Student loans

[Skyylya]

in my case i'd be paying almost double what my loans were if i did the minimum payment.

Doesn't matter. What matters is that if you are paying x dollars per month to pay off a loan with a certain interest rate P, when some of that x dollars could be earning MORE than P% interest in another account, you're better off reducing x and diverting the rest of the money to the other account to earn higher interest.

win

not win. Sure if i could walk into a bank and open a savings account with an interest rate of over like 6% that would be good, but considering most banks have interest rates around 2-4% i find that unlikely. That formula only works if you can control the interest in another account that would hopefully pay more, and unfortunately there is a lot of variability between accounts and whether the interest is compounded daily, or monthly, or yearly. Someone quoting you at a 5-6% interest rate is probably quoting you the annual yield and not what it could be if it were compounded monthly. Where as for my loan i'm probably getting it compounded daily or monthly so will end up paying more. Every percent is not the same, especially when you're talking about the differences between lending, and borrowing and doing so over short vs long periods of time.

I never said that your idea is bad it is probably the best idea for someone with better rates than i got, I clearly stated more than once that in my case it was not the best thing to do as my interest rates happen to be on the higher side, and aren't in danger of getting any lower. If now I can reconsolidate my student loans and get a great rate in the 4 region, then your advice would apply. But as the person under your post suggested, i'm pretty much a wash until then.

I don't claim to be an expert on the situation for all situations so if i'm way off the mark, then please for the love of pete direct me to a bank that I could walk into and get a 6% or greater interest rate compounded monthly or daily.

[divisortheory]

I don't claim to be an expert on the situation for all situations so if i'm way off the mark, then please for the love of pete direct me to a bank that I could walk into and get a 6% or greater interest rate compounded monthly or daily.

A better solution might be to look into one of the numerous student loan consolidation options being offered these days. it isn't terribly hard to find a 2-3% consolidation package.

[Skyylya]

I get a ton of them mailed to me all the time, and every one of them i've talked to and looked up basically takes the average of my three different rates which is around 5.25%. I haven't seen one that will go lower than 5 even.

Can you recommend a place that could give me the 2-3% interest rate?

[divisortheory]

Hmm, guess I'm not sure. The ones I always get mailed to me say I can consolidate to like 2.5, but maybe that's because my rates were already low to begin with.

[evilbau]

in my case i'd be paying almost double what my loans were if i did the minimum payment.

Doesn't matter. What matters is that if you are paying x dollars per month to pay off a loan with a certain interest rate P, when some of that x dollars could be earning MORE than P% interest in another account, you're better off reducing x and diverting the rest of the money to the other account to earn higher interest.

win

not win. Sure if i could walk into a bank and open a savings account with an interest rate of over like 6% that would be good, but considering most banks have interest rates around 2-4% i find that unlikely. That formula only works if you can control the interest in another account that would hopefully pay more, and unfortunately there is a lot of variability between accounts and whether the interest is compounded daily, or monthly, or yearly. Someone quoting you at a 5-6% interest rate is probably quoting you the annual yield and not what it could be if it were compounded monthly. Where as for my loan i'm probably getting it compounded daily or monthly so will end up paying more. Every percent is not the same, especially when you're talking about the differences between lending, and borrowing and doing so over short vs long periods of time.

I never said that your idea is bad it is probably the best idea for someone with better rates than i got, I clearly stated more than once that in my case it was not the best thing to do as my interest rates happen to be on the higher side, and aren't in danger of getting any lower. If now I can reconsolidate my student loans and get a great rate in the 4 region, then your advice would apply. But as the person under your post suggested, i'm pretty much a wash until then.

I don't claim to be an expert on the situation for all situations so if i'm way off the mark, then please for the love of pete direct me to a bank that I could walk into and get a 6% or greater interest rate compounded monthly or daily.

you won't get 5-6% APR, everything is quoted in APY, and for good reason. This allows you to compare 7 day compounding to daily and monthly compounding to get the real return. Don't think of it as them 'hiding' the real interest rate, think of it as them putting it in terms of apples so you can compare apples to apples instead of apples to oranges.

http://www.fatwallet.com/t/52/437553/ <-- Mother of the daughter of the granddaughter of the niece of APR/APY threads. This is a resource for rate chasers to get the most money from their cash accounts.

For the love of pete, I hope this helps

[Skyylya]

Hmm, guess I'm not sure. The ones I always get mailed to me say I can consolidate to like 2.5, but maybe that's because my rates were already low to begin with.

