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Advice on Payback Plan
January 15, 2019
2:22 pm
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January 15, 2019
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Hello, I am inquiring on the best option on snowballing my wife’s student loan debt. Currently we have a balance of $60K (spread across of 3 federal loans). The interest rates range from 5.31 to 6.6%. I want to pay these off within the next 5 years max. However, before starting, I want to make sure I am not digging myself a bigger hole. The loan details are as follows (32K at 5.31%, 21K at 6.0%, and 7K at 6.6%). The career path that my wife is entering is as a Nurse Practitioner. I have researched the loan forgiveness that the federal loans offer, however, I don’t anticipate on keeping these around for the 120 payment requirement. Therefore, would you recommend consolidating them since I can more likely beat the current rate on the federal loans? My initial theory was to pay off the 7K one now and then consolidate the other two under a lower interest rate (private loan). I welcome any input as I don’t want to make a financial mistake.

January 15, 2019
2:35 pm
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My first thought would be that you treat all three loans the same way. If forgiveness is going to be the ideal route, do it for all three loans. Similarly, if aggressive repayment is the quickest route, and you are certain you will be able to pay back all of them in full, then the private refinance route is probably best.

As far as deciding, the first question is whether you will ever need the protections of income-driven repayment plans or forgiveness on the loans. If these federal protections are necessary, DO NOT refinance with a private lender. If you don’t require the federal perks, then it becomes a math problem.

Option 1: Chase student loan forgiveness.

Going after forgiveness requires 10 years on an income driven repayment plan. To figure out how much you will spend on this route, the Department of Education’s Repayment estimator is a great resource. It can be found here: https://studentloans.gov/myDirectLoan/repaymentEstimator.action

The advantage of this route is that some of the balance can be forgiven. The downside is that paying the minimum and keeping the higher federal interest rates can result in more spending. Also, depending upon the salaries involved, the debt may be paid off before you reach the 10 years.

Option 2: Private Refinance/Consolidation

To figure out spending on this route, you first have to determine how much you can afford to pay each month. The sooner the debt gets paid off, the less gets spent on interest.

Also, by refinancing, you can get a lower interest rate. I normally recommend a 5-year fixed rate term, but there is an argument to be made for the slightly lower 5-year variable rate loans. The different rates for different loan lengths from various lenders can be found here: https://studentloansherpa.com/student-loan-refinance-rates/

There are a lot of variables to consider on this decision, but it sounds like you have a solid understanding of your options. Best of luck!

January 15, 2019
2:46 pm
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Thank you for the quick reply and quality information. The loan repayment estimator link will be beneficial on future planning. Thanks again for these wonderful resources

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