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

Forum Index » Money and Finances

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

Subject:

Emoticons





More smilies

Text Color: Font: Close Marks

[quote=Anonymous][quote=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? [/quote]

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.

[url]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/[/url][/quote]

Options

	Disable HTML in this message
	Disable BB Code in this message
	Disable smilies in this message

Review message

Search Recent Topics Hottest Topics