best method to repay student loan debt

[Hroptr]

So...I'm one of those student loan debtors everyone keeps talking about. I'm about $85,000 in debt and make 27k a year at the moment. Thankfully, I am living at home so that is saving me quite a bit at the moment and hopefully a raise will be coming soon...

But here is my situation:

85,000 in debt with $15,000 in the bank
57,000 private loans with 15 year repayment
4 loans with interest rates at 3.9%, 5.4%, 5.65%, and 5.65% (going to sign up for direct debit soon and have these reduced by .5% each)
28,000 in federal loans with 10 year repayment
8 separate loans with interest rates from 3.4% to 6.8% some subsidized some unsubsidized.


I have been making all of my scheduled payments the past 6 months, which totals about 750 a month. My question is this: would it be wise to change my federal loan payment plan to reduce my monthly payments (pay just above the interest accrued?) and divert all of the extra cash into my private loans? I've always been counseled to give private loans priority, but I'm not sure if diverting money from my federal loans is a wise idea. But I have a sneaking suspicion that, having payed thousands into my federal loans, in 5 years some government goon will forgive federal loan debt and if the case then attempting to pay it off quickly is going to end up hurting me. I've also read about paying off the lowest loan amounts first using the "debt snowball" method, but this too would involve paying off my federal loans which are 2000 to 5000 a piece....Really appreciate any advice anyone can offer...This has been a significant source of anxiety and I had no idea what I was getting into...my parents don't make enough to have significantly funded my undergrad, unfortunately, and working summers didn't make much of a dent. Pretty worried for the future...,but the silver lining is that I got my degree from a public ivy, will probably be able to get a fully funded PhD and that I have a very supportive family...



Thanks!

[TheKayla]

Typically, yes going after private loans aggressively is the trick. What are the interest rates on the private loans though? In my situation, my federal loans where anywhere between 5 - 8%, because some were Parent Plus. I on the other hand had one private at 2.5%, variable. It was a tough call for me because I know the variable could shoot up to whatever they wanted, but I decided for the time being to tackle my federal loans since they were costing me so much. If my balance on my private loan were something I couldn't knock out fast if it were to shoot up, my situation would have been different.

I'd list out all your debts and whether they are variable or not, and their interest rate. Also, are you on the graduated plan? If so, make sure you can afford your payments as they go up. As I'm in a similar boat, I went with the graduated plan and had to pay off a few of my smaller loans first in order to get them out of the way and not have my minimum payment go up to a level that I could not afford.

It would also be helpful if you're comfortable to list out your budget -- do you have a car, pay for your own food/supplies while living at home, or entertainment budget? The first two years in my SL repayment I had a second job that brought in an extra $500 or so a month, and I also still do some freelancing to this day. Doing this and living frugally helped get me past that 'bump' of paying too much SL interest. I still pay too much of course, but now its not most of the payment.

[Hroptr]

I listed the interest rates for the four private loans above. I am currently on the standard repayment plan so my payments would be the same throughout the life of the loan, barring me changing the repayment plan. The private loans are variable interest, but they haven't changed really changed since I first took them out in 2009.

The federal loans are:
3500 5.6% (subsidized)
4500 4.5% (subsidized)
5400 3.4% (subsidized)
5500 3.4% (subsidized)
2500 6.8%
2400 6.8%
2300 6.8%
2200 6.8%

Total per month: $310

The private loans are variable: (direct debit will knock .5% interest off all of these except the 3.9% one which will be reduced by .25%)
15000 3.9%
14800 5.4%
14200 5.65%
12800 5.65%

Total per month: $440

My income each month is 1650 after taxes.
My regular expenses are:
180-190 a month in gas and
750 a month in loan payments.
20 a month in entertainment
Money after expenses: 700 a month.

If it wasn't clear, I am planning on attending graduate school for a PhD which will be funded and with a stipend so interest will be accumulating during this time...I'm thinking maybe paying off the unsubsidized federal loans (they accumulate interest during schooling) then tackling the private? But I don't know if the private loans are going to go up in interest rate...

[snafu]

Could you please clarify...you've a 4 year degree from an Ivy school that created $ 85K debt + interest at various rates to earn an annual income of $ 27K gross? Will you jump over Master into a Ph D at the same school? How will these/this next step[s] be funded? What are you earning on savings $ 15K? What are the tax implications of the long list of loans?

Does current government policy promise to write-off all government funded student loans after 5 years? When do you see yourself earning an annual income that balances all sums borrowed + interest? You seemed to snipe at parents who continue to cover your costs for shelter, food, electric, heat and more.

[Hroptr]

Could you please clarify...you've a 4 year degree from an Ivy school that created $ 85K debt + interest at various rates to earn an annual income of $ 27K gross?

It's a temporary job that will advance my career greatly. I appreciate the snark, but like I said, I didn't know what I was getting into. I could find higher paying jobs but it's not going to get me anywhere in life. I asked for advice on how to deal with the situation not for criticism of past actions. I was 17 when I took these loans out and my parents basically didn't involve me in the process of financially counsel me. I was told "this is what you have to do" and I signed for them. I've accepted full responsibility, which should be pretty clear from this thread, but apparently I have to state that explicitly.

