Oct 17, 2007

How I'm paying off my student loans

This post is part of Get Rich Slowly's Group Writing Project.

A couple of months ago, I paid off my private student loans from law school, and did a little bit of math, which made me realize that my student loans were worth it. I consider this my biggest financial success because I actually had to work at it. I still have some Stafford loans left, but thought I would share how I paid off my private loans and am now paying off my Staffords.
  • I consolidated my Staffords when rates were low. The interest rate on my Staffords is pretty low at 4.575%. This makes it easier to pay off principal, since less interest accumulates each month.
  • I pay on time every month. I have always repaid my loans through automatic withdrawal from my bank account. Because I have a history of paying on time, my lender reduces the interest rate by 1% (which is reflected in the 4.575% above).
  • I pay more than the minimum. I have always asked my lender to withdraw more than the minimum each month, so that I pay extra toward the principal.
  • I increase my monthly payment regularly. Whenever I get a pay raise, or am able to adjust our budget so there's more money available (for example, if our insurance rates go down), I contact my lender to increase my automatic monthly payment.
  • I send in extra payments. I accumulate money from several sources - gifts, selling used items, this blog, savings, etc. When I have extra money, I send in extra payments. Most of the payment goes toward principal, thereby making a nice dent in my loan balance.
  • I make sure extra payments are applied to principal. Sometimes when you send in an extra payment, the lender simply "advances the due date." This means they apply the money to your next payment instead of applying the money to the accrued interest and principal. In fact, no matter what kind of note I attached to my check, my private loan lender studiously ignored their own official policy that said to include a note and always advanced the due date (and believe me, with the things I did, they had to read the note). I always had to call or email them to ensure that the extra payment was applied to the principal.
  • I paid off the higher interest loans first. My private loans had a higher interest rate so I paid them off first. In the long run, this will save me hundreds of dollars in interest.
  • I paid off the variable-interest loans first. A few years ago, my private loans actually had an interest rate that was slightly lower than the interest rate on my consolidated Staffords. But I knew that the rates wouldn't stay that low so I paid off as much as I could during that time. I was comfortable paying the minimum on my Staffords because I knew the low rate was locked in, while the rate on my private loans could escalate at any time. Rates did indeed rise, but I had less principal to pay off than I would have if I had focused on my Staffords.
  • I finally committed to being debt-free. I haven't carried a credit card balance in years, but for a while there, I didn't mind having student loan debt because it was "good debt". In the last few years, though, I've really committed to paying off my student loans and that's why I'm so close to making it happen.
According to my calculations, I will pay off my Stafford loans in slightly less than three years. I could pay them off in less than half that time, but we are currently aggressively adding to our savings account so we can pay cash for our new car next year (more about that decision later).


Jason Jaffe said...

Great breakdown of your repay strategy!

Anonymous said...

thanks so much for this information! i graduated recently and will start payments soon, this helps a lot, thank you!

Anonymous said...

Any advice on a particular bnk to consolidate with? My first student loan payment is in two weeks, and I'm still looking for the best consolidation deal...

ChiefFamilyOfficer said...

@anonymous #1 - Good luck! Since you're already armed with more knowledge than I was when I graduated, I'm sure you'll do well :D

@anonymous #2 - Sorry, I don't have any recommendations. I didn't even realize that I had options so I just consolidated with my lender (Educaid, now Wachovia). The things I would look for are incentives - reductions in your interest rate for paying on time, making payments via EFT, that sort of thing. After that I would look for great customer service (or the best that you can find anyway). One thing you might consider is consolidating with Sallie Mae, since you can probably direct UPromise dollars (if you join) toward your loans (find info here). Hope that helps, and good luck!

Anonymous said...

Anyone who has student loans to pay off should check out Upromise.com Why? Because it's FREE MONEY for your student loans. That's right, when you buy certain products from the grocery store, or eat at certain restaurants, or shop at certain online stores, you get some of the money back that you spent. That money then goes to your student loans. In the past 5 years, Upromise has contributed over $660.00 to my student loans. It's not a fortune, but it's still money I didn't have to pay myself.

Super Saver said...


It's a great feeling to pay off a student loan. It felt like I got a big raise :-)

ChiefFamilyOfficer said...

@SuperSaver - Yup, I'm really looking forward to it! :D

Anonymous said...

You can also get some free money, your plan is awesome and I'm going to implement it in my debt war. But also sign up for upromise, and a new website www.adviceontime.com they share revenue that goes towards your student loans. cheers

Melissa said...

Great strategies! I'm trying to pay off my student loans, too and hearing your strategy is good motivation!