What are my options for paying off the large balance of my federal, high interest student loans?
As someone with a lot of student loan debt, I can relate - the first thing you should do is read the promissory note on your current loans - there might be information there you can use.  For govt loans (stafford, etc) made after July 1, 2006 the interest rate is going to be fixed and even a federal direct consolidation is not going to lower the rates themselves.  If anything, consolidation will just increase the repayment period, which means you'll end up paying more in the long run.   Most private Loans usually offer variable interest rates, which today are quite low. But unless your financial situation is very comfortable and stable, consolidating out of federally guaranteed loans into private loans might not be the best path.  You might lose options like deferment, forbearance, and maybe even things like a death benefit (if you die, your loans die with you). related - if you have a co-signer you don't get that death benefit! But refinancing into a variable rate private loan is going to push a lot of risk to you in terms of interest rate inflation, etc. Most financial professionals will agree that interest rates can only go up in the long run. Keep in mind, student loans are completely unsecured - meaning lenders are taking a fairly large risk in loaning money (and probably why the fed govt has to guarantee most of them).  I've heard of people borrowing against their home equity to pay down student loan debt - but I can't think of a reason you'd want to substitute secured for unsecured debt and possibly lose the loan interest tax deduction.  The bottom line is you're unlikely to find an alternative lending source at a lower interest rate for an unsecured student loan.  Another option may be the income based repayment plan. If you qualify, it caps student loan monthly payments at 15% of your discretionary income (discretionary is your income minus whatever the poverty threshold income amount is). And if that 15% doesn't even cover the interest on the loans, the govt picks up the tab for the difference (for up to 3 years). You have to re-qualify every year by sending in all sorts of documentation, but if you somehow stay on IBR for 25 years, your loans are then forgiven. Obviously the downside here is that you are probably paying little to no principal, but if you do the math and determine that your IBR payment would be next to nothing, and your current situation is barely paying interest-only... well, maybe IBR isn't a bad thing for a couple of years (or 25 if you think you will never have a larger income).   Personally, I went through all these options as well and decided that my best option was to just earn more money... a 2nd job or side project here and there helps me pay down the debt faster, and with less risk, than moving to private variable rate loans.
"I had about $16k in student loans. I defaulted on the loans, and they got  > passed to a collection type agency (OSCEOLA).  These guys are as legitimate as a collection agency can be. One thing that I feel is very sketchy is when they were verifying my identity they said ""Does your Social Security Number end in ####. Is your Birthday Month/Day/Year.""  That is not sketchy. It would be sketchy for a caller to ask you to give that information; that's a common scheme for identity theft. OSCEOLA are following the rules on this one. My mom suggested I should consider applying for bankruptcy Won't help. Student loans can't be discharged in bankruptcy. You have the bankruptcy ""reform"" act passed during the Bush 43 regime for that. The loan itself is from school. What school? Contact them and ask for help. They may have washed their hands of your case when they turned over your file to OSCEOLA. Then again, they may not. It's worth finding out.   Also, name and shame the school. Future applicants should be warned that they will do this.  What can I do to aid in my negotiations with this company? Don't negotiate on the phone. You've discovered that they won't honor such negotiations. Ask for written communications sent by postal mail. Keep copies of everything, including both sides of the canceled checks you use to make payments (during the six months and in the future). Keep making the payments you agreed to in the conversation six months ago. Do not, EVER, ignore a letter from them. Do not, EVER, skip going to court if they send you a summons to appear. They count on people doing this. They can get a default judgement if you don't show up. Then you're well and truly screwed. What do you want? You want the $4K fee removed. If you want something else, figure out  what it is. Here's what to do: Write them a polite letter explaining what you said here. Recount the conversation you had with their telephone agent where they said they would remove the $4K fee if you made payments.  Recount the later conversation. If possible give the dates of both conversations and the names of the both agents.   Explain the situation completely. Don't assume the recipient of your letter knows anything about your case. Include evidence that you made payments as agreed during the six months. If you were late or something, don't withhold that.  Ask them to remove the extra $4K from your account, and ask for whatever else you want. Send the letter to them with a return receipt requested, or even registered mail. That will prevent them from claiming they didn't get it. And it will show them you're serious. Write a cover letter admitting your default, saying you relied on their negotiation to set things straight, and saying you're dismayed they aren't sticking to their word. The cover letter should ask for help sorting this out. Send copies of the letter with the cover letter to: Be sure to mark your letter to OSCEOLA ""cc"" all these folks, so they know you are asking for help. It can't hurt to call your congressional representative's office and ask to whom you should send the letter, and then address it by name. This is called Constituent Service, and they take pride in it. If you send this letter with copies you're letting them know you intend to fight.  