Will you jump over Master into a Ph D at the same school? How will these/this next step[s] be funded?

As I stated, twice, I believe, PhD programs are fully funded and include 20k a year stipends. Masters is usually part of the PhD process.

What are you earning on savings $ 15K?

It is an emergency fund.

What are the tax implications of the long list of loans?

You get tax deductions for interest paid on student loans, I believe.

Does current government policy promise to write-off all government funded student loans after 5 years?

No, but loans are forgiven after 20 years of on time payments. I'm speculating about the possibility, not banking on it.

When do you see yourself earning an annual income that balances all sums borrowed + interest?

Generally a PhD will do a 1 year post-doc earning around 50k and then salaries go up to 72k a year. Salaries vary depending on what fields you go into but the median salary after 10 years is probably 85 to 90k. After 15 six figures is doable.

You seemed to snipe at parents who continue to cover your costs for shelter, food, electric, heat and more.

Uh....where?

[TheKayla]

I got a lot of snark too for taking out too much student loan debt, it is frustrating -- I need to remind everyone financial mistake or not -- its in the past and a mistake we made at 18 years old. Going to college and taking out loans was what kids of our generation 'were supposed to do'. I do not consider it on the same level of living beyond one's means and getting into massive credit card debt, or refusing to save money, or other financial mistakes. Yet, its still an equivalent hole grads need to dig out of. Now, reaching out for help, we get snarkiness out of an older generation who went to school years ago before the college price hike, or even before a bachelor's degree was basically required if you didn't want to make minimum wage the rest of your life. Plus, colleges are very good at disguising the price until you're out and with a bunch of debt. Of course when you're 19/20 years old you can look into it with enough work at that time -- but with older siblings and parents with degrees are turning out fine after school -- who's looking it up before its too late at that age? It's very easy to assume everythings going to work out fine, just like others before you who took the same path. It's hiked up dramatically the last few years though, causing the problem. There's a reason its called a crisis.

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It looks like your private loans are around the same range, so I'd go after those just in case they do hike them up. Honestly, my private loan has never hiked up yet, 5 years and over half of the loan later. Regardless, it could happen and is a risk, so go after them like crazy. I'd look closely at how much you're spending on interest each month too, that's personally motivated me to keep coming back to the college lifestyle way of spending whenever I feel lifestyle inflation kicking in. Other than that, thats the best you can do -- throw all the money you can at them and keep living frugally. It's a long process, and keeping yourself motivated is the biggest trick, in my opinion.

[Hroptr]

I got a lot of snark too for taking out too much student loan debt, it is frustrating -- I need to remind everyone financial mistake or not -- its in the past and a mistake we made at 18 years old. Going to college and taking out loans was what kids of our generation 'were supposed to do'. I do not consider it on the same level of living beyond one's means and getting into massive credit card debt, or refusing to save money, or other financial mistakes. Yet, its still an equivalent hole grads need to dig out of. Now, reaching out for help, we get snarkiness out of an older generation who went to school years ago before the college price hike, or even before a bachelor's degree was basically required if you didn't want to make minimum wage the rest of your life. Plus, colleges are very good at disguising the price until you're out and with a bunch of debt. Of course when you're 19/20 years old you can look into it with enough work at that time -- but with older siblings and parents with degrees are turning out fine after school -- who's looking it up before its too late at that age? It's very easy to assume everythings going to work out fine, just like others before you who took the same path. It's hiked up dramatically the last few years though, causing the problem. There's a reason its called a crisis.

--------

It looks like your private loans are around the same range, so I'd go after those just in case they do hike them up. Honestly, my private loan has never hiked up yet, 5 years and over half of the loan later. Regardless, it could happen and is a risk, so go after them like crazy. I'd look closely at how much you're spending on interest each month too, that's personally motivated me to keep coming back to the college lifestyle way of spending whenever I feel lifestyle inflation kicking in. Other than that, thats the best you can do -- throw all the money you can at them and keep living frugally. It's a long process, and keeping yourself motivated is the biggest trick, in my opinion.

So is that a yes for reduce my federal payments and throw the extra at the private loans?

[TheKayla]

Yes, I would say pay the minimum on the federal loans until you pay off the private loans. Then, when you have only federal loans left, do the obvious and pay off in order of highest amount and interest rate to lowest amount and interest rate to pay the lease amount on interest. Along with that keep a strict budget and throw any extra money you come across to the loans.

[Hroptr]

And I don't think older people understand the situation young people face so let me illustrate it for all you lurkers out there.

If you don't get higher education it is minimum wage jobs guaranteed or grueling manual labor the rest of your life, unless you are one of the lucky few who can start a successful business. What, exactly, do you expect young people to do if not loan? I never ate out or bought a smart phone or even owned a car. I saved 6000 dollars over the course of college and that was enough to pay the interest I accrued. Ever hear of unpaid internships? Internships are pretty much required now and many of them don't pay. It's great for the loan balance, really.

