Author Topic: Pay As You Earn - Maybe Not Antimustachian?  (Read 1822 times)

Mr. Boots

  • 5 O'Clock Shadow
  • *
  • Posts: 17
  • Location: Northeast
Pay As You Earn - Maybe Not Antimustachian?
« on: June 11, 2014, 09:47:55 AM »
Just curious if there are any mustachians out there who are using the Pay As You Earn (PAYE) plan to repay their student loans. Basically it caps monthly payments at 10% of your income and offers loan forgiveness after 20 years. It's especially enticing for public and non-profit employees because forgiveness can be had in 10 years through the Public Service Loan Forgiveness program.

It's in the news right now because President Obama is opening the plan up to most federal loan borrowers. I've given the pros, but the obvious con (to a mustachian) is that you make little to no progress on your debt while praying for forgiveness down the road. And all the while that EMERGENCY siren is blaring in your head.

However, I think if managed properly (by being frugal and stashing income in tax-deferred accounts), PAYE can be mustachian. The key is keeping your adjusted gross income down, thus lowering your monthly payments and saving for retirement at the same time. I make a longer case for this on my (young/barebones) blog, if anyone is interested.

I expect my position will not be popular here, but I'd love to hear your thoughts. It's helping my family save for retirement while my wife stays home with our young son, all on a median household income. Anyone else benefiting from PAYE?

taekvideo

  • Bristles
  • ***
  • Posts: 264
Re: Pay As You Earn - Maybe Not Antimustachian?
« Reply #1 on: June 11, 2014, 10:48:03 AM »
Considering the low income I ended up with, and that my student loans would have been over a third of my gross income... yeah I'm on PAYE, and $0/month for the direct loans (will probably stay that way for the whole 20 years...), though I still have to pay the PP loans normally, but don't have much of those.

By the way it's 10% of *discretionary* income, not gross income... the first 150% of poverty level isn't counted in that.

Mr. Boots

  • 5 O'Clock Shadow
  • *
  • Posts: 17
  • Location: Northeast
Re: Pay As You Earn - Maybe Not Antimustachian?
« Reply #2 on: June 11, 2014, 10:57:09 AM »
Yeah, the fact that 150% of the poverty threshold is subtracted from your AGI makes it an even better deal.

Glad to hear it's helping you too. Just to confirm what I thought, you can owe $0 on your Direct loans and still have those months count toward your 20 years, right?

taekvideo

  • Bristles
  • ***
  • Posts: 264
Re: Pay As You Earn - Maybe Not Antimustachian?
« Reply #3 on: June 11, 2014, 11:01:39 AM »
Yeah, the fact that 150% of the poverty threshold is subtracted from your AGI makes it an even better deal.

Glad to hear it's helping you too. Just to confirm what I thought, you can owe $0 on your Direct loans and still have those months count toward your 20 years, right?

yup