The ones i get to me say that I can lower my rates by about 2.5%, but that's different than lowering them to 2.5%.

I think of my three loans one of them is around 5.3, another around 6.25 and the other is like 4.99% or something like that. I've been told by numerous people that if i can avoid consolidating then i'm better off because these are some of the best rates you'll ever see. Not sure if i believe that.

What gets people to reconsolidate is that by locking your interest rate, usually what they do for the lower payment is double the term that you're supposed to pay it off.

i.e. my loans right now are scheduled to be paid off in like 8-10 years for a higher payment with the moderate interest rate i have. a loan consolidation company tries to get my business by offering a slightly lower interest rate to attract me as well as a lower monthly payment, but then doubles the term to 20 years over a standard program or a graduated program.

The difference in these two programs is like 8-13k over the told length of the program.

You can pay 450 a month over 8 years and end up paying like 8k interest. Or you can pay 200 dollars a month at slightly less rate but over 20 years where you pay close to 20k interest. It's the length that gives you the lower payment but fucks you in the long run with the interest. You'll end up paying in the long run about 2x as much as you would with the higher payment.

[evilbau]

Hmm, guess I'm not sure. The ones I always get mailed to me say I can consolidate to like 2.5, but maybe that's because my rates were already low to begin with.

The ones i get to me say that I can lower my rates by about 2.5%, but that's different than lowering them to 2.5%.

I think of my three loans one of them is around 5.3, another around 6.25 and the other is like 4.99% or something like that. I've been told by numerous people that if i can avoid consolidating then i'm better off because these are some of the best rates you'll ever see. Not sure if i believe that.

What gets people to reconsolidate is that by locking your interest rate, usually what they do for the lower payment is double the term that you're supposed to pay it off.

i.e. my loans right now are scheduled to be paid off in like 8-10 years for a higher payment with the moderate interest rate i have. a loan consolidation company tries to get my business by offering a slightly lower interest rate to attract me as well as a lower monthly payment, but then doubles the term to 20 years over a standard program or a graduated program.

The difference in these two programs is like 8-13k over the told length of the program.

You can pay 450 a month over 8 years and end up paying like 8k interest. Or you can pay 200 dollars a month at slightly less rate but over 20 years where you pay close to 20k interest. It's the length that gives you the lower payment but fucks you in the long run with the interest. You'll end up paying in the long run about 2x as much as you would with the higher payment.

that is one way of looking at it. But what is the interest gained that period on the rate difference? Some people don't like the idea of having any debt, and I respect that, but factor in the opportunity cost.

[Skyylya]

Not sure if i understand what you're asking.

What's the difference between the money spent at the shorter period higher payment vs. the longer period and half the payment but gaining interest in a savings account?

I have no idea and I don't really care to find out the exact number. But from my experience working at a car dealership and for a financial lender that makes it's money on lending money and people paying us interest, the shorter period of time you pay things off, the better off it is for you and worse for the lender.

The longer you pay them - the more money you spend; the shorter time it takes to pay it off - the less total money you spend and the less they recieve.

Sure a 450 a month payment is a lot more than a 225 a month payment, but if you can afford 450 a month you are much better off paying it. I'm sure the difference is rather negligible unless you can find a bank account with a really high interest rate and get a really low interest rate. Also you have to consider, if you're depositing 200 dollars a month into an account at 5% interest, you're only getting interest on the 200 dollars a month vs. for the loan you're paying back that interest is compounding on thousands of dollars.

I don't remember all the formula's for compounding bank interest over a year, but 200 x 12 is 2400 deposited over the course of the year with probably like 20 dollars of gained interest for that year, the next year your total deposited would be like 4820 + the interest added of like 50 dollars or more. Basically the interest gained over the long term is lower because it's interest gained on lower increments of money, my numbers aren't obviously accurate to the penny, but it's along those lines.

however, if you're paying a loan back it works in reverse. The total amount of interest accrued early on is higher because the total balance is higher, AND because most all companies apply your payments to mostly the interest and not to the principal, they want to make sure they get their interest.

Take that 2400 for example. Let's say you are paying 200 a month over 20 years, so every year you pay 2400 bucks. Most likely about 1900 of that is going toward interest and 500 toward your principal, or even less. So 30,000 - 500 = 29,500 and the other 1900 paid off what the interest would eventually be if you paid in the full term length. Do that for the first 10 years and you'd have barely paid off a quarter of your loan, then on the last 10 years it flops to your 2400 dollar payment being 1900 toward the principal and 500 toward the interest. After 10 years you've already paid all the interest in a 20 year program.

