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Advice/Strategy for Paying Off Student Loans

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rated:
Just in case there's more to this than common sense--pay more for the high interest loans and minimum for the rest.

Navient:
2,600 9.9%
4,950 4.5%
5,000 4.5%
9,250 4.5%
9,500 4.5%

FedLoan:
23,450 6.2%
13,400 7.2%
21,000 6.4%
24,250 5.4%
26,800 6.8%
5,500 4.5%
4,600 6%
5,600 5.6%

Another Loan:
1,700 8%

Been out of school since May 2015. Been paying Navient, but not FedLoan (filled out their forms so that I didn't have to pay since I was not working much). I'm sure that had a negative result on the amount of interest I will have to pay.

I make ~1,200 for 2 weeks of work, but my salary will increase very significantly (2 - 3x) over time.

Obviously I should try and first knock out the 8% (1,700) and 9.9% (2,600), which will lower my monthly payments a little bit (by about 100).

I recently filled out FedLoan's payment plan based on income, since I would not be making enough to pay (at my current salary) the full payment. Is it a better plan to continue paying based on income and then after 25 (?) years have the loan erased (I understand it would still be taxable) or to try to pay it off entirely?

Any ideas, plans, suggestions, thoughts etc would be greatly appreciated.
 

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Yes, rice and beans, and second hand stores, for as at least as long the time spent in school. Double that if you want t... (more)

kingdoodler88 (Jul. 01, 2017 @ 8:24p) |

And of course the OP is gone after less than 3 hours of starting the thread. Not surprising someone with 150k in student... (more)

meade18 (Jul. 01, 2017 @ 8:33p) |

2-3 times his current salary?  No, he should still do Income Based repayment.  I make 110k a year and have 70k in studen... (more)

jman220 (Jul. 08, 2017 @ 6:28a) |

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rated:
Wow that's a lot of loans. How did you get so many separate ones?
And yes, paying the largest interest is the smart way to go.

Is there a company who can consolidate your loans together?

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I guess that's how the school had it set up so that the loans are separate. Have not looked into consolidation or know much about it--will research this weekend.

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Here are things to consider:

1) Pay the highest interest rates loans first.

2) Paying small balance loans off should lower the minimum payment.

3) Paying off private loans will benefit cosigners, since federal loans are extinguished upon death.

4) Since federal loans tend to have more flexibility with payback options (i.e. term, deferment, forbearance), you may want to pay off private loans quicker.

5) Variable rate loans have interest rate risk, so it may advantageous to pay off variable rate loans quicker.

ETA:
6) The interest on subsidized loans is paid for by the government if you are enrolled in a qualified program. So, it is more beneficial to pay down unsubsidized loans first if you plan to go back to school.

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Those considerations (except #1) point to paying Navient off first. The issue is that Navient has that low 4.5% interest rate. The question then becomes whether, on a practical level, there is a significant difference between 4.5% of Navient and the 6-7% of FedLoan (over about 10-15 years). I will do some math on that this weekend.

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While you have 5x the amount in loans I do, I intend to die with the loans if possible. Liquidity is more important, especially if on a fixed income.

And I second the direct consolidation route if possible.

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Most of the people on FW don't know anything about the intricacies of student loans. You need to talk to a student loan counselor.  If you consolidate into REPAYE, you don't pay interest for at least 3 years. That's your best course of action.

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That is more than my mortgage, car loan, all student debt for 2 degrees, etc. Impressive.

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Dang that's a lot. I'd prioritize high rates but also take balance into account - some of the loans with a lower balance but highest rates would be a great Target.

Have you had a full time job for a bit now? What's your salary?

I'd go after these first.

Navient:
2,600 9.9%

FedLoan:
23,450 6.2%
13,400 7.2%
21,000 6.4%
26,800 6.8%
4,600 6%

1,700 8%

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Variable interest rate loans should be consolidated into fixed rate loans to remove the interest rate risk.

You spent over $150K to make $15/hr, barely above minimum wage. How did this make sense to you?

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Throw everything into repaye and pay the minimum until you die. You don't have the income or savings to make trying to pay these down worth it.

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brettdoyle said:   That is more than my mortgage, car loan, all student debt for 2 degrees, etc. Impressive.
  
