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Extended Repayment - Graduate - 2 year and 4 year - help!

Contributor

Re: Extended Repayment - Graduate - 2 year and 4 year - help!

I just want to pay the current interest. Like I mentioned, I intend to pay the loan off in under 4 years (maybe even 2). But I want to keep my obligated-can't-go-back-on monthly payments low, and any more of a payment, being extra to help pay it down.

Message 11 of 25
Frequent Contributor

Re: Extended Repayment - Graduate - 2 year and 4 year - help!

Even if you pay a large lump sum and you do not have a payment for ten years it will be factored into your dti ratio. If I paid 10000 I would want it to be applied to the
principal . But whatever you feel comfortable with is what you should do .
Message 12 of 25
Contributor

Re: Extended Repayment - Graduate - 2 year and 4 year - help!

Well if I hit hard times and can't afford $400-$500 a month in student loan payments (I live in the Bay Area), at least I won't be obligated to pay it.

 

But does doing an extended repayment plan (2 or 4 years) have any "special" considerations except that it stretches the loan out 25 years?

 

It is basically like a  30 year mortgage instead of a 15 year one?

Message 13 of 25
Established Contributor

Re: Extended Repayment - Graduate - 2 year and 4 year - help!

It appears that the monthly payment of $400 isn't comfortable but you also do not want to be on a 25 year payment plan.

 

A few considerations before making a lump sum payment:

 

Do you have an emergency fund?

What does your retirement savings look like currently?

Do you have other debt that makes sense to service faster or more intensely?

 

I caution anyone trying to beat the terms of their loan repayment because you are entirely at the mercy of the payment processing team in how payments are applied plus the customer service reps who will inevitably be fixing their mistakes not to mention how much time you are going to spend tracking and explaining things to them. I worked in the banking industry and can tell you all sorts of stories about how payment processing goes amiss. It really screws with the loan amortization!

 

If I were you, I'd take the longer term repayment plan at a lower monthly payment. It frees up your current resources while not putting you in a bind to deal with other financial priorities that you might have. It also still allows you to build a good payment history for however long you desire. I believe you can knock 0.25% off using recurring ACH withdrawal as your form of payment as well. Just because you have a 25 year repayment plan at $XXX/month does not mean that you can't pay additional amounts going exclusively towards the principal (send separate from your monthly payment and mark PRINCIPAL ONLY on the check). I'd suggest doing this quarterly. By reducing the principal you reduce the amount of interest being charged on the loan as well as decreasing the life span of the loan because more of your regular payments will be allocated to the principal than the interest.

 

There are many amoritizing loan calculators on the internet and some allow you to see the impact of extra payments. A fair number can be downloaded to Excel as well. Spend some time utilizing these tools, thinking about your overall financial picture, what goals you would like to achieve in the next couple of years, etc. and understand the limitations of the servicer.

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Message 14 of 25
Contributor

Re: Extended Repayment - Graduate - 2 year and 4 year - help!

Hey thanks for the response.

 

I do have an emergancy fund set up just in case.

My retirement savings is pretty non-existant right now, so I'm focusing on funding it.

I have no idea debt except minor periodic credit card that I pay off every month.

 

My concern was that I get on a 25 year plan that I can't pre-pay and get forced interest on. I'd be game to pay my yearly IRS deductible ($5200 a year) where I would pay off the loan in 4-5 years. But I would immediately (after approval) move to pay down or pay off the 7% interest.

Message 15 of 25
Established Contributor

Re: Extended Repayment - Graduate - 2 year and 4 year - help!

See if they can send you a loan term document. As long as it doesn't say that you cannot prepay or there is a penalty involved for prepayment then you can pay as I suggested above. Get some funds into your retirement account (set it and forget it seriously) and funnel whatever extra you have towards the student loans.

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Message 16 of 25
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Contributor

Re: Extended Repayment - Graduate - 2 year and 4 year - help!

Wait. Why would this be factored into my DTI? Wouldnt it help paying a lump $10K down, no?

Message 17 of 25
Valued Contributor

Re: Extended Repayment - Graduate - 2 year and 4 year - help!

Most lenders use your reported monthly payment in calculating your debt-to-income, rather than the total balance.  Even if you pay well ahead, most lenders will still report your expected payment amount on your credit report, or when another lender contacts them for information, so the full payment would factor into your DTI until you pay off the loan entirely.

Message 18 of 25
Established Contributor

Re: Extended Repayment - Graduate - 2 year and 4 year - help!

I'm pretty sure if you make a lump sum payment  AND delay the due date it will be applied to both future principal and interest. Once again, not saving you any money. If you can pay off any of your high interest loans in full do that.

 

If you can afford to pay off most of your loans now and do so, you can quickly start funding your retirement and savings accounts. I think you're just making the situation more complicated than it should be.


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Message 19 of 25
Established Contributor

Re: Extended Repayment - Graduate - 2 year and 4 year - help!

Debt-to-income ratio is based on the reported normal monthly payments. If you were to make a lump sum payment it doesn't not change the terms of the repayment agreement. Don't make it more complicated than it has to be.

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Message 20 of 25