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Student Loans - Extended Repayment (2 years or 4 years)?

jakeyt

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I have some student loans that are above $30K. I wanted to reduce my monthly payment from $400 to something lower. The only program they offer is '"Extended Repayment" where I can pick between 2 to 4 years of just paying interest. What are your thoughts on it? My thought was to go for it to reduce monthly payments, and then pay off the higher interest loans @ 7% and then just pay the 2.3% ones. I would pay $200 monthly, but at least I don't feel it is a big ding out of my paycheck, and I could save to make more lump payments over the next few years to pay it off.

Thoughts?
 

dah328

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Depending on the term of your loan and the ratio of your loan principal at 7% vs. 2.3%, you may come out very slightly ahead (about 3-3.5% in total payments) if you do extended payment on the lower rate loan but ONLY if you devote the money you would have paid on the lower rate loan to paying down the balance on the higher rate loan. In other words, your monthly payment remains at $400. In any scenario in which you lower your monthly payment, you extend your payment schedule and increase your overall cost.

It sounds like you want to lower your monthly payment so you have $200 more to spend on other things. That sounds to me like setting yourself up for poor financial discipline.
 

jakeyt

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No, I want to put $200 into the company's 401K plan where they'll match 2% of my paycheck. But I can't afford that and pay $400 in student loan fees. I do have enough to pay down the 7% interest to just pennies - I would keep open for credit reporting purposes. Before I do that, I would stretch it out for 20-25 years to the extended payments. Now I can save money and pay off debt. At the end of the year I have a bonus (no idea the value), that extra money would go to paying down the student loan even more. Or enough where I would end up paying enough to student loan deductions from the IRS. The goal is to have it all paid off in 3-4 years while still being able to contribute money to a 401k, Roth and so forth.
 

dah328

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I see. It does make sense to defer payment on the 2.3% student loan in order to take advantage of your company's 401k match. In fact, you should make sure that you max out your company's 401k match since it's essentially free money.
 

jakeyt

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It all depends on how much I can reduce my student loan monthly payments by... The max contribution where my employer will match is around where I pay $200.

Anyways, does it make sense to stretch out my student loans to 20-25 years, or just keep doing 10 years? Does it make sense to consolidate it at all?
 

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