While I was in law school I racked up about $100,000 in federal student loans. Since I finished law school my debt has risen to about $120,000 due to accumulated interest. Going into this much debt wasn’t smart, but I’m not concerned about the debt.
The reason I’m not concerned is because I am on the Income-Based Repayment Plan. You can read more about the this plan at IBRinfo.org Income-based repayment caps monthly payments at 15% of your monthly discretionary income. Discretionary income is defined as the difference between adjusted gross income (AGI) and 150% of the federal poverty line based on where you live and your family size. Based on my current income I’m not required to make any monthly payments. That will probably change next year since I will be single.
Under IBR payments are made over a period of 25 years. Any debt remaining at the end of 25 years will be forgiven. That means I have about 22 more years until my loan will be paid off or forgiven. There is also a 10 year public service loan forgiveness option that I could use if I were to obtain a public service job. This program rewards those who go into public service fields like nursing, law enforcement, and public interest law services by creating a sliding scale that determines how much I would pay each month. The amount that I would end up paying every month depends on my overall financial situation and the size of my family. Under this program, I would pay a reasonable amount every month and the rest of the payment amount is forgiven. To maintain eligibility for public service loan forgiveness, I would need to have a federally insured student loan, hold a public service job for 10 years, and make 120 payments during those years.
Some might think I should be doing everything possible to pay off this debt. I’m not concerned about the debt though since the payments are capped at 15% of my discretionary income. Therefore, the payments should always be easily affordable. I’m not deliberately keeping my income low to avoid paying back the debt, but I’m not going to take just any job to pay off the debt either.
There is a risk that I will end up paying more on my debt under the IBR than using the Standard Repayment plan. This is because the payments are spread out over 25 years resulting in a lot more interest. I think this risk is acceptable considering the current benefits of this plan.
Do you think it is smart to use the IBR plan or do you think it is stealing? What do you think?