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Private vs. Fed student loan payoff

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    Private vs. Fed student loan payoff

    Here's the deal....

    I owe $12,700 on a private loan with an interest rate of 1.9%
    I owe $11,000 on federal subsidized loans with interest rates of 7.4%

    Which loan to pay off first?

    Advantages of paying private loan first:
    -I can never consolidate it
    -It doesn't qualify for education money incentives like the Americorps program
    -Monthly payment is set, no matter how dire my situation becomes

    Advantages of paying sub loan first:
    -Much higher interest rate
    -Not owing money to the gov't

    Other things to consider...I owe the IRS $1800 which has an interest rate of 10%, and I'm only paying the minimum payment...$25/mo.

    No credit card debt, own my cars outright, rent, and have a TD Ameritrade account that I could clean out to pay said student loans.

    Tips?

    #2
    I would need to know more about your financial situation. Budget? Disposable cash, savings? Also, the Irs debt would scare me the most.

    Comment


      #3
      Pay back the IRS first, I would not mess with them
      of the 3, its the lowest balance too- so it should not take long.

      After IRS is paid off, I would focus on 3 things

      1) Make sure budget is balanced (spend less than you earn)
      2) Save 20% of gross pay. I suggest 10% or 15% to retirement accounts and 5% to short term savings
      3) Part of short term savings is paying down debt- I would pay off the higher rate debt first with the 5% of gross.

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        #4
        Considering all other things held equal, and everything else in place:

        I would personally cash out enough to pay off the IRS and the 7.4% student loan ONLY.

        I'd take as long as possible to pay off the 1.9% loan (as long as it stays at 1.9%).



        Because if someone would let me borrow at 1.9% in order for me to invest, I absolutely would.

        Comment


          #5
          Thanks guys...additional info:
          I am unemployed / sporadically employed. Have a college degree in ecology, but live week to week, feast or famine. I have enough work to last 6 weeks right now, further ahead than at any point in the last three years.

          Savings: I put 10% of gross into a high-interest (1.8%) ING savings account. Acct has roughly $770 (seven hundred seventy, no typo) in it. Two checking accounts have around $1400 each. TD Ameritrade acct with $10000.

          That's about it. Some weeks I can make $500, some months I make nothing. Just depends. Rent/utilities is around $700/mo.

          No health insurance, used to be on food stamps, but was kicked off due to TD acct.

          Comment


            #6
            Well in that case, pay off the IRS - and make min payments on the loans. Do not pay them off early until you are in a better financial position.

            And keep looking for stable work. Your degree may be in ecology, but your job doesn't have to be. Would be good to get something to tide you over till dream job arrives.

            Comment


              #7
              Sounds like your number one problem is income. You need to find employment doing something. Take 3 jobs if you have to. To sacrifice is the only way.

              Comment


                #8
                I live rural, so finding work is hard. There are many jobs, but many, many applicants. For example, local carpenter helpers are getting paid only $6/hr (state min is $8.06) under the table because the demand for those positions are so high. Go free market.

                I know I will find work eventually, I am looking nationwide. There are many working age men in my position, so at least I'm not alone. I've got in more fishing this season than ever before.

                Anyway, I am trying to close out the TD account and need to decide how to best allocate those resources.

                Thanks again for the quick replies.

                Comment


                  #9
                  i would pay off the IRS first no matter what. Then focus on the student loan with the 7.4% rate.

                  Comment


                    #10
                    Vermont, I recommend that you check out Americorp. They are the New Deal for our generation, putting young people to work and giving them job skills while doing a community service. I have a friend in a similar situation who is applying to serve.

                    Comment


                      #11
                      Do you have a grad PLUS loan or are you an undergrad. student? Federal loans do not have an 8% rate. For 2010-2011, subsidized loans have a 4.5% interest rate and unsubsidized/graduate loans have a 6.8% rate. Federal loans have never had an 8% interest rate. Grad PLUS loans (if you’re a grad student) have a 7.9% interest rate — but you are first allowed to take the maximum in federal loans.
                      I’m assuming that you’ve already posted this question because it sounds familiar and if so, I’ve listed the benefits to federal loans. You need to find out what amount is federal and what amount is a private loan because you would not pay an 8% interest rate on a federal loan. In addition, in the previous post you listed that you took out 10k in one semester in federal loans… if you were a dependent student, your maximum for one semester in federal loans would have only been $2,750 — anything above that was in a private loan. If you are currently in-school, you do not have to pay off your student loan, you can qualify for in-school deferment (although it’s wise to make interest-only payments – which would not be $600/month – to keep your principal down).

                      Comment


                        #12
                        Originally posted by Vermont View Post
                        Here's the deal....

                        I owe $12,700 on a private loan with an interest rate of 1.9%
                        I owe $11,000 on federal subsidized loans with interest rates of 7.4%

                        Which loan to pay off first?

                        Advantages of paying private loan first:
                        -I can never consolidate it
                        -It doesn't qualify for education money incentives like the Americorps program
                        -Monthly payment is set, no matter how dire my situation becomes

                        Advantages of paying sub loan first:
                        -Much higher interest rate
                        -Not owing money to the gov't

                        Other things to consider...I owe the IRS $1800 which has an interest rate of 10%, and I'm only paying the minimum payment...$25/mo.

                        No credit card debt, own my cars outright, rent, and have a TD Ameritrade account that I could clean out to pay said student loans.

                        Tips?
                        I would make the minimum payment on the two student loans and apply ALL excess funds to your IRS debt until it is paid in full. 1) It is the highest rate of all 3 debts. 2)It has the smallest balance and you can get rid of it faster. 3) I would MUCH rather owe student loans than the IRS.

                        Once the IRS is paid in full then I would continue making minimum payments on the private student loan and apply ALL excess funds towards the subsidized loan until it is paid in full. 1) It has the highest rate of the remaining 2 debts. 2) It has the smallest balance of the remaining 2 debts. 3) I would much rather owe a bank than the government...

                        Once the subsidized student loan is paid off I'd apply ALL excess funds towards paying off the subsidized student loan until it is paid in full.

                        Seems pretty straight forward to me.

                        Comment

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