Why I paid off my student loans early

My student loans had a really low interest rate– even lower than a super-low mortgage rate.  We don’t have a house yet, but eventually we might get one, so it makes sense to keep lower interest rate debt.  There’s even a reasonable chance that the market would out-perform the risk-adjusted return to paying back the loans if the interest rate is low enough (#2 wrote that sentence).

I was working on building up an emergency fund in my steady t-t job (after recovering from the debt of moving here and having to buy a car, which I had already paid off in under 18 months).  BUT, I got annoyed and wanted to get rid of the loans, so I did.

I was lucky to have only federally subsidized loans.  I had no problem with how things were going at http://www.direct.ed.gov/ — I was getting the interest-rate discount for having automatic payments, the payments were an amount that I could handle, and it was easy to change anything through their website or make a one-time extra payment.  I did this sometimes, because I wanted to pay off my student loans before tenure (I am goal-oriented).  But mostly I let it chug along on its own.

But my student loans got sold to this stupid mohela place and their website is stupid.  If you will recall, they made it a huge PITA to do anything, especially making one-time pre-payments.

So the short story is, mohela pissed me off so much that I threw savings at them to make them go away.

Sometimes throwing money at an annoyance is well worth the expense.  Like getting a cleaning person, only in this case with paying off low-interest debt.

#2 says:  Can we get some kudos for #1 paying off her loans?

If you had student loans, did you pay them off early or on time (or are they still going)?  Why?

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32 Responses to “Why I paid off my student loans early”

  1. Miser Mom Says:

    My not-legal / just-honorary daughter is about to start racking up Stafford loans for her last two years of college. I’ve never dealt with student loans yet, and my husband and I are hoping to help her pay these off quickly once she graduates. I’m not sure if there are any traps lying in wait that we ought to be wary of . . . advice much appreciated!

    • Leah Says:

      I hope her loans are subsidized! Those aren’t so bad. I think it’s the unsub that kills you because you accumulate interest the second you get the loan. I had subsidized loans for professional school (“grad” school to get my teaching license) because my TAship wouldn’t cover all of my tuition (insert rant about the support one gets at an R1, where my TAship covered so much, versus a lower-tier state school).

      Anyway . . . I had subsidized loans. I kept track of how much I borrowed, and I worked hard to accumulate that amount in my savings as I went. Added to what I already had, I was able to save just enough to pay off the loans the month before they were due to start accumulating interest. After graduation, one has 6 months grace period before interest and payments start. I did have to use my first paycheck + my savings to pay off the loan, so I was almost completely broke until my next paycheck, but I managed to float everything okay.

      My recommendation: go through the loan counseling with K-daughter (it’s a website thing) to make sure you both know all the deets. Have her work on putting some money into savings for the loans (even if it’s just windfall money). You maximize savings by paying off the loan as quickly as possible.

      • nicoleandmaggie Says:

        wow, that’s way better than I did. You rock!

      • Leah Says:

        thanks! To be fair, this is from my second graduate degree. I had no loans from undergrad or from my master’s degree in a science field. So I had some time to earn money before this and squirrel that away. I had about a little over half the amount totally saved up before I even started grad school, so that helped. I wanted the cash liquidity that taking out the loans gave me.

  2. Dr. Virago Says:

    Huzzah! Congratulations!

  3. Debbie M Says:

    I paid mine off early. I had 5 loans and they each cost me $50/month. Altogether, that was equivalent to a car payment back then. They were scheduled to take approximately forever to pay off. I was kind of shocked.

    They were of varying low interest rates (I think 5 – 9%, which back then was low). I had low-paying jobs. So what I did was throw an extra $50 per month at the one with the highest interest rate until it was paid off. This made it so I had an extra $100 to throw at the next highest-rate loan, etc. I was very pleased to think up this strategy myself. I also got offers to consolidate all the loans into one loan with one payment, but that loan would have had the highest interest rate. Um, no. I happily made five payments a month, then four, etc.

    Mine never got bought by a stupider place. But this was in the 1980s and I had to tear out a “coupon” and write a check and send it through the mail, which cost me a stamp each time. The coupon had a place to write in any extra amount you wanted to pay, so that was easy.

    The reason I did it is that I thought paying interest was not a good idea, I didn’t want the debt hanging over my head, I wanted the cash flow back (so I could buy a car) and it just, in general, seemed stupid to pay for so many years (was it supposed to be ten? or more? I don’t remember). I think I ended up paying them off in just under four years. And then I saved up for a car and bought it with cash.

