topic Re: Best approach to paying off Sallie Mae loans and reducing interest in Student Loans

Best approach to paying off Sallie Mae loans and reducing interest

Anonymous — Tue, 14 Jan 2014 19:27:18 GMT

I have $25k in loans with most of my rates at 7%. It's disgusting enough that you pay a fortune for mediocre education, and even moreso that you get to pay ridiculous interest on them! College will go down as the worst investment and regret of my life. For those without too much debt yet, remember that you do NOT need a degree to be successful in life!

Anyways... I never realized how much my interest has increased over the years. As a result, I want to put $10k towards my principle balance but Sallie Mae doesn't give me the option to do so. Research has indicated that some write letters, some call, so I just wanted to know what the best way to ensure a manual payment would go ONLY towards the high interest loans.

Some quick bits...

I owe $25k
Auto payments are $400 with $120 going towards interest

If I put $10k towards my highest interest loans, would this reduce the overall interest I'm paying every month?

Is it effective making a large payment towards principle balances to reduce the total interest I'm paying?

Thanks all.

Re: Best approach to paying off Sallie Mae loans and reducing interest

p- — Tue, 14 Jan 2014 20:41:20 GMT

@Anonymous wrote:
I have $25k in loans with most of my rates at 7%. It's disgusting enough that you pay a fortune for mediocre education, and even moreso that you get to pay ridiculous interest on them! College will go down as the worst investment and regret of my life. For those without too much debt yet, remember that you do NOT need a degree to be successful in life!

Anyways... I never realized how much my interest has increased over the years. As a result, I want to put $10k towards my principle balance but Sallie Mae doesn't give me the option to do so. Research has indicated that some write letters, some call, so I just wanted to know what the best way to ensure a manual payment would go ONLY towards the high interest loans.

Some quick bits...
I owe $25k
Auto payments are $400 with $120 going towards interest
If I put $10k towards my highest interest loans, would this reduce the overall interest I'm paying every month?

Is it effective making a large payment towards principle balances to reduce the total interest I'm paying?

Thanks all.

Yes. Based on an amortization schedule, you pay less and less interest as the loan progresses. Also, you might consider a federal consolidation as you will get a much lower rate.

https://loanconsolidation.ed.gov/AppEntry/apply-online/appindex.jsp

http://www.bretwhissel.net/cgi-bin/amortize

Re: Best approach to paying off Sallie Mae loans and reducing interest

Anonymous — Tue, 14 Jan 2014 20:59:31 GMT

Thanks... have you actually had success consolidating? According to an older Forbes article...

http://www.forbes.com/2009/04/15/student-loans-moneybuilder-personal-finance-consolidate.html

“there is no financial benefit to consolidating federal loans, other than having a single monthly payment and access to alternative repayment plans,”

Do you have any good sources on why it's worth it?

Re: Best approach to paying off Sallie Mae loans and reducing interest

p- — Tue, 14 Jan 2014 21:09:20 GMT

@Anonymous wrote:
“there is no financial benefit to consolidating federal loans, other than having a single monthly payment and access to alternative repayment plans,”

Do you have any good sources on why it's worth it?

If you are at 7% and they are all federal, and you can consolodate into a lower rate for the same term, or a longer term, there is a clear financial benefit. Plug your details into the amortization claculator and see how much more in interest you pay on 7% compared to 3 or 5.

If you consolodate into a long 30 year term, and pay minimums for that long, you'll lose. But if you get a lower rate and keep paying the same amount, you'll pay them off a lot sooner.

Re: Best approach to paying off Sallie Mae loans and reducing interest

Anonymous — Tue, 14 Jan 2014 21:38:36 GMT

So in practice, I would apply for a 30 year consolidation with an ultra low interest rate, but pay on it much quicker?

Any billionaires on this board feeling generous enough to pick up the tab?

Re: Best approach to paying off Sallie Mae loans and reducing interest

p- — Tue, 14 Jan 2014 21:42:42 GMT

@Anonymous wrote:
So in practice, I would apply for a 30 year consolidation with an ultra low interest rate, but pay on it much quicker?

Any billionaires on this board feeling generous enough to pick up the tab?

Get the lowest rate you can from the feds... and if you don't make much money, look into the income based repayment with a sunset. Then we'll all pick it up as taxpayers.