Again, my numbers aren't exact and this isn't the best description, but it's how things have pretty much looked when i've gone to website about reconsolidating my loans and whatnot.

I'll let one of the math people here do exact calculations, personally I hate math and all this gives me a headache, heh.

[evilbau]

Not sure if i understand what you're asking.

What's the difference between the money spent at the shorter period higher payment vs. the longer period and half the payment but gaining interest in a savings account?

I have no idea and I don't really care to find out the exact number. But from my experience working at a car dealership and for a financial lender that makes it's money on lending money and people paying us interest, the shorter period of time you pay things off, the better off it is for you and worse for the lender.

The longer you pay them - the more money you spend; the shorter time it takes to pay it off - the less total money you spend and the less they recieve.

Sure a 450 a month payment is a lot more than a 225 a month payment, but if you can afford 450 a month you are much better off paying it. I'm sure the difference is rather negligible unless you can find a bank account with a really high interest rate and get a really low interest rate. Also you have to consider, if you're depositing 200 dollars a month into an account at 5% interest, you're only getting interest on the 200 dollars a month vs. for the loan you're paying back that interest is compounding on thousands of dollars.

I don't remember all the formula's for compounding bank interest over a year, but 200 x 12 is 2400 deposited over the course of the year with probably like 20 dollars of gained interest for that year, the next year your total deposited would be like 4820 + the interest added of like 50 dollars or more. Basically the interest gained over the long term is lower because it's interest gained on lower increments of money, my numbers aren't obviously accurate to the penny, but it's along those lines.

however, if you're paying a loan back it works in reverse. The total amount of interest accrued early on is higher because the total balance is higher, AND because most all companies apply your payments to mostly the interest and not to the principal, they want to make sure they get their interest.

Take that 2400 for example. Let's say you are paying 200 a month over 20 years, so every year you pay 2400 bucks. Most likely about 1900 of that is going toward interest and 500 toward your principal, or even less. So 30,000 - 500 = 29,500 and the other 1900 paid off what the interest would eventually be if you paid in the full term length. Do that for the first 10 years and you'd have barely paid off a quarter of your loan, then on the last 10 years it flops to your 2400 dollar payment being 1900 toward the principal and 500 toward the interest. After 10 years you've already paid all the interest in a 20 year program.

Again, my numbers aren't exact and this isn't the best description, but it's how things have pretty much looked when i've gone to website about reconsolidating my loans and whatnot.

I'll let one of the math people here do exact calculations, personally I hate math and all this gives me a headache, heh.

your thinking is not exactly correct. Think of it like this:
450/mo. payment at shorter term vs. 225/mo over a longer term.

Don't calculate the amortization of interest/principal ratio because it has already been calculated to spread out over the duration of the loan. When you get the terms of the loan, the compounding of the interest has already been calculated in. So the real issue is how much that 225 difference will yield in terms of reducing your principal (and its subsequent interest) vs. how much money you'll make on 225 (and ITS subsequent compounding interest) over the length of the loan.

There is the added benefit of having the liquidity of the cash for investment opportunities with a higher rate of return, or for any emergencies which might arise. It is a much better situation to use up THAT money for say, a medical expense, then it is to pay back your loan early, then when the medical expense arises, be forced into getting a loan with none of the benefits of student loans.

Student loans can be deferred for life changing events, which essentially makes you more money on the float each time you are able to do it. Student loans will be discharged in the case of death, benefactors of your estate will not have to pay them (one of the few which are like this). To a lesser extent (and questionable effectiveness), lenders will see you have student loans and assume you are educated with a higher ability to pay back.

If you look at the bottom line, you'll have a real answer as to whether or not its worth it or not. Your approach above might be absolutely correct for your situation (especially considering your interest rate) but there are many instances where the net will be positive if you consolidate to a long term, low interest rate loan.

edit: your description of how the interest is paid is slightly off too. Interest is front loaded so you will be paying mostly interest in the beginning, but becomes an increasingly smaller % over the life of the loan. You get to deduct the interest so there are some benefits to this too. Perhaps this thread will help with the concepts if you are still unsure (although it applies to mortgages, the principles are the same): http://www.fatwallet.com/forums/message ... did=426039

[archibaldcrane]

As long as you can pay off your loan early with no penalty, you might as well reconsolidate for a lower rate. Just because you have 20 years to pay doesn't mean you have to take 20 years. If you can get it down to 4%, even if the "term" doubles, go for it, and just keep paying the same amount monthly as you were before.