I went to a public school. The local community college was almost as expensive. It was 23,000 dollars a year (now approaching 30k a year for in-staters). The private schools were 50 to 60k a year. All the adults I knew told me to take out those loans and I trusted them. My family who had not attended college, was very happy I got into such a good school, and I was too. Until I realized everyone I knew there had all of their tuition paid for by their parents and I had a nervous breakdown realizing not everyone was loaning like I did. Everyone had told me what I was doing was normal and stupidly, I trusted those assessments.

It's a lot riskier now to loan, but at least you stand a freaking chance.

The middle and lower class in the US is literally being dismantled. Those who were already well off continue to be better off because they won't be in debt until they're almost 40, while the poor continue to lag further behind delaying buying a home, kids, and retirement.

So if any of you reading ever feel inclined to make assumptions about someone's student loan debt think a little harder about what is actually going on before you assume they are living an extravagant lifestyle.

[disneysteve]

I would defintiely attack the private loans first, going in order from highest to lowest interest rate. Private loans are awful and the rates will rise, it's just a question of when and by how much. Get rid of them as soon as you can.

At the same time, focus your efforts on boosting your income regardless of what that means. If it means changing to a job that won't advance your career, so be it. If it means keeping the current job but also taking on a 2nd job, then go that route. Whatever you need to do to get the income up.

And yes, if you can do anything to reduce the payments on the federal loans, like income based repayment, do that too to free up more money to throw at the private loans.

What, exactly, do you expect young people to do if not loan?

Choose cheaper schools. Do the first 2 years at the local community college and then transfer to the better school to finish your degree. Or commute to the state school so that you aren't paying room and board on top of tuition.

And just in case you think I'm one of those old folks who doesn't understand, I finished grad school in 1990 owing $102,000 in student loans, so I know all about it. Plus I have a daughter who just started college last month.

[Hroptr]

Choose cheaper schools. Do the first 2 years at the local community college and then transfer to the better school to finish your degree. Or commute to the state school so that you aren't paying room and board on top of tuition.

And just in case you think I'm one of those old folks who doesn't understand, I finished grad school in 1990 owing $102,000 in student loans, so I know all about it. Plus I have a daughter who just started college last month.

Commuting wasn't an option and community college credits don't count according to medical or graduate schools. I also mentioned above that the community college was nearly as expensive. Going to an unknown school raises eyebrows on admissions committees for dental, law, medical and many research programs. It inflates your GPA and they tend to believe (rightly so) that it isn't rigorous. Great option for people whose ambitions only involve a bachelor's though.

And I'm not sure working in the oil fields or what not purely for the cash is a good way to get ahead in life. I might make more NOW, but in the future had I chosen jobs that advance my career, I will likely make more. And once you leave your field it is hell getting back into it. I'm not going to do that unless I have no other choice. The money is important, but not worth a life doing a job I despise unless it is that or default.


I appreciate the advice though. I think I'm going to go have my payments reduced which means I can save probably another 150 a month to divert.

[dczech09]

I am in your generation, and sometimes I give snark to people. Not to put them down or anything, but to make sure that they have learned their lesson. You have, and you seem ready to take action. So bravo!

I took out student loans myself, so far be it for me to judge! From experience, I know how tough it is get out of student loan debt, and I know the feeling of finally sending that final check. Its amazing!

Yes, I would absolutely focus on the private loans- in order of higher interest rate to lower. It looks like your lower balance loans are also the ones which carry the higher rates, so that is very advantageous for you!

My only question is about you saying that you would lower your federal student loan payments. Please tell me you are at least paying the minimum? Also, please tell me that you are sticking to the 10 year repayment and not trying to opt for the income-based repayment programs? Those programs are ridiculous and may get you into some trouble. You should be sticking to the minimum on your federal loans, and any money above that can go towards the private loans.

If you are considering income-based repayment, do some research. Check out my website and search for income-based repayment as I have written quite a bit about those programs.

It is great that you have the $20k per year stipend and your higher education is being funded. Are there any other ways to get your income up while not sabotaging your future? A payment of $750 per month is awfully tight on your current income. With other expenses that you may have to cover in the future, you will require a much larger income to support the loan payments.

What I would do if I were you is stay open to opportunities to earn more money. Make a goal to have all of your loans paid off within 10 years. I know it may sound impossible, but it is doable! Also, please do not be looking at jumping on a 20 year forgiveness program as those programs are really not guaranteed. The only guaranteed way to get out of debt is to pay if off!

[YolandoAmaya]

Student debt has various options to pay money and with a particular time period. You should keep following things in mind:
Has a Positive Mental Attitude, Understand your loan and make plans, Make a Budget, Consolidate Your Loans.

[Weird Tolkienish Figure]

I got a lot of snark too for taking out too much student loan debt

It's great isn't it? You do what you've been told to do your entire life ("YOU MUST GO TO COLLEGE IT'S MORE IMPORTANT THAN EVERYTHING OMG OMG IF YOU DON'T YOU WILL BE POOR FOREVER") and now you are in indentured servitude for a very long time.

Any, put the federal loans into IBR or PAYE and remove these damned private loan chains from your neck.

It's slavery, nothing more, nothing less. Even murderers sometimes get let out of prison early. You won't be so lucky.