How would you suggest I approach my student loan repayment? Long post.

[Anonymous]

Seeking amateur financial advice here.

Note: I am not interested in your political or moral opinions about the importance of paying back all your debts, your opinion on the Biden loan reduction program or other forgiveness programs, or whether you agree with income driven programs. I’m looking at my own finances and options and I’m interested in, if you were in my place, what option you would choose. There are dozens of other threads to debate the merits or downsides of student loan forgiveness/reduction/repayment programs.

Background: I now have a salary equal to my outstanding student loan balance. I am on a good trajectory but I acknowledge I could have made better decisions earlier in life. Long story short, I went to an expensive school with pipe dreams about what DC-area careers are actually like, how competitive they were, and how they pay, and was quickly disappointed and it took a good six years to finally spin my degree into something useful that pays well and has upward mobility.

My question is basically whether and to what extent it makes sense to stay on an income based repayment program. Apparently it is capped at 5% of discretionary income. Even though my income is decent, this wouldn’t even cover the interest. At the end of the IDR program, I’d theoretically have the outstanding amount forgiven, although I could be hit with a huge tax bomb at the end, all at once. But I’ve also heard that it may not still be taxable income? Anyone know for sure? (I’m not going to search through the 80-page thread about it).

So here are my options, if you were me, which would you choose?

A. Stay on the income based payment program and ride it out.
Advantages: lower monthly payments, the possibility of having it not taxed at the end due to the Biden policy or any future policy, possibility of less overall paid. Less severe budgeting in the medium term.
Disadvantage: not covering interest letting the balance just balloon and having to come up with tens of thousands in taxes to pay all at once when it expires.

B. Recalculate and plan to pay it off in full in ten years, like a standard plan would be.
Advantage: at least it’s predictable and no tax surprises.
Disadvantage: Missing out on opportunities to save from IDR plan, monthly bills so high that I miss out on opportunities to build wealth through investments and home equity

C. Go all in, take extreme measure to pay it all off in 2-3 years now that it’s theoretically possible. Move back in with parents (my job is remote), rent out condo, give up dog and all hobbies, bite the bullet but only for a few years.
Advantages: it would be painful but it would be OVER
Disadvantages: missing out on life, relationships, friends, career opportunities connected with being in the DC area, being generally unhappy

D. Refinance with a private servicer at a lower interest rate
Advantage: similar to B and C
Disadvantage: Permanently excluded form any public debt relieve programs, rather severe budget restrictions in the near term

E. Do a mathematical calculation in which I pay more than the income driven minimum, enough that it covers interest, and makes the taxable outstanding balance manageable, figure out the lowest overall cost (monthly payments + overall taxes at the end) Keeping in mind that income may grow over the next 10-15 years.
Advantages: figuring out the lowest overall payment
Disadvantages: it’s complicated, plus having to make predictions based on future earnings.


Anyways, yeah, if you were me, which would you choose?

[Anonymous]

I think that debt relief isn’t likely to be an ongoing thing. Or, I don’t think any one person is likely to get it more than once. And it’s clear that they intend to means test the benefit, so if your income is on an upward trajectory, you may not qualify in the future. If you are not interested in a public service career that can cap your payments and also be eligible for tax free forgiveness in 10 years, I would pay as much as I could now during this interest free payment pause, wait to get my 10-20k cancellation, refinance into a lower interest rate loan, then go all in and get the debt paid off as quickly as possible then move on with your life (esp if you are currently single and childless - get the debt out of the way pre-kids).

[Anonymous]

Is your job private sector or public sector/non-profit that will qualify for Public Sector Loan Forgiveness (PSLF)?

Tell us your:
-Outstanding principle amount
-Current income
-Expected income trajectory for the next five years

All of this matters.

I had my loans forgiven yesterday through PSLF. I made the absolute minimum interest payments for 10 years and got it all forgiven. PSLF is not taxed at time of forgiveness. In that time, I maxed out my 401K, bought a nice house with my wife, got married, and had a kid. I never would've been able to afford that if I was paying more than the minimum interest payment. Of course, it was a bit daunting to never see my principal value go down.

