Student Loan Deferment Options

[project15]

My wife recently went back to school part time. We weren't planning on this, but the school notified the federal aid program that our loans are through and they automatically put us in deferment and stopped our autopay.

At first I was a little nervous about this since I thought we had missed a payment. However, further investigation revealed the actual situation of being put into deferment.

Our interest rate is 3% on these loans with a balance of around $30k. About half of that accrues interest and half of it doesn't due to half being subsidised and the other half is unsubsidised.

Options:
1. Continue to pay $228 per month toward student loans
2. Use that money toward a HELOC of $16k @ 5.5% with an adjustable rate
3. Blow the money on video games.

[LivingAlmostLarge]

HELOC. That and an EF if you don't have it.

[MomEsq]

I lean toward the video game option, personally.
However, since your wife has gone back to school, there's probably going to be less video game playing in general. I vote to send that money to the HELOC, since its got the higher adjustable rate.

[anonymous_saver]

On the student loans that are unsubsidized, I like the idea of keep paying the interest part of the payments. That is, as long as you have a solid emergency fund and are paying at least up to your employer matches in your retirement accounts. With whatever you have remaining, yes, I would put extra towards the HELOC.

Do you have other debts (medical, CC, etc.)? How much do you have in an emergency fund? How much do you save for retirement each month?

[creditcardfree]

On the student loans that are unsubsidized, I like the idea of keep paying the interest part of the payments. That is, as long as you have a solid emergency fund and are paying at least up to your employer matches in your retirement accounts. With whatever you have remaining, yes, I would put extra towards the HELOC.

I'd have to say I agree with this.

If you pay at least the interest portion on the student loans, your total balance will not increase. That's a good thing!!

I would also, put the rest on the HELOC.

[cptacek]

I would put it towards the HELOC for three reasons...it's interest rate is higher than the student loan, the balance is lower, and the interest is variable. The variable rate interest rate is what would really scare me.

Interest of 3% is almost like free money (if you compare it to inflation)! AND, you are effectively borrowing $30,000 for 1.5% because you said interest accrues on half and not on the other half. So, 1.5% is REALLY like free money. Of course, I am not advocating keeping that loan around for the heck of it, but I think it is smarter to pay off the HELOC.

[dczech09]

HELOC for sure. It is the lower balance, the higher interest rate, and the student loans are in deferment. This does not give you permission to just avoid payments on student loans; you should at least pay the minimums. Remember, interest will accrue on the unsubsidized loans and you do not want the interest to capitalize (be added to the principal balance).