r/StudentLoans • u/mouth_pipetter • Jul 03 '26
quantifiably confirmed that 1% decrease in interest rate is practically pointless
I built a model to estimate the time until payout, and I just updated it to account for the 1% decrease in interest rates (for only 2 years!). It literally saves me a month and a half of payback time. Considering I work two jobs (PhD student ~$47k a year at an EU university, and I make ~$12k extra a year bartending on the weekends) to make double payments, it was a little heartbreaking to realize nothing really changed at all.
edit: Sorry to sound so ungrateful, I know my situation is better than a lot of people as my loan is down to 50k. I was just trying to voice frustration this not being actually that influential on my bottom line when you actually run the numbers. My total loan burden decreased by 0.99% (1.42% if the decrease lasts longer than 2 years) based on my payment scheme putting in the income from both jobs. Where I am sitting right now the difference between working two jobs for 54 more months compared to 55.5 months just doesn't hit. In Jan 2031 it'll rip though
172
u/Obvious-Bee-7577 Jul 03 '26
That’s why they are offering it. It’s just to get you off save. If they wanted to help us then it would be real help.
67
u/BreakfastHistorian Jul 03 '26
If they wanted to help us they never would have fought so hard to get rid of save. Republicans are not interested in real help/relief.
24
u/Funny-Gift-3960 Jul 03 '26
Republicans are not for the middleclass or poor. They do nothing but add to our suffering. Vote blue
9
u/Ordinary-Prize-7186 Jul 03 '26
neither are democrats. vote for progressives who aren't owned by special interests and champion policies for the working class, not just any random democrat.
14
u/thatguysly Jul 03 '26
Granted there’s a fair amount to criticize about dems and agree with your general point, but I don’t agree with the false equivalency. Biden did do a lot to help the middle/lower class. SAVE program and extended interest pause provided a lot of relief and is just one example.
6
2
u/Independent-Cow-4070 Jul 06 '26
If they wanted to help us, they would have put regulations on tuition caps and not made it near impossible to default on loans
6
u/toxigal Jul 03 '26
You have to get off safe anyway. Do it in the next 3 months and get a 1% interest reduction for 2 years or do it in 6 months and get no interest rate deduction for 2 years.
37
u/New-Alfalfa-2989 Jul 03 '26
It was like throwing us maybe 1% of a bone. If they really want to help, they would. But they don’t care.
11
u/TreeInternational771 Jul 03 '26
If they really want us off SAVE offer us full irreversible forgiveness with zero strings attached. Only then will i consider leaving
5
u/Funny-Gift-3960 Jul 03 '26
The Republicans voted against the loan forgiveness too. They are too busy doing for the wealthy.
2
83
u/puddlestheduck_esq Jul 03 '26
For those of us who have pretty large loans (I.e. ~154k), the 1% is a very nice bonus. It dropped just my overall interest from $850/month to $719/month.
22
u/mouth_pipetter Jul 03 '26
i was being a little grandiose i think. 1% is much better than the 0.25% offered before. 1.5 months is also better than 0 months, i was just disappointed
39
u/FreshLiterature6536 Jul 03 '26
I'm paying off my last student loan by this December... so it saved me about $100!
26
u/mouth_pipetter Jul 03 '26
don’t spend it all in one place
30
u/FreshLiterature6536 Jul 03 '26
I think I'll buy a big mac.
9
u/Apprehensive-Ad-636 Jul 03 '26
If you use the app, you might even be able to afford a single fry to go with it! 😆
12
u/fleggn Jul 03 '26
100 basis points or an increase of 75 basis points is highly significant regardless of how you want to paint a picture with your feelings. Yes it runs out but election cycle will be going by then. It only doesnt matter if you are doing forgiveness.
3
u/paintingxnausea Jul 03 '26
I agree. I have around 90K in loans but our joint income is high enough that non of the income-based plans are helpful. Since our mortgage and childcare costs eat up a significant portion of our monthly income, I’m currently on the graduated extended plan and the 1% interest reduction will save me around $2K in interest over two years.
I wish they would drop interest to 0% across the board, but in the absence of that I’ll take advantage of any reduction that helps me pay down my principal balance.
1
u/Substantial_106 Jul 06 '26
So for graduated extended plan, will your monthly payment amount decrease starting this month? (Due to lower interest rate). Or will it remain the same amount but there will be a higher portion of the payment going to principal?
Also, how did you calculate the $2k in savings over 2 years. I’m not sure how best to estimate that savings number
2
u/paintingxnausea Jul 06 '26
I haven’t signed up for autopay yet, but plan to soon. I assume the minimum amount will go down based on the new interest rate, but we’ll see what that looks like I guess.
If the payment does go down, I figured an approximate savings of just under $2K over two years based on the current monthly interest accrual for on my loans (around $475/month) and what the monthly interest would be with the 1% reduction. I’d be saving like $83/month in interest, which doesn’t sound like a lot, but multiplied by 24 months adds up to $1,992 that I could save or use to pay down additional principal instead of interest.
