paying off student loans: advice needed

[rainws]

hi,

I just graduated and I have about $43,000 in combined student loans. Here is a break down with interest rates:

$20,000 (5%, 9 month grace period)
$11,625 (2.875%, 6 month grace period)
$11,375 (variable interest, currently 7% guaranteed not to exceed 8.25%, 6 month grace period)

currently, i'm planning on paying these loans back in 5 years. this will cost around $875 per month. I was going to use the rest of my income (after living expenses) to save in my 401k and to save for a car and possibly towards a down payment on a house/condo.

do you think i'd be better off to just throw as much money at these loans as possible and get them paid in 2 years or so? thanks

[sweeps]

Loan #3... when you say 6-month grace period, does that mean you don't have to start paying for 6 months, or interest will not be charged for 6 months?

[rainws]

interest is not charged until end of grace periods

[sweeps]

I would save some money in a high yield savings account that will be applied to Loan #3 in 6 months. I would also continue saving for retirement, car and house.

Student loans #1 and #2 are very low priority, IMO.

[Onwards]

Originally Posted by rainws

currently, i'm planning on paying these loans back in 5 years. this will cost around $875 per month. I was going to use the rest of my income (after living expenses) to save in my 401k and to save for a car and possibly towards a down payment on a house/condo.

What is the rest of your income after living expenses, approximately? I.e. how much would you be putting towards the 401k/car/down payment per month?

Make sure that if you're paying more than monthly payments that the loan payment companies assign (they stretch out the payments over 10 years) specify that the additional payments you make should go to the principal, not the interest. How did you obtain your figure for paying 875/month to pay everything off in 5 years?

Personally, I'd be tempted to set aside an emergency fund first (during this grace period, if you don't have such a fund) and pay off the loans in 2 years just to get them out of the way.

[cptacek]

Definitely work on #3. #1 is a little troublesome, but I would let #2 die a slow and natural death. Of course, after #1 and #3 are paid off, don't just blow the money you were sending to them!

[jIM_Ohio]

How quickly could you pay off #3?

I would do the following (based on goals stated):

1) Invest 10% of income for retirement. Use 401k or Roth IRA. Longest term goals get 1st priority.

2) Pay off loan #3 (the one at 7%). Pay as much as you can, mind objective 1 first though.

3) set aside money for emergencies, house down payment and new car.

4*) pay off remaining loans

* what are the repayment terms of each loan (if you did not pay them off early, how long would it take?)

My comment would be to get rid of high cost debt (anything above 6%), then save-save-save. The reason for the savings (car, emergency fund, condo) is not important.

Depending on the timeframe of the mid term goal (condo, emergency fund, car) I might suggest one savings vehicle or another (for example if condo purchase was in 10 years I would suggest an investment like PRPFX, but if condo purchase was in 3 years, I would suggest using a money market or similar cash based investment).

[Joan.of.the.Arch]

Loan number 2 is definitely less than the inflation rate. Loan number 1, too, at the moment.