Author Topic: Should I pay off loans faster or let it ride?  (Read 3677 times)

mm36

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Should I pay off loans faster or let it ride?
« on: May 05, 2014, 10:35:03 AM »
I currently have close to  $72,000 in student loans from graduate school and college.  But I am on an income based repayment plan (IBR) where if I make payments for the next 20 years, any remaining debt will be forgiven at that time.  I'm not sure I want to be indebted for that long, but the thing is I work as a librarian and don't make much money anyway.  Sometimes, I am tempted to just make the minimum payments for 20 years since the remainder will be forgiven.

What would you guys do in this situation?  Also, I have 1500 dollars in credit card debt.

S0VERE1GN

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Re: Should I pay off loans faster or let it ride?
« Reply #1 on: May 05, 2014, 10:46:36 AM »
Also Have high student loan debt ($100k between my wife and myself)

The first thing you need to do is annihilate that credit card debt. here's your obligatory face punch. *SMACK*

Second: get a handle on other expenses. lower all other expenses as much as possible and then re evaluate your situation after a few months. can you pay the statement balance now? are you still in IBR essentially? if you can get to paying the monthly balance for a10-year payoff you're on good footing.

next: get more money coming in to pay them off. second job, sell stuff start a blog etc. I can tell you right now that if you pay that bill for 20 years to wait for it to go away, you will have paid FAR MORE than 75k. and that money will be gone forever, not bringing you any closer to your early retirement.  There are quite a few case studies of folks who had more SL debt than you and destroyed it in a year or less. it can be done!

Frankies Girl

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Re: Should I pay off loans faster or let it ride?
« Reply #2 on: May 05, 2014, 10:55:37 AM »
what are the interest rates on the school loans and the credit cards?

I'd pay off the credit card asap (especially hit it hard if it's over 5%), and then hit the school loans in order of the highest interest rate. Even if they will be forgiven in 20 years, it might be best to take them out, but if they are low interest loans, then it would be better to use extra money to fund investment/retirement accounts and make the minimum payments on the school loans, but can't tell without the interest rates which would be a better move.

B L I S S

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Re: Should I pay off loans faster or let it ride?
« Reply #3 on: May 05, 2014, 01:09:36 PM »
Depending on the interest rate and monthly payment, theres a chance you could pay less than $20k.
But loan officers know this, and I'd bet they will make sure your monthly payments are high enough that you will pay more over the 20 years.

MissStache

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Re: Should I pay off loans faster or let it ride?
« Reply #4 on: May 05, 2014, 02:00:09 PM »
God, the thought of having to pay a loan for TWENTY YEARS just seems so awful to me!  I would pay it off just so I didn't have to think about it ever again, but a lot depends on your income and what you are spending.  That said, $72K isn't really an enormous number, especially compared to what I've seen some people pay off on this forum.

homeymomma

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Re: Should I pay off loans faster or let it ride?
« Reply #5 on: May 05, 2014, 02:11:57 PM »
If you don't have enough to pay down your $1500 cc debt, why are you considering paying down the student loans?
Also, doesn't the 20 year forgiveness thing kind of assume you'll never make more money than you do now? That kind of sucks to think about your career prospects. I'd get a plan together to get rid of the cc debt then see what that meant for you in terms of lifestyle changes, etc. also, are you married? Do you have kids? If these things are in your future or current life, you partner or life plans with kids may alter how you see that debt.

Finally, what are your interest rates?

randymarsh

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Re: Should I pay off loans faster or let it ride?
« Reply #6 on: May 05, 2014, 02:42:27 PM »
What payment plan are you on exactly? IBR has a 25 year payment term. Do you mean the pay as you earn plan?

Remember that the forgiven amount is considerable taxable income. Assuming an income of $35,000 and a 5% interest rate, the calculator at studentloans.gov says you'll pay a total of $67,000 over the 20 years and $76,000 will be forgiven. If we assume you're in the 25% tax bracket, you'll owe an additional $19,000 to the IRS. Total of $86,000 paid.

Standard 10 year repayment total cost is about $96,000. So on paper you'll come out ahead and of course inflation makes those future payments and possible taxes less painful.

What sucks is that you'll be carrying a large amount of debt until forgiveness occurs.

mm36

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Re: Should I pay off loans faster or let it ride?
« Reply #7 on: May 05, 2014, 03:55:17 PM »
The interest rate on the student loans is around 5.4 percent.  I'm 5 years in on the IBR, hence I have 20 years left.  Homeymamma, I'm not married and don't have kids.  I don't plan on ever having kids either.  I'm not sure about the CC interest rate, but I'm sure its going to be higher than the student loan.