FAST Student Loan Payoff

[dualthreat]

I want to pay back my student loans in full this year. It will require putting thousands of dollars each month toward the loans but I have stuck to a budget the last 11 months and think I'm up for the challenge.

Does anyone have any advice to try and pay the least amount in total? I have applied for every scholarship and forgiveness possible, but I'm not sure I'll qualify for most, if any, of them. I'm really just trying to lower the total interest I'll be paying. If you run the numbers, most of the money you pay to them each month goes only to interest (yikes!)

Most of the tips I've read online just say to pay as much as you can as soon as you can, but most of the time they really only mention putting an extra $20-100 bucks in when you can, which doesn't move the needle much.

My idea is to apply for the lowest possible monthly payment plan so I am free to add in all the additional money toward principle each month. Sound like a good idea? Or am I missing something...
What else have you done?

TIA

 

[IcSyU]

The lowest possible payment plan is likely to have the highest interest rate.

Unless you have one of the very few loans I've ever seen with an early payment penalty, every payment you make is going to pay the accrued interest and the principle regardless of the required payment.

For example if your principle balance is $50,000 and the interest rate is 5%, the first month of accrued interest is going to be $50,000 x 5% / 12 or $208. If you make a $208 payment you won't touch the principle. If you make a $1,000 payment $208 is to interest and principle is reduced to $49,208.

Let's say the next day you pay off another $1,000...it would be applied as roughly $7 interest and $993 of principle.

Last note: You signed the loan. Pay it back under the terms you agreed to.

 

[dualthreat]

The lowest possible payment plan is likely to have the highest interest rate.

Unless you have one of the very few loans I've ever seen with an early payment penalty, every payment you make is going to pay the accrued interest and the principle regardless of the required payment.

For example if your principle balance is $50,000 and the interest rate is 5%, the first month of accrued interest is going to be $50,000 x 5% / 12 or $208. If you make a $208 payment you won't touch the principle. If you make a $1,000 payment $208 is to interest and principle is reduced to $49,208.

Let's say the next day you pay off another $1,000...it would be applied as roughly $7 interest and $993 of principle.

Last note: You signed the loan. Pay it back under the terms you agreed to.

Thanks for the reply. I'll have to find the terms but all of my loans are Fed Sub or Unsub loans. I have paid a handful of them in full already so I don't think I have to worry about early payment penalties, but I will check into that.

 

[Clonehomer]

You shouldn't have any issues with early penalties on student loans. Basically, if you're trying to pay them back in a single year you really don't have to worry much about interest rates. It's the loans that you push out over 20 years that the interest rate makes much of a difference.

It does help a little in interest accruing to make multiple payments a month. So if you get paid bi-monthly, go ahead and make a payment when you get paid rather than waiting for the payment to be due. Again, not going to save a ton, but that's really the onoy way to make a difference once the loan terms are determined

 

[BCoffClone125]

I used the "snowball theory" suggested by Dave Ramsey when paying off my loans. If you have multiple Fed Subs and Unsubs like I did, try to put any additional money you can toward the highest principal loan until you knock it out. It may seem like it takes a while but once that one is done the remaining loans get payed off much quicker in comparison. It's a little bit of a mental trick, but it kept me motivated to get them all payed off as fast as I could once I got that first one done with.

 

[BCClone]

I used the "snowball theory" suggested by Dave Ramsey when paying off my loans. If you have multiple Fed Subs and Unsubs like I did, try to put any additional money you can toward the highest principal loan until you knock it out. It may seem like it takes a while but once that one is done the remaining loans get payed off much quicker in comparison. It's a little bit of a mental trick, but it kept me motivated to get them all payed off as fast as I could once I got that first one done with.

Not a big Ramsey fan, but he says to hit the smallest principal one first. Basically it's a old cash flow technique.

 

[packattack425]

Paying off your student loans is one of the best feelings. Every time I had any extra money I would throw money at them. Hopefully you got a degree that is worth its weight. You see to often people borrowing a ton of money for a liberal arts degree.

 

[throwittoblythe]

A

 

[throwittoblythe]

Determine the most you can pay each month based on your budget and then set up autopay for that. I used Ramseys approach of smallest payment first and it did keep me motivated (though I don’t recommend his advice for everything). Also, seeing the due date for my next payment get further and further away as I paid it down was fun too. We paid off my wife’s and my student loans about 13 years early and saved around $22,000 in interest. We had a lot of loans but we stayed disciplined and were so glad when that final payment went in. Good luck!

 

[CysRage]

I have no idea how this plan will translate with the new tax law but it could still be applicable. If anyone is planning on taking masters classes, I started taking classes for my MBA and didn't realize your undergraduate loans go into deferment automatically. Essentially you are no longer required to make minimum payments on ANY of your loans and your subsidized loans stop accruing interest as long as you remain in deferment. I did a little bit of BCoff's plan above of the snowball theory. I still paid my regular payments but put all of it on my unsubsidized loan with the lowest balance. Once I paid it off, I moved to the next lowest unsubsidized loan. During all of this, my subsidized loans weren't accruing interest and I was knocking out individual loans faster.

