Author Topic: Student Loan Repayment plans - which is best for me?  (Read 2795 times)

Awitte58

  • 5 O'Clock Shadow
  • *
  • Posts: 26
Student Loan Repayment plans - which is best for me?
« on: January 22, 2016, 10:47:16 AM »
Hello all!

So my loans went active for repayment January 9th 2016.
I have a total interest + principle amount of almost $35,000. It automatically set me up for the 10 year repayment plan with monthly payments of $381.28

I want that monthly payment lowered and through navient it showed me a few eligible repayment plans.
IBR
PAYE
REPAYE

My understanding is that your monthly payment is calculated off AGI and stuff and it is locked each year. After 20 or 25 years (depending on plan) the remaining balance (if any) is forgiven.

Gross income: $58,000
I max my 401k and own a house so there are some deductions there as well.

We can get into my details as the discussion commences, but basically I find the idea that my payment be $95 a month (that was what they estimated this first year would be) and I just pay that and after 20 or 25 years the remaining portion is forgiven. Obviously I would have to be very active to keep my AGI down since I am an engineer and my gross will likely increase.

My second payment is due 2/9/16 so I would like to get this ironed out and apply soon.

thanks!
Witte

dleavitt

  • Stubble
  • **
  • Posts: 143
  • Age: 31
  • Location: OR
Re: Student Loan Repayment plans - which is best for me?
« Reply #1 on: January 22, 2016, 12:20:53 PM »
I'm not an expert at this, but based on the info you provided I estimated a monthly payment of $186.21 assuming you are single with no kids.

58000
-18000 (401k)
-17655 (150% of poverty level)
=22345
*.10
=2234.5
/12
=186.21

charis

  • Handlebar Stache
  • *****
  • Posts: 1663
Re: Student Loan Repayment plans - which is best for me?
« Reply #2 on: January 22, 2016, 01:00:24 PM »
This has been debated quite a bit on this forum, so you may want to run a search for related threads.   You'll see that a lot of people would advise you that, due to the relatively low loan amount and high earning potential you have as an engineer, it will do you no favors to have the stupid loan looming over you for the next 20 to 25 years.  Also, if there is a chance you might get married in the next 25 years, your spouse's income will count against your payment even if you file separately.  Pay it down and get rid of it.   I say this as someone on the IBR with twice as much in loans (even more if you count my husband's student loans).


justajane

  • Handlebar Stache
  • *****
  • Posts: 2147
  • Location: Midwest
Re: Student Loan Repayment plans - which is best for me?
« Reply #3 on: January 22, 2016, 01:07:24 PM »
IMO, 35K is a candidate for accelerated payment. With a little sweat frugality you could pay that thing off in 5-6 years. That sounds much better to me than having it hang over my head until my own kids are about to start college. 25 years is a LONG time, especially for a loan as small as 35K.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4577
  • Age: 34
  • Location: Seattle, WA
Re: Student Loan Repayment plans - which is best for me?
« Reply #4 on: January 22, 2016, 01:18:37 PM »
Don't let the tail wag the dog. Deliberately keeping your income down for 20 years so you can get out of paying part of $35k in loans...the math can't possibly work out there.

IBR is good for if you actually can't make the full payment or if you really expect to have a loan balance left after 20 years despite your best efforts to earn and save as much as possible. If you plan for your income to increase to the point where you won't be eligible for the program in 2-3 years, you'll probably be better off just paying off the balance as quickly as possible to reduce the amount you spend on interest.

Do the math for a few different scenarios and see which one turns out best for you.

Merrie

  • Bristles
  • ***
  • Posts: 461
  • Location: Midwest
Re: Student Loan Repayment plans - which is best for me?
« Reply #5 on: January 22, 2016, 01:20:08 PM »
Seconded or thirded or fourthed to just pay the darn thing off and get rid of it. PAYE and similar are nice if you have tons of loans and limited earning power and don't think you can ever pay them off in any instance, but that's not your situation.

TXScout2

  • 5 O'Clock Shadow
  • *
  • Posts: 66
Re: Student Loan Repayment plans - which is best for me?
« Reply #6 on: January 22, 2016, 01:40:11 PM »
What is your interest rate?

ReadySetMillionaire

  • Pencil Stache
  • ****
  • Posts: 890
  • Location: The Buckeye State
Re: Student Loan Repayment plans - which is best for me?
« Reply #7 on: January 22, 2016, 03:16:24 PM »
I am one of the biggest advocates on this forum for income driven repayment plans and utilizing them to achieve FI.

