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Registered: ‎11-12-2013
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Student Loan Payoff - Good or Bad Idea?

I have several Federal loans that I plan to payoff. I've been offered support from a family friend to establish the loans with them as a private loan. This will lower my interest rate and provide them with some interest income...win-win. However, I am hesitant, as I am wondering how it will change my credit with roughly 50k dropping off my reports. I will be leaving one of the Stafford loans along with a Perkins loan on my credit. I also have a current auto loan and several credit cards. Are there any downsides to having my friend buy these loans out and establishing them as a private loan from credit, debt to income, etc standpoints?

 

Thanks everyone!


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Re: Student Loan Payoff - Good or Bad Idea?

Eliminating $50k in debt with a satisfactory paid closing will bost your score and help out your DTI a ton. 

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Re: Student Loan Payoff - Good or Bad Idea?

I would consider very seriously if you want to owe a friend that amount of money.  With federal student loans you have certain protections like income-based payment plans, deferrments and forbearances, the Student Loan ombudsman if you have an issue you can't resolve with your lender.  With an "off the books" loan from a friend, you miss out on all of those things.  Are they going to be willing to forgive the debt if you pass away?  Lower your payments and extend your repayment period if you lose your job?  Defer your payments if you choose to go back to school?  Can you gaurantee that they will be willing to do those things for the next 10-15 years?

 

Paying off the loans will have a minimal impact on your credit score, and it will lower the amount of debt on your report.  BUT, if you apply for a mortgage (even some auto lenders may ask), you will be required to disclose ALL debt that you have, even debts that are not on your reports, so while it will improve your DTI on your reports, it doesn't actually reduce your DTI.

 

The interest savings might be appealing, but I'm not sure I would take advantage of this offer myself.

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Re: Student Loan Payoff - Good or Bad Idea?


SCF wrote:

I would consider very seriously if you want to owe a friend that amount of money.  With federal student loans you have certain protections like income-based payment plans, deferrments and forbearances, the Student Loan ombudsman if you have an issue you can't resolve with your lender.  With an "off the books" loan from a friend, you miss out on all of those things.  Are they going to be willing to forgive the debt if you pass away?  Lower your payments and extend your repayment period if you lose your job?  Defer your payments if you choose to go back to school?  Can you gaurantee that they will be willing to do those things for the next 10-15 years?

 

Paying off the loans will have a minimal impact on your credit score, and it will lower the amount of debt on your report.  BUT, if you apply for a mortgage (even some auto lenders may ask), you will be required to disclose ALL debt that you have, even debts that are not on your reports, so while it will improve your DTI on your reports, it doesn't actually reduce your DTI.

 

The interest savings might be appealing, but I'm not sure I would take advantage of this offer myself.


X2

 

$50,000 is a LOT of money, as said you have more protection with a student loan than a personal loan. I'd go with the advice given, even if it means longer repayment it benefits you more in the long run. 

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Re: Student Loan Payoff - Good or Bad Idea?


DrZoidberg wrote:

Eliminating $50k in debt with a satisfactory paid closing will bost your score and help out your DTI a ton. 


+1

   
   


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Re: Student Loan Payoff - Good or Bad Idea?


SCF wrote:

I would consider very seriously if you want to owe a friend that amount of money.  With federal student loans you have certain protections like income-based payment plans, deferrments and forbearances, the Student Loan ombudsman if you have an issue you can't resolve with your lender.  With an "off the books" loan from a friend, you miss out on all of those things.  Are they going to be willing to forgive the debt if you pass away?  Lower your payments and extend your repayment period if you lose your job?  Defer your payments if you choose to go back to school?  Can you gaurantee that they will be willing to do those things for the next 10-15 years?

 

Paying off the loans will have a minimal impact on your credit score, and it will lower the amount of debt on your report.  BUT, if you apply for a mortgage (even some auto lenders may ask), you will be required to disclose ALL debt that you have, even debts that are not on your reports, so while it will improve your DTI on your reports, it doesn't actually reduce your DTI.

 

The interest savings might be appealing, but I'm not sure I would take advantage of this offer myself.


This.  I would never finance anything from a friend or family member.  It will change the relationship and you can bet that every time you see them they will be wondering why you are out spending money instead of giving them money that you owe them, even if you are making them payments.

                   
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