Mustachians:
My dilemma puts the badassity of paying your own way against a government program that rewards my staying in debt. I'm talking about the income based repayment program for Federal Student loans for attorneys engaged in public service.
Here's my situation. I am government attorney with annual salary of 60K. After taxes, I take home $45,288 per year. In the last 10 months, I have paid off about $15K in debt. Right now, of the $3,774 I take home each month, I save or apply to debt about 50% or $1800.
If I continue in government service, I can apply for income-based repayment. At my salary, I would be looking at less than a $500 payment each month. Under the program, I would need to make 120 months of qualifying payments, after which point all my debt would be forgiven. I'm 20 months into my job, so I would need to make another 100 payments while working for the government. My question is would a mustachian participate in the program?
My student loans are as follows.
$1900 at 5% (to be paid off in the next 1.5 months, this is the first to be paid off even though the interest rate is the lowest. Bite my debt snowball).
$15,312 at 7.55%
$37,364 at 6.55%
$24,062 at 6.55%
Total: $78,620
I have $2500 in savings right now and another $1000 in my checking out for expenses. Retirement is locked up in the State pension plan.
This is a quick and dirty post, so I am going to guesstimate with an online calculator. If I pay 1800 a month toward my loans, I will pay these off by August 15, 2016. 4 years, 3 months. Ugh. I will have made interest payments of $12,286 and total payments of 90K.
In contrast, if I just paid the income based repayment amount, and I'll give my future self a raise and assume my payments averaged $600 a month over the life of the loan, I would make another 60K in payments (100 months left for me at 600 a month). This route "saves" me 30K and takes an extra 4 years, 11 months.
I put the probability of me working in government for the next 8 years at 40%, something less than half but a real possibility. I like my job, but am looking to move to a new city. Because I am a lawyer, there is a also a distinct possibility that I could earn 100K plus a year in private practice. If I moved to the Federal government, I would be at 100K a year in 3-4 years. At that point the IBR payments would be high enough not to save anything.
Would a mustachian even take a government handout like this, when he could do it on his own? Without an unexpected source of income, I don't see early retirement in the cards for me. I enjoy work, but I don't enjoy the idea of working the next 100 months in a row. I'd like to have flexibility to take 3-9 months away from an office job in the next 10 years, ideally I'd teach at a foreign university for 6 months at some point. I also hope to work in the private sector. Right now, I am single and healthy so I could try to improve my savings by 10% and kick $2000 a month toward debt, but I think I would burn out before the debt does.
MMM talked about how most people with a middle class income are better off cutting expenses than trying to earn more money. I think I may be the exception. Alternately, maybe I should participate in the program and be in debt for 8 years. I could use the savings from reducing my monthly payment to invest. But then I'd be locked into the program and when an awesome nonqualifying job comes along in year 7, I'm screwed. Any thoughts for me?
Thanks,
Fuzz