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high student loans hurt home buying/mortgage options
June 16, 2015
11:01 pm
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June 16, 2015
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Hey Bud,

My wife and I recently moved and are currently in the market for buying a house in Colorado, while looking to start a family soon after. The market is very tough out here and my student loan debt/monthly payments are not helping the situation. I have been racking my brain around how I can possible get a lower payment, but nothing I have found seems to be worth it and better for short term or long term. My loan break down is as follows below:
Federal loans:
$57,263 with average interest rate of 6.6%
Private loans;
$33,931 with interest rates of 3.25, 3, 5.25, 3.75, and 4.25%

My total payments per month between the two will be $1456.59 until early 2019, then they drop to $1300 and $1100 in 2019. Then from December 2019 to June 2024, when final payoff occurs for my federal and private loans through Navient, my payments will be $490. My direct federal loans payoff is in 2019 .

My question is what are my options as both Navient and Direct loans are not giving me any options aside from just pay. They say I am ineligible for IBR due to my adjusted income being $95,000 last year (which may not be the case this year due to new job and likely less bonus in the first year). I have steady paycheck at a salary of $76000. I have looked into consolidating my federal loans and on option is standard repayment plan of $390 for 30 years + the $352 per month in private loans until 2024. It states I am still ineligible for IBR, but I could do ICR for $698 to $755 for next 8.5 years + my private loans at $352. So one way I am paying until I am 60 or the other way I still basically pay over a grand a month until 2024. This is all if my loan consolidation plan is accepted pending on which one I were to pick.

1. What are my options to get a lower monthly payment without paying until I am ready to retire or more than some mortgage payments are?
2. Which federal loan institute is best to use for consolidation if this is the best route?
3. What do you think about Sofi to consolidate my loans with them? I know they say it is best to not consolidate federal loans with private, but a quick rate quote puts my payments at $960 at 5.3% and payed off completely in 2024.

Thank you for your help and insight as I have been really frustrated with this whole process and dealing with the loan people, as many have been!

June 17, 2015
12:54 am
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Indiana
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May 3, 2014
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Sean,

As someone who finds himself in a similar situation, I get exactly where you are coming from. You are making enough money that you don’t necessarily qualify for many “need based” programs, but your debt is big enough that it makes home buying a much bigger challenge.

To answer your questions:

1) You might want to look into the graduated repayment plan. It isn’t eligible for many of the student loan forgiveness programs, but if it looks like you won’t be going that route, the graduated repayment plan could be a good option.

Along those same lines, you mention that you want lower payments but you don’t want to have to pay for your loans until you retire. Remember, these are two different items. Suppose you could get on a 50 year repayment plan. This would result in super low payments, but you would in theory be paying for the next 5 decades. However, as long as there are no prepayment penalties (and there are some with some lenders but it is fairly rare), you can just pay whatever extra you can afford each month and have the security of the low minimum payment for expensive months. For home buying this is also huge because the lower minimum means more home buying power.

Bottom line, I’d say focus on getting the lowest minimum you can, and just have the expectation for yourself that you will pay it off long before you retire because you will pay more than just the minimum.

2) Federal loan consolidation works much different than it does in the private sector. There are no institutes to choose from, only federal direct consolidation. Going this route keeps the federal perks, but your interest rate stays exactly the same.

3) We typically advise against consolidating private loans with public, but that is because you lose the federal perks like student loan forgiveness and the income based repayment plans. If these are perks you will never take advantage of, getting a lower rate on the private market might be a good idea. In addition to SoFi, there are several companies worth looking into. You might start with student loan reviews, located here: https://studentloansherpa.com/student-loan-reviews/

I also note that many of your private loans already have a great interest rate. When it comes to consolidating, remember that you don’t necessarily have to combine all of your loans. If you can lock in 4% interest, it might make sense to consolidate some, but not all, of your loans.

Good luck with the house and let us know if any more questions come up!

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