Student Loans vs. Everything Else

Money Management
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We currently have about $280k in unsubsidized student loan debt (gotta love doctoral programs!), plus a mortgage and some random other debts which will be paid off by the beginning of the year.

Every time we look at ideas when it comes to paying off student loans, it seems like we get a different answer, so I’m looking for some more opinions in general.

As it stands, we’re on an income-based repayment plan. Assuming our incomes don’t change at all, over the course of 25 years we would be paying something like $396k towards these loans based on the current payment rate. We’ve heard that they can be forgiven if they’re not paid off by the 25 year mark (although I’m assuming they obviously would be if we stick with the current plan).

Is it more worth it to make minimum payments, do you think, in hopes that some portion will be forgiven? Or would it be better to make extra payments and attempt to get them paid down sooner if possible? If so, how much extra should we put in so that it actually makes something of a difference in the long term? Or would it be better to put any additional money into investments or the house, etc?

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I am in a similar situation as you, and frankly I am still going to try to pay mine off. I don’t trust any of the situation that is going on right now regarding student loans, nor do I trust that my loan servicer is advising me appropriately to reduce my debt. In addition, I’ve read a LOT of horror stories that people aren’t getting their loans forgiven, even after being told they have fulfilled/met the requirements.

I don’t know other specifics of your situation, but if you have any form of employer sponsored retirement plan, I wold personally start there, and make sure you get the match (assuming you have a 401k type plan). From there, I focused on my higher interest debt, then started investing a little here and there (more and more platforms are becoming friendly for people who aren’t throwing in massive amounts of money at a time).

Aside from that, I throw any extra $ at the end of the month at my student loans. So, it doesn’t turn out to be a specific amount every month, but I put it toward my smallest loan to try to pay that off then move to the next. I have a car payment, but the loan is 0% interest, so I’m just paying that as I go, since it doesn’t really help me to pay it off sooner. My mortgage payment is low, and lower interest rate that my student loans, so I’m not worried about that much either.

Keep in mind: ANY amount of the loan that you are forgiven in the future will be considered as “income” from the government and you will be required to pay tax on that amount. If you don’t already work with a financial adviser and accountant, I’d recommend doing so. Mine have been immensely helpful in providing assistance in helping me choose the appropriate way to approach my student debt.

I don’t know how much this helps, but the approach you take really is up to you and what discretionary funds you currently have available, and what you anticipate having available in 25 years. If I understand your post correctly, you’ll be paying around $116k over what you currently owe… that’s a heck of a lot of money to basically “give away” if you don’t have to. Even “just” in a high yield saving account half that money would serve you better than if you paid it as interest on your loans.

Good luck! The struggle is real…

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Same issue with the loans, I was just commenting on that elsewhere. I am torn between wanting to really knock down that student debt, and not paying more than I have to. The more I think about it, however, the more I want to pay it down rather than wait out the next 7 years.

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I like the snowball method of debt repayment. I know it’s not specific to your question, but I’d start there. Second, there are no guarantees that the student loan forgiveness program will still be around in 25 years given the uncertainty of the program and the politics. This is what I did… I used snowball to pay off a significant amount of credit card debt. Once done, other than mortgage (which I paid the standard payment) I banked all excess cash and once I got to a dollar amount milestone, in my case the full amount of the unsubsidized portion of my students loans, I paid the entire portion off. I have some subsidized loans (I’m currently back in school for a 24 credit program and there is no interest on that portion). Once I reach the end of this program, I would have saved the remainder of the $$ to pay the subsidized portion off and I’ll be done with student loans. If you are diligent this can work. Two other things to consider: student loan interest is no longer tax deductable if your AGI exceeds a certain dollar amount. It is assumed that, at some point, you will have an AGI that exceeds the cutoff. Secondly, be wary of anyone trying to talk you into refinancing a mortgage with a lower payment (unless you’ve done the breakeven analysis on the new rate and term taking into account closing costs). Don’t tap the equity in your home and absolutely don’t tap your retirement. What I’ve done (in my mind) is considered a loan from my retirement as an emergency fund. Doing that allowed me to be a little lean in my savings until recouperating cash after a large lump sum payment like the unsub student loans. In the end, the money saved is from interest - which is sneaky… It always seems manageable until you see just how much you’re paying in interest. Cash builds quickly when not divided into a dozen directions for a dozen seemingly small bills. Our household motto is, other than a mortgage, take out nothing resulting in interest. Carry no credit card debt from month to month. Find a car loan with 0% interest. Live lean and build cash.

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I have drastically paid down my childrens college loans over the past 8 months, cut them almost in half, I gave up my apartment close to the city and moved into my house and take the bus daily to Manhattan. But last month I decided to go back to the minimum payment, and wait for the election results. Maybe at the least the interest will be reduced !!!

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I have found some great apps to help pay down my student loans and they send the money direct to the loan co. for you. Some of the apps also allow you to list credit card debt and auto loans too. They each charge a small processing fee each month but it is worth it. I have an iPhone so I’m not sure if these apps are also offered on the Android platform but their website will tell you.

Chipper - newest app to the market offers ways to make extra payments besides the spare change round-ups. https://www.chipper.app/

Qoins - round-ups for spare change and smart savings every few days for a few extra dollars. https://qoins.app/

Snowball - rounds-up for spare change and they send out a payment twice a month. https://savethesnowball.com/

Changed - rounds-ups of spare change but you need to wait until you have $100 accumulated in the app which could take a few months and interest accrues daily so this app doesn’t interest me (no pun intended). https://www.gochanged.com/

Since I use a separate bank for my bills and a separate bank for my spending, I have 2 of these apps rounding up spare change from my bills account and 1 app rounding up spare change from my spending account.

