Is my payment plan realistic? Ignorant finance newbie.

[Premedico]

Hi guys.

Graduating with 96 K direct loans with great lakes (33 K subsidized and 63 K unsubsidized). Yes I went to close in Texas and lived relatively cheap. No parent contribution. I have a terrible fear of loans and credit after seeing/experiencing how my family has handled theirs and I desperately want them payed off and out of my life asap.

I have 5K that I don't need in my hand right now and I'll start residency in a few weeks which means steady income and no particular need that I see to keep this extra 5K.

Original principle: 86K. Current interest 10K. Current capitalized principle: 96K

1) Should I put this 5K down for paying half of the ~10K interest I have accumulated so far? Will that make a significant dent in future accumulated interest or should I just save the 5K for unforseeable need? Can someone give me a sample calculation/estimation of how much I'll save over lets say a year by down paying this 5K right now.

2) Also, I still plan on living cheap during residency. Is it realistic to pay 1K per month and therefore 36K on my current balance by the end of my 3 yrs of residency? Or should I not live cheap and enjoy my life because there's not much difference in savings by paying 500 per month versus 1K/month during residency?

3) Also, am I correct in my understanding that interest should always be payed off before the principle amount?

4) Is there a way with great lakes where once I catch up paying on the accumulated interest, I can pay the unsubsidized portion before the subsidized portion?

5) Is deferment an option?

6) Edit: I searched through threads and read something about a Roth IRA. I wiki'ed it and didn't really understand much. Can someone explain in simple terms and also is this a good idea to put my 5K in? Can the Roth also function as a emergency savings fund?

Thank you for your time.

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[Igor4sugry]

Read: www.whitecoatinvestor.com and http://www.bogleheads.org/forum/index.php
To educate yourself.

1. Keep 5k as an emergency fund.

2. It is realistic to pay 1k/mo. You will be able to pay even more if you can moonlight as 3rd year. Paying off this debt at 6.8% is always a great plan.

3. Contribute to your hospital 401k/403 plan. Open a ROTH IRA

4. Deferment no longer an option. Only options is regular repayment, IBR, Forbearance.

Looks like if you did 10yr repayment schedule the monthly payment will be ~1,100/mo. You may extend it to 20 yrs to lower the payment. Otherwise you will have to apply for IBR.
On the other hand you may apply for IBR anyway and overpay your IBR payment. The benefit of IBR is they will cover your subsidized interest for 3yrs.

5. I think you can designate which balance to pay off by putting that on your check. But they may also force you to pay off the subsidized loan 1st. Check with GreatLakes.

 

[Glimmer1991]

On the other hand you may apply for IBR anyway and overpay your IBR payment. The benefit of IBR is they will cover your subsidized interest for 3yrs.

Bumping a dead thread just because of this statement.

Will they cover unsubsidized interest (ie. government loans)? Though I am only entering dental school this year, I will be graduating with less than 100k in debt (barring any major and unforeseen catastrophes, I suppose). My spouse will have no debt and will be working as a lawyer. As such, I plan on aggressively paying off my loans and hopefully getting rid of them in 3-5 years.

If I sign up for IBR and greatly overpay to have everything gone in a short time period, will they cover any interest that accrues during those first three years? Like the OP, I am also a financial newbie--I am probably hoping for something that is too good to be true!

I have not looked too much into IBR and was really just planning off my government loans the "old fashioned way." This piqued my interest, though!

Thanks!

 

[Zagaza]

IBR only pays the interest for the first 3 years on subsidized loans if your monthly payments are not enough to cover the interests.After that you are on your own.Interests wise.The moment you start making payments enough to cover the interest they will see that you are making payments to cover it and will not touch it.These payments from the government dont show until after the 3 years, so interests will still accumulate on your statements and wont be wiped till the 3rd year. As i was told by Fedloans, maybe someone can correct me if i am wrong.

 

[Glimmer1991]

Aha. Thanks!

 

[freaker]

Bumping a dead thread just because of this statement.

Will they cover unsubsidized interest (ie. government loans)?

No, they will not. Interest accumulating on unsubsidized Stafford or GradPlus loans is not covered by the government at any point during the loan, but it does not capitalize under the IBR plan.

If I sign up for IBR and greatly overpay to have everything gone in a short time period, will they cover any interest that accrues during those first three years?

