How should I pay off my private student loans that have a lot of restrictions?
It's definitely NOT a good idea to pay off one of the smaller loans in your case - a $4k payment split across all the loans would be better than repaying the 5% / $4k loan completely, as it's the most beneficial of your loans and thus is last priority for repayment. A payment that splits across all the loans equally is, in effect, a partial repayment on a loan with an interest rate of 6.82% (weighed average rate of all your loans).  It's not as good as repaying a 7% loan, but almost as good. It might be an option to save up until you can repay one of your 7% loans, but it depends - if it takes a lot of time, then you would've paid unneccessary interest during that time. You might try to refinance some of those loans. It sounds like you are serious about minimizing interest expense, if you think you will be able to pay those loans in full within  five years you might also try a loan that is fixed for five years before becoming variable.  If you do not think you can repay the loans in full before that time, you should probably stick with the fixed rates that you have. It may even be profitable to refinance those loans through another lender at the exact same fixed rate because it gets around their repayment tricks that effectively increase your interest on those two smaller loans. It doesn't make a whole lot of sense to save up and wait to make a payment on any of these loans.  Any dollar you pay today works better than saving it and waiting months to pay it, no matter which loan it will be applied to. Since your lender won't let you choose which loan your payment is being applied to, don't worry about it.  Just make as big a payment as you can each month, and try to get the whole thing out of your life as soon as possible. The result of this will be that the smaller balance loans will be paid off first, and the bigger balance loans later.  It is unfortunate that the higher interest rate loans will be paid later, but it sounds like you don't have a choice, so it is not worth worrying about. Instead of thinking of it as 5 loans of different amounts, think of it as one loan with a balance of $74,000, and make payments as quickly and as often as possible. For example, let's say that you have $1000 a month extra to throw at the loans.  You would be better off paying $1000 each month than waiting until you have $4000 in the bank and paying it all at once toward one loan.  How the lender divides up your payment is less significant than when the lender gets the payment. "The one thing that I saw in here that raised a big red flag is that you said you ""overpaid"" on your interest.  ALWAYS make sure you tell them that any extra money should be applied to principal only, not to interest.  You accrue interest based on your outstanding principal amount, so getting that lower reduces the overall amount of interest you end up paying.  Paying the interest ahead saves you nothing.  However, make sure you pay the current interest owed that month. They can capitalize past due interest - in affect, change that to be considered an addition to the loan principal amount and you end up paying interest on the interest." Excellent question and it is a debate that is often raised.  Mathematically you are probably best off using option #1.  Any money that is above and beyond minimum payments earns a pretty high interest rate, about 6.82% in the form of saved interest payments. The problem is you are likely to get discouraged.  Personal finance is a lot about behavior, and after working at this for a year, and still having 5 loans, albeit a lower balance, might take a bit of fight out of you. Paying off such a large balance, in a reasonable time, will take a lot of fight. With the debt snowball, you pay the minimum to the student loan, save in an outside account, and when it is large enough, you execute option #2.  So a year from now you might only have three loans instead of five.  If you behaved exactly the same your balance would be higher after that year then using the previous method. However often one does not behave the same.  Because the goals are shorter and more attainable it is easier to delay some gratification.  The 8 dollars you are saving in your weekly gas budget, because of low prices, is meaningful when saving for a 4K goal, where it is meaningless when looking at it as a 74K goal.  With the 4K goal you are more apt to put that money in your savings, where the 74K goal you might spend it on a latte. For me, the debt snowball worked really well. With either option make sure that excess payments actually go to a reduction in principle not a prepayment of interest.  Given this you may be left with no option.  For example if method #1 you only prepay interest, you are forced to use option #2. Are there any (monthly) administrative fees on those loans that are charged separately? If not, you should just pay as much as you can as quick as you can to get the loan amount down on those loans with the highest interest rate. If there are no separate fees on the loans, then it's just a lump of money with some interest rate. The smaller loans will eventually drop away one by one, have a celebration to remark the occasion when that happens. I assume the payment is split evenly between the loans? Restructure if you get a better deal from someplace.  Delay buying new stuff until you get the loan amount down. Pay as much as you can as quickly as you can, but keep enough money in your pocket to survive a month or two, so that you don't need to get any more loans in case something unexpected happens. Not that I doubted everyone's assumption but I wanted to see the math so I did some spreadsheet hacking. I assumed a monthly payments for 30 years which left us with total payments of 483.89.  I then assumed we'd pay an extra $200/month in one of two scenarios.  Scenario 1 we just paid that $200 directly to the lender.  In scenario 2 we set the extra $200 aside every month until we were able to pay off the $10k at 7%.  I assumed that the minimum payments were allocated proportionately and the overpayments were allocated evenly.  That meant we paid off loan 5 at about month 77, loan 4 in month 88, loan 3 in month 120, loan 2 in month 165, and loan 1 in month 170. Getting over to scenario 2 where we pay $483.89 to lender and save $200 separately.  In month 48 we've saved $9600 relative to the principle remaining in loan 3 of $9547.  We pay that off and we're left with loan 1,2,4,5 with a combined principle of about $60930.  At this point we are now going to make payments of 683.89 instead of saving towards principle.  Now our weighted average interest rate is 6.800% instead of 6.824%.  We can calculate the number of payments left given a principle of 60930, interest of 6.8%, and payment of 683.89 to be 124.4 months left for a total of 172.4 months Conclusion: Scenario 1 pays off the debt 3 months sooner with the same monthly expenditure as scenario 2.
