Question about student loan payment

[SeductivePig]

So I have a parent plus loan for $163k, and am paying $1237/month right now (8% interest).

At the end of this year I'm paying $75k to bring that balance down to $88k.

I was planning to refinance with a private lender @ 5%, but if that fails, I was curious to know whether my monthly payment would come down?

I was talking to someone who mentioned that even if I paid down $75k, the federal loan would still require a payment of $1237/month, but the amortization schedule would change (more principle paid, less interest).

Would any of you guys know what happens? I thought my monthly payment would reduce by around $500; do I have to refinance under the federal loan for that to happen?

 

[waffleironhead]

Depends on the lender.
I pay a bit extra each month on my student loans and the next months amount due is reduced by the amount I have overpaid. Right now I could go 3 months without paying till the amoritization schedule matches up.
With my truck loan, it's the same. I accidentally paid double one month, now toyota doesn't require another payment till another month out.
My land loan, if I prepay a bit, the monthly amount stays the same.
Call your lender and ask.

 

[SeductivePig]

Depends on the lender.
I pay a bit extra each month on my student loans and the next months amount due is reduced by the amount I have overpaid. Right now I could go 3 months without paying till the amoritization schedule matches up.
With my truck loan, it's the same. I accidentally paid double one month, now toyota doesn't require another payment till another month out.
My land loan, if I prepay a bit, the monthly amount stays the same.
Call your lender and ask.

Hmm this is a federal loan serviced by Navient - problem is, my father called them to ask this and they weren't able to give a clear answer.

 

[Dari]

You should be talking to LegendKiller. Yeah, he's an asshole, but he knows his stuff when it comes to loans.

 

[SeductivePig]

You should be talking to LegendKiller. Yeah, he's an asshole, but he knows his stuff when it comes to loans.

Yea.. we had an argument in the last thread lol. He does know his stuff though.

 

[LegendKiller]

You should be talking to LegendKiller. Yeah, he's an asshole, but he knows his stuff when it comes to loans.

lol...


If you pay the $75k your monthly payment will *not* come down. Why? Because your original term and interest rate haven't changed, thus, your loan amortization amount will remain the same. In order to change the payment amount you would have to have them reamortize the loan using the original term.


If you refinance the $88k to a new term and interest rate and that term is further out than your current amortization schedule (after pre-payment) then your payment will go down.

Navient isn't going to give a shit. They aren't paid to, the servicing fee is minuscule for gov't student loans. Furthermore, the government programs aren't set up to allow changing of payment terms. Frustrating, I know, but it's the shitty system we are stuck with because that's how the upper class wants it.

The best you could probably do is try to change your payment option to graduated or extended terms. You *might* be able to do that.

 

[SeductivePig]

lol...


If you pay the $75k your monthly payment will *not* come down. Why? Because your original term and interest rate haven't changed, thus, your loan amortization amount will remain the same. In order to change the payment amount you would have to have them reamortize the loan using the original term.


If you refinance the $88k to a new term and interest rate and that term is further out than your current amortization schedule (after pre-payment) then your payment will go down.

Navient isn't going to give a shit. They aren't paid to, the servicing fee is minuscule for gov't student loans. Furthermore, the government programs aren't set up to allow changing of payment terms. Frustrating, I know, but it's the shitty system we are stuck with because that's how the upper class wants it.

The best you could probably do is try to change your payment option to graduated or extended terms. You *might* be able to do that.

Thanks for the info.

I am already on a 25 year plan (3 years into repayment already), which is extended repayment.

So basically you're telling me that even if I pay down $75k, I can't ask Navient to reamortize the loan for another 25 year plan? I will be stuck with the $1237/month payment?

I guess my only option really is to just refinance with Citizens bank. This was my plan but I'm trying to have a backup if it fails.

 

[LegendKiller]

Thanks for the info.

I am already on a 25 year plan, which is extended repayment.

So basically you're telling me that even if I pay down $75k, I can't ask Navient to reamortize the loan for another 25 year plan? I will be stuck with the $1237/month payment?

I guess my only option really is to just refinance with Citizens bank. This was my plan but I'm trying to have a backup if it fails.

Correct. I am pretty sure they won't reamortize the loan. Not 100% positive but at least 80%.

Are you sure that SoFI won't do anything with your loan, even with the prepayment? I don't quite get that since people who have GradPlus loans are their bread and butter. 3-year Cohort Default rates on those are 1% or so.

