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Potential financial benefits of different student loan repayment options

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  • adventure
    replied


    l. Is there any benefit to paying the lowest amount possible
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    1. Yes, you have more potential cash flow. You'd theoretically then need a smaller emergency fund, as your recurring expenses are lower.

    2. If you aren't very strict with sticking to paying extra, you may end up not paying as fast as you might otherwise.

    3. 5.8% interest is horrible. Check WCI's page for something less deadly.


    am trying to learn as much as I can about it to maximize my money when paying down my loan
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    I'd offer this: If you pay 2400/month, you pay $2400/month. If the interest rate, or repayment period differ, then the outcome (total spent) will differ.

    Could you pay it all off in 3 years?

    Leave a comment:


  • Dreamgiver
    replied
    What is your income? The Student Loan interest deduction phases out at not so high incomes:

    https://www.irs.gov/publications/p970

     

    If you know for sure you are going to make the extra payment no matter what I'd just get a shorter loan in exchange for a better interest rate. 5.8% is not so good. To prove to yourself the difference in the amortization schedule just search for an amortization calculator on google and plug the numbers in for your different scenarios.

    Leave a comment:


  • Potential financial benefits of different student loan repayment options

    I have the ability to change my loan repayment from the current style (10 year) to a graduated increase repayment style (pay less now, but pay more later), amount based on my salary (my salary is currently much lower than what it will be in the next few years), and a few other options. My goal is to pay my loan off in about 7 years no matter the situation, but am wondering if there are certain tax benefits, decrease in interest paid, or any other benefits of going through different routes of repaying it in about 7 years.

     

    The situation: I have about 150k in loans at roughly 5.8% interest, which means I'll be paying about $1800 on a 10 year plan. To get my loan payment to about 7 years I would be paying an extra $600 a month, for a total of $2400 per month. I can get that minimum monthly payment down to about $1200 right now ($600 difference per month from minimum) from some of the other options. Obviously if I take the lower minimum it gives me some room if something comes up that I need to free up some money, but that can also be a negative since I am not forced to pay as much which could potentially increase the time the loan is paid off. For this scenario though, lets assume I am paying the loan off in a disciplined fashion over 7 years.

     

    Any "extra payments" go towards the principal. Is there any benefit to paying the lowest amount possible which is $1200 (some towards principal some towards interest), then paying an extra $1200 extra payment which goes only towards the principal compared to paying $1800 (some towards principal and some towards interest) and then $600 extra that goes towards the principal. Both scenarios would be paid off in the same amount of time at 7 years, but one would be paying down principal faster(at least in the beginning). Would this result in any benefits interest wise in total amount paid on the loan?

     

     

    I have run some numbers and I think both scenarios come out to be the exact same, but as you can tell I don't know much about this and am trying to learn as much as I can about it to maximize my money when paying down my loan. Are there any other potential positives or negatives to both scenarios?

     

     
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