Loan Repayments

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Anonymous User
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Loan Repayments

Postby Anonymous User » Mon May 28, 2012 7:37 pm

Basic question: if I have enough money to pay down a significant chunk (~10%) of my student loans now, is there any reason not to? I'm a graduating 3L with a job lined up paying around $50,000 and around $75,000 in debt. I can pay off $5-10,000 of my debt right now and still have a couple thousand dollars in financial cushion. That seems like it'll save me a couple hundred dollars in interest over the next couple of months, right? I technically don't have to start repaying any of my loans for another six months, but a bunch of them are already earning interest.

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fatduck
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Re: Loan Repayments

Postby fatduck » Mon May 28, 2012 7:39 pm

it'll save you more than a couple hundred dollars in interest. that shit's compounding. it's almost certainly better to pay sooner than later.

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dingbat
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Re: Loan Repayments

Postby dingbat » Mon May 28, 2012 8:01 pm

Pay the highest interest loan down first. Any time you have extra cash, pay down that loan until it's gone. Then start paying extra cash towards your next highest interest rate loan

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Re: Loan Repayments

Postby Anonymous User » Tue May 29, 2012 12:59 am

OP here--so might it make sense to set my low interest loans to a long repayment schedule (30 years) and pay off my higher interest loans all at first? In other words, if I was going to pay $1,000/month in loans, shift which loans I'm paying?

E.g., assuming that I only have two loans, $30,000 @ 5% and $30,000 @ 7%, I would set my low interest low on the longest possible repayment schedule and pay off the minimum on that every month while using the remainder of my monthly loan budget to pay off the high interest loan faster? Instead of paying $500/m to the 5% loan and $500/m to the 7% loan, paying $300/m at the low interest loan (30 year repayment minimum in this made-up world) and $700/m to the high interest loan until the high interest loan is all gone, and then paying $1000/m to the low interest loan until it's all gone?* I'd be paying as much per year as before, meeting my loan minimums as before, but paying off my high-interest loans much more quickly than my low-interest loans.

*Why doesn't everybody do this? It seems easy and safe.

ToTransferOrNot
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Re: Loan Repayments

Postby ToTransferOrNot » Tue May 29, 2012 9:57 am

Anonymous User wrote:OP here--so might it make sense to set my low interest loans to a long repayment schedule (30 years) and pay off my higher interest loans all at first? In other words, if I was going to pay $1,000/month in loans, shift which loans I'm paying?

E.g., assuming that I only have two loans, $30,000 @ 5% and $30,000 @ 7%, I would set my low interest low on the longest possible repayment schedule and pay off the minimum on that every month while using the remainder of my monthly loan budget to pay off the high interest loan faster? Instead of paying $500/m to the 5% loan and $500/m to the 7% loan, paying $300/m at the low interest loan (30 year repayment minimum in this made-up world) and $700/m to the high interest loan until the high interest loan is all gone, and then paying $1000/m to the low interest loan until it's all gone?* I'd be paying as much per year as before, meeting my loan minimums as before, but paying off my high-interest loans much more quickly than my low-interest loans.

*Why doesn't everybody do this? It seems easy and safe.


Some people fuck up and consolidate everything thinking it will be "easier". Others can't do math.

That said, I'm not sure whether most servicers will allow you to have some loans on a 30-year repayment and others on a 10-year. But that doesn't matter: the right move is to put everything into 30-year (unless you qualify for a partial financial hardship under IBR, in which case you should do IBR because the feds continue to subsidize the interest on subsidized stafford loans for a few years*). You may also have to use a certain repayment plan to qualify for your school's LRAP program, if that's something that is important to you.


*I don't know whether this is true anymore now that there are no subsidized loans for grad students.

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20130312
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Re: Loan Repayments

Postby 20130312 » Tue May 29, 2012 10:04 am

fatduck wrote:it'll save you more than a couple hundred dollars in interest. that shit's compounding. it's almost certainly better to pay sooner than later.


Interest doesn't compound on student loans. It's simple interest. However, it does capitalize after you graduate, so pay off as much of that interest as possible before it capitalizes.

Also, just put the entire thing on 30 year repayment and then pay down the high interest loans with the money you are saving.

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Re: Loan Repayments

Postby ToTransferOrNot » Tue May 29, 2012 11:13 am

InGoodFaith wrote:
fatduck wrote:it'll save you more than a couple hundred dollars in interest. that shit's compounding. it's almost certainly better to pay sooner than later.


Interest doesn't compound on student loans. It's simple interest. However, it does capitalize after you graduate, so pay off as much of that interest as possible before it capitalizes.

Also, just put the entire thing on 30 year repayment and then pay down the high interest loans with the money you are saving.


Pretty sure it does compound once you're in repayment or if you're in forbearance.

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20130312
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Re: Loan Repayments

Postby 20130312 » Tue May 29, 2012 11:47 am

ToTransferOrNot wrote:
InGoodFaith wrote:
fatduck wrote:it'll save you more than a couple hundred dollars in interest. that shit's compounding. it's almost certainly better to pay sooner than later.


Interest doesn't compound on student loans. It's simple interest. However, it does capitalize after you graduate, so pay off as much of that interest as possible before it capitalizes.

Also, just put the entire thing on 30 year repayment and then pay down the high interest loans with the money you are saving.


Pretty sure it does compound once you're in repayment or if you're in forbearance.


All federally guaranteed loans use a method of interest accrual known as the Simple Daily Interest Formula (regardless of whether the loan is in repayment or forebearance).

ToTransferOrNot
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Re: Loan Repayments

Postby ToTransferOrNot » Tue May 29, 2012 1:14 pm

InGoodFaith wrote:
ToTransferOrNot wrote:
InGoodFaith wrote:
fatduck wrote:it'll save you more than a couple hundred dollars in interest. that shit's compounding. it's almost certainly better to pay sooner than later.


