My law school loans have been on income based repayment. Since my income has been so low since graduating law school my monthly payments have been $0. Last year I had a good year for income and as a side effect of that my law school loan payments are no longer $0. For the next year I will have to pay $105 a month towards my law school loans. Some people were quite upset when I posted a couple of years ago about my student loan payments being $0 and not being concerned about my student loans. This might make them happy. Although I liked the $0 payments, since the reason for the new higher payments is that I’m making a lot more money than I used to I can’t complain. I’d rather have the higher income than the $0 payments. You can learn about the different repayment plans at fafsa.ed.gov.
The $105 a month payments will not even touch my principal. The payments will be all interest. That will at least give me a little bit of a tax deduction. My loan balances have steadily been rising ever since I graduated and these payments will probably barely slow the increase in my balances.
There is a pretty big drawback to using the income based repayment plan. Using an online repayment calculator at my present rate I would end up paying over $95,000 in interest by the time my loan is forgiven after 25 years. At that time I would still have a remaining balance of over $255,000 that would be forgiven. The calculator makes some assumptions about my income growth and the change in the poverty line which could change the results quite a bit. Also, the calculator is based on 25 years remaining and I only have about 21 years remaining now. A different calculator showed I would have about $200,000 forgiven. It is pretty scary to see that after making $95,000 of payments my remaining balance could be almost twice as much as my original loans. To make matters worse the forgiven amount is counted as taxable income. If the top tax rate at that time is 40% I would end up with an $80,000 tax bill.
If I were to have my loans forgiven under the public service loan forgiveness program the forgiven amount would not be taxable income. You have to have 10 years of public service to qualify for that program. Working for the government or a non-profit is considered working in public service. I have about 1 year of working for the government or a non-profit since graduating from law school. It now looks like working nine more years for the government or a non-profit would be very financially beneficial. The loan forgiveness would add about a $9000 a year benefit to any non-profit or government job. That makes them a lot more attractive. Or I could wait and see if they decide to make the 25 year forgiven loan amounts non-taxable as well. Given the current amount of federal debt I seriously doubt that will happen.
Now that I have completed my initial degree, I plan to continue my education. Not only will this allow me to improve my earning potential, but I will also have the chance to earn scholarships that will help me to pay for my schooling. Some universities offer a 25% tuition scholarship for their alumni. If I am eligible, this credit will allow me to have 25% of my next degree paid for, whether it is a doctorate, a graduate certificate, or even a second bachelor’s degree. From my perspective, I might as well take advantage of every benefit that is provided for me because it will make me more employable.
I must say — considering the tone of the comments on your previous post, it’s gutsy of you to open the door and brace for potshots again on this subject!
Like others, I was raised to think that a bill is a bill — and you pay it. I’d like to see you making higher payments than is ‘required.’ But my guess is that you’re pinning your hopes on far too much of it being forgiven decades from now. Can you honestly live with that, and feel you’re doing the right thing morally? (I’m not talking about legally — because obviously this repayment is legal.)
After all, you’re the one having to live in your own skin…not us.
The comments don’t concern me too much. I’m paying the loan according to the terms that were set when I took out the loan so I don’t think there is anything legally or ethically wrong with that. If the repayment continues as calculated in this post I will have paid more in payments and the final tax bill then the original cost of the loan so it wouldn’t be like I was getting by without paying the loan.
But do you really want to be that much in debt for 25 years??? What if something so much better comes along that would incise you away from the repayment of debt program? It seems like you are backing yourself into a corner instead of maximizing your income and living thrifty for a few years so you can just repay your debts.
I really don’t like the idea of being in that much debt for so many years. I’m already living thrifty and I don’t think I can do much better on income so I don’t see how I could pay off the student loans very quickly. I haven’t resigned myself to having the loans for the next 20 years though. If I can come up with a reasonable plan I will do what I can to shorten the repayment period.
The biggest regret that most people in student loan debt have is the debt for grad school. They feel that it just put them in such a huge hole, and didn’t yield great results. Some of the horror stories I have read about this makes me feel that these debtors are living in chains!
I certainly wish I hadn’t taken out so much in loans. If I had just taken a scholarship and started at a state school I could have saved a lot of money.
Do you think that you would have been better off not going back to school?
It seems to me that you would have more in savings by just being frugal and working odd jobs instead of going to school.
And I think that it was brave of you to post your situation/debt. Trust me, I know.
Going back to school has not paid off financially. My degree was not worth the cost. I am now able to make a little more than I was before, but not enough to justify the cost of the degree.
Thanks.