EDIT: the OUTSTAND_PRIN is the same as PRINCIPAL since I haven't begun paying down yet, but am saving like I am paying until my 6 months is up, just in case i need the extra $3,600 for an emergency beforehand.

Here is my situation: all of my student loans are through FAFSA and I want to pay them back as soon as possible. I'm thinking about my options here and I have an idea of going down two different routes.

1) 10 year plan with payments around ~$600/mo. Since I've budgeted for two paychecks/mo and I am paid bi-weekly, I plan on paying two extra checks, or around ~3,000/year, down on my loans. Additionally I'm thinking of upping my payment to $800/mo, and most likely higher after a year or so.

2) 25 year plan with payments around ~$323/mo. Here I would have lower monthly payments, hence more flexibility, in case an emergency came up. My thought process is to do the lower monthly payments and still pay ~$600-$800/mo down, same deal with the extra paychecks, and hopefully increasing my payment in a year or two.

 1. SUB   $3,500 08/17/2010 $3,500         $    0         4.5%
 2. UNSUB $2,000 08/17/2010 $2,000         $  715         6.8%
 3. UNSUB $4,000 08/17/2010 $4,000         $1,431         6.8%
 4. SUB   $3,500 08/13/2011 $3,500         $    0         3.4%
 5. UNSUB $2,000 08/13/2011 $2,000         $  580         6.8%
 6. UNSUB $4,000 08/13/2011 $4,000         $1,161         6.8%
 7. SUB   $1,000 01/09/2012 $1,000         $    0         3.4%
 8. SUB   $4,500 08/14/2012 $4,500         $   16         3.4%
 9. UNSUB $2,000 08/14/2012 $2,000         $  445         6.8%
10. UNSUB $1,500 08/14/2012 $1,500         $  354         6.8%
11. UNSUB $1,200 01/04/2013 $1,200         $  251         6.8%
12. SUB   $5,500 08/20/2013 $5,500         $   23         3.9%
13. UNSUB $2,000 08/20/2013 $2,000         $  175         3.9%
14. UNSUB $  991 01/30/2014 $  991         $   77         3.9%
15. SUB   $2,500 08/27/2014 $2,500         $    0         4.7%
16. UNSUB $  496 08/27/2014 $  496         $   33         4.7%
17. UNSUB $  754 09/05/2014 $  754         $   49         4.7%
18. UNSUB $2,500 09/05/2014 $2,500         $  164         4.7%
19. UNSUB $2,228 01/21/2015 $2,228         $  142         6.2%
20. UNSUB $1,843 08/14/2015 $1,843         $   50         5.8%
  1. TOTAL LOAN BALANCE: $53,678
  2. TOTAL PRINIPAL: $48,012

My plan is to drop the payments to around ~$320/mo by switching to 25/yr plan and make these additional payments on to my principal, advising my federal loan servicer to pay me oldest, highest interest rate, loans first. This will pay off the loans that are accruing the most interest monthly first, and leave my room to drop down my payments for a few months if need be.

Does this sound like a viable plan? When I do an amortization table my answer comes out to be the same amount of interest paid, but it's not taking into account in which order it's being paid off in, but rather the extra payments being distributed evenly to all the loans. Is this the best way to tackle this? Not sure how to calculate it based on the order I'm paying off.

For this calculation could we assume I'm doing $800/mo in perpetuity.

  • 2
    10-25 years? How about paying them off in 3 years? ~1500/ month can make that happen.
    – Pete B.
    Feb 24, 2016 at 15:56
  • I was planning on that, but unforeseen circumstances always do arise. I believe in ~1-2 years I may be able to do $1000-$1500/mo, could be less time. Grew up in very low income family, attended school on my own, so I need a little larger emergency fund.
    – DukeLuke
    Feb 24, 2016 at 15:56
  • Pete - my goal isn't to pay them off over the course of 10-25 years. Please read my thread. I'm hoping to have them paid off in 5 or less realistically, I don't know when I'll be able to up that payment exactly, and anything can happen between now and that time. I want to low-ball my payment estimates BECAUSE when I initially calculated my budget I was disappointed. Would rather have conservative estimates.
    – DukeLuke
    Feb 24, 2016 at 15:58
  • "drop the payments to 25/yrs" the question can use just a bit of editing for clarity. Feb 24, 2016 at 16:10
  • Who is the loan servicer?
    – Ben Miller
    Feb 24, 2016 at 16:17

4 Answers 4


The bottom line is that you have a viable plan. I'd also account for raises and bonuses. You are winning by having a plan and a budget, you will be much more efficient that way. Also you may want to look at your withholding. The standard w-4 form typically leaves people with getting a large return, or owing a lot of money. Aim for a zero refund.