    Now I know that I probably could have done something better with my extra money, especially after I had paid off the higher-interest loans, but that never occurred to me at the time. I don’t regret paying them off early as much as I regret not taking the $2,500 loan offered to me in my senior year, and thus not buying a 1-year CD with that money for free interest! Ah well, as far as mistakes go, that was a great one.

  4. Michelle Says:

    I HATE Mohela. It always felt impossible to make a payment. It was hard to do it online, and over the phone you have to listen to a robot for like 10 to 15 minutes before you can pay. UGH!

  5. Leigh Says:

    GO #1! I totally feel you for paying them off early when the servicer is a huge pain. I love that #2 threw in an economics statement there too :P

  6. Chelsea Says:

    So glad neither my husband nor I had to incur any student debt (master’s degree for me, soon to be PhD for him). Thanks, Florida Bright Future’s scholarships and math/science majors (therefore tuition wavers and TA/RA-ships)! Sometimes I get short of breath when I think about us spending some of our savings while DH makes poverty wages finishing up (we just had a baby and moved to a much more expensive apartment with a washer and dryer) but then I remind myself “at least we aren’t going into any debt.”

  7. rented life Says:

    Loads of kudos #1!!
    Both mine and husband’s were sold to someplace that has a long record of messing up payments so if I could afford to throw money at them I totally would. Unfortunately we both had to consolidate our loans (we each have sub and unsub) to be able to even afford monthly payments because our income situation isn’t consistently awesome. Husband’s are “newer” –he graduated in 2011, yay to non-traditional students!– but that just means his interest rate is double mine. If I could pay them off, I totally would, especially his since the interest rate makes me cringe all the time, but I have to wait until $ is made. I know exactly what order I’d pay off debt because it’s my favorite fantasy.

    • nicoleandmaggie Says:

      Having a plan is step 1! I paid very little on mine for years while I looked for a job. Fortunately I didn’t have to worry about my partner’s loans. Hang in there!

      • rented life Says:

        I also love planning. I realize life doesn’t go as plan, but playing the “What would I do if…” game is enjoyable to me. Then if something good (or bad) happens, I have ideas. Hearing all my plans has gotten husband more excited about paying down debts which also helps.

  8. Leah Says:

    yay and congrats for being done! The annoying interface of a loan is what motivated my husband to pay off one of his loans super early. Once he got that done, the snowball had momentum, and the rest of the loans just went.

    Wish more people would do this. Such a good example. With cashflow (exceptions made for those who are still looking for steady work, of course), paying off the loans early is definitely doable.

  9. Thomas | Your Daily Finance Says:

    First congrats on paying off those dang student loans. I will be so glad when the wifey and I are done with ours. But it seems like its taking for ever. They sold my wifeys loan like two or three times. I still dont know who the loans are with. I dont see upside with us keeping those loans so we need to get rid of them ASAP. Every time I read a post like this it give me more motivation. Thanks!

  10. First Gen American Says:

    Early. i even had one that was 0% interest that i paid off. Lets not forget that student loans are the only type of debt that are with you forever. Filing bankruptcy due to a catastrophic event does not wipe the slate clean of your student loans.

    Imagine having something horrible happen like a health problem that wipes you out and then kicking yourself on top of it all for not paying off those loans while you had the chance?

    • nicoleandmaggie Says:

      #2 is insured up the wazoo– health, disability, umbrella etc., which is another way to go about that. Though the amount she pays in insurance each year probably could have taken care of her partner’s student loans in a year or two. (#2’s parents paid off her student loans, which were subsidized only, as soon as they started accruing interest. #2’s family also didn’t get a VCR until the late 90s and it was a hand-me-down from a relative. Different priorities.)

    • Debbie M Says:

      Good point, First Gen American!

  11. chacha1 Says:

    Congratulations. :-)

  12. bogart Says:

    Yay! I hope you will eat some nice cheese following a nice horse ride, or whatever is your cup of tea.

    I paid-as-I-went for grad school and I paid off my undergrad loans while I was doing that (paid off in 4 years). I was very, very good at living cheaply as a single student with just two, then three, dependents, all non-human (one feline, two canine). This was long enough ago (still coupon era, as per @Debbie M, though early ’90s rather than ’80s) that interest rates were high enough that paying them off seemed to make sense, and honestly, I was very debt-averse back then, probably more so than now (and now, am older, non-student, and more bogged down with responsibilities for other humans than I was back then), though it’s hard to compare, as today’s rates are so different.

    Having stupid/annoying payment systems definitely prompts me to pay things off faster (prioritize them), yes. Totally with you there .

  13. plantingourpennies Says:

    Congrats on getting rid of those suckers.

    I paid mine off early, though they weren’t huge and had high enough interest rates (5% & 6.8%) that it would have been silly to keep them.