It's akin to asking your mortgage lender to reamortize your loan after a bit prepayment. They won't do it because it would take an amendment to your loan docs, something which isn't always easy to do and costs money. So, instead, they just tell you to refi or deal with the same payment but a shorter overall term.

 

[waffleironhead]

My loan is with navient. If your loan has the same rules as mine, your 75k payment will be applied to your interest, then to principal. You will then only be required to pay when your amoritization schedule catches up with your payment amount.
In essence, let's say you prepayment could send your next required payment date out 10 years, just for arguments sake. For the next ten years navient will not require any payment, so you could just pay anything you like. Your interest rate won't change though.

 

[SeductivePig]

My loan is with navient. If your loan has the same rules as mine, your 75k payment will be applied to your interest, then to principal. You will then only be required to pay when your amoritization schedule catches up with your payment amount.
In essence, let's say you prepayment could send your next required payment date out 10 years, just for arguments sake. For the next ten years navient will not require any payment, so you could just pay anything you like. Your interest rate won't change though.

So let me get this straight:

I'm on a 25 year plan, and have $163k of debt. I decide on day one that I will pay $75,000 to principle, which leaves $88k of debt.

According to the amortization schedule, it would take me 17 years to reach a balance of $90k of debt.

What you're saying is that Navient wouldn't require a payment for 17 years?



Or, are you saying that $75,000 would save me 5 years of future payments? That's pretty pointless.

 

[Hugo Drax]

Holy crap 25 year 8% 163K college loan? Wow investors must be salivating over those deals. Even a home loan is no where near those rates.

Margin loan rates are much lower.
Banks only pay 0.25 to borrow

30 year t-notes are only 2.37.

how does an 8% college loan happen? I am not a bond person or in that industry, so how does all this work?

 

[waffleironhead]

Yes, according to how my loan is,(if I had that debt load) navient would not require any payment for the next 17 years.
During those 17 years, I could pay $5 a month if I wanted. They wouldn't care. The interest would keep going on that 88k though. You in essence just paid in one lump sum the first 200 payments, but are not required to make payment 201. Not until the time when the table catches up with you.

At 88k of debt at 8% and no payment you would adding around $600 of interest to the principal the first month, then it would go up each month. So it would be in your best interest to keep paying over $600 each month to keep the principal going down.

 

[Hugo Drax]

Wow sucks for the new generation. Its like Indentured servitude. Its just like the Indians who end up working in Dubai and it turns out they are just working to pay the debt, for the cost to be able to get a job in the first place.

 

[UglyCasanova]

I'm not sure if they will allow it, but ask your loan servicer about recasting it. I'm not sure if that works for student loans or just mortgages, but I think that is what you are trying to do.

 

[Atomic Playboy]

How does anyone end up with a loan for $163,000 at 8% interest? That's completely unfathomable. Medical school?

Anyway, in my own experience, I had a student loan for ~$20k, I paid off a $5,000 chunk all at once and they didn't ask for payment for the next few years. In retrospect, I should've kept paying down during that time, but I didn't, and the interest quickly brought the total due right back up to what it was before. So you may end up seeing your next payment due date pushed out several years, but you should definitely continue regular payments.

 

[TheVrolok]

How does anyone end up with a loan for $163,000 at 8% interest? That's completely unfathomable. Medical school?

Try 369k (250ish principal) @ 7.125%.

PSLF :wub: (here's hoping!)

 

[Nograts]

That's insane. That is a lot of dollars for some schoolage.

 

[waffleironhead]

How does anyone end up with a loan for $163,000 at 8% interest? That's completely unfathomable. Medical school?

Anyway, in my own experience, I had a student loan for ~$20k, I paid off a $5,000 chunk all at once and they didn't ask for payment for the next few years. In retrospect, I should've kept paying down during that time, but I didn't, and the interest quickly brought the total due right back up to what it was before. So you may end up seeing your next payment due date pushed out several years, but you should definitely continue regular payments.

IIRC, he has an EE, so probably private school.

 

[SeductivePig]

Yes, according to how my loan is,(if I had that debt load) navient would not require any payment for the next 17 years.
During those 17 years, I could pay $5 a month if I wanted. They wouldn't care. The interest would keep going on that 88k though. You in essence just paid in one lump sum the first 200 payments, but are not required to make payment 201. Not until the time when the table catches up with you.

At 88k of debt at 8% and no payment you would adding around $600 of interest to the principal the first month, then it would go up each month. So it would be in your best interest to keep paying over $600 each month to keep the principal going down.