The collection agency may decide it's not worth the fight to get the $4K and decide to let it go.   Again, if they call to pressure you, say you'd rather communicate in writing, and that they are not to call you by telephone. Then hang up.  Should I hire a lawyer?  Yes, but only if you get a court summons or if you don't get anywhere with this. You can give the lawyer all this paperwork I've suggested here, and it will help her come up to speed on your case. This is the kind of stuff the lawyer would do for you at well over $100 per hour. Is bankruptcy really an option Certainly not, unfortunately. Never forget that student lenders and their collection agencies are dangerous and clever predators. You are their lawful prey. They look at you, lick their chops, and think, ""food."" Watch John Oliver's takedown of that industry.  https://www.youtube.com/watch?v=hxUAntt1z2c Good luck and stay safe." "First, pay off the highest interest first.  If you have 80%, pay it first.   Paying off a card/loan with a lower rate, but a lower payment or a lower balance can help your mental capacity by having fewer things to pay.  But, this should be a decision where things are similar, such as 20-25%, not 20-80%.   What about any actual loans?  Any loans with a fixed payment and a fixed amount?   If you must continue to use CC while paying them off, use the one with the lowest interest rate.   Call all of your debtors and ask for reduction in interest rate.   This is not the option to take first...  This is a strategic possibility and will cause credit score issues... If you are considering bankruptcy or not paying back some, then you have even more negotiation power.  Consider calling them all and telling them that you only have a little bit of money and would like to negotiate a settlement with them.  ""I have only a limited amount of money, and lots of debt.  I will pay back whomever gives me the best deal.""  See what they say.  They may not negotiate until you stop paying them for a few months...  It is not uncommon to get them to reduce interest (even to 0%) and/or take a reduction in the amount due - up to 25 cents on the dollar.  To do this, you might need to pay the amount all at once, so look into loans from sources like retirement, home equity, life insurance, family...   Also, cut out all expenses.  Cut them hard; cut until it hurts.  Cut out the cell phone (get a pre-paid plan and/or budget $10-20/month), cut out all things like alcohol, tobacco, firearms, lottery, tattoos, cable tv, steak, eating out. Some people would suggest that you consider pets and finding them a new home.  No games, no trips, no movies, no new clothes...  Cut out soft drinks, candy, and junk food.   Take precautions to stay healthy - don't wear shoes in the house, brush your teeth, take a multi vitamin, get exercise, eat healthy (this is not expensive, organic stuff, just regular groceries).   Consider other ways to save, like moving in with family or friends.  Having family or friends live with you and pay rent.  Analyze costs like daycare vs. job income.  Apply for assistance - there are lots of levels, and some don't rely on others, such as daycare.   Consider making more money - new job, 2nd job, overtime, new career.   Consider commute - walk, bike, take the bus.  Work 4/10's.  Telework.   Make a list of every expense and prioritize them.  Only keep things which are really necessary.   Good Luck." It would probably never make sense to do that. Why would you? You'll end up in the bankruptcy court either way, since you won't be able to pay off the loan, and you cannot maintain the monthly payments without getting into more debt. IRA is shielded from bankruptcies, in most States, so it will probably stay with you afterwards. In any case - it will provide you some income when you're old and cannot keep up working. Unfortunately, Federal student loans are also shielded, but the rest of you debt - isn't. I suggest trying to fix your budgets and see how you can improve your earnings to be able to maintain your payments. I can't understand how you could have racked up $140K student debt and have a career at which you earn $55K/year for an experienced employee. "There are a great number of financial obligations that should be considered more urgent than student loan debt.  I'll go ahead and assume that the ones that can land people in jail aren't an issue (unpaid fines, back taxes, etc.). I cannot stress this enough, so I'll say it again: setting money aside for emergencies is so much more important than paying off student loans.  I've seen people refer to saving as ""paying yourself"" if that helps justify it in your mind.  My wife and I chose to aggressively pay down debt we had stupidly accrued during college, and I got completely blindsided by a layoff during the downturn.  Guess what happened to all those credit cards we'd paid off and almost paid off?  Guess what happened to my 401k? If all we had left were student loans, then I still wouldn't prioritize paying those off.  There are income limits to Roth IRAs, so if you're in a field where you'll eventually make too much to contribute, then you'll lose that opportunity forever.  If you're young and you don't feel like learning too much about investing, plop 100% of your contributions into the low-fee S&P 500 index fund and forget it until you get closer to retirement.  