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To Consolidate or not To Consolidate
April 1, 2016
4:17 pm
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Jonathon
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My wife graduated with her Master’s degree about 1 year ago and has about 75k in student loan debt. Since I don’t have any debt myself I am new to this all I want to be sure we are making good decisions on how to replay the debt in the most efficient way possible. My wife is still looking for a job, and was on an income driven repayment plan, and wasn’t making any payments to the loans. But now that were married and filing taxes jointly, the income from my job is taken into account for the IBR and the monthly payments are a bit to high for us right now. We recently switched to a standard repayment plan and the monthly payments are now less, but we would still like to see if there is better interest rate out there for us that also makes sense for us for paying off the remaining debt. A little info about the loans…

Loan 1:
Serviced by: Discover Student Loans
Loan Type: Undergraduate Loan – Private Loan
Balance: $23,784.14
Interest Rate: 3.125%
Monthly Payment: $177.96 (P = 118.83, I = 59.13)

Loan 2:
Serviced by: Great Lakes
Loan type: Direct Consolidation – U.S. Dept. of Education
Balance: $52,201.57
Interest Rate: 5.25%
Monthly payment: $239.24 (last payment went 100% toward interest)
Repayment Length: 23 years

Between the monthly payments on both loans we are maxing out how much we can afford to pay off right now per month.

Questions:
Should we consider consolidating both this loans with a private student loan consolidation company and try to get a lower interest rate and only make one payment per month? We have good credit, so I would assume we could get a good interest rate. Hopefully lower than 5.25%.

Should we leave the loans as they are until my wife has a job then re-asses our situation? Possibly re-enrolling in IBR to reduce the length of repayment on loan 2. Or consolidating the loans privately then?

I’m guessing we are doing alright with the current situation, just wanted to see if there is anything else we should be doing that would better serve us to pay off the loans faster, or get us a lower interest rate.

Thanks,

JD

April 2, 2016
3:26 pm
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Indiana
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Forum Posts: 334
Member Since:
May 3, 2014
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JD,

You are asking all of the right questions.

The positive to the private consolidation is lower rates, but giving up the federal perks like IBR, especially if your wife doesn’t have a job yet, is a huge risk.

Have you considered filing your taxes separately? This would raise your tax bill, but eliminate your student loan payments. The big downside here is that the student loan will not just disappear. Even if you are paying $0 per month, the balance will still be there and it will still be generating interest.

To be honest with you, the interest rates you are looking at could be much worse. Even the 5.25% is decent, especially for a government loan.

I think your inclination not to make any major decisions until your wife has a job is a good one. If he ends up working for a non-profit or government entity, you might even think about going after public service student loan forgiveness.

The best thing you can be doing right now is thinking through all of your options. Ask yourself lots of what ifs. What if you want to buy a house? What if kids enter the picture? What if you lose your job? What if she gets a great job? Plot out the different things that can happen and then pick the option that you are most comfortable with.

The bottom line here is that you seem to have done a good job of wrapping your head around the situation and getting an idea of the factors that matter. The next step is to weigh options according to your personal priorities.

April 11, 2016
1:23 pm
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JD
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Thanks for the reply Michael. I appreciate all the information and the advice. Thank you very much!

JD

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