These plans are meant to take off the burden of a monthly payment into something a bit more manageable in my income situation.
After more research into IBRs, I realized not only was this not a choice for me, but it shouldn’t be a choice for anyone.
Yes, having a lower payment might be a temporary solution, but it’s like the story of the boy and the dike. The dam is going to burst if this is the only solution you see.
So why is this so important?
If you are paying minimum payment or no payment, the interest on your loan is growing DAILY. That means that you are giving the student loan company money that you will never see a product for.
I have loans that break down to those in my name and those in my mother’s name. I have decided to aggressively pay off the loans in my name first, so those can be paid off first and it will be easier for me to adult (buy a house, start a family, ect.) than that of my mother’s who pretty much has her adult life together.
Since graduating with my bachelors in 2007, I have paid a total of $82,633.39 towards my student loans (under my name) and $9,295.48 towards the loans in my mom’s name (this number is lower than the actual number, as AES has changed ownership in 2013, some of my payment information was lost).
The following graph shows the impact of paying aggressively vs. paying on a minimum payment. Series A are the loans in my name and Series B are my mom’s loans.
When I graduated with my masters in 2010, I had $92,972.59 in student loan debt to my name. I currently have $42,242.96. I paid $82,633.39 since the repayment period. That means $30,000 has been paid just towards the interest.
But looking at Series B is far more concerning. My mom took out $28,116.06 for my undergrad degree. I have paid almost $10,000 and I currently owe $30,639.31. That means, I have not even begun to pay down this debt. The money that I am paying to AES is solely going towards interest.
I cringe when people tell me that an IBR is the way to go, because it means to me that they are not paying attention to their loans and would rather pay a little now than to deal with the massive amount of debt that is in front of them.
If I were to neglect the aggressive repayment plan that I have put on myself in order to pay off my debt fast, and decided to stay on an IBR for the rest of the loan, the situation would look like this:
Pay the minimum payment of $173.52 for 25 years (under the IBR regulations) and not miss even ONE payment (check the fine print), I would have paid $52,056. OF COURSE THE LOAN COMPANY WILL FORGIVE THE LOAN! I would have paid almost double the amount I borrowed. Plus, I would be almost 50 years old, without any savings for retirement, probably no house, and no hope of starting a family.
If you can only pay on an IBR or a RePAYE option at this point, I implore you to look at your lifestyle. Where can you skim on your spending to pay your loans today? It’s the difference of you being minimally inconvenienced now rather than majorly screwed in the future.
If you are the one with your finger in the dike, wouldn’t you rather be doing something – anything – else? It’s time to come face to face with the issue. The problem won’t go away overnight. But I promise, making the small steps today with get you in a better shape with your loans even 6 months from now.
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Need a help getting started? Check out this tiny tip that helped me pay down my mountain.