As was already said, pay down your student loans as soon as possible is the best plan for most people. A lot of people think putting as much as possible into your 401K or Roth IRA early is the way to go but your student loan balance is constantly accruing interest so this should be a priority over retirement accounts (unless you are trying to max out company match).

 

[Showtimeljs]

1. Set things up to have the lowest interest rate possible.
2. Target unsubsidized loans first.
3. Pay as much as you can as fast as you can.

Don't worry about having a low minimum payment, it's not like they are coming for your car after your first missed payment. Student loans lack the teeth that most others loans do, which is why people make the mistake of letting them stick around for too many years while they bloat with interest.

 

[madguy30]

I have no idea how this plan will translate with the new tax law but it could still be applicable. If anyone is planning on taking masters classes, I started taking classes for my MBA and didn't realize your undergraduate loans go into deferment automatically. Essentially you are no longer required to make minimum payments on ANY of your loans and your subsidized loans stop accruing interest as long as you remain in deferment. I did a little bit of BCoff's plan above of the snowball theory. I still paid my regular payments but put all of it on my unsubsidized loan with the lowest balance. Once I paid it off, I moved to the next lowest unsubsidized loan. During all of this, my subsidized loans weren't accruing interest and I was knocking out individual loans faster.

As was already said, pay down your student loans as soon as possible is the best plan for most people. A lot of people think putting as much as possible into your 401K or Roth IRA early is the way to go but your student loan balance is constantly accruing interest so this should be a priority over retirement accounts (unless you are trying to max out company match).

Is the deferment something that automatically happens or does it require some communication with the loan company?
I start grad school this week and wasn't aware of this...I'd like to keep paying off my original loans as I'll be able to afford it.

 

[IcSyU]

1. Set things up to have the lowest interest rate possible.
2. Target unsubsidized loans first.
3. Pay as much as you can as fast as you can.

Don't worry about having a low minimum payment, it's not like they are coming for your car after your first missed payment. Student loans lack the teeth that most others loans do, which is why people make the mistake of letting them stick around for too many years while they bloat with interest.

Item 2 shouldn't matter if they're out of deferment. If they're federal loans I'm guessing the interest rate is the same on them.

If the plan is really to pay them off quickly, item #1 also doesn't matter. A $20,000 note paid off in a year at 4% or 6% is a $200 difference which is nothing in the grand scheme.

 

[BCClone]

Item 2 shouldn't matter if they're out of deferment. If they're federal loans I'm guessing the interest rate is the same on them.

If the plan is really to pay them off quickly, item #1 also doesn't matter. A $20,000 note paid off in a year at 4% or 6% is a $200 difference which is nothing in the grand scheme.

2. Would make sense that since the govt isn't subsidizing (or paying which it means) the interest, because the interest would be building on the loans.

 

[SoapyCy]

How do student loans continue to go up in balance while making payments? I've never understood why they're not set up like a mortgage with set payments.

 

[hurdleisu24]

I paid my loans off in 5 years vs 10 year. All sub and unsub. Saved thousands on interest doing that. I would make my auto pay online then manually pay another amount (usually same as auto) online. I had to be very strict on my budget during those years but I knew doing that, there would be something that would replace that cost (kids). I wanted to get my loans paid off before family life hit me.

 

[dirtyninety]

Just blow it off.....the student-loan bubble is the next big toxic dump that the federal government will be forced to bail out....too big to fail.
"Education Connection...get a match for free!!!" Why do you think all that crap industry exists??? It is like the housing-price "house of cards" developed in the 1990's. Manipulators are getting people who have no business in school at all to run up huge debt. Does a free market really justify a University of Phoenix? 900 billion in student debt leveraged out by your Federal student loan programs. This isn't all the reforming and heroic folks the politicians trot out for photo ops either....this is being abused.

F&^% it.....the Golden Globes are on tonight and Justin Timberlake is dropping a new album soon....Just ignore it all. That tune is catchy...."Education Connection, get a match for free....Education Connection get a match for free....."

 

[cmjh10]

I set up my student loans to the lowest payment just in case something happened, I could still afford it. Right now I autopay an extra $200/month and every 3 months I put my quarterly bonus check on my loans. Im currently paid almost 2 years in advanced and I have a shot at paying it all off this year. Although, with a house, I will probably hold out on paying it off for awhile.

 

[DurangoCy]

When you guys say, "paid in advance" I hope you're not pre-paying payments. This is not the same as paying principle and reducing the amount of interest that is accruing. If the extra payments are not applied directly to principle, you'll end up paying the exact same amount of interest and number of payments in the end, just over shorter perioud and thus a higher overall rate. ...might want to check on how your extra payments are applied, as I've seen that term used a couple times in this thread.

College loans even with lower rates suck, can't recommend highly enough to get rid of them early in life. I had two that were about $6500 total at 5.5% over 10 years that i knocked out early. Then another that was $20,000 at 2.3% over 20 years that I kept for 10 years. I think it was only about $116/month, but it was pretty annoying to see that got out every month in the end.

 

[Shawker]

Faking your own death is the quickest way to get out of debt. If you can swing it that’s what I would recommend.