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      04-09-2020, 09:35 AM   #1
JP10
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Loan Question

So I'm still chipping away at my student loans, work has agreed to pay them off over time. Anyways I got a chunk of cash from work to put towards them. My question is to a pay off a private loan with a high interest rate (6.7%) or throw the entire chunk at my Fedloans that are being dropped to 0% until Sep? Normal interest rate on my Fedloans is quite a bit lower at 3.5%, and I don't have enough in pocket to pay the entire amount off.

A buddy of mine had another question that I'm pondering myself. Taking out a private loan to pay off their federal loans while the interest rate is 0%. I see the benefit in this, but it would also depend on the interest he would get on the private loan.

Private loan amount - 13k, have enough to pay the in full
Fed loan about ~ 30k, would only be able to take that to near half. Hence if I wanted to pay the entire amount a private loan would be necessary going off my buddies idea.

Anyways appreciate any guidance. I'm sure a couple will comment "asking bmw forum for financial advice, smh", but idgaf lol.
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      04-09-2020, 09:47 AM   #2
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I would put it towards paying off the one with the higher interest rate, which would also leave you with one less loan to worry about.**




**This also depends on how closely your work tracks where the money goes that they give you towards loans. IE: would there be any issues using it for something other than the loans they specify?
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      04-09-2020, 09:51 AM   #3
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Quote:
Originally Posted by CTinline-six View Post
I would put it towards paying off the one with the higher interest rate, which would also leave you with one less loan to worry about.**




**This also depends on how closely your work tracks where the money goes that they give you towards loans. IE: would there be any issues using it for something other than the loans they specify?
I'm kind of thinking the same, but with that said I would also like them not to pay more then needed. So if I would throw the entire amount at the premium of the federal loan then it would be less money out of their pocket in the long run. Since the interest of the private loan will not change much.

I do not think they intend of tracking the amount that goes towards which loan, but I intend to provide them the amounts that I pay off. Especially if I need to pay a grand or two out of my pocket in regards to future reimbursement.
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      04-09-2020, 10:03 AM   #4
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It's good the federal loans are now temporarily at 0%, but I doubt any personal loans you would use to pay those off would be.
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      04-09-2020, 12:20 PM   #5
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Don't divert student loan repayments towards a private debt unless it is explicitly permitted (like, part of the signed statement). Potentially this is federal fraud, depending on what program the repayment money is coming from; at the least, it can put you in an unfriendly position with your workplace. Any company that is funding s/t like this should also have free legal advice you can get (like thru EAP office) and I'd run it by them at least.
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      04-09-2020, 12:24 PM   #6
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100% keep the fed loans. The fed offers more options if you’re down on your luck one day.

Pay off the higher rate loans. Chip away at the fed loans over time. You can make targeted payments and pay off specific loans. Don’t refi because the rate is low enough and a refi would increase your monthly payment.
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      04-09-2020, 12:45 PM   #7
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Quote:
Originally Posted by Maynard View Post
Don't divert student loan repayments towards a private debt unless it is explicitly permitted (like, part of the signed statement). Potentially this is federal fraud, depending on what program the repayment money is coming from; at the least, it can put you in an unfriendly position with your workplace. Any company that is funding s/t like this should also have free legal advice you can get (like thru EAP office) and I'd run it by them at least.
The private loan I was talking about is a private student loan that they are aware of. We do not have a student loan pay-off program within the company (yet, currently something I'm pushing for to bring in young talent), rather it was something that I negotiated and was agreed upon.

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Originally Posted by rcracin View Post
100% keep the fed loans. The fed offers more options if youíre down on your luck one day.

Pay off the higher rate loans. Chip away at the fed loans over time. You can make targeted payments and pay off specific loans. Donít refi because the rate is low enough and a refi would increase your monthly payment.
Leaning towards this because of the low rate, still debating my options, but this was my initial thought as well.

Appreciate all of the opinions, just trying to make the best financial decision.
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      04-09-2020, 01:42 PM   #8
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Pay off the high interest loan, then start adding the amount you were paying monthly on this to the other loan.

You are already used to not having the money, so you won't miss it and will pay off the other one that much faster.
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      04-09-2020, 01:47 PM   #9
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Although my bias is to pay off higher interest rate loans first, I would also consider the cash flow (principal plus interest) of the two scenarios you mention.

If you can reduce cash flow requirements more by paying the lower interest loans first, then that cash flow is freed up to pay down the other loans faster, too (in sequence). With student loans this is unlikely because they all are probably on similar amortization schedules, but still worth taking a look.
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      04-09-2020, 02:11 PM   #10
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You are asking if you should:

Put your money into a loan with 3.5% interest rate (or 0% for now) that is tax deductible.

Or

Put your money into a loan with 6.5% interest rate


How is this a question? Are you guys doing mental gymnastics to make this into a hard dilemma or am I missing something?
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      04-09-2020, 03:04 PM   #11
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Quote:
Originally Posted by ImolaMoop View Post
You are asking if you should:

Put your money into a loan with 3.5% interest rate (or 0% for now) that is tax deductible.

Or

Put your money into a loan with 6.5% interest rate


How is this a question? Are you guys doing mental gymnastics to make this into a hard dilemma or am I missing something?
Each of them are tax deductible? Both are a student loan interest deduction. So in reality I'd get a better tax deduction based on the 6.7% interest rate. Since If I paid towards the premium on the fedloan none of that would go towards the interest.

Scratch that, not eligible for the deduction based on my income.. sigh

Last edited by JP10; 04-09-2020 at 03:14 PM..
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      04-09-2020, 03:14 PM   #12
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Quote:
Originally Posted by JP10 View Post
Each of them are tax deductible? Both are a student loan interest deduction. So in reality I'd get a better tax deduction based on the 6.7% interest rate. Since If I paid towards the premium on the fedloan none of that would go towards the interest.
Ok didn't know that, but still doesn't change the answer. Don't spend more money on interest just for the sake of getting some of it back at tax time.
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