student loan repayment strategy help?

mariec99 · #1 (**permalink**) 08-01-2006, 11:37 AM

I have a consolidated student loan (for graduate school) with a 30 year term. I want to pay it off as quickly as possible but I don't have a lot to go toward extra payments. I have heard of paying an extra small sum each month to go toward principle - but supposedly this extra amount should be equal to the month's accurued interest in order to maximize the benefit. Has anyone done this with a loan? Can you help me figure out the details for such a plan?

sweeps · #2 (**permalink**) 08-01-2006, 11:47 AM

Quote:

supposedly this extra amount should be equal to the month's accurued interest in order to maximize the benefit

I've never heard of that before? Any extra amount toward principal will help pay off your loan faster. The more you can contribute, the better. Be sure to specify on your bill that the extra payment is to go toward principal and is not a "pre-payment".

autoxer · #3 (**permalink**) 08-01-2006, 12:04 PM

The amount of pre-payment can be any amount you choose.

Try plugging your numbers into one of the loan pre-payment calculators and you can see how much different amounts will shorten your loan.
http://www.planningtips.com/cgi-bin/duration.pl

TinyFish · #4 (**permalink**) 08-01-2006, 12:39 PM

Be sure to contact your loan holder before you make the extra payments to find out EXACTLY how they want you to do it. They may want you to send it in a different check. If you don't do it the exact way they specify, they may not apply it to the principle. Also, check afterwards to make sure what happened was what you intended to happen. They may also be able to provide you with tables that will show you how much faster you will pay off the loan with say, $20 extra a month, or whatever you decide. But every bit helps!

abowers · #5 (**permalink**) 08-01-2006, 04:23 PM

wow, 30 years... Any extra bit helps. Most lenders now (CitiBank, NelNet/Sallie Mae, College Loan Corp) won't penalize you for early repayment. If you pay extra (i.e. make a double payment), they may just not bill you for the following month -- so just make sure you keep paying monthly or paying extra won't get you ahead.

MarianneJ · #6 (**permalink**) 08-01-2006, 04:48 PM

I just send a portion of my payment weekly (I have it automatically set up thru my online bank), and the loan holder (SallieMae) applies it to interest and then if there is extra it automatically goes toward principle. As far as my SL is concerned, it is not like a mortgage where you need to let them know to put extra toward principle.

It is a really good idea to pay as soon as possible in the cycle (like my weekly payments) because it seems to lower the amount paid toward interest. HTH

Broken Arrow · #7 (**permalink**) 08-01-2006, 06:42 PM

Mine is 20 years, but you better believe I am NOT going to let it drag out that long.

I'm attacking it with everything I have, and pay more than even rent each month. And yes, doing so does lower the amount of interest I have to pay each month.

I don't know when I'll finish paying them off, but the sooner the better!

By the way, what is HTH?

MarianneJ · #8 (**permalink**) 08-01-2006, 06:58 PM

HTH= hope this helps

My student loans are last on my list of things to payoff so I am just sending a tad more than the minimums. I think they are either 15 or 20 years. Once everything else is paid, then I will get rid of these suckers.

Oh, another tip I just thought of regarding student loans - never consolidate your loans with another person's. Once that is done you are responsible for the other person's debt in the event of divorce or death. Also, if one of you might be eligible for loan forgiveness of some kind I think you have to keep your loans separate.

Broken Arrow · #9 (**permalink**) 08-01-2006, 09:00 PM

Quote:

Originally Posted by MarianneJ

HTH= hope this helps

Thank you, it DOES help!

Quote:

My student loans are last on my list of things to payoff so I am just sending a tad more than the minimums. I think they are either 15 or 20 years. Once everything else is paid, then I will get rid of these suckers.

Oh yes, I agree. My student loan is the last outstanding debt I currently have, but before that, I attacked my credit cards, and then my car loan. It took me a few years, but I am proud to say that both are paid off!

Quote:

Oh, another tip I just thought of regarding student loans - never consolidate your loans with another person's. Once that is done you are responsible for the other person's debt in the event of divorce or death. Also, if one of you might be eligible for loan forgiveness of some kind I think you have to keep your loans separate.

I couldn't possibly agree with you more! While I have my student loans, so did my ex, and hers are in the excess of more than 100k! Just on student loans alone!

THANK GOODNESS they were not consolidated together when we divorced.

abowers · #10 (**permalink**) 08-02-2006, 03:35 PM

My student loans are 15 years from when I consolidated (a little over a year ago) but the interest rate is a fabulous 2.6% :-D
They're in deferment now for grad school though. While the interest rate is excellent, I do plan to pay them off faster once I've got my Ed.S. and have a real job in 3 years.

Broken Arrow · #11 (**permalink**) 08-02-2006, 04:31 PM

Argh! I wish I had 2.6%

Roupey03 · #12 (**permalink**) 08-03-2006, 11:50 AM

My interest rate is 4.5% for 30 years.

I havent finished school yet So when I do I will work on getting rid of them as fast as I possibly can.

Broken Arrow · #13 (**permalink**) 08-03-2006, 11:54 AM

Lucky you too. Mine is 5%.

mariec99 · #14 (**permalink**) 08-03-2006, 02:25 PM

The interest rates would be a little less awful if more of us could deduct the interest. I don't understand how the gov't can get rid of estate taxes without thinking of all of us without estates! You go back to school to earn more money (eventually) -- so what does the government do? They punish you by taking away the interest deduction of you make "too much" money. I know, I know...we would just waste the money on food, clothing and shelter.

MarianneJ · #15 (**permalink**) 08-03-2006, 07:27 PM

mariec99,

what is the income limit where you are no longer allowed to deduct student loan interest? Once I am done school next year I should be making pretty good money and I had not realized that this "perk" might go away. I appreciate your sharing if you know the rule. Thanks!

sweeps · #16 (**permalink**) 08-03-2006, 07:48 PM

Quote:

Your student loan interest deduction for 2005 is generally the smaller of:

$2,500, or

The interest you paid in 2005.

[snip]

The amount of your student loan interest deduction is phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $50,000 and $65,000 ($105,000 and $135,000 if you file a joint return). You cannot take a student loan interest deduction if your MAGI is $65,000 or more ($135,000 or more if you file a joint return).

Modified adjusted gross income (MAGI). For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return before subtracting any deduction for student loan interest.

Source: Publication 970

MarianneJ · #17 (**permalink**) 08-03-2006, 08:22 PM

Thanks, sweepsplayer! The good new is I should be able to continue to deduct my SL interest once I start my job...The bad news is I should be able to continue to deduct my SL interest once I start my job!!! *LOL*

abowers · #18 (**permalink**) 08-04-2006, 05:58 AM

The 2.6% undergrad edu loans will be balanced out by the current Subsidized Stafford Loans I'm taking out for grad school, which are now set at a fixed 6.8%.

I would consolidate again when i graduate but I don't want to screw with the low rate on the ~$16k of undergrad. I'll probably have about an additional $16-20k in grad loans when this is over.

Last year I was in repayment for about 7 months and I think I was able to deduct about ~225 on my tax return from interest paid.