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Go for PSLF vs just get them paid?
October 17, 2015
11:14 am
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GDR
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Hello! Just came across this site as I finally try to get a handle on my loans and the best choice for repayment. Thanks for all the great resources! I realize I’m very lucky to be able to ask this question – I owe a relatively small amount comapred to many others and am wondering your thoughts on the most stratetgic pay-back strategy.

I owe about $36k of federal direct loans and have been making payments for about two years. I was on the Pay-As-You-Earn play for a year but was too lazy to re-submit my income info so am now back on the 10-year plan. I work for a relatively high-paying nonprofit so honestly paying the monthly amount ($500) is not a struggle for me, but am wondering if I’d be better served getting on an income-based plan and doing something smarter with that extra money (investment, retirement, save for house, whatever). Its plausible I’ll stay at a nonprofit/public service job for the next eight years but have not ruled out private-sector work or independent consulting… So am tempted by the idea of being able to save more each month, but at the same time since I can afford it – wonder about just sucking it up and getting them paid to give myself more employment freedom. Is there any standard PSLF advice, whether it’s ‘don’t do it unless you’re certain of your job future’ or ‘it’s worth it enough that you should do it either way’ or anything in between..? Thanks!

October 17, 2015
3:14 pm
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Indiana
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Great questions.

Lets first look at the issue of the idea of waiting for forgiveness or not. With a lower balance such as yours, it is possible to end up spending more working towards forgiveness, than it would be to just aggressively pay off your debt (the interest adds up over the years). That being said, you are at a non-profit, so it makes sense just to stay on Pay As You Earn, and if you end up getting to 120 payments, great.

Now the retirement question is a different animal. Part of it depends upon how risky you are willing to be. If you save for retirement, you are essentially investing your money for a later date. If that investment earns more than the extra interest you have to pay, you come out ahead. If your retirement account earns less, you are behind. Factors that complicate the issue are tax advantages (if you have a 401k you can contribute that money pre-tax while you have to use post-tax funds to pay off your loans… but there is also a student loan interest deduction to make things even more complicated). If your employer matches funds, setting aside the money for retirement is probably a better route. This article lays out many of the considerations that you might need to think about when making the retirement vs paying off student loan decision: https://studentloansherpa.com/saving-retirement-vs-paying-student-loans/

In your case, these questions can’t just be answered independently. Forgiveness is a possibility, meaning putting that money towards retirement might be better. Then again, if your interest rates are above 6%, are you really doing any better by not just paying it off right away? Answering these questions gets really tricky. I’d advice making a spreadsheet or two and seeing how the numbers play out in a couple different scenarios.

If you reach a point where you are certain that forgiveness and other federal perks won’t be helping you out, you may be better off consolidation with a private company. The advantage to going that route is that you can get a much lower interest rates. Presently, there are several companies offering rates below 2%. A list of companies to look at is available here: https://studentloansherpa.com/student-loan-reviews/

November 21, 2015
12:52 pm
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John
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Hello!

I have been racking my brain trying to answer the same question about consolidating my loans into a private, low interest loan OR putting my chips into the Public Service Loan Forgiveness Program with a Direct Consolidated Loan . Your advice to create a spreadsheet I think is great, but I am honestly so confused at this point that I am floundering.

I just graduated in August 2015 and am about to start paying on my student loans. I have two loan servicers equaling about $60,000. Around half of that is in direct federal loan at 6% interest and the other is in FFEL at 4.5%. I am working for the military with current salary around $5200 monthly or 60,000 to 70,000 year. Some of that his housing allowance and is not taxed.

I guess these are my two options:

1) Forgiveness in 10 years: Do a Direct Consolidated Loan of both loans bringing the interest to the middle of those around 5.25% and paying the minimum. However, I don’t know if I meet any kind of “financial hardship” for PAYE or the IBR. Also, I fear the payments will be sufficiently high that I will lose money going for the forgiveness route. This is the hardest thing for me to figure out.

2) Pay it off as soon as I can. This may or may not be quick. SoFi has pre-approved me for a 3.5% fixed APR or a lower variable rate and I would likely just consolidate my loans in this one if I don’t go for the Forgiveness option.

I guess my desire is save as much money as I can overall. I have read a few of your blogs and have learned a lot. Any general or specific advice would be GREATLY appreciated. Thank you for all you do!

John

November 22, 2015
12:21 pm
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Indiana
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John,

Your analysis sound good. It definitely looks like you are considering all the factors that you need. to.

I’d add a few thoughts that might help you find what works best for you.

– You mentioned you are military. I know most service contracts are less than 10 years. Are you certain that you will be serving for the next 10 years? I know many people serve 6 years and then end up in the private sector. If you might end up going down this path, banking on Public service forgiveness would be dangerous.

– The interest rate gap between your federal loans and possible private rates is fairly close. Calculate how much extra it costs you each month. Think of this extra money as the cost of the federal perks. If the federal perks cost more than what they are worth, take your loans elsewhere. If you think it is good value, stick with the federal loans.

– One other option would be to keep your loans federal, pay the minimum working towards forgiveness, and create a bank account with money earmarked for your student loans. Obviously doing this would mean slightly higher interest payments, but it would be a huge asset for you going forward no matter what ultimately happens. If you decide you won’t be going for forgiveness, you have a big pile of money to knock down your balance when you shift to the private consolidation. If you do ultimately get the forgiveness, that money is a huge bonus for you at the end of the process.

December 29, 2015
2:26 pm
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Jeremy
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Hi thank you so much for this website!

I am in a similar situation and I do not know what to do! I currently work for a university doing research so my loans do qualify for PSLF. I am a social worker so most jobs after this one will probably qualify for PSLF. I have 67,000 in direct unsubsidized loans and I am on PAYE with a low salary. I have been making only the minimum payment for the last year or so and I have been watching my principle grow and it scary as all hell? I am scared that PSLF may not exist ten years from now. I am also not 100% sure that I will work in the non profit sector for the next ten years? I really cant afford it now but once I get a new job should I be making the minimum interest payments on my loans to hedge my bet? I am not sure what to do in this scenario? I have been looking to putting extra money into a roth IRA as well. I just do not want to end up screwing myself and paying 10x more than my original loan. Any help is appreciated.

December 29, 2015
2:30 pm
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Jeremy
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Sorry forgot one more thing: If I am on Paye and I am only paying the minimum required payment which is only about half of the monthly accrued interest. Can I opt to pay extra will they let me direct that entire payment towards my smallest loans to get them paid off? Or will they not let me do that because I am not covering the total monthly interest added?

December 30, 2015
10:30 pm
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Indiana
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Jeremy,

Great questions. As I started to lay out some of your options, my response kept getting longer and longer, so I just made it an entire article: https://studentloansherpa.com/wait-forgiveness-pay-student-loans/ Hopefully this helps.

As for your last question. I love it! That is such a great idea and one that you should be able to pursue. As long as you are paying the minimum required payment, you should be satisfying your obligations under the loan. How the rest is spent should be up to you. That being said, this is something I have not personally pursued, and I suspect that doing it might be tricky. This is definitely something that will require getting into contact with your lender to evaluate. Specifying how you want extra payment applied is never easy, so be sure to follow every detail of their instructions and keep an eye on things to make sure they do it right. If there is a mistake, the sooner you can bring it to their attention, the better. Keep us posted on how it goes for you!

Thanks for stopping by and joining the discussion!

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