Student Loan Consolidation question.

[Mayfriday0529]

I'm about to apply for a Student Loan Consolidation through Citibank.
Its going to be for 25 years.

Such loans can be paid early correct and avoid the extra interest? Or do they want all that extra interest.

I owe around 20,000 and i would pay around 50,000 in the end.

 

[MrChad]

Ask them if there are pre-payment penalties. Many lenders do not penalize you for paying extra towards principal each month, but policies vary by lender so it's best to ask Citibank.

 

[Mayfriday0529]

Originally posted by: MrChad
Ask them if there are pre-payment penalties. Many lenders do not penalize you for paying extra towards principal each month, but policies vary by lender so it's best to ask Citibank.

The Promissory Note has "I may prepay all or any part of the unpaid balance on my loan at any time without penalty".
So i guess i'm good.

I been reading this for a while since i'm going to be married to it for 25 years or less.

 

[Xavier434]

Pay it off as quickly as you can if there are no penalties.

 

[Kyteland]

Originally posted by: Xavier434
Pay it off as quickly as you can if there are no penalties.

I would say to do the opposite depending on your interest rate. Those loans are generally at a low enough interest rate that it's in your interest to pay them back as slowly as possible and invest that money instead. I paid my school loans back within two years and I regret doing it now. My interest rate was practically nothing.

 

[dabuddha]

It's gonna take you 25 years to pay off 20,000? (I've never taken a student loan before )

So it'll take you 300+ years to pay off a house?

 

[Mayfriday0529]

Originally posted by: dabuddha
It's gonna take you 25 years to pay off 20,000? (I've never taken a student loan before )

So it'll take you 300+ years to pay off a house?

Picking the standard/low payment plan then yes it will take 25 years.

The rate they are giving me is 6.75%, payment would be at about $188 a month.

 

[oznerol]

You sure it's 6.75% interest? With my quick calculations and the numbers you gave ($20,000 borrowed for 25 years totaling $50,000), it looks closer to 9% interest - plus your final payment of $188/month looks high, as even at 9% it should be around $170/month.

Regardless, from any student loan experiences I've had, there is no penalty for paying early - just be sure to let them know your extra payments are going toward the principal, not future payments. Many places will take a payment of, say, $1000, and just pay off your next 4 monthly payments.

As said before, student loans are generally great loans to have, and there's no rush to pay them off. But at that high of an interest rate, it's not a bad idea to pay them off quickly. I'd look elsewhere to see if you can consolidate to a lower rate.

 

[kalrith]

I would recommend shopping around for a better deal. I went with Education Loan Company. They give me a .25% interest-rate reduction for paying via auto debit out of my checking account. After 48 on-time payments (so in 4 years), they'll give me a whopping 2.25% interest-rate reduction. That will cut my interest rate in half from 5% to 2.5%. The one catch is that the interest-rate reduction is not permanent, meaning that if I'm ever late on a payment I'll lose it. I don't think that will be a problem with the auto debit. If you're concerned about that, there are some companies out there that offer a 1% interest-rate reduction that's permanent after a certain number (usually 36) of on-time payments.

I made the mistake of not shopping around when I first consolidated my and my wife's loans, and we wound up with a company that offered no interest-rate reductions. Thankfully, you're allowed to reconsolidate as long as you have one unconsolidated student loan. We did that this summer with ELC and are really looking forward to the 2.5% interest rate.

Edit: Here's a link to the 53-page thread where I discovered ELC. There's a lot of good info on there, but some of it is out-dated.

 

[Tiamat]

So, if even after consolidation, the interest rate is pretty high (> 4.7% after 48 months) it seems to be better off paying off the loan as quickly as possible since, for example, my high interest savings account doesnt make more than that anymore. Is this the proper conclusion to make? Or am I missing something?

 

[oznerol]

Originally posted by: Tiamat
So, if even after consolidation, the interest rate is pretty high (> 4.7% after 48 months) it seems to be better off paying off the loan as quickly as possible since, for example, my high interest savings account doesnt make more than that anymore. Is this the proper conclusion to make? Or am I missing something?

Not necessarily. I know the finance guys on here are going to tear my arguments apart, as I am not an investment banker or anything. I am good with numbers, though, so take that as you will. I am open for criticism.

There are a few things to consider. First, money now is worth more than money later. Inflation averages 2.2-3% a year or so. So with that alone in mind, $20000 now would be worth ~$40000 25 years from now.

