question re: student loans

jennmonkeyNovember 20, 2004

Hi everyone, I know nothing about finances and am wondering if paying off student loans is the same as other loans (ie. mortgages). I am 25 and made the mistake of going to a private college all on loans. I have about 20k in federal loans and 40k in private loans (I know, I know). my question is, as far as my private loans go, for the first 8 or 9 yrs of the loan , I am paying back interest only. If I decide to pay extra each month, can I apply that to the principal if I ask? I am on a graduated payment plan, so now I only pay about $200/month, but in about 10-15 yrs my payments will be like $700/month or something ridiculous like that. I don't want to be paying off this loan for the next 35 yrs, so I am not sure the best way to handle it. Can I pay more now and less later, or will I just have to re-finance the loan in the future. I work in social service and will NEVER be able to afford a $700 monthly payment. But if I ever have to re-finance the loan, it will extend payments even longer. I have no idea what to do. Any advice? thanks, Jenn

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chelone

Yes, yes, yes! you may indeed pay more and direct it to the principal of your loan(s).

It's fun for me that you asked this, as it was with my very own student loans that I really put into practice the concept of "rounding up" every month. I began doing that about 1 year into the repayment (5 year term). Until I die I think I will remember the amount of those loan payments. $51.90 and $51.15! I rounded both up to $60 and THINK, but can't remember for certain, that I may've paid more as it was available.

ANYWAY, I shortened the term of the loan by nearly one entire year. It was with those 2 loans that I really "got" the notion of "compounding" and how it can work FOR you. Also, how it can be quickly get out of control and really bite you in the hindquarters if you're carrying a ton of credit card debt.

GREAT question and one more young people ought to consider!

    Bookmark   November 20, 2004 at 5:37PM
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beache

Check with the lender of the private loans. Most don't have a prepayment penalty. The federal loans you can pay more any time you want.

Are you paying them back at a fixed rate or is it variable?

    Bookmark   November 22, 2004 at 12:21PM
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jennmonkey

I believe the private loan is variable (my payment amount changes).

    Bookmark   November 26, 2004 at 7:36PM
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joyfulguy

If you pay only interest, the base amount that you still owe - and on which you must continue to pay interest - remains the same.

If you can pay off some of the principal occasionally (if such is allowed - and it should be) it means that the amount on which you must pay interest is smaller.

It may seem onerous to pay that interest now, but don't forget that interest rates now are low, and if the interest rates that can be assessed may be varied, you'll be required to make a larger payment, and still be paying only interest, if interest rates rise in future - which many expect hem to do.

Try to pay principal when possible - and the sooner, the better.

Remember - when the principal is all paid, the amount that you're paying in interest now is yours to keep, and spend as you wish. On you and your needs/desires.

Good wishes with your financial system.

Learning how money works is an interesting hobby - that pays well.

ole joyful

    Bookmark   November 30, 2004 at 8:49PM
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