Seriously. If I had $156,000 in student loans and $31,200 in take home pay, I don't know what I'd do. (I sure hope the number you gave is take home pay)

OP, what did you study and what do you do?

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scripta said:   Variable interest rate loans should be consolidated into fixed rate loans to remove the interest rate risk.

You spent over $150K to make $15/hr, barely above minimum wage. How did this make sense to you?

  
It's not that uncommon. People drop out for whatever reason. The graduation rate for college isn't 100%. 

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jd2010 said:   Throw everything into repaye and pay the minimum until you die. You don't have the income or savings to make trying to pay these down worth it.
  
Problem with that is there will be a tax bomb (i.e. the hundreds of thousands of dollars in principle and accrued interest that will be forgiven is taxable) at the end unless you do the public service forgiveness. You could avoid the tax bomb by consolidating again and resetting the clock on the forgiveness but who knows if that will still be allowed in the future. 

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OP expects their pay to go up 2-3 times what it is now. That would likely disqualify them from the income based repayment programs.

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avalon6 said:   scripta said:   Variable interest rate loans should be consolidated into fixed rate loans to remove the interest rate risk.

You spent over $150K to make $15/hr, barely above minimum wage. How did this make sense to you?
It's not that uncommon. People drop out for whatever reason. The graduation rate for college isn't 100%. 
Where do you get your 'uncommon' statistic? I would think that it is extremely uncommon. People that drop out usually don't end up with 13 different loans (I'm guessing it was 1 per semester for 3 semesters + 2 per semester for 5 semesters) that add up to $150K. I agree that graduation rate isn't 100%, but as far as I know most drop out earlier (after a semester or two) rather than later.

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jerosen said:   OP expects their pay to go up 2-3 times what it is now. That would likely disqualify them from the income based repayment programs.

There is no income limit. Your payment is simply 10% of your discretionary income. If you max out your 401k/IRA/HSA deductions, you can keep your AGI low enough to not have to make any payments. 

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avalon6 said:   
jd2010 said:   Throw everything into repaye and pay the minimum until you die. You don't have the income or savings to make trying to pay these down worth it.
  
Problem with that is there will be a tax bomb (i.e. the hundreds of thousands of dollars in principle and accrued interest that will be forgiven is taxable) at the end unless you do the public service forgiveness. You could avoid the tax bomb by consolidating again and resetting the clock on the forgiveness but who knows if that will still be allowed in the future. 

But he can plan for that tax bomb, and has 20+ years to do so. Even with a 3x increase in salary, what other choice does he have? ...and even with the 3x increase in salary, I don't think he will be disqualified from IBR.   From studentaid.ed.gov:
"To qualify, the payment you would be required to make under the PAYE or IBR plan (based on your income and family size) must be less than what you would pay under the Standard Repayment Plan with a 10-year repayment period."  
He would have to make almost 200k for 10% of his income to exceed the 10 yr payment on 156K worth of loans.

My advice, which I have given often to classmates of mine who are in very similiar situations (I was lucky to avoid such a large education bill). This is assuming you are eligible for the IBR, PAYE, REPAYE or similar programs: 

1. Before doing any consolidating, you should make sure that it doesn't negate any access to the income based repayment. Consolidating may make things simpler, but make sure you have access to the government based programs.
2. Get on an income based repayment plan. Basically your payments are 10% of your income, and the gov pays the remaining interest. After 20 years of payments, remaining debt is forgiven
3. Live on rice and beans, contribute any discretionary income to tax-advantaged retirement accounts. This lowers your Adjusted Gross Income (AGI) which is what the 10% rate is calculated off of.
4. When your 20 years is up, raid those tax-advantaged retirement accounts to pay the yuge tax bill for the loan forgiveness.
5. In the meantime, pray/hope like hell that the political spectrum shifts, and some new program will forgive all your debt.

That is all contingent on you having a relatively low income ceiling in the next 20 years. If you realistically think you will be pulling mid 6 figures in 10 years, I think this plan is not what you should pursue. Regardless, the advice about talking to a student loan counselor is a good one.