Whatever you choose for a remedy (my first impulse is to suggest bankruptcy) you should protect your retirement plans.  These are immune from most collection actions, the exception being govt debts (e.g. taxes) and student loans.  The sad part is that the student loans won't go away except by paying them off.  Miss one payment and it will hound you for 10 years.  Bankruptcy will stop you from getting a home loan for only two years.  Unless you have the discipline to live like a monk for a decade it sounds like you're headed for a train wreck.  The kids will have to cut back to junior college or some other method of reducing costs and as hard as it sounds, don't cosign for any more student loans. Kids are more resilient than you think and they'll probably come up with their own solutions like scholarships, work study and off campus jobs.  I hate to keep beating the bankruptcy horse but at least that way you could still keep your house and car.  Otherwise you risk losing either or both from missed payments.  I actually hope that you can avoid bankruptcy so I suggest first you talk to a financial adviser or bankruptcy attorney to see if this is in fact right for you. But if it's just the shame of the scarlet letter B then consider that pride doesn't keep a roof over your head or food in your belly. 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. Congratulations for achieving an important step in the road to financial freedom. Some view extending loan payment of loans that allow the deduction of interest as a good thing. Some view the hit on the credit score by prematurely paying off an installment loan as a bad thing.  Determining the order of paying off multiple loans in conjunction with the reality of income, required monthly living expense, and the need to save for emergencies is highly individualized.  Keeping an artificial debt seems to make little sense, it is an expensive insurance policy to chase a diminishing tax benefit and boost to a credit score. Keep in mind it is a deduction, not a credit, so how much you save depends on your tax bracket.  It might make sense for somebody to extend the loan out for an extra year or two, but you can't just assume that that advice applies in your situation. Personally I paid off my student loan early, as soon as it made sense based on my income, and my situation. I am glad I did, but for others the opposite made more sense. "My parents and I were suckered into buying this kind of thing when I was in high school. The sales people literally told us that it could be used to pay off student loans - they left out the ""in the event of your death"" part. We knew it was a life insurance policy, but were told that it would ""mature"" 6 months after graduation from college, and that it would then be disbursed to pay off loans, even if I didn't die. That seemed strange to us, so we explicitly asked several different ways whether it would pay off the loans after graduation, even if I lived, and they just straight up told us, ""Yes."" I'm guessing this ploy is still being used. Also, last I checked, student loans are non-transferable in the unfortunate event that your child dies - which means the loan is forgiven anyway - so this whole thing seems like garbage to me, at least in the student loan sense. I would steer clear from this stuff - it's pure snake oil in my experience." "You're in good shape as long as your income stays. Your only variable-rate debt now is your private student loan.  I think you'd be wise to pay that down first, and you sense that already. Worst-case, in the event of a bankruptcy, student loans usually cannot be discharged, so that isn't a way out. Once that loan is gone, apply what you were paying to your other student loan to knock that out. You might investigate refinancing your home (to another 30-year fixed).  You may be able to shave a half-percent off if your credit is stellar.  Given the size of the mortgage, this could be several thousand out of pocket, so consider that when figuring out potential payback time. Consider using any ""free time"" to starting up a side business (I'm assuming you both have day jobs but that may not be a correct assumption).  Start with what you know well.  You and your wife are experts in something, and have passion about something.  Go with that.  Use the extra income from that to either pay down your debts faster, or just reinvest in the business so that you can offset the income on your taxes. Again, you're in good shape.  Just do what you can to protect and grow your income streams." My advice is that if you've got the money now to pay off your student loans, do so.  You've saved up all of that money in one year's time.  If you pay it off now, you'll eliminate all of those monthly payments, you'll be done paying interest, and you should be able to save even more toward your business over the next year. Over the next year, you can get started on your business part time, while still working full time to pile up cash toward your business.  Neither you nor your business will be paying interest on anything, and you'll start out in a very strong position.   