For good interest rate savings account, go to ingdirect.com. I've had it for 2+ years now and the APY rate has been above 4% the entire time. You can move money into and out of it with no penalty whenever you want - it's linked to your bank account. Although, if anyone thinks about signing up for one PM me first, I'll send you a link so you and I will get some extra cash out of the recommendation.

[evilbau]

As long as you can pay off your loan early with no penalty, you might as well reconsolidate for a lower rate. Just because you have 20 years to pay doesn't mean you have to take 20 years. If you can get it down to 4%, even if the "term" doubles, go for it, and just keep paying the same amount monthly as you were before.

For good interest rate savings account, go to ingdirect.com. I've had it for 2+ years now and the APY rate has been above 4% the entire time. You can move money into and out of it with no penalty whenever you want - it's linked to your bank account. Although, if anyone thinks about signing up for one PM me first, I'll send you a link so you and I will get some extra cash out of the recommendation.

no knock on your experience with them, but if you don't want your account frozen and to understand their limitations, read these threads

here: http://www.fatwallet.com/forums/message ... did=737824
here: http://www.fatwallet.com/forums/message ... did=741402

[Beckwin]

It's possible to get through school w/o any debt too >.>

I don't care if you have rich parents

My parents aren't rich :/ State school + scholarship + federal grant money + some work here and there + a little support from home. I'm grateful as hell for the support from home that allows me to work less than I'd need to otherwise to avoid debt, but my parent's income is nowhere near 6 figures. Way below that.

I was more trying to hint at going for scholarships and filling out your fafsa. And if you're really concerned about debt, where you choose to go to school might be a consideration as well. There's really probably no reason to go to an out-of-state school for a general econ or history or whatever degree if you want to avoid debt (if your goal is a more 'elite' school then things change of course, not denying that).

[archibaldcrane]

As long as you can pay off your loan early with no penalty, you might as well reconsolidate for a lower rate. Just because you have 20 years to pay doesn't mean you have to take 20 years. If you can get it down to 4%, even if the "term" doubles, go for it, and just keep paying the same amount monthly as you were before.

For good interest rate savings account, go to ingdirect.com. I've had it for 2+ years now and the APY rate has been above 4% the entire time. You can move money into and out of it with no penalty whenever you want - it's linked to your bank account. Although, if anyone thinks about signing up for one PM me first, I'll send you a link so you and I will get some extra cash out of the recommendation.

no knock on your experience with them, but if you don't want your account frozen and to understand their limitations, read these threads

here: http://www.fatwallet.com/forums/message ... did=737824
here: http://www.fatwallet.com/forums/message ... did=741402

Never had a single problem with them (nor has my father, to my knowledge) - I don't understand how people could find reason to spam their customer support lines enough to get booted. Anyway, has worked nicely for me, and it's a ton better than what a lot of people are doing with their cash. Thanks for the links though.

[evilbau]

As long as you can pay off your loan early with no penalty, you might as well reconsolidate for a lower rate. Just because you have 20 years to pay doesn't mean you have to take 20 years. If you can get it down to 4%, even if the "term" doubles, go for it, and just keep paying the same amount monthly as you were before.

For good interest rate savings account, go to ingdirect.com. I've had it for 2+ years now and the APY rate has been above 4% the entire time. You can move money into and out of it with no penalty whenever you want - it's linked to your bank account. Although, if anyone thinks about signing up for one PM me first, I'll send you a link so you and I will get some extra cash out of the recommendation.

no knock on your experience with them, but if you don't want your account frozen and to understand their limitations, read these threads

here: http://www.fatwallet.com/forums/message ... did=737824
here: http://www.fatwallet.com/forums/message ... did=741402

Never had a single problem with them (nor has my father, to my knowledge) - I don't understand how people could find reason to spam their customer support lines enough to get booted. Anyway, has worked nicely for me, and it's a ton better than what a lot of people are doing with their cash. Thanks for the links though.

i bet they were dicks on the phone which probably contributed to it. That one guy was a retard also for pretending to be his wife(?!?). You are way ahead of the game, and doing things the smart way. rate chasing is annoying work so parking it in ing is a pretty good place for it if you don't want the hassle. I do the same except with fidelity

[4riette]

Best place to look is your school's financial aid office.

Thead over.