Don't get suckered into their high-fee ""Retirement 20XX"" managed funds. Anyway, sure, if you have at least three months of income replacement in savings, have maximized your employer 401k match, have maximized your Roth IRA contributions for the year, and have no other higher interest debt, then go ahead and knock out those student loans." Pay off the Highest interest loan rate first. You must be doing something funky with how long your terms are... If you give a bit more info about your loan's such as the term and how much extra you have right now to spend it could be explained in detail why that would be the better choice using your numbers. You have to make sure when you are analyzing your different loan options that you make sure you are comparing apples to apples. IE make sure that you are either comparing the present value, future value or amortization payments...  EDIT: using some of your numbers lets say you have 5000 dollars in your pocket you have 3 options. excel makes these calculations easier... Do nothing: in 80 months your Student Loan will be payed in full and you will have 54676.08 owing on your mortgage and 5000 in your pocket(assuming no bank interest)  for mortgage: Pay off Student loan and allocate Student loans amortization to Mortgage: in 80 months you will have $47,910.65 owing on mortgage and student loan will be paid in full For mortgage: Pay 5000 on Mortgage: in 80 months student loan will be paid in full and you will have $48,204.92 owing on mortgage For mortgage: Every $1,000 you use to pay off a 26% interest rate card saves you $260 / year.  Every $1,000 you use to pay off a 23% interest rate card saves you $230 / year. Every $1,000 you put in a savings account earning ~0.5% interest earns you $5 / year. Having cash on hand is good in case of emergencies, but typically if your debt is on high interest credit cards, you should consider paying off as much of it as possible. In your case you may want to keep only some small amount (maybe $500, maybe $1000, maybe $100) in cash for emergencies. Paying off your high interest debt should be a top priority for you. You may want to look on this site for help with budgeting, also. Typically, being in debt to credit card companies is a sign of living beyond your means. It costs you a lot of money in the long run. "The basic optimization rule on distributing windfalls toward debt is to pay off the highest interest rate debt first putting any extra money into that debt while making minimum payments to the other creditors. If the 5k in ""other debt"" is credit card debt it is virtually certain to be the highest interest rate debt. Pay it off immediately. Don't wait for the next statement. Once you are paying on credit cards there is no grace period and the sooner you pay it the less interest you will accrue. Second, keep 10k for emergencies but pretend you don't have it. Keep your spending as close as possible to what it is now. Check the interest rate on the auto loan v student loans. If the auto loan is materially higher pay it off, then pay the remaining 20k toward the student loans. Added this comment about credit with a view towards the OP's future: Something to consider for the longer term is getting your credit situation set up so that should you want to buy a new car or a home a few years down the road you will be paying the lowest possible interest. You can jump start your credit by taking out one or two secured credit cards from one of the banks that will, in a few years, unsecure your account, return your deposit, and leave no trace you ever opened a secured account. That's the route I took with Citi and Wells Fargo. While over spending on credit cards can be tempting, they are, with a solid payment history, the single most important positive attribute on a credit report and impact FICO scores more than other type of credit or debt. So make an absolute practice of only using them for things you would buy anyway and always, always, pay each monthly bill in full. This one thing will make it far easier to find a good rental, buy a car on the best terms, or get a mortgage at good rates. And remember: Credit is not equal to debt. Maximize the former and minimize the latter." I agree with you that you need to consolidate this debt using a loan. It may be hard to find a bank or credit organization that will give you an unsecured personal loan for that much money.  I know of one, called Lending Club (Disclaimer - I'm an investor on this platform. Not trying to advertise, it's just the only place I know of off the top of my head) that facilitates loans like this, but instead of a bank financing the loan, the loan is split up accross hundreds of investors who each contribute a small amount (such as $25). They have rates anywhere between 5-30%, based on your credit profile(s), and I believe they have some loan amounts that go up to the area that you're discussing.  Regarding buying the house - The best thing you can do when trying to buy a house is to save up a 20% downpayment, if at all possible. Below this amount, you may be asked to pay for 'PMI' - Private Mortgage Insurance. This is a charge that doesn't go away for quite a while (until you've paid them 20% of the appraised value of the home), where you pay a premium because you didn't have the 20% downpayment for the house.  I would suggest you try to eliminate your credit card debt as soon as possible, and would recommend the same for your father. Getting your utilization down and reconsolidating the large debts with a loan will help to reduce interest charges and get you a reasonable, fixed payment.  Whether you decide to pay off your own balances using your savings account is up to you; if it were me, personally, I'd do so immediately rather than trying to pay it off over time. But if you lose money to taxes by withdrawing the money from your 'tax free savings account', it may not be a beneficial situation.  Treat debt, especially credit card debt, like an emergency at all times, and you'll find yourself in a better place as a result.  