Only the unpaid interest on subsidized loans that is not covered under your IBR plan (if you qualify for one) will be subsidized. You may not qualify for IBR if your wife is a lawyer and your debt is less than 100k, as it will simply be expected that you can make the payments--that is, unless you file married filing separately (though you also miss out on a lot of deductions that way). If you do qualify for IBR and your payments will be substantially less than the interest that will accumulate on your subsidized loans, you may want to consider just making a big bulk payment during one month to pay down your loans and collect the additional unpain interest accumulating on your subsdized loans.

I honestly doubt you'll qualify for IBR or a payment low enough for you to really benefit much from having subsidized interest paid off, though, if your wife is making a decent living as an attorney.

 

[Glimmer1991]

No, they will not. Interest accumulating on unsubsidized Stafford or GradPlus loans is not covered by the government at any point during the loan, but it does not capitalize under the IBR plan.

Only the unpaid interest on subsidized loans that is not covered under your IBR plan (if you qualify for one) will be subsidized. You may not qualify for IBR if your wife is a lawyer and your debt is less than 100k, as it will simply be expected that you can make the payments--that is, unless you file married filing separately (though you also miss out on a lot of deductions that way). If you do qualify for IBR and your payments will be substantially less than the interest that will accumulate on your subsidized loans, you may want to consider just making a big bulk payment during one month to pay down your loans and collect the additional unpain interest accumulating on your subsdized loans.

I honestly doubt you'll qualify for IBR or a payment low enough for you to really benefit much from having subsidized interest paid off, though, if your wife is making a decent living as an attorney.

Thank you so much for the help! However... I am the wife.

I definitely won't qualify for any subsidized loans (I believe such loans require parental finance info on the FAFSA, and they are above the threshold). Our total student loan debt will be less than 100k, as his parents are paying for his law school. We are entering graduate school at the same time, and he will be done at least a year before me. I may consider specializing. He should have a job lined up upon graduation, so even our initial income will be decently high during my final year of school. That would be nice if I could keep the interest from capitalizing, but oh well. The interest shouldn't be too large of a chunk of cash, anyhow, but I'm just trying to make the smartest decisions as possible with my loan repayments.

I figured it was too good to be true, but I just wanted to check! Thank you for laying it out so thoroughly for me.

One other thing--since he will be working during my last year of school (potentially more years if I specialize or do a GPR/AEGD), should we use his income to try to pay down all the interest that has accumulated so that it doesn't capitalize when I graduate? Is such a thing possible, or is there a better idea of how we should handle this?

Thanks again!

 

[RangerBob]

Thank you so much for the help! However... I am the wife.

I definitely won't qualify for any subsidized loans (I believe such loans require parental finance info on the FAFSA, and they are above the threshold). Our total student loan debt will be less than 100k, as his parents are paying for his law school. We are entering graduate school at the same time, and he will be done at least a year before me. I may consider specializing. He should have a job lined up upon graduation, so even our initial income will be decently high during my final year of school. That would be nice if I could keep the interest from capitalizing, but oh well. The interest shouldn't be too large of a chunk of cash, anyhow, but I'm just trying to make the smartest decisions as possible with my loan repayments.

I figured it was too good to be true, but I just wanted to check! Thank you for laying it out so thoroughly for me.

One other thing--since he will be working during my last year of school (potentially more years if I specialize or do a GPR/AEGD), should we use his income to try to pay down all the interest that has accumulated so that it doesn't capitalize when I graduate? Is such a thing possible, or is there a better idea of how we should handle this?

Thanks again!

You can definitely pay off the interest that is accumulating on your loans--the interest will capitalize when you start repayment, which is six months after you graduate. That can save you quite a bit of money. So can borrowing less that final year if he gets a secure job lined soon enough.

 

[lazyjayn]

Something that wasn't answered, and I'm not 100% if you were asking it, or even still interested but,

When you make payments above the minimum, your loan company will try to apply them to future interest, or future payments. So, say, on a 20 year loan, they were expecting 80k in interest income. Left to their own devices, your loan company would put your nice juicy 1k payments toward that 80k before they started chipping away at your principle.

But! If you tell them "any money in excess of my payment is to be applied to the principle" then that's what they do. Though I'm told it works better if you send the "extra" as a separate payment with "APPLY TO PRINCIPLE" written all over it in huge letters, then check up on them.