The interest on your student loans might be tax deductible, depending on your situation. However, this doesn't really matter a whole lot, in my opinion. You've got about $22k in debt, and the interest will cost you roughly $1k over the next year. Why pay $1k to the bank to gain maybe $250 in tax savings? Starting a business is stressful. There will be good times and bad. How long will it take you to pay off your debt at $250 a month? 5 or 6 years, probably. By eliminating the debt now, you'll be able to save up capital for your business even faster. And when you experience some slow times in your business, your monthly expenses will be less. "If I understand correctly, your question boils down to this: ""I have $X to invest over 25 years, are guaranteed returns at a 0.6% lower rate better than what I expect to get from the stock market over the same period?"" Well, I believe the standard advice would go something like: Rational investors pay a premium to reduce risk/volatility. Or, put another way, guaranteed returns are more valuable than risky returns, all things equal. I don't know enough about student loans in America (I'm Australian). Here a student loan is very low interest and the minimum repayments scale with what you earn not what you owe, starting at $0 for a totally liveable wage - Here I'd say there's a case to just pay the minimum and invest extra money elsewhere. If yours is a private loan though, following the same rules as other loans, remember the organisation extending your loan has access to the stock market too! why would they extend a loan to you on worse terms than they would get by simply dumping money into an index fund? Is the organisation that extends student loans a charity or subsidised in some way? If not, someone has already built a business on the the analysis that returns at 6.4% (including defaults) beats the stock market at 7% in some way. What I would put back to you though, is that your question oversimplifies what is likely your more complex reality, and so answering your question directly doesn't help that much to make a persuasive case - It's too mathematical and sterile. Here are some things off the top of my head that your real personal circumstances might convince you to pay off your loan first, hit up Wall Street second:" I was in a very similar place 10 years ago. I was in my mid 20's with 45K in combined school + personal/business related debt and working in IT for not very much. I already had 10-15K in debt when my college loans first came due and it was the first time I really had to come to terms with the hole I had dug myself and I spent weeks at a time obsessing over plans that would help me get out of debt. It effected my health and my relationships. I felt like I was never going to come out from under it. My family was very much lower middle class (&lt;30K household income) and I wasn't going to get or expect any help there so I went to work and made it a point to make sure every personal and professional decision I made was conducive to my long term goals and before I knew it they became short term goals.   Find out what your basic monthly need is, be brutally honest, cut back on things like cable tv ( I still don't have it ), reduce your phone plans, borrow things when you don't have to buy them and send that money to your debt. Pick up some hobbies that don't cost much. These are all minor sacrifices. I got back in to playing the piano and spent a lot of time at the beach in the summer and caching up on books I'd always meant to read in the winter.   I ran a lot of numbers in a spreadsheet but you can play with the numbers with online loan calculators to put some real numbers behind your goals. Here is one that I just tried out http://loan.bizcalcs.com/Calculator.asp?Calc=Loan-Early-Payoff  You'll probably be surprised how much effect a little bit of extra towards a loan can make in the long term.  Put your current college loan details in to it and then see what the effect of an extra 150 a month is. I know you've implied that you really don't have anything extra each month and that is fine. Figure out an amount that gets you moving towards your goals and then start working on a way to make it. Figuring out how to make or squeeze an extra n dollars out of your budget every 30 days is much less daunting than thinking about paying off 50K. You said you are working in IT, I don't know where you live but in my city there are lots of decent IT related jobs. Your first goal might need to be to find a better one.    If possible move around balances until you've got interest rates you can deal with and now that you have solid numbers to plan with consider the effect of making smaller goals. Would you feel as bad if you had half as much debt? How about if you got rid of 10K of debt? Or just your credit cards?  I know I felt a huge relief when I cut my overall debt in half. It felt like a huge part of my burden had lifted, and it had. I could start seeing the end of the tunnel.    I think that one of the biggest changes in my life since then has been the way I look at and think about money and debt.  I didn't really have to sacrifice much. I learned to travel cheaply and whenever I met   a goal I'd reward myself with a small trip. Today I have a very low mortgage payment and I pay my full credit balances each month so I have no revolving bad debt.   I wish you luck and I know exactly where you are standing right now.