Your exact circumstances really matter to the answer we can give you.

[Anonymous]

Probably somewhere between B and C, leaning more towards C. I wouldn’t give up everything but I would scrimp and save every extra penny, no extras at all. Get a roommate if you have to, eat only at home using budget recipes and meal plans, no vacations, maybe pick up another job for a year.

[Anonymous]

Anonymous wrote:Seeking amateur financial advice here.

Note: I am not interested in your political or moral opinions about the importance of paying back all your debts, your opinion on the Biden loan reduction program or other forgiveness programs, or whether you agree with income driven programs. I’m looking at my own finances and options and I’m interested in, if you were in my place, what option you would choose. There are dozens of other threads to debate the merits or downsides of student loan forgiveness/reduction/repayment programs.

Background: I now have a salary equal to my outstanding student loan balance. I am on a good trajectory but I acknowledge I could have made better decisions earlier in life. Long story short, I went to an expensive school with pipe dreams about what DC-area careers are actually like, how competitive they were, and how they pay, and was quickly disappointed and it took a good six years to finally spin my degree into something useful that pays well and has upward mobility.

My question is basically whether and to what extent it makes sense to stay on an income based repayment program. Apparently it is capped at 5% of discretionary income. Even though my income is decent, this wouldn’t even cover the interest. At the end of the IDR program, I’d theoretically have the outstanding amount forgiven, although I could be hit with a huge tax bomb at the end, all at once. But I’ve also heard that it may not still be taxable income? Anyone know for sure? (I’m not going to search through the 80-page thread about it).

So here are my options, if you were me, which would you choose?

A. Stay on the income based payment program and ride it out.
Advantages: lower monthly payments, the possibility of having it not taxed at the end due to the Biden policy or any future policy, possibility of less overall paid. Less severe budgeting in the medium term.
Disadvantage: not covering interest letting the balance just balloon and having to come up with tens of thousands in taxes to pay all at once when it expires.

B. Recalculate and plan to pay it off in full in ten years, like a standard plan would be.
Advantage: at least it’s predictable and no tax surprises.
Disadvantage: Missing out on opportunities to save from IDR plan, monthly bills so high that I miss out on opportunities to build wealth through investments and home equity

C. Go all in, take extreme measure to pay it all off in 2-3 years now that it’s theoretically possible. Move back in with parents (my job is remote), rent out condo, give up dog and all hobbies, bite the bullet but only for a few years.
Advantages: it would be painful but it would be OVER
Disadvantages: missing out on life, relationships, friends, career opportunities connected with being in the DC area, being generally unhappy

D. Refinance with a private servicer at a lower interest rate
Advantage: similar to B and C
Disadvantage: Permanently excluded form any public debt relieve programs, rather severe budget restrictions in the near term

E. Do a mathematical calculation in which I pay more than the income driven minimum, enough that it covers interest, and makes the taxable outstanding balance manageable, figure out the lowest overall cost (monthly payments + overall taxes at the end) Keeping in mind that income may grow over the next 10-15 years.
Advantages: figuring out the lowest overall payment
Disadvantages: it’s complicated, plus having to make predictions based on future earnings.


Anyways, yeah, if you were me, which would you choose?

I thought if you were making payments towards IDR then interest was going to be reduced or subsidized so that the payment made went towards principal? I also think that the forgiveness part being taxable is also up for discussion. Do not make any plans until all the details are ironed out.

https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/24/fact-sheet-president-biden-announces-student-loan-relief-for-borrowers-who-need-it-most/

[Anonymous]

If you do A there are no guarantees that things will work the same way they do then that they do now. I definitely wouldn’t take that option unless you’re very low income and circumstances dictate that you will continue to be low income for the next 10 years. You really haven’t given enough information to get good advice though.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Seeking amateur financial advice here.

