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After completing Undergrad December 2017 I began making payments on my student loans (#1-5 below), paying more than necessary on the smallest balance of my 6.8% loans (usually owe $340, paying $500). My current Employer offers 100% Tuition Reimbursement on continued education (A/B = 100%, C=75%), so I have enrolled in a Masters of Applied Analytics program (Online). To help offset the cost and not need to front the cash every semester, I went ahead and took out financial aid once more with an award of $15,500. Detailed below:

Loan # | Issue Date | Loan Type | Status | Est. Balance | Interest Rate

  1. 09/23/2010 Direct Unsub Stafford Repayment $6,500 6.8%
  2. 09/22/2011 Direct Unsub Stafford Repayment $3,200 6.8%
  3. 08/20/2012 Direct Unsub Stafford Repayment $5,850 6.8%
  4. 08/19/2013 Direct Unsub Stafford Repayment $6,850 3.86%
  5. 08/26/2014 Direct Unsub Stafford Repayment $6,750 4.66%

Grad School Loan:

  1. 01/04/2019 Direct Unsub Stafford In School $15,500 6.6%

1 Semester costs roughly $5,000, so I have been issued a "Refund" of $10,500 from my latest loan and I am trying to figure out the best way to put that to use (As long as I keep my grades up, the $5,000 I will then get reimbursed from my Employer should be enough to fund most/all of my Masters program in the coming semesters).

Previously I was using the Snowball method under standard repayment and while I owed $350 total each month on my 1-5 loans, I was paying an extra $150 each month directly towards loan #2 (hence the lowest balance of my 6.8% loans). I would like to keep roughly 20-25% back in case I have a semester where something comes up and grades don't meet my Employers Reimbursement policy (hopefully not, but life happens).

Under that plan, that leaves me with ~$8,000 roughly that I could immediately pay back into my loans but I wanted some advice on which one to put that towards?

  1. Should I just pay off what remains of Loan #2 ($3,200)? And apply the rest to another loan (if so, put the rest towards the next lowest 6.8% loan or my newest largest balance one?)
  2. Put it all towards my latest Loan #6 to reduce that principal back down?
  3. Or put it towards, say, Loan #1 so another one of my 6.8% loans is close to being paid off?
  4. Or is there a better idea I haven't thought of?

While I am now back in school and not required to pay on my loans, I still intend on fully paying at least $500/mo into my loans just like I was before, just trying to figure out the best way to pay back with my refund. Thanks.

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Since none of the loans are subsidized, interest is accruing while you're in school, so the highest interest loan hurts the most. Wipe out as much 6.8% debt as you can.

I'd question whether you actually need to hold any back. Do you have any emergency savings? Could you simply get a student loan for the subsequent semester if needed? You're paying 6.6% to borrow a cushion, if you can only borrow as much as you need each semester you'll save some money, but in some cases it is worth some interest to have cash on hand in case things go south. Many people advocate prioritizing an emergency fund over extra payments on debt.

  • Thanks for the reply Hart! I guess my biggest concern was whether I should attack all the 6.8% loans first, or put some towards the new 6.6% given such a larger principal than the others? – Analytic Lunatic Jan 10 at 21:24
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    @AnalyticLunatic The loan balances don't change priority, each dollar at 6.8% generates more interest than each dollar at 6.6% though it's not much difference. The arguments for attacking lowest balance first rather than highest interest hinges on a psychological benefit, not a financial one. Age of the loan doesn't change priority either, unless you were in line for loan forgiveness. Since they're all accruing interest, highest first has the best financial impact. When rates are equal, lowest balance first is nice because it clears loans off your books, but no financial difference. – Hart CO Jan 10 at 21:34
  • Thanks Hart, that makes sense. Yeah, definitely not in a position for loan forgiveness. I'm thinking now I will pay off the Loan #2 ($3,200) and put $5,000 towards Loan #3. That leaves me a little in reserve still and gets basically 2 loans (both 6.8%) off my list. From there I'll use your advice and pay heavy towards my remaining 6.8% and then 6.6% loan before taking on the smaller interest ones. Maybe a side question, but if I am not technically owing anything on my loans while in school, can I apply my previous $500 payment towards the last 6.8% loan by itself? – Analytic Lunatic Jan 10 at 21:46
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    @AnalyticLunatic Yeah, it will be best to direct it all at the highest rate while in deferment. – Hart CO Jan 10 at 21:57
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I would pay off #2 and #3 completely. Not only are they the most expensive in terms of interest, but they are the smallest balances, so they could be cleared in full and still leave you a little bit of "whatever" money to decide on later.

Not having those two balances anymore will reduce your total minimum payment obligation each month, which gives you greater freedom to either continue directing extra payments towards principle or simply be better prepared to weather those "life happens" moments.

  • Thanks Cactus! I believe this is the route I will be taking based on Hart's earlier reply and now yours. Side question, if I do not technically owe anything each month on my loans while in school, would it make sense to continue making the previous "minimum" on each of my remaining loans I was doing with extra towards the lowest balance high % loan, or should I put the entire $500 payment towards that last 6.8% loan while I'm in school? – Analytic Lunatic Jan 10 at 21:49
  • I would direct it all towards the highest interest loan. That saves the most money in the long term. If you're not required to make payments on the lower interest loans then you're not doing yourself any favors* directing payments towards those balances in lieu of attacking the more expensive ones. (*unless there is some psychology at play, as well). – CactusCake Jan 10 at 22:00

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