I wanted to get your advice on my student loan situation. Currently I make $74,800 annually and pay $913.41 monthly on my student loan repayments. This is through an income-based repayment plan (which I need to update come June so my payments will probably go up).
My undergrad loans total $59,651.99 with $208.76 unpaid interest and a monthly payment of $419.41. The interest rates vary from 4.06% for the private loans to 2.4% – 4.55% for the Federal loans.
My grad loans total $99,968 with $9,399.00 unpaid interest and a monthly payment of $457.37. The interest rates vary from 6.550% for Direct Subsidized and Unsubsidized loans to 7.650% for Direct Grad Plus loans.
I was on Credible and got some pretty good rates for my grad loans from Citizen’s Bank like 4.48% variable APR Monthly cost: $631 for 20 years. Do you think I should go this route or just try to pay off more each month on my grad loans since my undergrad have such a low interest rate? Or should I do a combo of both? Help!
PS. I pay about $1700 in monthly rent/parking and about $200 bucks on internet/phone/gas etc. Just so you get an idea of what kind of monthly income I’m working with.
May 3, 2014
I have a few thoughts:
First of all, if 4.48% variable is the best you can do, definitely do not touch the student loans that have lower interest rates. The only time you ever want to consolidate with a private lender is if you are improving the interest rate. Additionally, if you have a fixed-rate loan that is close, I wouldn’t mess with that loan either. The variable-rate loans can increase dramatically, especially over a period of 20 years.
Before we get to the issue of consolidation, you also have to decide if you really want to give up the federal perks before going with a private lender such as Citizen’s Bank. The Income-based repayment plan has some high payments right now due to your high salary, but if you take a pay cut or lose your job, it affords you great protection. Once you consolidate, that perk is gone, so make sure you are comfortable with that change.
Have you shopped around with other lenders? 4.48% seems pretty reasonable for a 20-year loan, but it is definitely worth checking to see what SoFi, DRB, CommonBond, LendKey and others can offer. We have a full list of lenders here: https://studentloansherpa.com/student-loan-reviews/ Using an aggregator like Credible is fast, but the only way to make sure you are getting the best rate is to shop around. With your large loan balance, even a fractional difference in interest rate could mean a large savings.
Regardless of what you decide, you might also want to look at the REPAYE plan. Currently you are paying 15% of your discretionary income towards student loans on IBR, but on REPAYE it could be lowered to 10%. This would allow you to direct larger payments towards your higher interest student loans. This article should help you sort through the different income driven repayment plans: https://studentloansherpa.com/ibr-paye-repaye-pick-income-driven-repayment-plan/
Finally, whatever you decide, don’t just pay the minimum across the board on your student loans. Pay what you can to aggressively eliminate the debt. Each month you are spending over $700 per month on interest alone. The sooner that debt disappears, the more money you keep in your pocket. Consolidating at a lower rate is definitely a huge help, but there is no substitution for aggressive debt elimination.
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