I have decided to pay off my student loans. This is something I’ve been considering since last year. After doing some calculations on a student loan calculator I saw that when my student loans are finally forgiven under the income-based repayment plan I would owe almost six figures in tax on the forgiven amount. Financially, I come out about the same whether I pay the loan off over the next 10 years or pay the minimum allowed under the IBR plan. It makes more sense to pay down the loan now while I’m able to make decent money though. Under the IBR plan the loan would be forgiven when I’m 67 years old and I don’t want to have six figures of tax debt at that age.
At the beginning of April I owed $138,690.66 on my student loan. Hopefully, that is the highest it will ever be. At the end of April the balance was $136,888.70. I managed to pay off about 1.3% of the loan during the month. I’ve added a widget in the sidebar to track my progress. I wish I had started paying the loan down earlier, but it wasn’t until 2013 that I was making enough to pay down the loan. I need to increase my income a lot more to be able to pay off the loan in reasonable period of time. The interest rate on my student loan is 6.875% and I incur over $600 of interest each month. That is over $7000 a year down the drain. That makes it tough to make progress. If I were on the 10 year plan my monthly payment would be approximately $1383. Therefore, I need to pay more than that if I want to have the loan paid off sooner than 10 years. That will be extremely difficult, but I don’t think it is impossible.
My main strategy for paying down the student loan is to pay everything I can towards my student loan. It is a pretty simple strategy. After paying my modest expenses, the rest of my income goes toward the student loan. Since I don’t have a steady income right now I am keeping a cushion of $3000. Once I have a steady source of income again I will reduce that cushion down to $2000. If I hadn’t bought a car in April I would have had an additional $6000 to pay towards the loan. I need the car to make money so that was a necessary expense. I’ll have a post next week on my various strategies to pay down the loan. If you have any tips on how I can pay down the loan quicker I would love to hear them.
3 thoughts on “Paying Off My Student Loans”
I don’t really have any advice. However, I do like to read some personal finance blogs about people paying off school loans. I really like this young woman:
She is killing her student loans on a very modest income.
Isabella – Thanks for sharing the blog. I’ve just skimmed it and she is doing a great job paying off her student loans. I’ll have to read it further to see how she is doing it.
I think I will go ahead and give this a go. May even do their debit card since I don’t have credit cards with rewards. I have a $10k great lakes loan I will have my earnings go towards. What the heck. Worth a shot.