slightly less. It obviously depends on what your financial situation is after any given year or after graduation, though. As for trying to pay them off faster than the bills come in... if you're staying at home, I would just suggest flinging as much money at the loans as possible, so that you minimize compounding interest and you have less to pay off when you're out on your own.

How is paying off the interest better than paying off the principal (after paying the minimum on the interest)? I genuinely don't know. Explain it to me like I'm 5.


I'm mostly talking about paying off the interest after each year of law school. That would prevent the loan from getting to be as big as it really could be. You'll still have the same issues paying back the loans after graduation. It's not really a long-term solution, but it does cut down how much you wind up paying in total by the time you're finished paying the whole thing back. Just a thought.

:?: :arrow: :idea:
Now explain it to me like you would to a professional


For example, in my case, I'd be taking about approximately $20,500/year with the Unsubsidized Stafford Loan (6.8% interest rate). If you assume that the interest on the loan accrues annually while I'm in school, I'd accrue about $1,394 worth of interest on top of the $20,500... and by the time I graduated (assuming I don't pay the interest off), I would have about $8,794 on top of the $61,500 that I actually borrowed, leaving me with $70,249.61 worth of debt after 3L.

As we all know, over the years, we also pay interest on the interest, because it's compounding.

If I pay off just the interest that accrued on my $20,500 loan after each year that I am in law school ($8,794 in total by 3L), I can save myself a substantial amount of money over time, even if I don't pay off the interest in the same way after those three years. (In other words, after IL, I pay $1,394.00, after 2L I pay $2,788.00 and after 3L I pay $4,182.00, and then just pay the interest as it comes as you would normally.)

If I want to pay, say, $487.59 a month under the 25 year repayment plan, I would originally be paying back $146,274.61 on loan that was originally $61,500. Gross.

If I pay down my interest in the way I described above and paid $426.85/month, I would ultimately be paying back a total of $128,066.30 on a $61,500 loan, but I ultimately save $26,572.31 and would be able to pay off the loan in 18 years and 7 months.

If I decide to pay back $500/month after having paid back those three years worth of interest, I save $48,986.01 and would be able to pay back the loan in 17 years and 7 months.

It's a long-term benefit is all I'm saying.
Last edited by magp90 on Mon Apr 22, 2013 4:43 pm, edited 1 time in total.

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okinawa
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Re: Help beach figure out how to pay off his loans fast

Postby okinawa » Mon Apr 22, 2013 4:41 pm

If it were me, I'd pay the minimum on all loans until I had 6 months worth of loan payments in a high-yield savings account (granted, 'high yield' tends to be like .84% right now). That's an emergency fund so that if you get laid off or have some medical emergency, you can make your monthly loan payments without going into default for long enough to adjust your payment plan, get your shit together, etc. You don't touch that until you are debt free.

Then pay the minimums on every loan except one GradPLUS loan. Can be the smallest if you want, but it doesn't really matter. On that one loan, pay everything you can afford. This method means you aren't adding anything to savings once you have your emergency fund. For those extra payments, you should contact your lender and ask how you can direct them to only be applied to principal, not future payment credits. Some lenders make this really easy, others don't. Once that loan is completely paid off, you take all the money you'd be paying toward that loan and put it toward a different GradPLUS loan until you have paid off all GradPLUS, then move to Stafford Unsubsidized, then Stafford Subsidized, then you are done.

unbury.me is a good calculator to see how that all works and to give you a timeline.

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guano
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Re: Help beach figure out how to pay off his loans fast

Postby guano » Mon Apr 22, 2013 4:45 pm

Magp90

On a declining loan balance (eg a student loan) there is no compounding. As long as you're not paying less than interest (eg IBR), its a non-issue

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magp90
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Re: Help beach figure out how to pay off his loans fast

Postby magp90 » Mon Apr 22, 2013 4:58 pm

guano wrote:Magp90

On a declining loan balance (eg a student loan) there is no compounding. As long as you're not paying less than interest (eg IBR), its a non-issue


So you're saying that if I'm paying off the loans the way I should be after graduation that the interest won't accrue interest?

