Student loan tips for repayment, consolidation for a pharmacy graduate

Question

I am including the student loan information for a friend below. Also including a link to the excel sheet here There would be about 3,000 left every month after various expenses. Friend is a pharmacist, have not received consistent schedule yet but gets on an average 120 hours/month @ 55$/hr. We share groceries, rent etc so that helps as well.

The question that is most concerning me is:

1. The friend is considering consolidation of loans but cannot consolidate public and private loans, so unsure if consolidation is a good option or not at this point or we may end up paying more.
2. We are planning to go with term based payment as that seems to be the cheapest option at this point. So just utilize the 3000 to pay on minimum due which is about 1761.17 at this point and then use the remainder 1238 to pay on the accumulated interest rate on loans 2, 1, 9 and 7 and then use that remainder to keep paying the principal. Plan is to try and finish this as early as possible.
3. Have been suggested to use the income based repyament plan, unsure why we should use that since we would end up paying more in that case.
4. Since the borrower has a good credit history (Fico score around 800), a thought was to get a credit card which has about 21 months of 0% APR for balance transfer and use that to pay off the Outstanding Interest of loan 1 , 2 so that come next month, they dont add up to the principal. Is that a bad idea?

Thanks and appreciate all the feedback.

Answer 1

The friend is considering consolidation of loans

I would ONLY do this if the consolidation saves you a SIGNIFICANT amount of interest after any fees are paid. Consolidation can give you less flexibility since you only have one big payment versus several smaller payments where you can knock one out and get some satisfaction.

Currently your weighted average interest rate is 6.78% - If you can consolidate to 6% you will save about $130/month in interest. While that may seem like a lot, that's only a bout 4% of your monthly payment, so it will shorten the time it takes to pay off the loan by a month or two, but you don't have much of a tangible benefit until the very end, and you lose any emotional boost by paying them off one-by-one.

Paying $3,000 a month you're looking at about a 67-month payoff. Dropping to a 6% interest rate gets it paid off one month faster.

I would consider knocking out a few of the smaller ones quickly, pay minimums on the rest, and put everything you have on the largest interest rate until you have a loan down to a point where you can pay it off in one month. Then knock that one out (giving you a little boost from getting one out of the way) and go back to the bigger ones. At $3,000 a month you ought to be able to knock the smallest loan out immediately, and get the 9.49% one paid in another 12 months. Then knock off a smaller one, attack a bigger one, etc. You get the satisfaction of getting rid of one more often and some benefit of attacking the higher rate loans.

Is [using a balance transfer to a 0% card] that a bad idea?

I don't know that you can do a "balance transfer" from a student loan, but yes it's a bad idea. The balance transfer will likely have a 3% upfront fee, and if you don't pay it off in time, you'll get whacked with a 19%+ interest rate (possibly retroactively). WAY too much risk for the interest that could be saved.

Answer 2

I would argue that as long as the interest rate for the entire loan is below 6.78% (The weighted average interest weight) then the loans should be consolidated. The money benefits are close to negligible but you will be paying this off for more than 5 years and it would be easier to write 1 check as opposed to 10 per month for the duration of repayment.