Most people agree that unsubsidized federal loans should be the loans that get paid off first before subsidized loans.
Pay off your most expensive loan first.
Your most expensive loan is the loan with the highest interest rate.
Generally, it makes the most sense to pay off the highest interest rate loans first, because over time it means you pay out less in interest. However, the details can matter, because getting clear of one loan can allow you to ``snowball'' that money into the next payment.
The general rule of thumb is to pay off the loans with the highest interest rates first – but this is just a theory.
FHA Loans. FHA loans, insured by the Federal Housing Administration, are a popular choice for first time buyers due to their flexible requirements.
Repayment plans based on your income are a smart choice to lower your payment. For example, payments on the Saving on a Valuable Education (SAVE) Plan are no more than 10% of your discretionary income. The lower your income—or the larger your family size—the less you'll pay each month.
The amount of money you're borrowing is known as your principal. The interest is the cost you pay for borrowing money. Interest and fees are generally paid before your payments go towards your loan's principal.
If your loan becomes past due while enrolled in this option, we'll withdraw both the Current Amount Due and the Past Due Amount if that amount is greater than your Designated Amount. There's no penalty for paying early or paying extra.
Getting ahead of your student loan debt is generally a smart move. But, if it meansavoiding higher-interest debt or delaying an important financial goal, paying your student loans off ahead of schedule may not be worth it in the long run.
If you pay off the personal loan earlier than your loan term, your credit report will reflect a shorter account lifetime. Your credit history length accounts for 15% of your FICO score and is calculated as the average age of all of your accounts.
You can successfully pay off debt with either the snowball or avalanche method. Paying off smaller balances first (debt snowball method) may give you motivation to keep going. Paying off higher-interest debt first (debt avalanche method) may save you more money.
With the debt avalanche method, you order your debts by interest rate, with the highest interest rate first. You pay minimum payments on everything while attacking the debt with the highest interest rate. Once that debt is paid off, you move to the one with the next-highest interest rate . . .
Stick to the standard repayment plan
It splits up your total debt (plus interest) into 120 monthly installments spread over 10 years. The federal government also offers income-driven repayment (IDR) plans, which can lower your monthly payment based on your income.
It's a good idea to start paying back unsubsidized student loans first since you'll likely have a higher balance that accrues interest much faster. Once your grace period is over, even subsidized loans will start accruing interest.
Those who borrowed from Sallie Mae after this 2014 split have private student loans, which aren't eligible for federal forgiveness programs. However, Sallie Mae will discharge debts for borrowers who die or become totally and permanently disabled.
The average credit score for approved Sallie Mae borrowers is around 748 for undergraduate student loans. That's pretty high – but don't panic if your credit score is much lower than that. You'll need a minimum credit score (or have a cosigner with a minimum credit score) that is somewhere in the mid-600s.
Initially, most of each loan payment will be applied to interest charges, not the principal, so the loan balance will decrease slowly. There may also be interest that accrued during a deferment or forbearance. This interest must be paid off before the principal balance will decrease.
Because interest is calculated against the principal balance, paying down the principal in less time on your mortgage reduces the interest you'll pay. Even small additional principal payments can help. Here are a few example scenarios with some estimated results for additional payments.
Default – The failure of a consumer to repay a loan according to the terms of the promissory note. For federal student loans default occurs at 270 days delinquent, and has a negative effect on a credit score. Deferment – A period during which a consumer may postpone loan payments.
A subsidized loan is your best option. With these loans, the federal government pays the interest charges for you while you're in college.
There is a $5 minimum monthly payment. Income Contingent Repayment is available only for Direct Loan borrowers. Income-Sensitive Repayment. As an alternative to income contingent repayment, FFELP lenders offer borrowers income-sensitive repayment, which pegs the monthly payments to a percentage of gross monthly income.
Prioritizing debt by interest rate.
The avalanche method can save you both money and time. Chipping away at your priciest debts first reduces what you'll pay in interest in the long run. In turn, you can use the savings to help pay down what you owe and speed up the repayment process.