conversation: User (xtrexjpsouz): "Hey guys, I'm looking for some advice on the order in which to pay down my husband's student loans (currently totaling $46K). Here's the breakdown:\n\n**Federal Loans**\n\n$1,600 @ 6.55%\n\n$3,900 @ 6.55%\n\n$3,900 @ 6.55%\n\n$3,900 @ 5.75%\n\n$2,500 @ 2.1%\n\n$1,850 @ 2.1%\n\n**Private Loans**\n\n$6,300 @ 4.00%\n\n$5,700 @ 2.875%\n\n$6,900 @ 2.500%\n\n$6,200 @ 2.500%\n\n$3,400 @ 2.500%\n\nI know it's generally best to pay down the loans with the highest interest rates first since they cost the most... but I'm wondering if there's a point where shitty terms trump the interest rates.\n\nSpecifically, the private loans have variable interest rates and a much longer repayment period (20 years vs. 10 years). It would also be more difficult to put the private loans into forbearance in the event that one of us becomes unemployed.\n\nWhat do you guys think?"
  Self: ""Repayment period" is a red herring here. Don't worry about it. You can easily up your regular payment to make it a 10 year period if you want.\n\nAnyway, one key question here is how long do you anticipate it will take you to repay these loans. Most people expect interest rates (and thus variable loans) to remain stagnant/low until 2015 or so (though obviously this is far from a certainty). Predicting further than that is foolish, and those rates could rise dramatically.\n\nDo you have an income where you might be able to knock these out in 2-3 years? Is it a dual income household (offering a little more financial security)? And do you have plenty of emergency savings? If all of these things are true, I'd attack the high interest loans first easily.\n\nIf things are a bit more unstable in your life, you think you might need IBR going forward and you don't have enough income, there's a lot to be said for the flexibility of federal loans.\n\nThe answer here depends mostly on your current financial situation."
  User (xtrexjpsouz): "The repayment period thing is more of a psychological issue... I hate the idea of still paying these things when we're in our 40s (even if it is an absolute worst case scenario).\n\nOur combined net income is about $4,500 per month and we have $3K in emergency savings. I would like to have more of a safety net; our savings have taken a hit recently due to unexpected medical expenses and car repairs. :( We also just finished paying off a credit card and auto loan - about $20K in the span of 18 months.\n\nI would like to pay everything off in 3-4 years. I figured the private loan rates wouldn't skyrocket during that time, but it's hard to know for sure."
  Self: "Yeah. No one knows for sure what rates will be like in the future, beyond educated guesses for the next couple years.\n\nIf your goal is a 3-4 year timeline for paying these back, I'd advise you start with the 4 highest federal loans, and then work your way through all the private loans (possibly prioritizing the 4% variable private loan a earlier, since that will rise more dramatically if rates increase). Then finish off with the 2.1% federal loans. Yes this is a pure interest-rate approach I'm advocating, mainly because you hope to have these paid back within 3 or 4 years.\n\nAll that being said, I completely understand if you want to get rid of some of the private loans earlier, if nothing else for the peace of mind of not having that uncertainty hanging over your head. If that uncertainty and lack of flexibility is weighing heavily on your mind, then a mixed approach (perhaps alternating federal/private loans) might be superior. I believe this approach will cost you money in interest, but sometimes the approach that you feel more comfortable with is superior."
  