Re: Best approach to paying off Sallie Mae loans and reducing interest

SCF — Wed, 15 Jan 2014 02:02:20 GMT

When you consolidate federal loans the interest rate on the new consolidated loan is a weighted average of your original loans - so there is not interest rate benefit to a federal consolidation. A private loan consolidation may offer a lower rate, especially if it's variable, but I would strongly encourage you not to pursue a private consolidation loan - you give up a lot of important benefits.

Re: Best approach to paying off Sallie Mae loans and reducing interest

scvbd99 — Wed, 15 Jan 2014 02:37:20 GMT

The OP REALLY needs to look at what SFC just said.

The only way that you could (maybe) get a lower interest rate with consolidation is if any of your current student loans have variable interest rates. Consolidating them all will lock in a fixed rate, which may save you accrued interest in the long run. Of course, if interest rates go down, then you'll actually end up paying more accrued interest with your fixed rate under consolidation.

Re: Best approach to paying off Sallie Mae loans and reducing interest

p- — Wed, 15 Jan 2014 14:52:54 GMT

@SCF wrote:
When you consolidate federal loans the interest rate on the new consolidated loan is a weighted average of your original loans - so there is not interest rate benefit to a federal consolidation. A private loan consolidation may offer a lower rate, especially if it's variable, but I would strongly encourage you not to pursue a private consolidation loan - you give up a lot of important benefits.

Wow, really? News to me... Of course mine are paid and wifey's are already consolidated in the three's. That's kind of a rip-off, isn't it?

Maybe a private refi into a lower rate is the way to go. SCF, if the OP makes a large principal payment, will the servicer just count it paid ahead? How can he identify the payment as a principal payment on the largest loan?

Re: Best approach to paying off Sallie Mae loans and reducing interest

SCF — Wed, 15 Jan 2014 15:34:33 GMT

@p- wrote:

Wow, really? News to me... Of course mine are paid and wifey's are already consolidated in the three's. That's kind of a rip-off, isn't it?
Maybe a private refi into a lower rate is the way to go. SCF, if the OP makes a large principal payment, will the servicer just count it paid ahead? How can he identify the payment as a principal payment on the largest loan?

I certainly wouldn't call it a rip-off. You wind up paying the exact amount of interest you signed up for in the first place, and since federal loans do come with fixed interest rates that are declared up front, it's not entirely unexpected. It is very rarely a good idea to refinance a federal student loan with some other form of private credit (whether a private student loan, HELOC, etc.) because federal loans come with some really important benefits. You can defer them in times of economic hardship, put them on income-based payment plans, and in some cases, even have the balance forgiven after a certain period of time. Federal loans are also eligible for repayment programs for certain professions - like teachers or doctors who serve in high-need areas.

With most loan servicers, when you make a payment larger than the minimum due, you can indicate whether you want to push back your next payment date or apply the extra to principal. You should also be able to call in and make the same request when paying over the phone.

Re: Best approach to paying off Sallie Mae loans and reducing interest

Anonymous — Wed, 15 Jan 2014 18:34:53 GMT

I appreciate the excellent replies. Since this is so confusing for me and it's unclear on whether consolation is even worth it, my goal now is to simply pay off the stupid loans as quickly as possible starting with the highest interest first. Any time I come across extra money, they are going straight to the loans until they are gone. I don't know why I didn't realize it before, but EVERY dollar in my possession is COSTING me money by not going to the loans.

I was recently excited about earning 1% on my $10k savings account without realizing that I'm paying 7% on thousands of dollars where interest is compounded daily. Thanks all!

Re: Best approach to paying off Sallie Mae loans and reducing interest

Anonymous — Wed, 15 Jan 2014 18:51:58 GMT

One more thing... some of my loans are "Stafford" and others are "Direct Loans-Unsub". They both have 7% rates, but is one better to pay off before the other?

Re: Best approach to paying off Sallie Mae loans and reducing interest

SCF — Wed, 15 Jan 2014 22:28:18 GMT

@Anonymous wrote:
One more thing... some of my loans are "Stafford" and others are "Direct Loans-Unsub". They both have 7% rates, but is one better to pay off before the other?

No, if you're looking to save the most money, just to stick to your plan to pay down the highest interest rates first. You're right that there isn't a financial benefit to consolidation - the benefits are mostly convenience, you have one payment to one servicer and it makes it much easier to keep track of all of your debt if it's current spread across multiple servicers.

Re: Best approach to paying off Sallie Mae loans and reducing interest

Anonymous — Wed, 15 Jan 2014 22:40:06 GMT

All of my loans are managed under Sallie Mae and I already only make one payment. If I was to consolidate them there would be no additional convenience.