 

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MagicLoogies said:   
1. Before doing any consolidating, you should make sure that it doesn't negate any access to the income based repayment. Consolidating may make things simpler, but make sure you have access to the government based programs.

  
I think OP needs to consolidate ASAP to get locked into REPAYE because of the very real possibility that Congress or the Department of Education makes changes to REPAYE, which I consider a very generous payment plan. REPAYE has only existed for 1 year, so it is a very new program subject to changes. Usually when payment plans are changed, those already on them are grandfathered in. 

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scripta said:   
avalon6 said:   
scripta said:   Variable interest rate loans should be consolidated into fixed rate loans to remove the interest rate risk.

You spent over $150K to make $15/hr, barely above minimum wage. How did this make sense to you?

It's not that uncommon. People drop out for whatever reason. The graduation rate for college isn't 100%. 

Where do you get your 'uncommon' statistic? I would think that it is extremely uncommon. People that drop out usually don't end up with 13 different loans (I'm guessing it was 1 per semester for 3 semesters + 2 per semester for 5 semesters) that add up to $150K. I agree that graduation rate isn't 100%, but as far as I know most drop out earlier (after a semester or two) rather than later.

  

Its not uncommon for people to drop out.   Something like 40% of people don't graduate.  

Yes people who drop out dont' usually end up with 150k in loans across multiple years but you can be sure that some people do.    

Also the school could have been quarterly rather than semester.
But its just as likely that OP graduated.     We don't know either way.

 

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avalon6 said:   
jerosen said:   OP expects their pay to go up 2-3 times what it is now. That would likely disqualify them from the income based repayment programs.

There is no income limit. Your payment is simply 10% of your discretionary income. If you max out your 401k/IRA/HSA deductions, you can keep your AGI low enough to not have to make any payments. 

  
I guess "disqualify" isn't right.    But at some point 10% of your income would exceed the standard repayment plan and theres no benefit.    Right?

I think OP's goal is to pay off the loans, not string them out.

 

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jerosen said:   
avalon6 said:   
jerosen said:   OP expects their pay to go up 2-3 times what it is now. That would likely disqualify them from the income based repayment programs.

There is no income limit. Your payment is simply 10% of your discretionary income. If you max out your 401k/IRA/HSA deductions, you can keep your AGI low enough to not have to make any payments. 

  
I guess "disqualify" isn't right.    But at some point 10% of your income would exceed the standard repayment plan and theres no benefit.    Right?

I think OP's goal is to pay off the loans, not string them out.

 

"To qualify, the payment you would be required to make under the PAYE or IBR plan (based on your income and family size) must be less than what you would pay under the Standard Repayment Plan with a 10-year repayment period."  

156k @ 4% for 10 year payoff = ~$1,500 monthly payment
$1,500 x 12 . 0/.10 = $180k yearly salary

He is currently making 31k, supposedly up to 92k at some point. Still a long ways to go to get to being above the standard.
  
 

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MagicLoogies said:   
"To qualify, the payment you would be required to make under the PAYE or IBR plan (based on your income and family size) must be less than what you would pay under the Standard Repayment Plan with a 10-year repayment period."  
  

  
REPAYE does not have that requirement.

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MagicLoogies said:   
jerosen said:   
avalon6 said:   
jerosen said:   OP expects their pay to go up 2-3 times what it is now. That would likely disqualify them from the income based repayment programs.

There is no income limit. Your payment is simply 10% of your discretionary income. If you max out your 401k/IRA/HSA deductions, you can keep your AGI low enough to not have to make any payments. 

  
I guess "disqualify" isn't right.    But at some point 10% of your income would exceed the standard repayment plan and theres no benefit.    Right?

I think OP's goal is to pay off the loans, not string them out.

 

"To qualify, the payment you would be required to make under the PAYE or IBR plan (based on your income and family size) must be less than what you would pay under the Standard Repayment Plan with a 10-year repayment period."  

156k @ 4% for 10 year payoff = ~$1,500 monthly payment
$1,500 x 12 . 0/.10 = $180k yearly salary

He is currently making 31k, supposedly up to 92k at some point. Still a long ways to go to get to being above the standard.
  