My MPN says this under 'Payment of Interest': "Except as provided below for borrowers who are active dute servicemembers, interest accrues on a Direct Unsubsidized Loan during all periods (starting on the date of the first disbursement). This includes periods while you are enrolled in school at least half-time, during your grace period, and during deferment and forbearance periods. Therefore, you will pay more interest on a Direct Unsubsidized Loan than on a Direct Subsidized Loan."

I feel like that kind of flies in the face of what it means for the loan to be unsubsidized.

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guano
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Re: Help beach figure out how to pay off his loans fast

Postby guano » Tue Apr 23, 2013 7:54 am

magp90 wrote:
guano wrote:Magp90

On a declining loan balance (eg a student loan) there is no compounding. As long as you're not paying less than interest (eg IBR), its a non-issue


So you're saying that if I'm paying off the loans the way I should be after graduation that the interest won't accrue interest?

My MPN says this under 'Payment of Interest': "Except as provided below for borrowers who are active dute servicemembers, interest accrues on a Direct Unsubsidized Loan during all periods (starting on the date of the first disbursement). This includes periods while you are enrolled in school at least half-time, during your grace period, and during deferment and forbearance periods. Therefore, you will pay more interest on a Direct Unsubsidized Loan than on a Direct Subsidized Loan."

I feel like that kind of flies in the face of what it means for the loan to be unsubsidized.

Just to clarify, while you're in school, and during the 6 month grace period, interest accrues. Once you enter repayment, as long as you don't pay less than interest (eg IBR) there is no compounding, or interest on interest, because normal (and even extended) repayment plans cover the interest

arizonairish
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Re: Help beach figure out how to pay off his loans fast

Postby arizonairish » Tue Apr 23, 2013 8:09 am

paul554 wrote:Pay the loans with as much as you willing to throw at it BUT also start dumping into that 401(k) even if it's not being matched. The loan will save you some money since it's getting paid off quicker but really if you can pay if off in less then 5 years while maxing 401(K), I'd recommend that. Your loan won't be compounding in 20 years but that 401(k) will be and it is never to soon to start saving for retirement.


If I am going to be starting a 135,000 [very low cost of living] and have about 60,000 loans, and 26,000 in savings already[but have a wedding to plan/pay], do you think it would be a bad idea to forgo 401k contributions the first year, and take the debt down to zero?

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guano
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Re: Help beach figure out how to pay off his loans fast

Postby guano » Tue Apr 23, 2013 8:18 am

arizonairish wrote:
paul554 wrote:Pay the loans with as much as you willing to throw at it BUT also start dumping into that 401(k) even if it's not being matched. The loan will save you some money since it's getting paid off quicker but really if you can pay if off in less then 5 years while maxing 401(K), I'd recommend that. Your loan won't be compounding in 20 years but that 401(k) will be and it is never to soon to start saving for retirement.


If I am going to be starting a 135,000 [very low cost of living] and have about 60,000 loans, and 26,000 in savings already[but have a wedding to plan/pay], do you think it would be a bad idea to forgo 401k contributions the first year, and take the debt down to zero?

Do it.

Keep in mind that this is a controversial topic and there have been several threads about it on TLS. Generally (though not necessarily) those people are wrong

paul554
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Re: Help beach figure out how to pay off his loans fast

Postby paul554 » Tue Apr 23, 2013 8:35 am

guano wrote:
arizonairish wrote:
paul554 wrote:Pay the loans with as much as you willing to throw at it BUT also start dumping into that 401(k) even if it's not being matched. The loan will save you some money since it's getting paid off quicker but really if you can pay if off in less then 5 years while maxing 401(K), I'd recommend that. Your loan won't be compounding in 20 years but that 401(k) will be and it is never to soon to start saving for retirement.


If I am going to be starting a 135,000 [very low cost of living] and have about 60,000 loans, and 26,000 in savings already[but have a wedding to plan/pay], do you think it would be a bad idea to forgo 401k contributions the first year, and take the debt down to zero?

Do it.

Keep in mind that this is a controversial topic and there have been several threads about it on TLS. Generally (though not necessarily) those people are wrong

The big question is self control. I always urge setting up a pre-determined percentage into a 401(k) the day you start. MOST people, especially in high income jobs, put off this savings since they figure with their income they can make it up later. Soon though that wedding turns into a mortgage, then a new car, then school costs for kids, before you know it your 45 and now you realize you can't afford to retire because you have no retirement saved! Remember the average person in America can't afford to retire for a reason, unless you know 100% when you'll start that 401(k) later and have a sound plan, I say start know and be thankful when your 55+.

