What's my loan payoff strategy?

August 27, 2012 10:08 AM

I need some help with student loans. I took loans out in 2008 and 2009. Two subsidized and two unsubsidized. Now I'm on half-time school deferment and I'd like to take advantage of this!

The loans from 2008 are:

Subsidized:
Starting balance: $3,500.00
Current balance: $3,314.50
Fixed interest amount: 6%

Unsubsidized:
Starting balance: $6,000
Current balance: $6,535.43
Fixed interest rate: 6.8%

Loans from 2009:

Subsidized:
Starting balance: $4,500
Current balance: $4,259.70
Fixed interest rate: 5.6%

Unsubsidized:
Starting balance: $6,000
Current balance: $6,142.99
Fixed interest rate: 6.8%

I got the letter about half-time school deferment and promptly forgot about it, and then I didn't make payment in August. I emailed them asking them to take me off deferment, but they told me that they government will pay for the interest on the subsidized loans while I'm still in school. Nice! They told me I can still take off the deferment, but I figure why not take advantage of this?

I still want to make payments. I was paying based on income, and my payment was $119 per month. I can probably afford around that number, a little more if necessary. But I have no idea what my best strategy would be. Should I pay more on the subsidized and knock them out? Should I not pay them at all and just pay the unsubsidized loans? The interest on those is pretty killer. As you can see, the balances have only gotten higher, and the interest will keep accumulating. FWIW, I'll be in school until 2015. No more loans will be taken out in that time.

Can you help? Thanks!

posted by your mom's a sock puppet to work & money (4 answers total)

To be clear, I didn't make payment in August because the loans were deferred. I was previously doing autopay. My payments have been on time since I first started paying them off.
posted by your mom's a sock puppet at 10:09 AM on August 27, 2012

I'd suggest letting the subsidized loans sit for now, since they're effectively frozen, and focusing all the money you can afford to divert into the $12k of 6.8% unsubsidized loans. Knocking out the smaller loan may feel nice, but if you can maintain the discipline, the actual dollar savings are greater when you aim at the higher-interest ones.
posted by Tomorrowful at 10:27 AM on August 27, 2012

I'd say target the unsubsidized loans for sure. If you choose to target the subsidized loans, those unsubsidized loans at a higher interest rate for a larger amount will just grow and grow.

The subsidized loans, on the other hand, are basically frozen until you're out of deferment. There isn't any benefit to paying them off now as opposed to later.
posted by MadamM at 10:39 AM on August 27, 2012

Yes. Pay down the higher interest rate loans first.
posted by jeffamaphone at 10:40 AM on August 27, 2012