But in this case, don't even worry about forgiveness. Your loan is too low for that math to work out.

Instead, use PAYE to lower your debt on all your loans, then attack your highest interest rate loans with the extra money you're saving.

For instance, if the above quoted payment on PAYE is $186 is correct, and you have five loans, then these loans will be kept current with this single payment (i.e., that $186 will be divided up and go towards all the loans to keep them all current). This lower payment then allows you more money to throw at your highest interest rate loans, which will save you money.

I'd try to pay these off in two years and get them out of the way.

Awitte58

  • 5 O'Clock Shadow
  • *
  • Posts: 26
Re: Student Loan Repayment plans - which is best for me?
« Reply #8 on: January 23, 2016, 08:36:41 AM »
I'm not an expert at this, but based on the info you provided I estimated a monthly payment of $186.21 assuming you are single with no kids.

58000
-18000 (401k)
-17655 (150% of poverty level)
=22345
*.10
=2234.5
/12
=186.21
I am curious what plan that monthly payment is calculated for.... the 25 year repayment? My loans literally just automatically kicked me off with the payment I mentioned and it says 120 payments.
I am single with no kids.

Great feedback everybody!
I tried refinancing through sofi and meet earnest and both places didn't have very good rates for me. Current interest rates is 6.8%

I guess a little more backdrop would be helpful.
I bought my first house in September. My total monthly bills (mortgage, elect, gas, taxes) is about $1050. Current take-home after maxing 401k and taxes is about $1900.
I guess with my extra money do you guys believe it is best suited put towards student loans?
I bought a fixer-upper (got a steal on a home with plenty of sweat equity opportunity) so currently the extra money was being put towards repairs on the home.

I am attempting to take my frugality up a notch. Plans and preparation for a garden are already in the works. And after this first winter I have been reading up on insulating/ventilation for the house. I don't have car loans or anything and my car gets 45mpg.

Awitte58

  • 5 O'Clock Shadow
  • *
  • Posts: 26
Re: Student Loan Repayment plans - which is best for me?
« Reply #9 on: January 23, 2016, 08:40:08 AM »
For instance, if the above quoted payment on PAYE is $186 is correct, and you have five loans, then these loans will be kept current with this single payment (i.e., that $186 will be divided up and go towards all the loans to keep them all current). This lower payment then allows you more money to throw at your highest interest rate loans, which will save you money.

This right here makes a lot of sense! I wonder if that calculation was for PAYE.

justajane

  • Handlebar Stache
  • *****
  • Posts: 2147
  • Location: Midwest
Re: Student Loan Repayment plans - which is best for me?
« Reply #10 on: January 23, 2016, 08:49:24 AM »

I guess with my extra money do you guys believe it is best suited put towards student loans?

I personally do. Stop and think about how long 25 years is, and this arrangement is only lowering your payment by about $200 month. And if your salary goes up, the difference in payment will decrease even more. For an extra $200 a month, you lower the payment schedule by fifteen years, and if you accelerate at all, you could possibly pay it off twenty years earlier.

Considering that house number includes utilities, you can do this! How many bedrooms do you have? Could you rent a room for a year or do to destroy this debt?

Suit

  • Bristles
  • ***
  • Posts: 256
Re: Student Loan Repayment plans - which is best for me?
« Reply #11 on: January 23, 2016, 11:01:07 AM »
I am one of the biggest advocates on this forum for income driven repayment plans and utilizing them to achieve FI.

But in this case, don't even worry about forgiveness. Your loan is too low for that math to work out.

Instead, use PAYE to lower your debt on all your loans, then attack your highest interest rate loans with the extra money you're saving.

For instance, if the above quoted payment on PAYE is $186 is correct, and you have five loans, then these loans will be kept current with this single payment (i.e., that $186 will be divided up and go towards all the loans to keep them all current). This lower payment then allows you more money to throw at your highest interest rate loans, which will save you money.

I'd try to pay these off in two years and get them out of the way.

This is great advice! Use the income based plans to lower your required payments and then throw the difference at the highest interest rate loan first, if you have more than one, use what you were paying towards that one and put it towards your next highest and so on. Paying over 20-25 years is ridiculous given that your starting salary is already higher than your loan amount. For comparison, I went to law school and had 130k in debt and starting salary of 67k and even I'm not waiting 20-25 years, I'm paying them off ASAP using the method RSM mentioned.