Am I crazy or could student loans be better off paid slowly?

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Mario
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Am I crazy or could student loans be better off paid slowly?

Postby Mario » Mon Mar 11, 2013 9:18 am

This is sort of an offshoot of my fiscal fitness journal here, and I sorta discuss it in my blog linked to in my signature, but I think it's a big enough question to warrant its own discussion.

So, given these factors:
(1) Income-based repayment caps the max monthly amount you can pay
(2) Forgiveness of remaining principal made after 25 years of on-time IBR payments (or 10 years for federal workers)
(3) Forgiveness of remaining principal in death, but not bankruptcy
...is it then possible that it makes more sense to pay off student loans slowly rather than quickly?

As with everything, the most correct answer is probably, "it depends on your specific situation" or maybe even, "ask your accountant," but what do you guys think?
Last edited by Mario on Mon Mar 11, 2013 12:06 pm, edited 2 times in total.
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Track my fiscal fitness with $0.5 million in debt: http://getrichslowly.org/forum/viewtopic.php?f=11&t=61052 Latest update: As of April 16, I've paid off $21,400 in credit card debt this year (after starting with $35k)

Bichon Frise
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Re: Am I craz, or could student loans be better off paid slo

Postby Bichon Frise » Mon Mar 11, 2013 10:12 am

some may argue there is a moral obligation to repay what you owe. some may have not taken on so much debt for the income potential. Some were lucky and graduated when they could lock in low student interest rates.

So yes, it seems to be a very personal subject. Personally, I find the IBR to a way weasel out of payment for those making a good salary. But, that is just my opinion.
Bichon Frise

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catchingup
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Re: Am I craz, or could student loans be better off paid slo

Postby catchingup » Mon Mar 11, 2013 10:43 am

For me, it doesn't make sense.
  • My income is high enough I doubt IBR would reduce my monthly payments.
  • Even if it did I doubt it would take 25 years to pay them off. If it did take that long I was under the impression that the amount forgiven was taxable (for non-public service) which could be nasty if you still have a high balance.
  • Since I went to school, my income has more than doubled, I'm in a career I enjoy a lot more than what I did before, and student loans helped me get here faster. Those loans were worth it and I feel obligated to pay them back.

Of course, I only have $24k left, if I had $100k+ (that's more than my mortgage!) I might be thinking differently.

stannius
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Re: Am I craz, or could student loans be better off paid slo

Postby stannius » Mon Mar 11, 2013 11:17 am

It really depends on your situation. In general, keeping student loan debt around for 25 years is not a very good move. Student loans are borderline toxic debt, given that they can't be discharged in bankruptcy; also your ability to lower the interest rate is limited.

It might be an OK idea if you have a low-ish income, for a few reasons:
*) Your IBR payment would be low
*) You can deduct the interest you're accruing (I think, even if you're not paying it, i.e. your IBR payments are lower than the interest every month)
*) You probably have other, more pressing financial concerns.

That said, if your the student loans you used to get your income will be around for 25+ years, you've already made some huge mistakes. IBR + forgiveness is just making the most of a bad situation.

Mario
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Re: Am I crazy or could student loans be better off paid slo

Postby Mario » Tue Mar 12, 2013 1:25 pm

Yeah, there's almost certainly no way that I'd benefit from going slowly. My income is low relative to my student loan debt, but not absolutely low.
http://debtblag.com

Track my fiscal fitness with $0.5 million in debt: http://getrichslowly.org/forum/viewtopic.php?f=11&t=61052 Latest update: As of April 16, I've paid off $21,400 in credit card debt this year (after starting with $35k)

troyce1
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Re: Am I crazy or could student loans be better off paid slo

Postby troyce1 » Tue Mar 12, 2013 9:22 pm

No offense, but by even considering those as options you are psychologically capping / sabotaging your long term earnings potential by putting any of those options into play, IMO.

Pay the debt off as fast as reasonably possible, unless you can put the same money towards other higher interest debts first.

Mario
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Re: Am I crazy or could student loans be better off paid slo

Postby Mario » Thu Mar 14, 2013 9:19 am

troyce1 wrote:No offense, but by even considering those as options you are psychologically capping / sabotaging your long term earnings potential by putting any of those options into play, IMO.

Pay the debt off as fast as reasonably possible, unless you can put the same money towards other higher interest debts first.


No offense taken. None of it would even come close to working for me.

On the other hand, if I instead were making $30k and working for the government, not considering those options would be psychologically capping my long-term savings potential
http://debtblag.com

Track my fiscal fitness with $0.5 million in debt: http://getrichslowly.org/forum/viewtopic.php?f=11&t=61052 Latest update: As of April 16, I've paid off $21,400 in credit card debt this year (after starting with $35k)


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