Note: I am not interested in your political or moral opinions about the importance of paying back all your debts, your opinion on the Biden loan reduction program or other forgiveness programs, or whether you agree with income driven programs. I’m looking at my own finances and options and I’m interested in, if you were in my place, what option you would choose. There are dozens of other threads to debate the merits or downsides of student loan forgiveness/reduction/repayment programs.

Background: I now have a salary equal to my outstanding student loan balance. I am on a good trajectory but I acknowledge I could have made better decisions earlier in life. Long story short, I went to an expensive school with pipe dreams about what DC-area careers are actually like, how competitive they were, and how they pay, and was quickly disappointed and it took a good six years to finally spin my degree into something useful that pays well and has upward mobility.

My question is basically whether and to what extent it makes sense to stay on an income based repayment program. Apparently it is capped at 5% of discretionary income. Even though my income is decent, this wouldn’t even cover the interest. At the end of the IDR program, I’d theoretically have the outstanding amount forgiven, although I could be hit with a huge tax bomb at the end, all at once. But I’ve also heard that it may not still be taxable income? Anyone know for sure? (I’m not going to search through the 80-page thread about it).

So here are my options, if you were me, which would you choose?

A. Stay on the income based payment program and ride it out.
Advantages: lower monthly payments, the possibility of having it not taxed at the end due to the Biden policy or any future policy, possibility of less overall paid. Less severe budgeting in the medium term.
Disadvantage: not covering interest letting the balance just balloon and having to come up with tens of thousands in taxes to pay all at once when it expires.

B. Recalculate and plan to pay it off in full in ten years, like a standard plan would be.
Advantage: at least it’s predictable and no tax surprises.
Disadvantage: Missing out on opportunities to save from IDR plan, monthly bills so high that I miss out on opportunities to build wealth through investments and home equity

C. Go all in, take extreme measure to pay it all off in 2-3 years now that it’s theoretically possible. Move back in with parents (my job is remote), rent out condo, give up dog and all hobbies, bite the bullet but only for a few years.
Advantages: it would be painful but it would be OVER
Disadvantages: missing out on life, relationships, friends, career opportunities connected with being in the DC area, being generally unhappy

D. Refinance with a private servicer at a lower interest rate
Advantage: similar to B and C
Disadvantage: Permanently excluded form any public debt relieve programs, rather severe budget restrictions in the near term

E. Do a mathematical calculation in which I pay more than the income driven minimum, enough that it covers interest, and makes the taxable outstanding balance manageable, figure out the lowest overall cost (monthly payments + overall taxes at the end) Keeping in mind that income may grow over the next 10-15 years.
Advantages: figuring out the lowest overall payment
Disadvantages: it’s complicated, plus having to make predictions based on future earnings.


Anyways, yeah, if you were me, which would you choose?

I thought if you were making payments towards IDR then interest was going to be reduced or subsidized so that the payment made went towards principal? I also think that the forgiveness part being taxable is also up for discussion. Do not make any plans until all the details are ironed out.

https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/24/fact-sheet-president-biden-announces-student-loan-relief-for-borrowers-who-need-it-most/

I honestly wouldn’t make decisions based solely on this administration, because who knows what future administrations will do.

[Anonymous]

How many years do you have left if you stay on IDR? You can also supplement that IDR payment with extra $ each month; you just set up an automatic payment through your bank that will go in addition to the monthly withdrawal by the feds.

Do NOT go with a private lender unless you are convinced you'll never get forgiveness. I just got PSLF this past year as did DH finally -- we weren't on the right payment plan for it originally but had been paying for 14 years and each had been working for an eligible employer. Just got our loans forgiven recently and $34,000 in overpayments returned to us.

[Anonymous]

Run the numbers and see what’s possible. Instead of the 2-3 year payoff, see what 5-6 years looks like for you. This way, you might be able to save some $$ for a down payment on a house and a low expense vacation.