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      11-05-2013, 01:00 PM   #1
Steroids
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Student loans

My sister owes $16,500USD and I want to pay it off this month. When I login I see this:

Payments made within 120 days of your loan disbursement are generally treated as refunds. This directly reduces the amount of money you borrowed (principal) and recalculates any existing accrued interest based on the reduced principal. It also reduces your overall accrued interest—saving you the most money in the long run.

If you prefer all early payments made through Auto Pay be applied as regular payments and not as refunds, you can change your preference below. By selecting Apply as Payment, payments are applied first to any accrued interest, then to your principal balance. Making early payments helps you keep up with your accrued interest so it isn't capitalized; however, you won't benefit from the reduced principal balance that refunds provide.

A.) Apply as Refund
B.) Apply as Payment

What is better refund or as payment? I don't understand this.

Last edited by Steroids; 11-09-2013 at 05:42 PM.
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      11-05-2013, 01:14 PM   #2
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Refund option is better.
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      11-05-2013, 01:43 PM   #3
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      11-05-2013, 01:48 PM   #4
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refund goes 100% to paying down the debt, while payment is a standard payment (that includes interest).

if you want to get out of debt, choose refund. if you want to get by, choose payment.
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      11-05-2013, 02:34 PM   #5
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Quote:
Originally Posted by Steroids View Post
I owe $16,500USD.
rookie
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      11-05-2013, 03:02 PM   #6
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Quote:
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I owe $16,500USD.
x10
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      11-05-2013, 03:09 PM   #7
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accrued interest that capitalizes is essentially negative amortization. it is essentially paying interest that is added to the principal balance, which causes you to pay interest on the interest.

borrowers who don't understand this are the ones who really suffer. same thing with dumb mortgagors.

choose refund.
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      11-05-2013, 04:49 PM   #8
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$16,500 USD in debt... buys brand new BMW. The American way!
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      11-05-2013, 05:06 PM   #9
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On the Suze Orman show a person called in once talking about how she has accrued $300,000 in student loan debt (in addition to $50,000 in consumer debt) but she can't pay it off because she only makes like $40,000/year.

She has $1000 in savings and $0 retirement and no other assets. IIRC she also had mortgage debt and not much equity in her home.

She went to school to become a "naturopathic physician." For those of you who don't know, naturopathic physicians aren't actually physicians. Naturopathy is pseudo/junk science that posits a bunch of really strange (and in my opinion potentially harmful) things.

Anyways, apparently when she was applying for her loans all of the loan officers told her "Oh don't worry about it you're going to become a doctor you should have no problem paying this off." Sadly, she thought the same thing. She didn't know that there was a difference between real doctors and "naturopathic physicians" so she legitimately thought she was going to get out of naturopathy school and make $150k-$200k/year minimum.

In addition, she was making the whole situation worse by living well beyond her means. She said she felt compelled to do this because she thought she had to maintain an image of being a financially well-off "doctor" in front of her friends and family.

Anyways long story short Suze recommended that she claim bankruptcy on her ~$50,000 in consumer debt (her $300,000 student loan debt is not discharge-able through bankruptcy) and that her 15 year old son probably won't be able to go to college because he needs to get a job ASAP and help pay down the bills. What a sad story. I know beggars who are wealthier than she is ($0 net worth > -$350,000 net worth)
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      11-05-2013, 05:57 PM   #10
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http://www.pbs.org/wgbh/pages/frontl...llegeinc/view/
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      11-05-2013, 06:47 PM   #11
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Quote:
Originally Posted by NemesisX View Post
On the Suze Orman show a person called in once talking about how she has accrued $300,000 in student loan debt (in addition to $50,000 in consumer debt) but she can't pay it off because she only makes like $40,000/year.

She has $1000 in savings and $0 retirement and no other assets. IIRC she also had mortgage debt and not much equity in her home.

She went to school to become a "naturopathic physician." For those of you who don't know, naturopathic physicians aren't actually physicians. Naturopathy is pseudo/junk science that posits a bunch of really strange (and in my opinion potentially harmful) things.

Anyways, apparently when she was applying for her loans all of the loan officers told her "Oh don't worry about it you're going to become a doctor you should have no problem paying this off." Sadly, she thought the same thing. She didn't know that there was a difference between real doctors and "naturopathic physicians" so she legitimately thought she was going to get out of naturopathy school and make $150k-$200k/year minimum.

In addition, she was making the whole situation worse by living well beyond her means. She said she felt compelled to do this because she thought she had to maintain an image of being a financially well-off "doctor" in front of her friends and family.

Anyways long story short Suze recommended that she claim bankruptcy on her ~$50,000 in consumer debt (her $300,000 student loan debt is not discharge-able through bankruptcy) and that her 15 year old son probably won't be able to go to college because he needs to get a job ASAP and help pay down the bills. What a sad story. I know beggars who are wealthier than she is ($0 net worth > -$350,000 net worth)
She is an idiot for not researching about the field she was going to be working in. I can't comprehend how messed up your brain has to be in order to get yourself into that kind of mess.

Anyway, people these days think too lightly of taking out a loan to buy things that aren't necessary. The only kinds of loan I'd ever take out is mortgage and tuition. Sure, you will probably not be able to always buy a latest BMW living this way but you will thank yourself later in life.

For the OP, go for the refund and PAY AS MUCH AS YOU POSSIBLY CAN. The reasons are well explained by others here. But I can't understand why you have a brand new, $40+k BMW when you are already $16.5k into debt. I think you need to get your priorities straight.
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      11-05-2013, 11:00 PM   #12
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why assume OP doesn't have money to get his car and pay off his student loans? He's just asking for advice for which option is better.

If you've got the $16.5k then pay it off (Apply as Refund).
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      11-06-2013, 12:22 AM   #13
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While I don't agree with taking loans for the hell of it, they are sometimes necessary to get through life events like tuition, buying a first home, or perhaps a car. Credit card debt is just stupid.

$16,500 at a reasonable rate for a student loan is jack shit relatively speaking and can be knocked out in the first year of getting your first job, assuming its in a decent field. Never invest in stupid degrees. To determine if the degree is stupid, use common sense.
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      11-06-2013, 11:28 AM   #14
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Quote:
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rookie

That's what I said when I looked at that number. Haha
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      11-06-2013, 11:46 AM   #15
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why assume OP doesn't have money to get his car and pay off his student loans? He's just asking for advice for which option is better.

If you've got the $16.5k then pay it off (Apply as Refund).
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      11-06-2013, 11:59 AM   #16
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Refund. It is like making a principle only payment which will reduce your overall amount of interest in the long run. So when they recalculate the amount you owe, you will be paying more principle and less interest reducing the overall cost (loaned money + interest).

Another way....you owe $16,500 which is really like $20,000 when you add all of the interest (assuming a made up interet rate). Now in the first 3 months you pay the $16,500 down to $12,000, they will recalcuate the interest based on the $12,000 number. So your total would be say $15,000 after interest rather than the $20,000.

Hope that helps.
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