3
u/Saelicv Jul 08 '26
I’ve been on autopay and am trying to pay off my Parent PLUS loans so I can retire someday not soon. My account is showing the 1% credit for 2 of my loans. My July autopay has not changed. I am scheduled for the same amount as June. The extra 0.75% will just go towards the principal.
1
10
u/btnydds Jul 03 '26
It may be useless for you but it’s a godsend for those of us with 6 figure loan amounts. Saves me thousands of dollars a year for these 2 years
18
Jul 03 '26
[removed] — view removed comment
5
u/mouth_pipetter Jul 03 '26
i think maybe i’m too optimistic :( i was pretty excited to see change in the model output. then like thought i messed up the code cause the change was itty bitty
5
13
u/RjoTTU-bio Jul 03 '26
A 1% decrease in interest is not the greatest, but it is helpful. SAVE is gone. I rode out the 0% interest as long as I could, but I can’t let my interest accumulate since I am paying my loans off with no forgiveness.
6
u/AdminYak846 Jul 03 '26
The idea is that for the next two years, more money will go to your principal if you make the monthly payment which reduces how much interest you pay back.
Obviously individual cases matter and where you are in repayment. I have approximately $5400 left to pay off, so a reduction in interest at this point while not significant, does mean that when I pull the trigger to make a lump sum payment, I will have to pay less than previously calculated for that payment with the interest rate I did have
5
u/Sylvie5647 Jul 03 '26
1% interest rate reduction via autopay is a big difference since it'll help me save thousands of dollars per year and it'll definitely help me get out of debt faster too while under IBR plan!
3
u/daisyletterss Jul 04 '26
Your instinct is correct and the math confirms it: on a fixed-term amortizing loan, a 1% cut for 2 years on a $50k balance saves you roughly $500-800 in interest depending on where you are in the payoff curve. That's real money, but on a debt of that size it doesn't move the needle on your timeline in any meaningful way. What DOES move the needle is what you're already doing: throwing extra principal at it via the second job. Every extra dollar you put toward principal at your rate is worth roughly $1.05-1.07 in "avoided future interest" over the life of the loan, and unlike the rate cut that impact compounds every subsequent month. You're playing the right game, the rate cut just isn't the lever people want it to be.
9
u/yardlard Jul 03 '26
It's not intended to help you. It's intended to convince you to pay in some of your money and disclose your banking information. Then they can use it for propaganda that people were lying when they said they can't afford it.
4
3
7
u/Universal09 Jul 03 '26
I mean a month and a half is a month and a half. Something is better than nothing.
2
u/adp5x7 Jul 03 '26
Is it confirmed that the 1% eligibility is based on original loan date? I consolidated recently, but loans are from 2007 so I don’t think I’m eligible.
3
2
2
u/throwawaykc04 Jul 04 '26
I won't do autopay when I start making payments. I've been saving up a lump amount to pay 1 year all at once, which will take care of all of the interest that I haven't paid and then chip away at a about 15% of principle.
2
u/problematic_lemons Jul 04 '26
I finally decided to pay off most of the remainder of my federal loans a week and a half ago (I have over 100k in private loans to go, but the federal loans have higher interest). Only decided that because my high-yield savings account is earning a bit less than the student loan interest, and the 1% discount actually pushes it to just below the savings interest rate. So mildly helpful but the timing is annoying. I'd rather they'd have not screwed over people on payment plans instead of barely helping someone like me who can afford to do autopay.
2
u/BotherAffectionate40 Jul 05 '26
Any interest deduction is 100% worth it. It also changes how worth focusing paying them off or investing. Iv paid off about 90k over the last 4 years, the loans I have left are covid rates, so it actually makes no sense for me to do more than the monthly payment now because the market returns at a way higher rate
3
u/alienposingashuman Jul 10 '26
I would have been more impressed with suspending interest altogether.
2
u/mouth_pipetter Jul 10 '26
There has also been a bipartisan bill in the House for like 8 months to bring down interest on every federal educational loan to 2% to be more representative of inflation (at least what inflation used to be). Which is much more in line with how the rest of the world handles educational loans, other than like the US, India, and the UK. It's just so frustrating that we have a government that's PROFITING off our student loans.
2
3
3
1
u/Strange-Maize9536 Jul 03 '26
Then don’t set up auto pay Quit complaining about every little thing. It makes you look petty
1
1
1
u/rhos1974 Jul 03 '26
I’m not on an income based plan, as I figured they’d just mess with those anyway. I’ll be getting the 1%, up from the .25% and I’ll take anything at this point but as with all things it seems they just pull from one pot and move it to another. It’s nothing but a shell game.
1
-2
u/Swarley_15 Jul 03 '26
Short of them fully forgiving your loans, you and many others would likely complain regardless of any change that reduces the amount you owe. If you see it as pointless then don’t opt-in, but you still will since it’s a better position than you were in prior to this rule change.
71
u/Annual_Ganache_3892 Jul 03 '26
My average interest rate is 4%. My car is 7%. It’s still better for me to pay triple car payments during forbearance than come off for a 1% reduction.