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guano
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Re: Help beach figure out how to pay off his loans fast

Postby guano » Tue Apr 23, 2013 8:40 am

paul554 wrote:
guano wrote:
arizonairish wrote:
paul554 wrote:Pay the loans with as much as you willing to throw at it BUT also start dumping into that 401(k) even if it's not being matched. The loan will save you some money since it's getting paid off quicker but really if you can pay if off in less then 5 years while maxing 401(K), I'd recommend that. Your loan won't be compounding in 20 years but that 401(k) will be and it is never to soon to start saving for retirement.


If I am going to be starting a 135,000 [very low cost of living] and have about 60,000 loans, and 26,000 in savings already[but have a wedding to plan/pay], do you think it would be a bad idea to forgo 401k contributions the first year, and take the debt down to zero?

Do it.

Keep in mind that this is a controversial topic and there have been several threads about it on TLS. Generally (though not necessarily) those people are wrong

The big question is self control. I always urge setting up a pre-determined percentage into a 401(k) the day you start. MOST people, especially in high income jobs, put off this savings since they figure with their income they can make it up later. Soon though that wedding turns into a mortgage, then a new car, then school costs for kids, before you know it your 45 and now you realize you can't afford to retire because you have no retirement saved! Remember the average person in America can't afford to retire for a reason, unless you know 100% when you'll start that 401(k) later and have a sound plan, I say start know and be thankful when your 55+.

Addendum: make sure you max matching contributions, then max out loan repayments. When your loans are paid off, immediately max your 401k contributions.
Then set up automatic transfers to a savings account. Never get used to receiving your full paycheck (and spending it)

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FKASunny
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Re: Help beach figure out how to pay off his loans fast

Postby FKASunny » Tue Apr 23, 2013 8:57 am

guano wrote:
magp90 wrote:
guano wrote:Magp90

On a declining loan balance (eg a student loan) there is no compounding. As long as you're not paying less than interest (eg IBR), its a non-issue


So you're saying that if I'm paying off the loans the way I should be after graduation that the interest won't accrue interest?

My MPN says this under 'Payment of Interest': "Except as provided below for borrowers who are active dute servicemembers, interest accrues on a Direct Unsubsidized Loan during all periods (starting on the date of the first disbursement). This includes periods while you are enrolled in school at least half-time, during your grace period, and during deferment and forbearance periods. Therefore, you will pay more interest on a Direct Unsubsidized Loan than on a Direct Subsidized Loan."

I feel like that kind of flies in the face of what it means for the loan to be unsubsidized.

Just to clarify, while you're in school, and during the 6 month grace period, interest accrues. Once you enter repayment, as long as you don't pay less than interest (eg IBR) there is no compounding, or interest on interest, because normal (and even extended) repayment plans cover the interest

You're forgetting the part where all interest that accrued during school or any periods of forbearance is added to the principle after the 6 month grace period. So, yes, in a way you'd be paying interest on that initial interest. If you can swing it, it is best to pay off the accrued interest during that 6 month grace period where you should be working but before you technically have to start paying back the loans.

But guano is right on one front, it's not compounding once you enter repayment.

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guano
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Re: Help beach figure out how to pay off his loans fast

Postby guano » Tue Apr 23, 2013 9:03 am

That's a chimera.
I wonder how many people can see the fallacy of that argument

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FKASunny
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Re: Help beach figure out how to pay off his loans fast

Postby FKASunny » Tue Apr 23, 2013 9:08 am

guano wrote:That's a chimera.
I wonder how many people can see the fallacy of that argument


guano wrote:
magp90 wrote:
guano wrote:Magp90

On a declining loan balance (eg a student loan) there is no compounding. As long as you're not paying less than interest (eg IBR), its a non-issue


So you're saying that if I'm paying off the loans the way I should be after graduation that the interest won't accrue interest?

