Loan repayment strategy

I

illchill

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May 2, 2019
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Hi all.

My wife and I have got a ton of student loans and have started aggressively paying them off in the last year. I'm "down" to $128,000+ now. I am hoping you folks can help me figure out how best to apply my extra payments. Please bear with me, math is not my first, second or third language.

I've got 17 loans in total. I'm posting those below. My total minimum payments are $1,590. I've calculated that to pay off each specific loan in six years I need to pay $2,280 per month (although two of the loans will be paid off in 2 and 3 years, respectively, and then that number will go down for the final 3/4 years.)

So the question is: Where do I put that extra $690 (call it $700) a month to pay the least interest and finish the quickest?

Obviously the answer would normally be to start with the highest interest rate (8.25%) which happens to be on the biggest loan ($19,000.) BUT here's the rub: The bottom eight loans in the first grouping automatically pay almost strictly ONLY the interest each month. They are set up to be paid off in the year 2041. So if I paid the $19,000 first, those loans would have literally no movement by the time I'm done with that one, whereas if I paid those long-term ones off, the minimum payment on the $19,000 (which is $300) would at least be chipping away at while I pay those off.

Am I overthinking that? Do the long-term numbers still bear out to focus on the $19K at first even though I'd be pretty much burning money every month on this large group of long-term loans? OR should I just apply the extra $700/month to each of my loans in such a fashion as I know each one would finish up in the six years I'm aiming for?

Please ask away if I can make this more clear.

And no, refinancing isn't an option for me. I finished shy of graduation when I was younger to take a full-time job. Yes, the system is very broken.

$3,262.006.30%
$5,916.006.30%
$2,404.005.75%
$6,171.006.55%
$4,796.006.55%
$9,084.006.55%
$4,423.003.61%
$6,329.003.61%
$5,335.004.41%
$7,293.004.41%
$859.004.04%
FIRST GROUPING ^^^
$19,883.008.25 %
$10,433.008.25 %
$10,350.008.25 %
SECOND GROUPING ^^^
11,8456.75%
THIRD GROUPING ^^^
$3,84510.5 %
FOURTH GROUPING ^^^
$16,6535.50%
 
You should pay as much as you can towards the loans with the highest interest first.

I am confused about one thing you said. You said that if you make payments of $2,280 per month you will payoff all loans in 6 years. I guess this also includes the loans with almost interest only payments. So what is this about 2041?

Again pay off the highest interest first and then work on paying off the next highest.... while making the smallest payments you can on the lower interest loans you can---But the total monthly payments should be as large as you can make.
 
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Thanks Jomo.

That $2,280 would have everything paid off in 6 years if I applied the specific necessary amounts to each loan (adding up to $2,280.)

If I were to pay only the minimum payments to each loan, all of them would be done inside of 7 years EXCEPT those bottom eight loans in Grouping One - those would not be paid off until 2041 due to the minimum payments being applied to almost exclusively interest. This is why I was trying to figure out if it's better to attack those first or the ones with higher interest.

If it helps to clarify, the minimum payment on the 19k is $300, the majority of which goes to the principal. The minimum payment on, say, that $9k one is $50, only 1 percent (!!!) of which goes to the principal.

Thanks again for the reply!
 
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Each month you are paying interest and principal on each loan.

To minimize the total interest accrued during the coming month, reduce the principal on the loan with the highest interest rate by as much as you can. That certainly minimizes your interest expense for this month, right? Moreover, and just as important, it creates the maximum reduction in contractual interest due after this month. When you optimize both the present and the future, there is no way to go wrong.

I understand your concern that sometimes short-run benefits have long-term costs. It is a very intelligent concern, but if a decision benefits you now without a future cost, that concern is not necessary.

And yes, the system is badly broken. Whether the government makes the loans or guarantees the loans, the obvious IMMEDIATE beneficiaries of the money are the schools, but they have no legal responsibility for whether there is any social benefit arising from the expenditure. If you subsidize something, you will get more than you need of it. And the problem with education as an economic good is that the consumers are in no position to make informed decisions about the value of what they are going into hock to purchase.
 
It is a common strategy to pay off the highest interest first. It is an obvious mathematical choice. However, there may be other considerations.

1) Watching some balances do almost NOTHING for a very long time can be discouraging.

2) Having the same NUMBER of debts for a long time can be discouraging. If something gets low enough, you may want just to pick it off and feel better about life.

3) Keeping one debt too near it's upper limit can ding your Credit Rating. (Credit Cards)

4) Some creditors may be nastier than others if you have an off month. I don't want to reward "nasty", but maybe paying them off is more getting rid of them, rather than rewarding them.

5) Some student loans will discount for continued on-time payments. Make sure you account for holidays so you don't accidentally shut off one of these discounts.

6) Paying well ahead on SOMETHING is a VERY good thing as long as the due date continues to advance. It's SUPER annoying to pay more than is billed and still owe the same thing in the next billing cycle. Some creditors just can't figure it out. Others want to discourage early repayment.

7) Ignore any offers to "take a break" or to put your payments on holiday. Interest still accrues.

8) There have been some Chapter 13 deals where you owe MORE at the end than you did before the legal proceeding. I hope that sounds like a terrible idea.

9) If some loans are grouped, you may not be able to pay the pieces as you intend. The creditor will split up your payment for the group. You can probably get better at predicting what the creditor will do if you use the minimum payment for each piece as your guide to how a payment will be split up.

There may be other important considerations...

In order to keep your aggressive plan alive for the duration, you may need to make some personal adjustments so that you don't become discouraged. That's really what I'm saying.

We're the only country in the world that has done this terrible harm to our young people.
 
Yikes...that's quite scary...
In case useful, the "by rate" breakdown is:
10,752 : 3.61
00,859 : 4.04
12,628 : 4.41
16,653 : 5.50
02,404 : 5.75
09,178 : 6.30
20,051 : 6.55
11,845 : 6.75
40,666 : 8.25
03,845 :10.50
=========
128,881: 6.5825

Assuming a consolidation loan, rounding to 129,000 and using a 6% rate (1/2% per month),
these would be the monthly payments to pay off, depending on number of years:
11,102.57 : 1 year
5,713.36 : 2 years
3,924.43 : 3 years
3,027.57 : 4 years
2,493.93 : 5years

Good luck....
 
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