Really, bgboards is the worst possible place for the kinds of questions being asked lately. There are professionals who will talk to you in person, for free and give expert advice on campus. Why would you doubt their judgment?

because school doesn't start for a few more weeks and the first payments are due before then?

Campus is open year round and so is the financial aid office. The lines are probably ridiculously long now, so get there early!

That would be realistic if I lived right next to the campus, but it's 4 hours from where I live now. I'll use them all I can once I am on campus and stuff, but now that's just not realistic

That's what phones are for, I live 6 hours from my campus and that's how I get things done before school starts. You can call them and talk to an advisor (though you might have to wait on the line a bit at this time of year) I'd really recommend it because some universities don't have "partnerships" with just any loan corporation. They can give you all the information you need.

Also just to answer the question.. I have several federal student loans with KeyBank, Citibank and SallieMae. Hooray.

[archibaldcrane]

i bet they were dicks on the phone which probably contributed to it. That one guy was a retard also for pretending to be his wife(?!?). You are way ahead of the game, and doing things the smart way. rate chasing is annoying work so parking it in ing is a pretty good place for it if you don't want the hassle. I do the same except with fidelity

Lol, now I'm all...antsy because after reading up on Fatwallet I realize that ING is on the low end of these types of accounts, interest-rate wise. However, I have such a piddly (sub 5k) amount in my ING, I don't know if it's worth the effort to chase another .75%, esp. for accounts with frequently varying rates.

Just wish I made more money to save - having a master's degree and making 25k a year on average has sucked so far.

[evilbau]

i bet they were dicks on the phone which probably contributed to it. That one guy was a retard also for pretending to be his wife(?!?). You are way ahead of the game, and doing things the smart way. rate chasing is annoying work so parking it in ing is a pretty good place for it if you don't want the hassle. I do the same except with fidelity

Lol, now I'm all...antsy because after reading up on Fatwallet I realize that ING is on the low end of these types of accounts, interest-rate wise. However, I have such a piddly (sub 5k) amount in my ING, I don't know if it's worth the effort to chase another .75%, esp. for accounts with frequently varying rates.

Just wish I made more money to save - having a master's degree and making 25k a year on average has sucked so far.

haha i wouldn't worry too much. I'm glad at least one other person on these boards thinks about this stuff, I have some renewed faith in humanity

[archibaldcrane]

i bet they were dicks on the phone which probably contributed to it. That one guy was a retard also for pretending to be his wife(?!?). You are way ahead of the game, and doing things the smart way. rate chasing is annoying work so parking it in ing is a pretty good place for it if you don't want the hassle. I do the same except with fidelity

Lol, now I'm all...antsy because after reading up on Fatwallet I realize that ING is on the low end of these types of accounts, interest-rate wise. However, I have such a piddly (sub 5k) amount in my ING, I don't know if it's worth the effort to chase another .75%, esp. for accounts with frequently varying rates.

Just wish I made more money to save - having a master's degree and making 25k a year on average has sucked so far.

haha i wouldn't worry too much. I'm glad at least one other person on these boards thinks about this stuff, I have some renewed faith in humanity

My dad made sure it was impossible to grow up under his roof and not be perpetually thinking about money. It made taking loans for grad school extremely stressful - that amount of debt didn't feel very good.

[evilbau]

i bet they were dicks on the phone which probably contributed to it. That one guy was a retard also for pretending to be his wife(?!?). You are way ahead of the game, and doing things the smart way. rate chasing is annoying work so parking it in ing is a pretty good place for it if you don't want the hassle. I do the same except with fidelity

Lol, now I'm all...antsy because after reading up on Fatwallet I realize that ING is on the low end of these types of accounts, interest-rate wise. However, I have such a piddly (sub 5k) amount in my ING, I don't know if it's worth the effort to chase another .75%, esp. for accounts with frequently varying rates.

Just wish I made more money to save - having a master's degree and making 25k a year on average has sucked so far.

haha i wouldn't worry too much. I'm glad at least one other person on these boards thinks about this stuff, I have some renewed faith in humanity

My dad made sure it was impossible to grow up under his roof and not be perpetually thinking about money. It made taking loans for grad school extremely stressful - that amount of debt didn't feel very good.

be glad he did. I learn this stuff for fun (if you can believe it) and its the type of information and way of thinking I wish I had as a kid or teenager. I'm curious what you meant by 'taking the loans was stressful'; did your dad give you heat because you were going into debt?

[Kurokikaze]

Damn.. Good info in this thread.