The Money Mustache Community

Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Littlekind on August 27, 2016, 11:21:39 AM

Title: Edit! public service loan forgiveness vs paying it off asap
Post by: Littlekind on August 27, 2016, 11:21:39 AM
Editing to make my actual question more clear - I don't know how to calculate the following:
If I make minimum payments for almost 10 years and dont get forgiveness for some reason, about how large would the balance be by then?
If I put the extra 600 into savings monthly for 10 years, how much might I have? And I don't know if I should use money market or something else.

I did find a calculator to see how long it will take to pay off the loan by adding 600 a month to it. I just am having trouble with these other calculation since my payments don't even cover interest.

Hi, I am looking for some advice on this pickle:
I have been teaching for 7 years and making payments on my loans off and on (except foolishly doing some forbearance and deferment period). I applied for public service loan forgiveness where they will all vanish at the end of 10 years of qualifying payments, thinking I would be almost there. But, the payments I have been making the last 7 years were not "qualifying" because they were not income-based repayment. So as of now I have made 8 out of 120 qualifying payments and only paid down like 3k. ugh.

The loan balance is $46,900 at 4.875% apr. The income based payment is $165 per month. I can afford to add 600 dollars a month to this amount to try to tackle it sooner. I don't want to do a full case study, but 600 is the best we can reasonably do for probably the next 5-8 years.

Pros of PSLF would be my total payoff amount would be about 20K at the end of 120 payments. So that's a big reduction on paying the full balance myself.
Cons of PSLF are another 10 years with this this debt, PLUS the payments are so low that they don't even cover the interest. So if I cannot teach for the next ten years (like I switch jobs, get disabled, die, whatever) the outstanding balance will be larger than ever.

Without doing the full case study, which I know would be more helpful, would you advise to pay it down or hold out for the loan forgiveness? Specifically, would there be an advantage to hoarding the extra 600 a month as a safety net in case something should happen that would prevent me from getting the loan forgiveness? I know this is probably a basic calculation for those in the know, but I am not really sure what to make of it. Thanks in advance.

Title: Re: crunching the numbers- public service loan forgiveness vs paying it off asap
Post by: SimplyMarvie on August 27, 2016, 12:55:05 PM
Firstly, who told you that your prior payments wouldn't count toward PILF? If it was anyone other than FedLoans, call FedLoans ASAP to be absolutely sure. It's sad, but there are heaps of servicer shenanigans going down in student loan repayment right now. FedLoans is the direct servicer and the only people who can actually certify you for PILF, so talk to them ASAP. They'll probably ask you to fill out qualification paperwork -- I just looked it over last week (but didn't complete it because I hate working with FedLoans) and I don't remember anything about needing to be in an IBR program for payments to qualify.

Secondly, I'm nearly 5 years into an IBR plan with PILF. I am gritting my teeth and crossing my fingers and hoping and praying that the program either doesn't change before I qualify for forgiveness or that they grandfather me in. If there's a major change in the program, I am probably screwed. My balances are higher than yours (so paying them off in 10 years wasn't reasonable) but like you, my payments don't entirely cover the interest, which means my balance grows over time. If anything happens to the program before I hit my forgiveness date, I will have to repay MUCH more now than I would have when I graduated.

Also, it looks like the forgiveness is not going to be taxed as income, but we don't know that for sure, so it's another thing to watch.

I think in your position, I'd probably switch to either PAYE or REPAYE (which ever was more advantageous) and then pay the suckers off. You'd pay them off free and clear in about 5 years, if my back of the envelope math is correct, rather than waiting nearly twice that time for a PILF payoff, and dealing with a whole lot of uncertainty. 
Title: Re: crunching the numbers- public service loan forgiveness vs paying it off asap
Post by: Littlekind on August 27, 2016, 02:11:40 PM
Thanks for replying! The 8 out of 120 payments is my official count through fedloan servicing. I couldn't believe I didn't have more qualifying payments. It has to be income based repayment plan to qualify and many of mine were not payments under a qualifying plan. But I'm all set in the fedloan system now to continue with qualifying payments.

I also have thought of trying to save the 600 a month as security against something happening to mess up the pslf...I'm still not sure.
Title: Re: Edit! public service loan forgiveness vs paying it off asap
Post by: Littlekind on August 28, 2016, 11:45:58 AM
I edited the original post to try to get more help on analyzing the cost difference between stashing the 600/month separately as a safety net for pslf not working out, vs just paying down as quickly as possible.