Second, and I'm basing this solely on something I read online - if something bad happens to you and you are killed/die - your debts are forgiven (I imagine this is not the case if you had a co-signer on your loan, but again I am not 100% sure). This is a bit of a bleak outlook, but say you had 100k in debt and 100k in the bank. Paying it all off with 1 swoop and they dying nets your beneficiaries $0, whereas not paying it off gets your debts forgiven and $100k remaining to your family.

Lastly, I'd think about what you want to do with your money. If you plan on saving cash and simply putting it into a savings account at 4.8% or whatever for 25 years, then maybe paying your debts off quicker would be useful since you have no use for the money. However if you are saving for a better investment, say, a house, making the minimum payments on your student loans and saving the rest to make a down payment on a home is not the worst idea in the world.

 

[Caecus Veritas]

$20,000 @ 6.75%, fully amortized over 25 years should yield monthly payment of $138.18. Something's not right.

Also, 6.75% (fixed right?) sounds a bit high for consolidating a student loan. Not sure if rates have gone up that significantly, but i think i refinanced mine for around mid 5% range not too long ago. Might want to shop around a bit before committing.

 

[homercles337]

Originally posted by: Jnetty99

Originally posted by: dabuddha
It's gonna take you 25 years to pay off 20,000? (I've never taken a student loan before )

So it'll take you 300+ years to pay off a house?

Picking the standard/low payment plan then yes it will take 25 years.

The rate they are giving me is 6.75%, payment would be at about $188 a month.

<Nelson>Ha Ha!</Nelson>

2.75% here. I consolodated just before the Bush hikes took effect. 6.75% is average considering how royally bush fucked students with loans. I have heard of students getting strapped with 9%. :Q

 

[Tiamat]

Originally posted by: ducci

Originally posted by: Tiamat
So, if even after consolidation, the interest rate is pretty high (> 4.7% after 48 months) it seems to be better off paying off the loan as quickly as possible since, for example, my high interest savings account doesnt make more than that anymore. Is this the proper conclusion to make? Or am I missing something?

Not necessarily. I know the finance guys on here are going to tear my arguments apart, as I am not an investment banker or anything. I am good with numbers, though, so take that as you will. I am open for criticism.

There are a few things to consider. First, money now is worth more than money later. Inflation averages 2.2-3% a year or so. So with that alone in mind, $20000 now would be worth ~$40000 25 years from now.

Second, and I'm basing this solely on something I read online - if something bad happens to you and you are killed/die - your debts are forgiven (I imagine this is not the case if you had a co-signer on your loan, but again I am not 100% sure). This is a bit of a bleak outlook, but say you had 100k in debt and 100k in the bank. Paying it all off with 1 swoop and they dying nets your beneficiaries $0, whereas not paying it off gets your debts forgiven and $100k remaining to your family.

Lastly, I'd think about what you want to do with your money. If you plan on saving cash and simply putting it into a savings account at 4.8% or whatever for 25 years, then maybe paying your debts off quicker would be useful since you have no use for the money. However if you are saving for a better investment, say, a house, making the minimum payments on your student loans and saving the rest to make a down payment on a home is not the worst idea in the world.

I see where you are heading with that. I'm not very familiar with financing, but in general, what you are saying is, if you dont need the money, pay off the loan (usually). If you need the money to spend on stuff, don't pay off the loan immediately. Is there a formula that tells someone where to draw the line in terms of the best of both worlds?

 

[oznerol]

Originally posted by: Tiamat

Originally posted by: ducci

Originally posted by: Tiamat
So, if even after consolidation, the interest rate is pretty high (> 4.7% after 48 months) it seems to be better off paying off the loan as quickly as possible since, for example, my high interest savings account doesnt make more than that anymore. Is this the proper conclusion to make? Or am I missing something?

Not necessarily. I know the finance guys on here are going to tear my arguments apart, as I am not an investment banker or anything. I am good with numbers, though, so take that as you will. I am open for criticism.

There are a few things to consider. First, money now is worth more than money later. Inflation averages 2.2-3% a year or so. So with that alone in mind, $20000 now would be worth ~$40000 25 years from now.

Second, and I'm basing this solely on something I read online - if something bad happens to you and you are killed/die - your debts are forgiven (I imagine this is not the case if you had a co-signer on your loan, but again I am not 100% sure). This is a bit of a bleak outlook, but say you had 100k in debt and 100k in the bank. Paying it all off with 1 swoop and they dying nets your beneficiaries $0, whereas not paying it off gets your debts forgiven and $100k remaining to your family.

