Student Loan Interest Rate Hike

[J.Apple902]

Hey guys,

I have all private student loans with all the monsters: Chase, Citi, Discover; about $60k worth. Right now I just pay the min payments of $480 total (5 loans) per month, which I can manage but am constantly unhappy about. Their rates range from 2.75%, two at 3.75%, one 4% and one 5% (smallest $5k loan). So the rates aren't bad right now. But they are variable loans. I cannot consolidate this private debt for less than 8-9% or so (or at least that is what my online research has shown), which is why I haven't done so. I think I'm okay for at least a year or two, but sometime within my 20 year term, these rates will go up.

My dad signed a mortgage for 16% in the 70s. I know these guys manipulate debt rates to be in the lenders favor. For example, there is no cap on the interest rates on my loans. Like wtf is that? I'm terrified. I'm not sure what to do, what I can do. Thanks.

[dczech09]

If your loans are variable, then they are based on underlying rates. The underlying rates will either be the London Interbank Offer Rate (LIBOR) or the US Prime Rate. Either way, these are short-term yield rates.

If these rates skyrocket anytime in the short-term, then your loan rates will probably be the least of your worries. Honestly, a huge upward shift in such rates (especially if they edge above long-term yields) would indicate significant economic problems.

So for the short-term, you are probably fine. Your rates should stay fairly consistent with prevailing rates. While they are heading up, I would not be surprised in the Fed implements another QE or interest rate cut in order to stave off another housing crisis or student loan bubble.

Yes, lenders can jack up rates, but they have rules and obligations that they must follow. Since they are variable rates (underlying rate + a margin), your rates will likely only increase if the underlying rate (LIBOR or prime) increase. They cannot simple increase their "margin" just because they feel like it. They have a contractual agreement with you and must follow it. And more than likely, that agreement has a fixed margin stated which means that they can only increase your margin if you default on a payment. Read your contracts to make sure. Make payments on time.

Over the long-term, who knows what will happen.

No matter what, your focus should remain on yourself. You say that you have a 20 year term on these loans? You should work hard to pay them off ASAP. While I think you will be fine as long as you stay on top of your loans, there is still risk to be considered. The only way to mitigate this risk over the long-run is to pay off the loans. Do you have a sufficient income to tackle this $60k in debt?

[disneysteve]

sometime within my 20 year term, these rates will go up.

I'm terrified. I'm not sure what to do, what I can do. Thanks.

What you can do is not take anywhere near 20 years to repay the loans. Live on a college student budget and throw every spare penny at those loans from highest rate to lowest rate and clear them in a few years. The more you can sacrifice now, the more you will benefit later. Don't let your spending and lifestyle rise to match your income. Focus on getting rid of the loans.

How much are you earning now?

[J.Apple902]

Thanks for the contributions guys. I make about $57k right now, and pay just under $500 per month on the loans. If I lived like a broke international student or something (best budgeting I've ever personally experienced), then I could probably throw something like $1k per month at the loans and they be gone by the time I'm in my early 30s. At this very moment, I'm just not ready to do that. I've had not money my entire life, I've been a student for 24 years, and it's just now that I feel I can actually live. It's ironic that once "life" starts, so do the loans. I just feel trapped by the system I guess.

[LivingAlmostLarge]

I get wanting to live after school. Trust me it's hard for people in school forever! But getting it paid back brings you something better than living not like a student. It brings long term freedom from debt.

Serious. By not raising our standard of living we gave ourselves the opportunity to choose how to live. I wasn't forced to work after kids because we didn't have debt.

So getting the student loans will give you choices, quitting a job, taking a lesser pay, etc.

[feh]

Thanks for the contributions guys. I make about $57k right now, and pay just under $500 per month on the loans. If I lived like a broke international student or something (best budgeting I've ever personally experienced), then I could probably throw something like $1k per month at the loans and they be gone by the time I'm in my early 30s. At this very moment, I'm just not ready to do that. I've had not money my entire life, I've been a student for 24 years, and it's just now that I feel I can actually live. It's ironic that once "life" starts, so do the loans. I just feel trapped by the system I guess.