Hmm so if refinancing fails with a private bank, looks like I'll be stuck paying the same every month.

However, instead of paying $1100 of interest and $137 of principal, it'll be $700 of principal and $537 of interest. This would help out with having to save less to pay down the principal - need to pay off some credit, lease a nice car, and make a down payment on a condo.

The big problem with the loan is that it's a parent plus loan, and my dads credit isn't good enough to qualify for refinancing - can't take it in my own name afaik.

 

[LegendKiller]

Holy crap 25 year 8% 163K college loan? Wow investors must be salivating over those deals. Even a home loan is no where near those rates.

Margin loan rates are much lower.
Banks only pay 0.25 to borrow

30 year t-notes are only 2.37.

how does an 8% college loan happen? I am not a bond person or in that industry, so how does all this work?

25pct of borrowers in repayment are delinquent. 25pct aren't in repayment and 20pct are or will be in default.


Accounting for servicing costs, collections. ..etc it is costing us taxpayers a fortune.

 

[SeductivePig]

25pct of borrowers in repayment are delinquent. 25pct aren't in repayment and 20pct are or will be in default.


Accounting for servicing costs, collections. ..etc it is costing us taxpayers a fortune.

There really does need to be reform. Hold colleges accountable for the risk a bit.

 

[Printer Bandit]

instead take the $75K to Vegas and bet it on black.


https://www.youtube.com/watch?v=zGCdBsOIKYA

 

[LegendKiller]

Hmm so if refinancing fails with a private bank, looks like I'll be stuck paying the same every month.

However, instead of paying $1100 of interest and $137 of principal, it'll be $700 of principal and $537 of interest. This would help out with having to save less to pay down the principal - need to pay off some credit, lease a nice car, and make a down payment on a condo.

The big problem with the loan is that it's a parent plus loan, and my dads credit isn't good enough to qualify for refinancing - can't take it in my own name afaik.

I forgot you were ParentPlus, not gradplus. This site says that it seems like it is possible.

https://www.sofi.com/blog/how-changes-to-federal-loan-rates-impact-you/

Are you sure you explored everything with SoFI? They operate off of Free Cashflow for underwriting, so provided your parents have that, plus your money, you might be able to get something.

As far as leasing a "nice car" and "making a down payment on a condo", that's the last thing you should do if you are in this situation. First off, leasing is silly. Do you know how much the car companies make on leasing? Right now between 5-15% of the vehicles turn-in value because they let you amortize their asset and sell it at a higher price than the residual value. It's a gamble on their side since residuals can slip, but, overall, they are in gain territory right now. Then you have an asset at the end of the term rather than an endless chase.

Buying a modest car makes the most sense.

 

[lupi]

seems like there should have been a WTF are you thinking moment before taking the money.

 

[SeductivePig]

I forgot you were ParentPlus, not gradplus. This site says that it seems like it is possible.

https://www.sofi.com/blog/how-changes-to-federal-loan-rates-impact-you/

Are you sure you explored everything with SoFI? They operate off of Free Cashflow for underwriting, so provided your parents have that, plus your money, you might be able to get something.

As far as leasing a "nice car" and "making a down payment on a condo", that's the last thing you should do if you are in this situation. First off, leasing is silly. Do you know how much the car companies make on leasing? Right now between 5-15% of the vehicles turn-in value because they let you amortize their asset and sell it at a higher price than the residual value. It's a gamble on their side since residuals can slip, but, overall, they are in gain territory right now. Then you have an asset at the end of the term rather than an endless chase.

Buying a modest car makes the most sense.

Well it was surprisingly very difficult to even get someone to answer the phone at SoFi - when my father actually got through to them, they said we weren't qualified because of his credit. Strange because I thought they would refinance the loan under my name (740+ credit, good income, perfect payment history).

Not sure what you mean exactly with the "Free Cashflow for underwriting" statement.

I understand that leasing a car isn't the smartest move, but I have driven 18,000 miles per year the past 3 years due to work and due to coming home to visit family. I figured if I bought a car new, it would depreciate in value extremely quickly, and if I bought a car used, that would also lose it's value far too quickly. I bought an 09 Camry back in 2012 with 46k miles on it and today it just reached 101k in under 3 years. I paid $14.7k for it, and will have $7.7k left on it by December - however, the car would only be worth $6.4k at that time.

As far as the condo, I'm currently paying $1150/month for rent in Chicago, so I was thinking to put some money down on a condo so I would have something to show for my rent, and also so that I could deduct some of the interest. I'm just pissing away money right now paying rent.