Credit card debt and balances are and should be temporary, and their rates and fees are structured that way. If, for any reason, you expect that a credit card's balance will remain for an extended period of time, you may want to consider whether it would be advantageous for you to consolidate the debt into a loan, instead. First, let me fill in the gaps on your situation, based on the numbers you've given so far. I estimate that your student loan balance (principal) is $21,600. With the variable rate loan option that you've presented, the maximum interest rate you could be charged would be 11.5%, which would bring your monthly payment up to that $382 number you gave in the comments. Your thoughts are correct about the advantage to paying this loan off sooner.  If you are planning on paying off this loan sooner, the interest rate on the variable rate loan has less opportunity to climb. One thing to be cautious of with the comparison, though: The $1200 difference between the two options is only valid if your rate does not increase.  If the rate does increase, of course, the difference would be less, or it could even go the other way.  So keep in mind that the $1200 savings is only a theoretical maximum; you won't actually see that much savings with the variable rate option. Before making a decision, you need to find out more about the terms of this variable rate loan: How often can your rate go up? What is the loan rate based on? I'm not as familiar with student loan variable rate loans, but there are other variable rate loans I am familiar with: With a typical adjustable rate home mortgage, the rate is locked for a certain number of years (perhaps 5 years).  After that, the bank might be allowed to raise the rate once every period of months (perhaps once every year).  There will be a limit to how much the rate can rise on each increase (perhaps 1.0%), and there will be a maximum rate that could be charged over the life of the loan (perhaps 12%). The interest rate on your mortgage can adjust up, inside of those parameters.  (The actual formula used to adjust will be found in the fine print of your mortgage contract.)  However, the bank knows that if they let your rate get too high above the current market rates, you will refinance to a different bank.  So the mortgage is typically structured so that it will raise your rate somewhat, but it won't usually get too far above the market rate.  If you knew ahead of time that you would have the house paid off in 5 years, or that you would be selling the house before the 5 years is over, you could confidently take the adjustable rate mortgage. Credit cards, on the other hand, also typically have variable rates.  These rates can change every month, but they are usually calculated on some formula determined ahead of time.  For example, on my credit card, the interest rate is the published Prime Rate plus 13.65%.  On my last statement, it said the rate was 17.15%.  (Of course, because I pay my balance in full each month, I don't pay any interest.  The rate could go up to 50%, for all I care.) As I said, I don't know what determines the rate on your variable rate student loan option, and I don't know what the limits are.  If it climbs up to 11.5%, that is obviously ridiculously high.  I recommend that you try to pay off this student loan as soon as you possibly can; however, if you are not planning on paying off this student loan early, you need to try to determine how likely the rate is to climb if you want to pick the variable rate option. Paying off your student loan is an investment, and a completely risk-free one.  Every payment of your loan is a purchase of debt at the interest rate of the loan.   It would be extremely unusual to be able to find a CD, bond or other low-risk play at a better rate.  Any investment in a risky asset such as stocks is just leveraging up your personal balance sheet, which is strictly a personal decision based on your risk appetite, but would nearly universally be regarded as a mistake by a financial advisor.  (The only exception I can think of here would be taking out a home mortgage, and even that would be debatable.) Unless your loan interest rate is in the range of corporate or government bonds -- and I'm sure it isn't -- don't think twice about paying them off with any free cash you have. Should I use the money to pay off student loans and future grad expenses for me? Yes.  The main drawback to student loans is that they cannot be gotten rid of except by paying them off (other than extreme circumstances such as death or complete disability).  A mortgage, car loan, or other collateralized loans can be dealt with by selling the underlying collateral.  Credit card loans can be discharged in bankruptcy. Stop borrowing for college, pay for it in cash, then decide what to do with the rest. Make sure you have a comfortable amount saved for emergencies in a completely liquid account (not a retirement account or CDs), and continue to pay off with the rest.  You might also consider putting some away for your kids' college, so  I want to get my older son into a private middle school for 2 years. They have a hardy endowment and may offer us a decent need based scholarship if we look worthy on paper I have a hard time getting behind this plan with a 238K mortgage.  If you want to apply for scholarships that's great - but don't finagle your finances to look like you're poor when you have a quarter-million-dollar house.  If you want to save some for private school then do that out of what you have.  Otherwise either rearrange your priorities so you can afford it or private school might not be in the cards for you. That said- while it was a blessing to be able to pay off the second mortgage and credit cards, your hesitancy to pay off the student loans makes me wonder if you will start living within your means after the loans are paid off.  