Interest doesn't compound on student loans. It's simple interest. However, it does capitalize after you graduate, so pay off as much of that interest as possible before it capitalizes.

Also, just put the entire thing on 30 year repayment and then pay down the high interest loans with the money you are saving.


Pretty sure it does compound once you're in repayment or if you're in forbearance.


All federally guaranteed loans use a method of interest accrual known as the Simple Daily Interest Formula (regardless of whether the loan is in repayment or forebearance).


Well, it's true that it doesn't capitalize on a daily basis unlike many other loans. If your monthly payments cover simple daily interest, you're fine. But if you're in repayment or forbearance, and your monthly payments don't cover interest (in repayment, that can happen pretty easily if you're under the IBR plan), the accrued interest capitalizes when you have a change in status.

Anyway, TCR is still to put everything in 30-year repayment and pay the higher interest loans down first.

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20130312
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Re: Loan Repayments

Postby 20130312 » Tue May 29, 2012 1:33 pm

Ah, I see where the confusion is. Capitalization doesn't mean compounded interest. Federal loans all use simple interest. However, if you are in forebearance and then go back into repayment, any simple interest that has accrued will capitalize (which means it becomes part of the principal and is no longer considered interest). It isn't referred to as compounding interest because interest is still only accruing on the principal (though the capitalized interest is now included in that principle).

Compounding interest on student loans would be a stupendously bad idea.

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dingbat
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Re: Loan Repayments

Postby dingbat » Tue May 29, 2012 7:24 pm

I'm so proud of this thread - it describes how I treated my loans perfectly

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Re: Loan Repayments

Postby Anonymous User » Tue May 29, 2012 11:27 pm

dingbat--any downsides? Can you do this with a loan repayment system or does it screw up your LRAP payments?

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Re: Loan Repayments

Postby Anonymous User » Tue May 29, 2012 11:53 pm

Get a Business loan, max out credit cards, use it all to pay off student loans and then declare bankruptcy on the new debt. Why not?

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dingbat
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Re: Loan Repayments

Postby dingbat » Wed May 30, 2012 8:01 am

Anonymous User wrote:Get a Business loan, max out credit cards, use it all to pay off student loans and then declare bankruptcy on the new debt. Why not?

Character & Fitness - I recall reading about someone who did this and was disbarred

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dingbat
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Re: Loan Repayments

Postby dingbat » Wed May 30, 2012 8:03 am

Anonymous User wrote:dingbat--any downsides? Can you do this with a loan repayment system or does it screw up your LRAP payments?

Honestly, I don't plan on using LRAP, so I have no idea. I also figure, I'd you qualify/need LRAP, you probably won't have extra cash to make the extra payments, which makes it a moot point.

ToTransferOrNot
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Re: Loan Repayments

Postby ToTransferOrNot » Wed May 30, 2012 9:14 am

dingbat wrote:
Anonymous User wrote:Get a Business loan, max out credit cards, use it all to pay off student loans and then declare bankruptcy on the new debt. Why not?

Character & Fitness - I recall reading about someone who did this and was disbarred


Also the bankruptcy judge would laugh your attempt at a discharge out of court.

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Re: Loan Repayments

Postby hurldes » Wed May 30, 2012 9:59 am

TCR is still to put everything in 30-year repayment


Sorry if this is dumb, but is this because you will end up paying less interest if you pay off the loans faster? For example, I can choose a 10-year repayment plan or a 30-year. If I choose the 30-year plan, but then pay off my loans in 10 years, will I pay less interest than if I just chose the 10-year plan?

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20130312
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Re: Loan Repayments

Postby 20130312 » Wed May 30, 2012 11:12 am

hurldes wrote:
TCR is still to put everything in 30-year repayment


Sorry if this is dumb, but is this because you will end up paying less interest if you pay off the loans faster? For example, I can choose a 10-year repayment plan or a 30-year. If I choose the 30-year plan, but then pay off my loans in 10 years, will I pay less interest than if I just chose the 10-year plan?


No, either way the interest is still accruing for 10 years. The point is that by paying off your higher interest loans first you will pay less in interest.

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Re: Loan Repayments

Postby Anonymous User » Wed May 30, 2012 12:09 pm

ToTransferOrNot wrote:
dingbat wrote:
Anonymous User wrote:Get a Business loan, max out credit cards, use it all to pay off student loans and then declare bankruptcy on the new debt. Why not?

Character & Fitness - I recall reading about someone who did this and was disbarred


Also the bankruptcy judge would laugh your attempt at a discharge out of court.


seen it done more than once. The credit cards don't show up to contest. No one asks what you bought with them.

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Re: Loan Repayments

Postby transferguy » Wed May 30, 2012 4:27 pm

Anonymous User wrote:OP here--so might it make sense to set my low interest loans to a long repayment schedule (30 years) and pay off my higher interest loans all at first? In other words, if I was going to pay $1,000/month in loans, shift which loans I'm paying?

E.g., assuming that I only have two loans, $30,000 @ 5% and $30,000 @ 7%, I would set my low interest low on the longest possible repayment schedule and pay off the minimum on that every month while using the remainder of my monthly loan budget to pay off the high interest loan faster? Instead of paying $500/m to the 5% loan and $500/m to the 7% loan, paying $300/m at the low interest loan (30 year repayment minimum in this made-up world) and $700/m to the high interest loan until the high interest loan is all gone, and then paying $1000/m to the low interest loan until it's all gone?* I'd be paying as much per year as before, meeting my loan minimums as before, but paying off my high-interest loans much more quickly than my low-interest loans.

*Why doesn't everybody do this? It seems easy and safe.


+1 This is exactly what I do with my loans.




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