  

OK but say he makes 100k or something.   Whats the benefit of doing REPAYE?    Theres not going to be forgiveness.   You're not getting subsidized interest rates are you?    It just extends the repayment plan as far as I see.     Maybe i"m missing something, I'm not expert on these plans.

There could be benefit to lowering your monthly payment and keeping a loan longer for cash flow purposes or if the interest rate is favorable.   But I don't think thats OP's situation nor a benefit most seek.

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jerosen said:   OK but say he makes 100k or something.   Whats the benefit of doing REPAYE?    Theres not going to be forgiveness.   You're not getting subsidized interest rates are you?    It just extends the repayment plan as far as I see.     Maybe i"m missing something, I'm not expert on these plans.

There could be benefit to lowering your monthly payment and keeping a loan longer for cash flow purposes or if the interest rate is favorable.   But I don't think thats OP's situation nor a benefit most seek.

  
Can you guarantee you'll make 100k+ every year for the next 10 years? If you lose your job, you still have to make payments under the standard repayment plan. Income based repayment is much better because it guarantees you'll be able to make payments no matter what. 

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avalon6 said:   
jerosen said:   ...
  
Can you guarantee you'll make 100k+ every year for the next 25 years? If you lose your job, you still have to make payments under the standard repayment plan. Income based repayment is much better because it guarantees you'll be able to make payments no matter what. 

  

Oh yeah.    That is a reason for doing it.

But if you are gainfully employed consistently then you're really not gaining anything financially with REPAYE are you?   

Its not that unusual for people to remain employed with increasing pay rates for 10-20 years at a stretch.

 

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jerosen said:   
Oh yeah.    That is a reason for doing it.

But if you are gainfully employed consistently then you're really not gaining anything financially with REPAYE are you?   

Its not that unusual for people to remain employed with increasing pay rates for 10-20 years at a stretch.

 

  
You can always do REPAYE and pay more than the minimum if you want. You either pay off your loans aggressively within 1-3 years or make minimum payments until it is forgiven. Anything in between is not the optimal strategy and will lose you money.

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avalon6 said:   
...  
You can always do REPAYE and pay more than the minimum if you want. You either pay off your loans aggressively within 1-3 years or make minimum payments until it is forgiven. Anything in between is not the optimal strategy and will lose you money.

  
Yeah thats a good plan.    Good point.
 

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avalon6 said:   
jd2010 said:   Throw everything into repaye and pay the minimum until you die. You don't have the income or savings to make trying to pay these down worth it.
  
Problem with that is there will be a tax bomb (i.e. the hundreds of thousands of dollars in principle and accrued interest that will be forgiven is taxable) at the end unless you do the public service forgiveness. You could avoid the tax bomb by consolidating again and resetting the clock on the forgiveness but who knows if that will still be allowed in the future. 

  
Politicians will still be begging for votes in 20 years the same way they were when they put this thing into effect in the first place.  Theyll forgive the tax the same way they forgave these loans.  Personal accountability is dead.

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If that 90k income comes relatively quickly and OP isn't in a very HCOLA OP should be able to pay this off, in full. OP took out the loans to be able to get a higher income, it's time to pay them back.

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KatoKrazy said:   If that 90k income comes relatively quickly and OP isn't in a very HCOLA OP should be able to pay this off, in full. OP took out the loans to be able to get a higher income, it's time to pay them back.
  
Yes, rice and beans, and second hand stores, for as at least as long the time spent in school. Double that if you want to buy a home in 10 years.
Not a good ideal to ever spend/waste money you don't have.

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And of course the OP is gone after less than 3 hours of starting the thread. Not surprising someone with 150k in student loans is looking for a quick answer and not really interested to see what the FWF community actually can contribute.

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jerosen said:   OP expects their pay to go up 2-3 times what it is now. That would likely disqualify them from the income based repayment programs.
  2-3 times his current salary?  No, he should still do Income Based repayment.  I make 110k a year and have 70k in student loan debt but I'm still eligible for Repaye with a payment that is lower than what it would be under the standard plan.  (Most of that is because my wife makes far less than me, has far more in student loans, and hers is taken into account to), but 2-3x 30k a year and he still may very well be paying less in ln income based repayment plan than under the standard.  Almost certainly at 2x.

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