My concern is that your current spending levels that got you in this much debt in the first place will put you back in debt in the near future, and you won't have another inheritance to help pull you out. I know that wasn't your question, but I felt like I needed to add that to my answer as well. Pay off your highest-interest debt first: credit card, car, maybe even mortgage. Pay minimums on all else. Student loans are typically low interest, so pay off anything else first, but double-check your rate of course.  Even if you have no other debt, you may still want to hang on to your savings instead of paying down your student loans if getting rid of your savings causes you to accrue debt. For example, if you have a low income and no savings, you may accrue credit card debt (high interest). Or you may want to buy a car with cash instead of getting a loan. Even if this is not an issue, consider what you can do with your savings that others who lack them cannot do. You can put it into mutual funds, which may offer higher rate of return (albeit with risk) than your student loan interest. Or you may pay a down payment on a home. The very low interest rates of student loans are, to a person with savings, essentially a source of cheap money that doesn't need to be justified to a bank. You can use it as seed money to start a business, as funds for travel, for living expenses while in the Peace Corps, or whatever else. But if you pay down that principal, you bind yourself. In short, pay down your student loans when there is no better use for the money. So many answers here are missing the mark.  I have a $100k mortgage--because that isn't paid off, I can't buy a car?  That's really misguided logic. You have a reasonably large amount of college debt and didn't mention any other debt-- It's a really big deal what kind of debt this is.  Is it unsecured debt through a private lender? Is it a federal loan from the Department of Education? Let's assume the worst possible (reasonable) situation.  You lose your job and spend the next year plus looking for work.  This is the boat numerous people out of college are in (far far far FAR more than the unemployment rates indicate).  Federal loans have somewhat reasonable (indentured servitude, but I digress) repayment strategies; you can base the payment on your current income through income-based and income-continent repayment plans.  If you're through a private lender, they still expect payment.  In both cases--because the US hit students with ridiculous lending practices, your interest rates are likely 5-10% or even higher. Given your take-home income is quite large and I don't know exactly the cost of living where you live--you have to make some reasonable decisions.  You can afford a car note for basically any car you want.  What's the worst that happens if you can't afford the car?  They take it back. If you can afford to feed yourself, house yourself, pay your other monthly bills...you make so much more than the median income in the US that I really don't see any issues. What you should do is write out all your monthly costs and figure out how much unallocated money you have, but I'd imagine you have enough money coming in to finance any reasonable new or used car.  Keep in mind new will have much higher insurance and costs, but if you pick a good car your headaches besides that will be minimal. I agree with the advice given, but I'll add another angle from which to look at it. It sounds like you are already viewing the money used to either pay off the loan early or invest in the market as an investment, which is great. You are wise to think about opportunity cost, but like others pointed out, you are overlooking the risk factor. The way I would look at this is: I could take a guaranteed 6.4% return by paying off the loan or a possible 7% return by investing the money.  If the risk pays off modestly, all you've done is earned 0.6%, with a huge debt still hanging over you. Personally, I would take the guaranteed 6.4% return by paying off the debt, then invest in the stock market. Now this is looking at the investment as a single, atomic pool of money.  But you can split it up a bit.  Let's say the amount of extra disposable income you want to invest with is $1,000/mo.  Then you could pay an extra $500/mo to your student loan and invest the other $500 in  the stock market, or do a 400/600 split, or whatever suits your risk tolerance. You mentioned multiple loans and 6.4% is the highest loan.  What I would do, based on what I value personally, is put every extra penny into paying off the 6.4% loan because that is high.  Once that is done, if the next loan is 4% of less, then split my income between paying extra to it and investing in the market. Remember, with each loan you pay off, the monthly income that previously went to it is now available, and can be used for the next loan or the other goals. Should I use the profit to pay down student loans or just roll it into my next house in order to have a lower mortgage amount? Calculate the amount of interest in each scenario, where the two scenarios are: Use extra cash to pay down student loans, take out a full mortgage. Use extra cash to make a big down payment on the next house, keep paying down student loans at normal rate. In both scenarios the student loan rate will  stay the same. However in the second scenario you may get a lower interest rate from making a larger down payment. So then calculate the total interest resulting from each scenario: student loan rateXremaining student loan balance=student loan interest  new mortgage rateXnew mortgage balance=mortgage interest scenario 1 interest = student loan interest+mortgage interest student loan rateXstudent loan balance = student loan interest  new mortgage rate with large down paymentXnew mortgage balance after large down payment = mortgage interest scenario 2 interest = student loan interest+mortgage interest Whichever scenario's interest is lower will save money.