Taking IBR to pay-off higher loans faster?

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Citizen Genet
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Taking IBR to pay-off higher loans faster?

Postby Citizen Genet » Tue Dec 27, 2016 4:50 pm

Borrower has $100,000k in loans spread out among 6.5% loans and 7.5% loans. Monthly payments on a 25-year-plan are about $1,000. Borrower can qualify for IBR and drop monthly payments to $500, even though borrower can allot $1,000 to loan payments. Would it be a good move to take the IBR then use the extra $500/month to pay off the principal on the 7.5% loans faster? Or does a potential amortization of interest on the low interest loans (from being taken off IBR) make this an ambiguous choice at best?

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studentloanplanner
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Re: Taking IBR to pay-off higher loans faster?

Postby studentloanplanner » Wed Dec 28, 2016 2:10 pm

Citizen Genet wrote:Borrower has $100,000k in loans spread out among 6.5% loans and 7.5% loans. Monthly payments on a 25-year-plan are about $1,000. Borrower can qualify for IBR and drop monthly payments to $500, even though borrower can allot $1,000 to loan payments. Would it be a good move to take the IBR then use the extra $500/month to pay off the principal on the 7.5% loans faster? Or does a potential amortization of interest on the low interest loans (from being taken off IBR) make this an ambiguous choice at best?


Totally depends on the borrowers income. If it's low long term, then PAYE/REPAYE w PSLF is the best choice because I'm assuming the low long term salary is for public interest work. If it's low temporarily such as in the case of a clerkship, then REPAYE is better because of the 50% interest subsidy during periods of negative amortization (that's assuming no high income spouse btw).

If the borrower has a debt to income ratio below 1.5, then I don't know why they would deal with 6.5-7.5 percent interest. You should refinance and check 5-6 lenders and go with the one that has the lowest interest rate for the loan term you want to use. If someone was considering the 25 year plan then the 15 year private refinancing would probably result in a manageable payment.

Doing IBR and paying extra when the money is there is almost certainly a sub-optimal strategy in the opinion of this student loan consultant.

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lymenheimer
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Re: Taking IBR to pay-off higher loans faster?

Postby lymenheimer » Wed Dec 28, 2016 4:46 pm

Gonna be hard to pay off $100,000k with only $1,000/month

Biglaw Investor
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Re: Taking IBR to pay-off higher loans faster?

Postby Biglaw Investor » Tue Jan 03, 2017 11:14 am

Citizen Genet wrote:Borrower has $100,000k in loans spread out among 6.5% loans and 7.5% loans. Monthly payments on a 25-year-plan are about $1,000. Borrower can qualify for IBR and drop monthly payments to $500, even though borrower can allot $1,000 to loan payments. Would it be a good move to take the IBR then use the extra $500/month to pay off the principal on the 7.5% loans faster? Or does a potential amortization of interest on the low interest loans (from being taken off IBR) make this an ambiguous choice at best?


Agreed with everything posted above. It'd probably be helpful if you could provide a little more information on whether the borrower is pursuing PSLF and generally the long term plan for paying off the borrower's loans (i.e. why is refinancing not an option).

When I was paying off my loans - before the refinance companies like SoFi, Earnest, etc. existed - I made the minimum 10-year standard repayment payments on my lowest interest loans and threw the excess cash at the highest interest ones.




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