There are two schools of thought: Pay them off from largest to smallest interest rate; or pay them off smallest to largest balance. Clearly the first is more mathematically efficient, no question. The second only has merit because of emotions.

As stated in your comments, you are somewhat depressed given your conservative repayment schedule. I am going to assume $325 is your minimum payment, and you can find $800 per month to pay, making a $475 extra principle payment. Currently you have 20 loans. If you go smallest to largest, in 7 months you will only have 16 loans with a start on #5. That would feel pretty good right?

If you went from largest interest rate, you could pay off one loan and start on a second.

By doing the balance method there would be about a $55 amount of interest rate inefficiency in the course of 7 months. However, if by using the balance method and are so encouraged by your progress you find another $100/month to attack the debt the amount of inefficiency becomes meaningless.

Another added benefit of using the low balance method is that your minimum payment goes down each time a loan is paid off allowing more agility in one's budget.

For me, the low balance method worked the best and I am a math guy. That being said, if I found myself with $2300, I'd pay off one of those 6.8% 2K loans, and throw the remaining 300 at the smallest.

For your reference, here is your loans listed from smallest to largest:

$496 08/27/2014 $496 $33 4.7%
$754 09/05/2014 $754 $49 4.7%
$991 01/30/2014 $991 $77 3.9%
$1,000 01/09/2012 $1,000 $0 3.4%
$1,200 01/04/2013 $1,200 $251 6.8%
$1,500 08/14/2012 $1,500 $354 6.8%
$1,843 08/14/2015 $1,843 $50 5.8%
$2,000 08/20/2013 $2,000 $175 3.9%
$2,000 08/17/2010 $2,000 $715 6.8%
$2,000 08/13/2011 $2,000 $580 6.8%
$2,000 08/14/2012 $2,000 $445 6.8%
$2,500 08/27/2014 $2,500 $0 4.7%
$2,500 09/05/2014 $2,500 $164 4.7%
$2,228 01/21/2015 $2,228 $142 6.2%
$3,500 08/13/2011 $3,500 $0 3.4%
$3,500 08/17/2010 $3,500 $0 4.5%
$4,000 08/17/2010 $4,000 $1,431 6.8%
$4,000 08/13/2011 $4,000 $1,161 6.8%
$4,500 08/14/2012 $4,500 $16 3.4%
$5,500 08/20/2013 $5,500 $23 3.9%
  • 6
    @lucasdavis500 See Why would anyone want to pay off their debts in a way other than “highest interest” first? for some insight on this recommendation. But Pete's answer here makes it clear that if your plan is to pay the highest interest loans first, and don't waiver from your plan, you'll come out ahead mathematically.
    – Ben Miller
    Feb 24, 2016 at 17:05
  • 1
    @lucasdavis500 That's been discussed ad nauseum here; I think Pete did a good job covering that in his answer (pointing out the inefficiency plus why he thinks it's appropriate here).
    – Joe
    Feb 24, 2016 at 17:05
  • 1
    Here is a suggestion @lucasdavis500: Agree to do smallest balance method for one month and see what happens. I have a prediction and we can talk about it once that month is over.
    – Pete B.
    Feb 24, 2016 at 17:56
  • 2
    HIGH RATE FIRST!!!! Ooops, sorry to shout. Low balance has some low rates, high rate first. Feb 24, 2016 at 21:13
  • 2
    For US Federal Student loans there's another factor you may want to consider in deciding which loans to pay off first. If you lose your job and need to temporarily stop making payments due to financial hardship, the Govt will pay the interest on Subsidized Loans. For unsubidized loans the interest will be added to your account balance and need to be paid back when your finances recover. This gives a potential advantage to paying your unsubsized loans off first even if they're not the lowest rate. studentaid.ed.gov/sa/repay-loans/… Feb 24, 2016 at 23:59

I think your plan sounds entirely reasonable and like a very good idea. In particular, signing up for the longer 25-year payoff plan with the understanding that you will make higher payments and therefore pay things off more quickly sounds like a great idea because, as you say, it leaves you with the flexibility to drop payments to only $320 per month if/as life happens.

I think the main question is whether your loan servicer will correctly apply the extra payments. If you are able to easily ensure that additional payments go to principal of the highest rate loan (or loans), then all should be good.

Within all the loans at a given interest rate, I would apply extra payments to the smallest loans first for the psychological boost and decrease in minimum payment mentioned in Pete's answer, but this is clearly a personal (and relatively unimportant) decision.

  • 3
    +1 for mentioning that you should make sure the servicer applies the extra payments correctly. They're supposed to be done properly per federal law, but ... who knows.
    – Joe
    Feb 24, 2016 at 17:17

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I copied Pete's data and re-sorted to show by interest rate. What stands out to me is that the balance at 6.8% ($16,700) is nearly as high as the 3.4-3.9% balance ($17,491) yet costing nearly twice the interest.

