Hi everyone, looking for some advice.
I’m currently clerking and will continue clerking until August 2024. I currently owe a little under $250,000 (all principal, no interest) of unsubsidized/Grad PLUS loans with an average interest rate of 5.9%. I will start working at a market-paying firm in September or October 2024 (already have the offer, but have not worked out details).
While clerking, I may qualify for “partial” LRAP. Under the new JSP, my salary will be above the school’s LRAP income threshold, but I could petition the financial aid office for partial assistance. At the very most, the school would chip in $5,640 (Sept 2023 to Aug 2024 REPAYE/PAYE monthly payment of ~$470).
I have signed up for the graduated repayment plan, which sets my monthly payment until going to the firm around $1,650. I have around $30,000 from my summer job sitting in a high-interest savings account that I am planning to pull my loan payments from. I have an additional $10,000 emergency fund.
Once I start working at the firm, I plan to put the bulk of my clerkship bonus toward the loans and refinance at a more favorable rate (at least for my highest interest loans). I want to pay the lowest amount of interest over time, but also do not want loan payments to detract from retirement savings. I am married, and my spouse will make $33,000 for the next two and a half years (until the end of my first year at the firm). Their salary may increase after that, but that is not guaranteed. They don’t have much student debt, and theirs will all be forgiven if SCOTUS upholds Biden’s plan.
I assume loan repayment will begin in September 2023. As I see it, my options until refinancing are--
1: Standard Repayment ($2,700/mo for 15 months)
- To do this, I would need to supplement my loan savings with around $10,500. If I start now, I can do this by contributing around $525 to my loan account each month until I join the firm. I can manage that.
2: Graduated Repayment ($1,670/mo for 15 months)
- Just set up automatic payments and let it go.
3: Graduated Repayment with with additional monthly payments to highest interest loan
- Pay $1,670/mo and throw an additional $500/mo or so at the highest interest loan ($60,000 at 7%).
4: Pay down some of the highest interest loan some before repayments begin
- E.g., bring down the 7.08% loan by $15,000. But that will only lower my weighted average interest rate from 5.9% to 5.8%.
5: Go on REPAYE, try to get school to chip in with LRAP, and keep saving for paying down principal before refinancing
- Under REPAYE, my monthly payments would be around $470 until August 2024. Maybe the school would cover some of that—I’m not sure.
- I have been leery of this option for several reasons. I don’t have high faith in my school or loan service provider being very reliable. I don’t want to deal with negative amortization. I am unsure if the interest subsidy would be worth it in my case, and I am concerned about whether capitalization upon refinancing would negate the effect of lower monthly payments while clerking.
- The other big question is what, exactly, Biden’s revised REPAYE will include and when it will go into effect. If it really means that no interest would accrue on my loans so long as I make my monthly payments, of course I would want to do that. Whatever the new REPAYE will be, I assume it will not be available until at least early 2024, so I would benefit from it for less than a year.
Bottom line
I am unsure if it is worth the marginal benefit to pick a more complicated option rather than just stick with graduated repayment until it’s time to refinance. What would you do?