Hello everyone,

I recently acquired a full time job with a decent salary. I am going to start repaying my student loans. I do go to grad school part time, but I will now start paying for the additional classes out of pocket. I took both subsidized and unsubsidized loans during my college years.

I am estimating that the loans I owe will be about $36,000. I will be making 40,000 at my new job. I still live at home and don't have many expenses.

With that said, should I begin paying off the unsubsidized loans first with as much money as I can? I have about $12,000 saved up so far. But I will never feel financial secure until these student loans are gone. Some people chose to consolidate their loans, is that something I should consider doing?

What might be a good payment plan for someone like me to adopt?

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First off congratulation on the job and on pushing yourself to get a masters degree, you will not regret it! It can be rough going to school and working full time ( I just finished my MBA a few months ago) but you will thank yourself when it is over. As you continue your masters education you should defiantly be paying off your loans, here is what I have been doing. Every paycheck I pay off any and all bills that I have, set aside a small amount for fun, and then split the rest between my loans and savings. Living at home should make paying off your loans even easier, you might even save 25% and put 75% towards loans. In my opinion 12,000 in savings while living at home is a respectable safety net, and $36,000 in loans for a undergrad AND masters degree is quite an accomplishment. As far as consolidation, you would have to calculate the savings as compared to the fee, it might end up being worth it, but I have no experience in that area.

Congrats! I was in a similar situation a few years ago. Had to start figuring out how I wanted to approach it. I originally chose a graduated payment plan, so payed less to start with and payments went up every 2 years. That is not the most aggressive repayment option, but it worked well for me at the time. Something to look at as well is the balance of each loan. You said you have $12k saved up, you could look into paying off one or two of the loans in full which should reduce your monthly payment.

There are really different schools of thought on how to repay. Though you had subsidized loans, I'm guessing the government stops covering the interest once you graduate as they will to mine, is that correct? Will they continue to cover your undergrad sub-loan interest while your in grad-school?

Generally I would pay the smallest loans off first in chunks to knock them out. But like I said, all my loans accrue interest after I graduate so depending on what the interest rates are, my focus on whichever loan might be different. Anyway, I personally say pay what you need to on all of them, but knock out the small ones in larger payments as fast as you can. My loans are on a 10-year repayment schedule, I made an excel file and did a what-if analysis on the payment periods to see how much I save by overpaying and it was a lot. So definitely don't do the minimum because that's a good way to pay much more interest.

If you want to consolidate (I won't be doing that) you might be able to quasi-manipulate your interest rate, but unless your biggest loan has the smallest interest rate and is over 50% weighted it is most likely not worth your while. Since it is usually a weighted average of your interest rates you can have one lump sum with a single interest rate overall. For instance (this is theoretical)...

Loans     Interest     Int. Pmts/Mo (daily compounding interest)(30 day avg. mo)

4,000       1.5%          $4.92

2,000       6.2%          $10.18

1,500       5.5%          $6.77

1,500       6.0%          $7.39

1,000       5.5%          $4.52

Total/Mo:                 $33.78

If you consolidate, those percents are weighted, so the biggest amount, $4000 which has the lowest interest rate essentially brings down the overall rate. Though it may be tempting, if you consolidate in this case you interest rate may seem nice, but you will overpay by some change. Then it will be

Loan      Interest     Int. Pmts/Mo (daily compounding interest)(30 day avg. mo)

$10000  4.115%      $33.81

A 3 cent difference, so you would lose money. Though this is a simplification  if anyone tries to get you to consolidate make sure that it will be worth it. Sometimes it can save money, but it seems most times with the way college loans are structured (among my friends and myself) it doesn't save. Hope that helps, even though I strayed slightly from your initial post, I ran into this myself so I wanted to share.

If you're in school up to half-time, interest on the subsidized loans still doesn't accrue, so don't make payments on those.

I got a sizable discount (1%? 2%?) on the interest on my student loans by having the payment deducted from my checking account automatically monthly. Read your mail and look out for deals like this.