I don't understand how you feel "trapped". It seems you can see a way to repay these loans. The choice is yours.

[TheKayla]

Thanks for the contributions guys. I make about $57k right now, and pay just under $500 per month on the loans. If I lived like a broke international student or something (best budgeting I've ever personally experienced), then I could probably throw something like $1k per month at the loans and they be gone by the time I'm in my early 30s. At this very moment, I'm just not ready to do that. I've had not money my entire life, I've been a student for 24 years, and it's just now that I feel I can actually live. It's ironic that once "life" starts, so do the loans. I just feel trapped by the system I guess.

It's true, the choice is yours, Either you can pay extra, or pay the minimums, you know the consequences of both. If you feel the need to let loose more than you did in college, I understand that for sure, just create a budget where you're contributing more than the minimum payments, but also budget more than you've had in the past for 'fun money'. Try to find a balance of both that eases your anxiety about the loans. The only way out is to try to pay them off early to avoid the interest rates hiking up.

[dojo]

There's a difference between living 'frustrated' and being happy, even with some smart budgeting. See what your REAL priorities in life are and you can save on something and spend 'normally' on the few things that really make you happy (as an example: we don't eat out, we don't change our gadgets/car every year, we don't buy luxury clothing and not even that much, but we do travel and eat well. So what we 'splash' on quality ingredients for our meals and our travels, we save on the things that are very important for others, but don't make us happy).

Find that balance and start saving on the things that don't make a difference for you. If you can throw 1k extra/month, in 5 months you can pay off a loan (the smallest one), then free up money for the next one etc. Or tackle the ones with the biggest interest rate, your choice. Just take them one by one and pay them off. Believe me, your life will be 100 times better when you're debt free

[porag07]

high Interest Rate

i am poor student, and i am suffering a lot about my future masters degree. this interest rate gonna make my life hell. i was looking to complete my MBA on finane. but now how i can alot my fund in this high rate. Life sucks

[soogar]

I think you can pay more as long as you don't skimp on saving for retirement. Your student loan is not that bad and your income is low enough that you can deduct the interest. Pay a lttle more towards your student loans but prioritize putting your money away for retirement because you have time on your side and you won't get those years to contibute to a Roth IRA back.

I also want to add that my loans are double what yours are and I don't have a permanent job however I don't lose sleep over paying my loans and I don't think you should either. Unfortunately school has become a big time investment, similar to a home but big loans CAN be paid off and people do it all the time and it's not the end of the world.

Also when your dad took out money (in the 70's and early 80's), interest was in the double digits due to inflation. They also did not borrow as much principle as they do now. If they hiked up student loans to double digit interest, you would have a ton of defaults and those loans are securitized as well. It would be another crisis just like what happened to the residential mortgage backed securities, so it is in the lendors' and investors' interests that they don't hike your student loans to crazy levels.

[ProjectDebtRelief]

I also want to add that my loans are double what yours are and I don't have a permanent job however I don't lose sleep over paying my loans and I don't think you should either. Unfortunately school has become a big time investment, similar to a home but big loans CAN be paid off and people do it all the time and it's not the end of the world.

I agree with this 100%.

You seem to know your options and neither are awful. You can choose to "live" for a year or so and then start throwing more money at the loans. It is a tough position, but folks have been in far worse and survived. I think giving yourself a bit of leeway is OK for a limited amount of time since you have a steady job. Good luck!

[J.Apple902]

Also when your dad took out money (in the 70's and early 80's), interest was in the double digits due to inflation. They also did not borrow as much principle as they do now. If they hiked up student loans to double digit interest, you would have a ton of defaults and those loans are securitized as well. It would be another crisis just like what happened to the residential mortgage backed securities, so it is in the lendors' and investors' interests that they don't hike your student loans to crazy levels.

This is a good point. Thank you.