November 14, 2008 3:47 pm

Student Loans

Just saw this on the Mint blog:

Under a new federal loan repayment plan based on a model developed by the Project, students with federal loans are guaranteed that their monthly student loan payments won’t exceed a certain percentage of their income (15% of discretionary income, which is classified as everything over 150% of the federal poverty level). This legislation, signed into law a year ago, takes effect in July 2009 and applies to all federal student loans, past or present.

I don’t know about you, but I certainly hope that this is true. I won’t tell you the exact dollar amount I spend on my student loans every month, but it is around 22% of my total monthly take-home pay, which is not entirely insignificant. Using some hazy math (good heavens I am bad at math) I estimate that this would bring my payment down by 43%.

I haven’t consolidated my loans. I have two, a personal one through my bank and whatever the normal one is, Stafford? I chose not to consolidate when I graduated because the interest rates were so high at the time. I looked up the current interest rates here and it looks like mine is 4.21% right now. I think when I got it it was around 7 or 8, but I know people who have them at 2 or 3, so I was holding out. Since they’re not consolidated, this means I have two payments each month and they’re pretty hefty. (See above, re: 22% of take-home pay). In comparison, I spend less money per month on my half of rent. Not a whole lot less, but less.

The other reason I haven’t consolidated (or called to lower my rates) is because I want to pay it off. It seems counterintuitive to me to continue attempting to lower your rates so you end up paying a piddly $90 a month on a loan worth tens of thousands of dollars. You’ll be paying it off until you’re 97 years old. Ew.

What’s the balance here?

I did get a letter once saying one of my loans lowered my monthly payment by about 20%. Since I could afford it and I wanted to pay it off, I adjusted this online so it was back up to where it was before. I’m thinking now that I should have left it, continued to pay the same amount I was before, and specified that the extra be applied to the principal instead of the interest. I’m kind of kicking myself for that now. Was adjusting it back up a stupid thing to do?

I really wish I understood this kind of stuff better. Are any of my readers financial whizzes who want to recommend to me a course of action? Does the “22% of monthly take-home pay” sound totally outrageous to you? I have a 401k and health/life insurance, but I do eventually want to be able to buy a house and right now it seems really daunting. Am I insane for wanting to pay off my loans quickly?

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  • Lucas says:

    “The other reason I haven’t consolidated (or called to lower my rates) is because I want to pay it off.”

    This isn’t making sense to me. A lower interest rate would be easier to pay off, not harder. The rate isn’t how much you pay, it’s how much your debt increases each year.

    Payments up, rates down = less debt faster.

  • Meggan says:


    Eeep – I didn’t mean the interest rate, sorry. I meant the payment rate, the amount I pay per month. That’s what they lowered, not the interest. I am bad at math but not THAT bad, hahaha. I know lowering the interest rate would be better; I wonder if I could call and ask them to lower that?

  • Lucas says:

    Ah ha! Well then, sounds like you’re on the right track.

  • Brianne says:

    You know… if you consolidate with a lower rate you can still make payments of the same dollar amount you pay now!

    It can say “$90 due” on the bill, but you can still pay $300, or $1000, or whatever as long as it’s $90 or more. :)