As I’m sitting here wondering how my fiancée can fastest pay down her two highest-interest student loan debts, a strange idea came to mind. But first, let me preface my idea by noting that her two highest-interest student loan debts are private loans she received from a local credit union before starting college. She tried having the interest rates lowered on multiple occasions over the past few years but the canned response from the credit union has always been a resounding “there’s nothing we can do.”
For perspective, the balances on the two high-interest loans are $13,759.13 for one and $8,166.02 for the other. The interest rates are 8% and 11.25%, respectively. Ridiculous! The monthly minimum payments for each one are $219.40 and $108.77. The worst part, though, is that out of the two minimum payments, only about $155 is being paid down in principal each month…combined! So, we’re looking at a monthly expense of $328.17 and approximately $173.17 is being dumped in the trash! Over half of the monthly bill goes straight to interest charges!
I normally agree with the Dave Ramsey philosophy of paying down debts with the lowest balances first, but since these private loan rates are so high we’re going to knock the two private loans out first and then jump back to attacking other student loans with the lowest balances. I mean for goodness sake, in 2014 she paid $2,065.14 in student loan interest on just those two loans!
But as I mentioned at the beginning of this post, an idea came to mind as I was sulking over my frustration about her throwing away so much money each month. Obviously, this credit union is making a killing off of this pair of student loans. Imagine if we were to walk into the credit union tomorrow with a checkbook, ready to write them both off in full (we can’t afford that by a long shot right now, but hang with me here). Mathematically, if we paid them off right this instant, the credit union would be out thousands of extra dollars they could be receiving in interest charges if we continued to make minimum payments until they were both paid off. So, couldn’t that be a bargaining chip for lowering the interest rates, even if just a little bit?
Unfortunately, as we all know, this scenario would never happen. First of all, if we really had the money to write them off we’d be fools not to go ahead and pay them in full right away. Second, the bank probably doesn’t care if we pay off the loans in full right this instant since they’re making money off of thousands of other suckers, too. And it sure is a shame, especially because this is a credit union we’re talking about – owned by the depositors – the community!
At the end of the day I know we won’t get those high-interest loan rates lowered, and trying to consolidate those loans with another lender would probably dig deeper holes. But, regardless, the situation does make us fired up and want those loans out of our lives as soon as possible. Thank goodness for the tax benefit of getting back money on paid student loan interest. And thank goodness credit unions pay out dividends each year!