Private loan

TexasEx11

DH has 1 private loan from undergrad with a principal balance of 15,500. The interest rate is 10.7% and he currently has almost 9000 in interest.
Currently it's deferred because he is in law school but we want to start paying it back at the monthly interest rate plus a little more (probably $200 a month) we also plan to use some of tax return and bonus that we will get in the next few months (most likely putting 3-4k toward it)

What I'm wondering is are there loans to take out to cover this that are lower than our current interest rate. I'm having a hard time finding much online...but 10.7 just seems so high. I know private loans are high but I thought you all may be able to help us find something! I also have really good credit (not sure if that matters)

Also I've read online that any payment above the monthly payment can be applied to principal (I may have to specify in writing) so the 3-4k that we pay, we should request to go toward principal, right?

Any advice you have will be great! DH will be on deferment until October but we at a financial place with my income that we can pay something...

hoffse

You can shop around, but I don't know of anything.  

Re: principal vs. interest - this depends on your loan.  With federal loans, all your payments made while in school go toward accrued interest until you've paid down that interest in full.  Then you start dipping into principal.  Once the loans capitalize (enter repayment), any interest you have accrued in school and haven't paid is added to your principal, and then any extra monthly payment DOES go toward your principal.  But your principal is suddenly higher, so interest accrues faster that point.  Private loans might have different rules.  But if they are the same, you really want to pay down that $9,000 before it capitalizes.  Right now, that 10.7% would be accruing on the $15,500 only... you don't want it suddenly accruing on $24,500, KWIM?  

H and I had some gradplus loans at about 8%.  We did an interest rate swap with my parents - they paid our high-interest grad plus loans before they capitalized, and we are paying them back at a lower interest rate.  It will save us about $30K over the life of the loan, and they aren't losing any money by helping us out. 

But my parents also had no trouble covering that for us in one fell swoop, and they aren't the type to hold that sort of thing over our heads as a form of manipulation or control.  They are actually pretty business-like about the whole thing.  So that's a situational thing that might not work for you.

The reason I like this set up for us, is that it was waaaaay easier than going to a bank. My dad and I just have a joint bank account, and every month I move money into that account to pay them back.  Once in awhile he sends money to me that way too (for gifts, to buy something for my mom, etc.), so it's super easy.  Another benefit is that if our lives were to fall apart for one reason or another, I know my parents would temporarily suspend those loans without question until we got back on our feet.  They won't penalize us for falling on hard times, as long as we're open with them about it.  It's a safety net that makes me more comfortable with having as much student loan debt as we do (we both have law school debt).

That said, this is totally not for everybody.  Many parents hold loans over their children's heads, and a $30K savings over 10 years is really not worth feeling manupulated if you can afford the regular bank loan.  And even though my parents are super close with both me and H, we did sign a promissory note for repayment.  In the event we just chose not to pay them, they could sue us or - my dad's solution - take it out of our share of their estate (with serious interest) when they die.

So that's what I did.  10.7% is pretty high.  If you can't find something substantially lower, and an interest-rate swap with a family member wouldn't work for your situation, I would just make a point to pay it down as quickly as possible.  If your H's loans will enter repayment in October, that means he should graduate in May.  Assuming he has a job lined up, you two should be able to afford to pay that loan down aggressively after he takes the bar. 

hoffse

Another thing - if your H has any loan money leftover from law school loans, I would send whatever is left in that account to his undergrad loans.  That's a form of interest rate swap.  There's no reason to spend anything left.

Do hold out enough for bar exam expenses, though.  I found that to be about a $5,000 experience from start to finish.  Make sure to look at the application fees (about $700-$1000 in my state), the laptop fee, and any hotel costs if you don't live in a place where the exam is being administered.  I thought it was going to be the BARBRI course and that would be all.... little did I know I would bleed another $2K across all the other expenses.

TexasEx11

He has a job and his firm paid all bar expenses so that's good. The private loan works the same as you mentioned which is why we want to try and pay some or all of the interest before it is added to the principal...I was hoping to find a lower interest loan but I guess that's not feasible

Xstatic3333

OP, I have heard that these sorts of things can be arranged through a website called The Lending Club. Basically, you list the type of loan you want and investors can choose to fund you (or not) based on your credit, what the loan is for, etc. I can't vouch personally for this service (do your own research if you're interested) but have read about it on several debt-repayment blogs that I follow. It does sound basically legit from what I've read.

Hoffse, how nice that your parents gave you that option! It wouldn't work for us, but that's such a great opportunity.

hoffse

Yeah xstatic has a good idea with this - I know my parents have started doing some microlending through those websites.  They get a pretty good return, and their loans are diversified and combined with other microlenders to lower their risk.

Interesting idea!