I truly hope you check these apps out and they help you pay off your debt faster!

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When I was younger, I was in a similar situation to yours. Though time has passed and that is fortunately now behind me. So, I understand how it feels to be looking at such a huge number, and the anticipated relief of becoming debt free. However, I believe it is better to be rational rather than emotional in money matters. So, …

According to my loan calculator, a loan with of $280k in which you will pay back $396k over 25 years must have an interest rate of slightly less than 3%. Even today, that is pretty cheap money. In addition, student loan interest is often tax deductible (check your tax situation), making the effective interest rate even lower.

I would compare the cost of any money that you divert from other things to pay off the loan faster, including opportunity cost. (You could be very close to the rate of inflation, which means just sitting on $280k in cash could cost you as much.) For example, it would almost certainly make more sense to pay off consumer debt first. (I always focus on paying the highest interest loans first.) Your mortgage is probably low interest and potentially tax deductible, but is it as good as the student loan. Can you invest in opportunities that have a greater return? I would put these before low interest debt. (I had multiple student loans with different interest rates, so I tracked them separately. I track ALL my debts in a spreadsheet and sort by the cost (interest - tax benefit, if any).)

As Karen said above, I would make contributions to 401k – especially those that are matched. (I did.) My employer matched 50 cents on the dollar to a certain amount, so I made 50% return immediately. Your employer might even be better. Pre-tax contributions also reduce your taxable income – saving taxes and helping keep you below certain income-related cutoffs.

I treated the money I paid toward my student loan debt and 401k as if I never earned it, starting as close to my first day of work as possible. That way I never missed it. (I advise my grown children to do the same.) I did my best to scale my life-style within the remaining income. (This also led to a little boost in spendable income when I finally paid off the student loans.) All of this assumes that you can still buy groceries and gas with the money you have left.

Re-evaluate as life situations change. For example, you said your repayment plan is income based. This could change the cost of the loan as your income increases – the interest rate my go up, but the tax benefit may also increase as your marginal tax rate increases. (My daughter’s student loan repayment was not income-based, but it was variable rate, so money she borrowed at an initial rate of ~ 5% went up to 12% over a short period. This changed the payoff priority considerably.)

Finally, I would ignore the possibility of having the loan forgiven until it happens. This might cause a new kind of problem when it happens anyway, as Karen said.

My two cents, based on my experience… I hope it helps.

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Well, if you aren’t currently on a loan forgiveness program I recommend that you pay it off. I wouldn’t wait to see if the 25 year forgiveness program is legitimate. I am a Guidance Counselor and I have never heard of it. I am on the Public Service Loan Forgiveness program and I have 3 and half more years to pay it off. So it works for me. The minimum payment keeps me on budget. I would use the debt snowball method and throw everything but the kitchen sink at it as often as possible. You can also still enjoy the benefits of using the interest payment on your taxes.

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@mrsmcbride I’m on the PSLF as well. I did 10 years on the wrong loan (so frustrating and the loan companies were NOT helpful!) but glad to see that I’m slowly ticking away towards my end.

I have heard of the 25 year loan program.

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I think it depends a lot on your priorities, My opinion is that you must start attacking the debts, you can order them from the smallest to the largest, prioritize the minor, free yourself from it and continue with the others. Or list them by order of which is the one that has the highest interest rate, and attack the highest. I understand that that will depend absolutely on you. You should not put your hopes in the debt forgiveness, but on the way you will find creative ways to increase your income.

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I’ve decided to payoff my children’s cars, and delay the student loans until after the election, I’ve paid them down to 56K, all the Dems. have a plan either to reduce interest or forgive up to 50 K.

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This topic is a horrible one for me.

I have over 250K in student loans (I have my PhD- so in school for way too long) at 6%, and of course, the interest capitalizes. I don’t see any hope in ever paying them off. I have to pay a minimum of $1500.00/ month just to break even i.e., pay the interest. ( I think my math is right) Making progress on the capital seems impossible.

I am making my minimum payments through IDR, but if it’s hopeless to ever pay it off, do I pour all my extra money into it, only to pay it down a small, but insufficient amount? Or just pay the minimum and resign myself to always having this debt and put my money into savings and investments? I don’t own a home and have very little in retirement?

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Student loans are a godsend for many students but they can be a curse for other students. The world of student loans is murky waters for the average person. Careful considerations must be given for the type of student loan, interest rates and method of repayment.

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I’m certainty not wait for any forgiveness, I’m just not paying any additional at this time, the monthly payment is 899.00, at that rate I’ll have paid them off in 7 years.

I’m hopeful for a new administration that will see that education is the backbone of this country, and the US government shouldn’t be making 6.5 to 6.9 percent interest on college loans.

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I have these same questions, since my student loan debt is sizable as well. I pay $1300 a month on IDR and it doesn’t even cover all of the interest accruing. I’d have to pay close to $2500 a month to pay it off in 10 years. GAH! It is unbelievably depressing, but unless they do a full scale forgiveness or change the bankruptcy code that allows these debts to be discharged, I’m not sure I’ll ever actually pay these off. We try not to live extravagently. We have older cars, buy groceries from Aldi and have very few actual luxuries. Many of our friends are trading up into $500-700k family homes and we are only baby steps above entry level, so that when we do (one day, by the grace of God) pay off these loans, we’ll be living well below our means. I wish I could share helpful tips, but this is more about showing solidarity. Good luck!

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