If we call the difference 3% to keep the math simple, the high rate chunk costs you $500/yr more than the low rate chunk.

I'm sympathetic to those who feel great about paying off 5 different 6% credit cards with sub $2000 balances who are left with only one card carrying a 24% rate on a $10K balance. But, in your case, you have 20 loans, and you must already have it all set up to make these payments. Just make the extra payments to the 6.8% debt, you can target the lowest balance s0 long as it's 6.8%. You'll be canceling off one loan every few months, but you'll see the annual accruing interest drop by the optimum amount.

The low balance? They'll fall off at some point anyway, given how high the payment is compared to the remaining balances.

  • 1
    For student loans, the lowest balance first method has less of a psychological impact anyway, because they are all serviced by one company and you only send one check for all of them every month. If you were writing separate checks for all, it would be silly to keep around a $496 loan that you could get rid of in 1 payment just to optimize a little interest. But these student loans are essentially one giant loan with a complicated interest rate structure.
    – Ben Miller
    Mar 1, 2016 at 15:00
  • All the more reason to just specify the extra funds go to the high rate loan first. Agreed, regarding check writing. Mar 1, 2016 at 15:43
  • @JoeTaxpayer That's exactly what i was thinking, my real question was if it were a good idea to increase my loan term to 25-yr but increase my payment down on principle while still paying the same (or more) than the 10 year term minimum payment. I was planning on doing the highest interest rate first, i don't know why anyone would do lower interest rates.... i agree with the sympathy
    – DukeLuke
    Mar 1, 2016 at 15:46

i think you have a viable plan, but here are a few other things to consider:

  1. you will probably have to set up automatic payments for your "minimum due", then manually make a payment each month to a specific loan in addition to the minimum. but it depends on your servicer. you may be able to set up an additional automatic monthly payment on a specific loan, but i don't think any servicer will let you set up an automatic payment that automatically switches to the next-highest-interest loan.
  2. student loan interest is tax deductable, so paying down a 6.8% loan might make sense, paying a 3.4% loan probably doesn't. personally, i would pay down to around 5%, then focus on other uses for my money. also, it is worth noting that there are income limits on deducting student loan interest (65k-80k$ phase out in 2016)
  3. "other uses" include an emergency fund (you seem to have covered), getting 401k matching (which you should also do before paying down this debt), ira, and hsa funding. dave ramsey has a nice general-purpose plan.
  4. since you seem math-fluent, i would encourage you to apply this same analysis to all your financial decisions. notably, you should focus on reducing your taxes in general. for starters, you could look into managing capital gains/loss realization. doing so can effectively convert earned income into long-term capital gains, which can make you money even when you have a net capital loss on your investments.
  5. you might consider avoiding paying off the last loan. leaving a 100$ balance can keep the loan on your credit report for years at the cost of pennies per month.
  • 1
    "you might consider avoiding paying off the last loan. leaving a 100$ balance can keep the loan on your credit report for years at the cost of pennies per month." Why in the world would you want to do that? Get that crap out of your life and never have to think about them again.
    – Kevin
    Feb 24, 2016 at 23:08
  • your credit score is effected both by age of accounts and account type diversity. by keeping an old student loan on the report, you can boost your score. perhaps overkill, but considering that a good score can earn you thousands per year it seems silly to worry about a few pennies of interest. Feb 24, 2016 at 23:16
  • I think the effect that keeping this on his credit report would would be extremely negligible at best. Not at all worth the headache of keeping the loan active and remembering to pay whatever the minimum payment was every month. Even if you automated it, there's still the monthly statements, off chance you close bank account and forget about that one, etc. Get rid of it!
    – Kevin
    Feb 25, 2016 at 0:06
  • A good credit score does not earn you thousands per year. Credit scores are useful for borrowing and paying interest, not for earning money. You might pay extra in interest if you have a bad credit history, but if you pay your bills on time your credit score will be high enough. Don't buy into the lie that you have to keep paying interest on loans for years to keep the score up and to have a good life.
    – Ben Miller
    Feb 25, 2016 at 0:08
  • @Kevin generally, unlike mortgages, you do not have to make a monthly payment on a student loan that has been pre-paid. clearly, there is a risk that you could forget to resume payments after the prepayment period. also, it will not help much if you have diverse credit. however, i for one, do not have any other debt besides revolving credit, so i believe keeping my student loan on my report has a non-negligible impact on my future mortgage rate. after all 0.01% is a lot of money in a mortgage. and i do not forget my bills. Feb 25, 2016 at 0:18

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