My MPN says this under 'Payment of Interest': "Except as provided below for borrowers who are active dute servicemembers, interest accrues on a Direct Unsubsidized Loan during all periods (starting on the date of the first disbursement). This includes periods while you are enrolled in school at least half-time, during your grace period, and during deferment and forbearance periods. Therefore, you will pay more interest on a Direct Unsubsidized Loan than on a Direct Subsidized Loan."

I feel like that kind of flies in the face of what it means for the loan to be unsubsidized.

Just to clarify, while you're in school, and during the 6 month grace period, interest accrues. Once you enter repayment, as long as you don't pay less than interest (eg IBR) there is no compounding, or interest on interest, because normal (and even extended) repayment plans cover the interest


The misunderstanding I'm perceiving here was that when magpie said "interest accruing interest" s/he may have meant the interest that had accrued during school would then begin accruing interest, but then got it confused with compounding interest. I'm not a professional like you, my dung flavored friend, so I'm going to defer to your wisdom: If the interest during school is added to the principle unless you pay it off before entering repayment, is it best to pay it off before entering repayment?

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magp90
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Re: Help beach figure out how to pay off his loans fast

Postby magp90 » Tue Apr 23, 2013 10:08 am

guano wrote:
magp90 wrote:
guano wrote:Magp90

On a declining loan balance (eg a student loan) there is no compounding. As long as you're not paying less than interest (eg IBR), its a non-issue


So you're saying that if I'm paying off the loans the way I should be after graduation that the interest won't accrue interest?

My MPN says this under 'Payment of Interest': "Except as provided below for borrowers who are active dute servicemembers, interest accrues on a Direct Unsubsidized Loan during all periods (starting on the date of the first disbursement). This includes periods while you are enrolled in school at least half-time, during your grace period, and during deferment and forbearance periods. Therefore, you will pay more interest on a Direct Unsubsidized Loan than on a Direct Subsidized Loan."

I feel like that kind of flies in the face of what it means for the loan to be unsubsidized.

Just to clarify, while you're in school, and during the 6 month grace period, interest accrues. Once you enter repayment, as long as you don't pay less than interest (eg IBR) there is no compounding, or interest on interest, because normal (and even extended) repayment plans cover the interest


Gotcha. Thanks for the clarification

M458
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Re: Help beach figure out how to pay off his loans fast

Postby M458 » Tue Apr 23, 2013 10:34 am

guano wrote:
paul554 wrote:
guano wrote:
arizonairish wrote:
If I am going to be starting a 135,000 [very low cost of living] and have about 60,000 loans, and 26,000 in savings already[but have a wedding to plan/pay], do you think it would be a bad idea to forgo 401k contributions the first year, and take the debt down to zero?

Do it.

Keep in mind that this is a controversial topic and there have been several threads about it on TLS. Generally (though not necessarily) those people are wrong

The big question is self control. I always urge setting up a pre-determined percentage into a 401(k) the day you start. MOST people, especially in high income jobs, put off this savings since they figure with their income they can make it up later. Soon though that wedding turns into a mortgage, then a new car, then school costs for kids, before you know it your 45 and now you realize you can't afford to retire because you have no retirement saved! Remember the average person in America can't afford to retire for a reason, unless you know 100% when you'll start that 401(k) later and have a sound plan, I say start know and be thankful when your 55+.

Addendum: make sure you max matching contributions, then max out loan repayments. When your loans are paid off, immediately max your 401k contributions.
Then set up automatic transfers to a savings account. Never get used to receiving your full paycheck (and spending it)


1. Emergency Fund of 3-6 months worth of living expenses (depends on your risk tolerance)
2. Contributions to 401k up until the amount necessary to receive the full company match (if your employer offers a match--this is essentially a 100% return)
3. Pay off loans in order of highest interest rate first, lowest interest rate last
4. Contributions to IRA or Roth IRA (depends on your income level)
5. Contributions up to 401k limit (think it's 17,500 max per year)
6. Hookers, blow, fun, taxable investments, making it rain w/ left-over cash

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beach_terror
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Re: Help beach figure out how to pay off his loans fast

Postby beach_terror » Sun Apr 28, 2013 11:18 am

I have like 40-50k in life insurance - is it worth borrowing against it to pay off whatever I can get against my loans and pay that off whenever? Not sure how that stuff works.




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