Here's what to know about dealing with overwhelming student loan interest.
My student loans from veterinary school total $350,000. That’s after I consolidated at graduation in 2014 with a seven-percent interest rate. That’s roughly $2,041 of interest accumulating monthly, which then compounds at the end of the year. There is absolutely no way to pay this off, seeing as to how I would have to pay over $2,000 monthly to even get through the accumulating interest. These are federal loans. I have a lot of other details I could add.
In your case, the two that might make the most sense are Pay as You Earn and Revised Pay as You Earn . There are some important differences between the two, but the key thing is that both cap payments at 10 percent of your discretionary income. For someone with your level of debt, that could be huge. Both plans are also compatible with the Public Service Loan Forgiveness program, which wipes out your debt after ten years if you work for a government-run or nonprofit employer.
The decision also depends on whether you’re eligible for PAYE, which is a bit more restrictive. The plan is available to those who took out loans on or after October 1, 2007 and obtained a Direct Loan on or after Oct. 1, 2011. Given the timeline you described, it sounds like you probably fit that category.
Those tax implications are a factor that might tilt things in favor or REPAYE if you have a more modest income of, say, $125,000 or less. Why? Because, unlike PAYE, REPAYE has a monthly interest subsidy whereby half of all unpaid interest is waived, tax-free. Borrowers with lower incomes receive a lower monthly payment under these plans, increasing the amount of unpaid interest each month.
There are the usual pitfalls of leaving the federal loan program – namely less flexibility should you need to defer your loans or go into forbearance. And you wouldn’t be able to take advantage of the Public Service Loan Forgiveness program, which is probably a deal-breaker if you work for a non-profit.
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