Lastly, I'd think about what you want to do with your money. If you plan on saving cash and simply putting it into a savings account at 4.8% or whatever for 25 years, then maybe paying your debts off quicker would be useful since you have no use for the money. However if you are saving for a better investment, say, a house, making the minimum payments on your student loans and saving the rest to make a down payment on a home is not the worst idea in the world.

I see where you are heading with that. I'm not very familiar with financing, but in general, what you are saying is, if you dont need the money, pay off the loan (usually). If you need the money to spend on stuff, don't pay off the loan immediately. Is there a formula that tells someone where to draw the line in terms of the best of both worlds?

I'd say, if you're going to spend it on a depreciating asset - a new car, rent, eating out every night, electronics, etc, then budget yourself to pay off your debt ASAP.

If you're saving for a long-term appreciating asset - a home/condo, stocks, etc - or if you're currently very strapped for cash as it is, then paying off the loan immediately might not be in your best interest.

Either way, DEFINITELY make the minimum payment every month and make sure any additional payments go toward principal. I suggest setting up a monthly auto-payment plan with your lender, as that usually results in a .25% interest rate decrease - where you automatically get deducted the minimum monthly payment from your checking/savings account.

 

[oiprocs]

Apply all you want, and consolidate those bad boys, but don't stray from the fact that you are NOT getting some kind of deal by consolidating.

This merely allows you to pay one bastard, rather than 3 or 4 bastards, a nice sum of money per month. Pay as much as you can every month, and if you have extra cash anywhere dump it on loans. The faster this disappears, the faster money in your bank account starts to accumulate.

 

[Imported]

Private or government loans? I'm screwed cause most of my loans are private.. so the interest rate varries from 8-9%. I'd love to be able to consolidate them down to 6% or so, but doesn't seem likely.

 

[JS80]

Originally posted by: homercles337

Originally posted by: Jnetty99

Originally posted by: dabuddha
It's gonna take you 25 years to pay off 20,000? (I've never taken a student loan before )

So it'll take you 300+ years to pay off a house?

Picking the standard/low payment plan then yes it will take 25 years.

The rate they are giving me is 6.75%, payment would be at about $188 a month.

<Nelson>Ha Ha!</Nelson>

2.75% here. I consolodated just before the Bush hikes took effect. 6.75% is average considering how royally bush fucked students with loans. I have heard of students getting strapped with 9%. :Q

Mine is at 1.62%. I win.

 

[JS80]

Originally posted by: JS80

Originally posted by: homercles337

Originally posted by: Jnetty99

Originally posted by: dabuddha
It's gonna take you 25 years to pay off 20,000? (I've never taken a student loan before )

So it'll take you 300+ years to pay off a house?

Picking the standard/low payment plan then yes it will take 25 years.

The rate they are giving me is 6.75%, payment would be at about $188 a month.

<Nelson>Ha Ha!</Nelson>

2.75% here. I consolodated just before the Bush hikes took effect. 6.75% is average considering how royally bush fucked students with loans. I have heard of students getting strapped with 9%. :Q

Mine is at 1.62%. I win.

i lied, 1.625%

lol it's bush's fault rates went up. I guess i'll credit him for my income tripling in 3 years.

 

[Mayfriday0529]

Originally posted by: Caecus Veritas
$20,000 @ 6.75%, fully amortized over 25 years should yield monthly payment of $138.18. Something's not right.

Also, 6.75% (fixed right?) sounds a bit high for consolidating a student loan. Not sure if rates have gone up that significantly, but i think i refinanced mine for around mid 5% range not too long ago. Might want to shop around a bit before committing.

I just gave an example. $20,000 is not the exact number, its actually closer to 30,000. I didnt want to put the exact amount.

Also Citibank does give you the extra percent off if you sign up for automatic payment and i believe they give reduction after paying on time for a certain amount of time, but I will shop around.

 

[Deeko]

I hate all of you that graduated a few years ago and got the 2-3% interest rates. Mine are also 6.75%. To answer the question, no, there is no penalty for early repayment.

My payments will be closer to $500 with 25 year repayment...yay.

 

[Mayfriday0529]

Originally posted by: Deeko
I hate all of you that graduated a few years ago and got the 2-3% interest rates. Mine are also 6.75%. To answer the question, no, there is no penalty for early repayment.

My payments will be closer to $500 with 25 year repayment...yay.

I used to have low interest rates of 4 and 5% but they were raised over the years since it was variable.