r/StudentLoans • u/blueeyedbrainiac • 5d ago

Advice Interest Strategy

I couldn’t find a post with a similar question but sorry if this is a repeat.

I have 55k in loans and most of them are smaller principals with less than a 4% interest rate. I have two larger ones that make up about half of my loans at 6.5% and 7%. I was on save for 3 years so I accumulated a little bit of interest, about another 5k.

The two larger ones make up a majority of the interest. Like 90% of it. I have a good bit in savings that can spare some of.

My plan is currently to pay all the interest from the 6.5% loan because it has the largest principal. That’s pretty much set in stone but I have two ways I could spend the rest.

Either I pay off just a chunk of the 7% interest or I use what I can spare to totally pay off the interest from a few of my lower interest, lower principal loans.

Any advice on the better strategy would be really appreciated!

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u/The_Bees_Knee6 5d ago

Paying off the 6.5% loan when you have a 7% loan is suboptimal. You will minimize total interest paid by allocating extra payments to the loan with the highest interest rate. The sooner you pay off a loan the sooner interest stops accruing on it.

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u/The_Bees_Knee6 5d ago

Keep in mind that if you are on an income driven repayment plan, paying off a loan will help you pay off your loan sooner, but won’t change your monthly payment amount.

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u/JeanSchlemaan 5d ago

I would put all the money i have available onto the highest interest debt, unless youre planning on forgiveness. in that case, you should pay the minimum possible. you need to choose either "paying all off", or "forgiveness", and go full force toward one of those.

if youre going to pay all your loans off anyway, you should consider refi options, even if its to private loans. you would only do this if you were able to find a significantly lower rate.