I can't imagine not consolidating my loans, even if it's meant I'm paying 0.03% higher interest. My loans were 1 or 2 per semester, for 6 semesters. That would have been 6 payments to remember each month. I'm really good about paying bills on time and all, but that would have more than doubled the number to keep track of.

There are 3 schools of thought about how aggressive you should be in paying off student loans. The first is you should be really aggressive, paying off before you build up an emergency fund or any retirement savings. The second is to make minimum payments while you build an emergency fund, and certainly get any retirement contribution match from your employer. The third is to just crunch the numbers - If you can invest the money at a higher rate of return than the interest rate, you should make the minimum payments and invest.

If you're going to be living at home, you don't need an emergency fund (maybe a very small one for car repairs). If you're moving out, it depends on your personality. Be aware that while it's near-impossible to discharge student loans, they're generous with deferrals. You get an automatic one for the first 6 months after graduation. I think you can request another one of 6 months at any time. Deferrals if you're disabled are pretty easy to manage. And there's new legislation about federal student loan payments being proportional to income.

In short, if you can't work for whatever reason, your student loans won't be the big bill to worry about. Consider that in the save v. pay off decision.

The percentages above were an oversimplification, and it typically seems to be much more than .0XX% more expensive when consolidating. Especially when paying monthly because that adds up over however many years one is repaying. Though I agree that there is simplification when consolidating, if you are doing a direct deposit as you are and I will be, you don't have to worry about 6 or more accounts because it automatically comes out. Then you might as well do the direct deposit and take whatever discount you can get. Though I understand that it boils down to a preference, so I hope you do not take any offense in my mild disagreement since is does come down to that. Though in our finance coursework were taught to take any discount you can, and also I am very frugal about most things. So that is why I always want to pay as little as possible in a case like this. 

Thanks for the replies everyone.

My loans are $17,500 for the stafford unsubsidized, $15,500 for subsidized, and $4,000 for the federal perkins.

My strategy will most likely be to pay off the unsubsidized as fast as I can. With the money I have saved up I will be able to pay off about $14,000 which will leave me with $3,000 for emergency funds and the unsubsidized will be down to under $4,000. Then once I pay off the remainder of the unsubsidized loans, I can ease up and pay the subsidized loans whenever I can.

I still live at home and I am thinking that once loans are all paid off I can start saving for a big down payment on a condo and finally be debt-free.

"I still live at home and I am thinking that once loans are all paid off I can start saving for a big down payment on a condo and finally be debt-free."

I would try to save for the condo at the same time. Who knows how much longer mortgages will stay as low as they are. I am using the 6-mo deferment window to excessively save for a house as well, and when that period ends I will still be saving for a house. Though I want a very large down payment, and am skeptical about how long the low borrowing rates will last. In this case, to each their own. Good luck with everything either way! I wish more people payed as much attention to their finances as you and Rebekah do. Its a major problem nowadays.

Another thought would be to pay off the smallest one first.  Get rid of at least one bill totally and quickly. 

You want to simplify your financial house by eliminating one debt ASAP.

Then put most of your effort into paying off the one with the highest net interest rate.  Do not plan on "paying the subsidized loans whenever I can."  You want to get rid of all that debt before you really plan on anything else.


What if there is a large unsubsidized loan that garners the most interest? Should I try to trim the largest one down first, or eliminate the smaller loans entirely?

I agree with son, even if the largest one has the highest interest rate (which is a bummer) I would knock out the smallest one or two as fast as possible. Or even at once if you have the ability. Then I would put all my effort into overpaying on that large loan(s) to save on as much interest as possible.

Get rid of the small stuff.  Your planning (or finagling) is a lot simpler when you've got only one big bill to consider, instead of three smaller bills.  It also helps your cash flow, because the minimum payment on one largish loan will be smaller than the minimums on three smaller loans.  And don't give in to the temptattion of the "interest only" payment option.


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