June 28, 2014
First off: Sherpa… nice site… it’s good to see a new approach to student loan discussion, as it is embarrassing and uncomfortable to discuss in person with friends or coworkers while also not sounding like a whiner.
Second, My advice: Get out of interest-only payments as soon as you can. You are usually limited in the amount of time you can pay interest only, and while the monthly payment is lower, obviously you aren’t even taking a nibble out of your principal. In addition, if you don’t use all of your given interest-only payment time (i.e. with SallieMae they give you 4 years), you can fall back on interest only payments during a time of hardship, as opposed to relying on deferment/forbearance, where you will rack up interest while not paying.
Finally my (our) story: I finished undergrad with about $30k in mostly federal loans. My less than fortunate wife, whom I met there, finished her undergrad with about $200k in private and about $30k in federal. It’s a long story but in a nutshell, she did not qualify for a lot of federal loans and/or was not advised well. Also it took her 7 years of which 6 were out of state. Could her situation have been handled better? Most definitely, but it is what it is and regardless of the debt I am in love with her. I went on to grad school and tacked on about another $145K (some gradPLUS, all federal).
So we started our payoff journey in earnest in 2013 (we paid interest only on her private loans for 2 years while I was in school… still over $1k/month), with $200k private, $175k federal. About $375,000 worth of student loans. Incredible right?
Now for the good news. Unfortunately, her investment to become a teacher was a financially poor one (she loves her work though!). Mine however was a good investment, and we enjoy a solid six figure income. We are extremely fortunate to have this kind of cash flow, because this is some real backbreaking debt. Oh, we bought a house too, so there’s also a mortgage payment. You only live once right?
The federal sum is on a graduated 10 year payment plan, with the first increase set to be applied about a year from now. It does not appear to be possible to get an amortization plan from the Fedloan folks, so we are just trying to free up money and adjust the budget in anticipation of that increase in a year. The current payment is $1140. The 10 year standard payment is around $1900. Will try to convert to the standard plan soon. Highest interest rate is 7.4% I think.
The private sum is all with SallieMae (barf), on the 11.6 year payoff plan. Why cant they just do a standard 10 year plan? Who knows. The monthly payment is just over $2000. Our most recent “consolidation” was taking out a $9000 credit card with an 18month interest free period and paying off a small chunk of the highest interest loans (9.75% !!!!) We pay $500 a month to this credit card and it will be wrapped up august/september 2015. This was a risky move of course and is probably not advisable. Starting application work now with SoFi in an attempt to refi the remaining ~$90k of 9.75% interest loans. The remaining loans in the SallieMae bunch all have relatively “fair” interest rates.
~$30k is with our state student loan handler, and has some private, and some federal. The interest rates are decent enough. Those payments total $495/mo.
So the summary of that is: $4400 per month to the student loan handlers ($4900 if you count the 18month credit card). Last year we paid roughly $28,000 in interest in student loans. We’ll get a little bit of forgiveness from her being a teacher (drop in the bucket but every bit counts). I work in public service but it’s not advantageous for us to use of any of that federal help. Consolidation firms won’t help without a cosigner because our debt to income ratio is too high (imagine that). I’m hopeful and optimistic with SoFi. Extra monthly payments are often discussed but rarely if ever happen. I’ve looked into everything in agonizing detail. I’m not sure anyone could tell me anything I don’t already know about student loans, public and private.
Horrifying right? The good news is our heads are above water and we are making it work and paying it off. We were even able to buy a modest house. We are saving for retirement and we even have some fun on the side. That being said it will still take us every bit of 10 years to pay everything off, and the monthly cash flow is watched like a hawk. It is a little bit of a downer that the payoff from the grueling schoolwork cant be fully realized. But I know there are scores of other folks out there in much, much worse situations than us. We are lucky.
Sorry for the long post – hope everyone has a good holiday week and weekend!
Also, I think I just defined irony by answering the math question wrong when trying to post this.
May 3, 2014
June 28, 2014
As soon as I graduated, we saved a ton of money during my 6th month grace period. We also continued to pay interest only on her Sallie Mae loans to maximize the savings during this grace period. We were able to build up enough for a down payment this way, along with a small loan from a relative. Also, during the mortgage application underwriting , the monthly expenses were less than they are now due to the aforementioned lack of loan payments, so that made us look better.
Perhaps if you are dead-set on home ownership and you have a down payment saved up, taking a forbearance on your loans 2-3 months before the underwriting period will make your application look better. They asked us for the 2 most recent months of bank account statements. Probably not the wisest advice, but it’s a thought.
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