  14. J Liedl Says:

    I had a small amount of student loans when I wrapped up my doctorate. They were paid off within two years instead of five as I’d originally targeted or seven as the schedule had mandated, thanks to the generosity of my in-laws who didn’t want to see us saddled with that debt as we worked to save up for a house.

  15. Dr. Koshary Says:

    Congratulations! I dream of doing the same thing. First I have to get one of those pesky long-term jobs, though. One step at a time. :)

  16. Well Heeled Blog Says:

    I have around $10,000 left in undergraduate loans, but I’m not hurrying on those because I got a fantastic 0% interest rate deal though a private foundation. I am trying to finish my MBA debt-free… according to my numbers I’m $3,000 short, but it’s close…

  17. psycgirl Says:

    Woot! Congrats! I just got a consolidation loan to deal with my student debt – 5 years and I’m free baby!

  18. myscientificlife Says:

    Woo Hoo! Congrats!

    I hope to pay mine off early. Right now, I have most of my federal loans on deferment and am taking the payment that would go to my subsidized loan and putting it on my highest interest loan. If I can make an extra payment, I put it on my high interest loan. For the other loans, I’m paying the minimum payment. I hope to have my highest interest loan paid off by the time I graduate (fingers crossed!)

  19. insomniaclabrat Says:

    Congratulations!

    We paid off all of our unsubsidized loans pretty quickly- about a year and a half after we graduated from college. We would have paid them off even faster, but for a while you couldn’t make payments ONLY on the unsubsidized portion, and since we’re still in school, it didn’t make a lot of sense (to us) to pay the subsidized loans which are still interest free. Once we were able to direct payments specifically to the unsubsidized portion, we knocked them out pretty quickly. We’re saving money specifically to pay off the subsidized loans as soon as we graduate (hopefully!). The way I see it, we don’t HAVE to pay any interest on these loans, so I’d rather not! It’s possible we could get a better return by investing, but not guaranteed, and I just hate paying interest!

  20. Carnival of Personal Finance -- Fireworks Edition! | Funny about Money Says:

    […] from Grumpy Rumblings presents Why I paid off my student loans early, and says, “Nicole and Maggie discuss how sometimes hassle can be a reason to pay off your […]

  21. Jay Tea Says:

    I just payed off my entire student loan debt in one big payment of $14,450 . My story is a long and convoluted one. First I am 43 years old , I originally went to my first vocational school (RETS ELECTRONICS INSTITUTE) in Birmingham Alabama in 1989. I only had a GED and was not very good at math. This school sent out a salesman to my door when I was living with my mother at 18 years old. My mother was not very smart either and was of no help when it came to guidance. This salesman came to my door with brochures of robots and rockets , telling me that if I went to their school , I to could be working on robots and rockets. Being a naive 18 year old I signed all the documents he laid out on my mothers dining room table. I lived in Mississippi , so I had to rent an apartment in Alabama and my mom had to buy me a cheap car for 500 bucks to get me there . I also had to work part time while i was there to pay for the rent. Well after a month or two I realized that the Math was too difficult for me so I dropped out. I went back home to mom and then ended up later hitch hiking around the country for several years. I had an accident and was Disabled for about 7 years and received SSI payments of 400 dollars a month. Needless to say I spent most of my life broke , disabled and sometimes even homeless. It wasn’t until 1999 that I started to get on my feet and I met a wonderful girl and she married me. She changed my life plus she had a good education from Russia where she was from that she got for FREE and did not owe anything for education. And so we have been married all these years and still are married and have a daughter 4 years old. We decided to buy a house and use my VA loan (I was in the Navy from 1987 to 1988) and well low and behold my student loan showed up on something called the CAIVRS credit alert system that the Federal Government uses to screen any federal guaranteed loans. Though my student loan was not on my credit report it did show up here and I could not get my VA home loan. So instead of going in with 5% on my home , I instead used my down payment to pay off my student loan.. It only took about 2 days for me to pay it over the phone and get my CAIVRS cleared.

    Now having said all that . I borrowed only about 2500 dollars in 1989 , but as of 2 days ago I owned 24,000 dollars in principle , interest and penalties and fees. I settled it for 14,450 with the collectors. Yes 14,450 is better than 24,000 dollars I still feel that they should not have been charging me interest for all those years I was homeless , disabled or out of work .

    I will never let my kid take out a student loan.. I will work 3 jobs if I have to but NO CHILD OF MINE will ever give them another dime of our money. EVER ! NEVER EVER AGAIN!!!!

    If you cannot afford to pay for college yourself then find something else you can do until you can. I have since gotten my Bachelors degree over the last 10 years with my own money and did not borrow a dime or get any grants.


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