Selecting Student Loan Repayment Plan Forum

[Anonymous User]

Quick logistical question. I just graduated, completed loan exit counseling, etc. In the loan exit counseling I believe I selected PAYE, but idk if that has any bearing on what plan I'll be placed on. My Q--will I be put on w/e plan I chose during the exit counseling, or do I have to actually apply for the income based repayment online? Also, if I'm on X repayment plan, will that repayment plan include private loans as well? Any additional advice on how to get on PAYE would be appreciated. TIA

[RaceJudicata]

I have the same question.

[A. Nony Mouse]

You will have to apply through your loan servicer - I believe you will get some information on who that is if you don't have that already. My experience was that they won't really let you apply until closer to when your forbearance ends (should be November), and then they may tell you it may not get processed in time for the first payment (because loan servicers are terrible people) but then it will. You will need to submit proof of income and fill out forms - so I don't think you could have signed up through exit counseling at your school; that's just to let the school know how their grads plan to handle their debt.

When you have your loan provider you can call them up and they'll walk you through it. You actually apply for income-based plans at studentloans.gov so you could go there and set up an account and look at what you need to do.

Private loans aren't included, only federal.

[hangingtree]

And when you do select your repayment plan, you'll likely want to choose the "extended graduated" one - the one with the lowest monthly payment in the first years - as then you'll have more cash to apply to the higher interest loans. I don't think I've ever seen this discussed on TLS, but it'll save you a massive sum of money when it's all said and done. Let that 5.5% loan sit there while you pay off the 7% one.

[Anonymous User]

OP here--thanks for the info.

And when you do select your repayment plan, you'll likely want to choose the "extended graduated" one - the one with the lowest monthly payment in the first years - as then you'll have more cash to apply to the higher interest loans. I don't think I've ever seen this discussed on TLS, but it'll save you a massive sum of money when it's all said and done. Let that 5.5% loan sit there while you pay off the 7% one.

Correct me if I am wrong (going off memory), isn't the extended graduated one the plan where your payments increase substantially in later years? So, for someone who will only be in big law max 5 years, couldn't those increased later payments financially strangle you (assuming your income is 150 or below pre-tax and leave big law with say, 50-100k in debt left)?

Also another related question--when you say let the loan sit, does that mean you don't have to make payments on that loan or that you just pay the minimum on that loan and use excess cash towards high interest loans?

[Fireworks2016]

And when you do select your repayment plan, you'll likely want to choose the "extended graduated" one - the one with the lowest monthly payment in the first years - as then you'll have more cash to apply to the higher interest loans. I don't think I've ever seen this discussed on TLS, but it'll save you a massive sum of money when it's all said and done. Let that 5.5% loan sit there while you pay off the 7% one.

Can others elaborate on this idea? I guess I haven't seen this strategy presented before. Seems like there's no downside if you'll have the extra cash and actually follow through and toss it at the higher rate loans?

[hangingtree]

Correct me if I am wrong (going off memory), isn't the extended graduated one the plan where your payments increase substantially in later years? So, for someone who will only be in big law max 5 years, couldn't those increased later payments financially strangle you (assuming your income is 150 or below pre-tax and leave big law with say, 50-100k in debt left)?

That's correct, and this should be a key factor if your debtload is huge and you indeed only plan to be in biglaw for a few years. That said, it is also generally true that the debt has to go away somehow - assuming you intend to pay it - so why not do it in the way that saves you the most money? The mandatory payments in the later years shouldn't cripple you, and over time this could save you thousands (and thousands) of dollars if you paid sticker.

My goal isn't to offer financial advice though. It depends on your circumstances. I just wanted to shed light on this option as it allows you to pay less in interest over the repayment of your loans and thus is attractive in a lot of circumstances.

Also another related question--when you say let the loan sit, does that mean you don't have to make payments on that loan or that you just pay the minimum on that loan and use excess cash towards high interest loans?

Your mandatory monthly payments are applied across all of your loans, unfortunately. It's just the extra money you can throw at your loans that you can put toward the higher interest ones.

Yet to see what happens when you finish paying off a loan, i.e. whether the mandatory payment reduces by a proportionate amount. I'm still paying off a full grad plus loan. I highly doubt things would be that fair/reasonable, however.

Can others elaborate on this idea? I guess I haven't seen this strategy presented before. Seems like there's no downside if you'll have the extra cash and actually follow through and toss it at the higher rate loans?

It's not an "idea" really. It's simply that this plan allows you to pay less in interest over your repayment because you apply less of your cash towards the lower interest loans.

The base logic to it all is the following: if you have an assortment of loans of varying interest rates, to pay the least amount in interest (i.e. to pay your debt off the quickest, i.e. to save the most money) you want to pay the highest interest one first, the second highest interest one second, and so forth until you're done.

I do present a certain "strategy" though, as you point out, to pay off your loans by selecting this plan. And indeed I haven't seen it on TLS either.

You're right: if it is 100% certain that you will follow through in paying off the full amount of your debt and it is 100% certain you will always have extra cash and be willing to apply it to your debt, there is no downside and in fact doing it any other way would be financially irresponsible. This plan saves you a significant amount of money is these are your circumstances.

Where you get into possible downsides is when you plan to get out of biglaw in a few years and want less in mandatory payments afterwards, have a small amount of debt and would rather invest than pay off your debt quickly, you're not responsible enough to pay off your loans with extra cash in the early years, and I suppose a host of other factors.

Personal finance is personal. I'm simply running with this idea of paying the higher interest loans first=less interest accruing.

[favabeansoup]

And when you do select your repayment plan, you'll likely want to choose the "extended graduated" one - the one with the lowest monthly payment in the first years - as then you'll have more cash to apply to the higher interest loans. I don't think I've ever seen this discussed on TLS, but it'll save you a massive sum of money when it's all said and done. Let that 5.5% loan sit there while you pay off the 7% one.

Can others elaborate on this idea? I guess I haven't seen this strategy presented before. Seems like there's no downside if you'll have the extra cash and actually follow through and toss it at the higher rate loans?

I'm doing the regular graduated plan, not the extended graduated one, and I like it.

I had roughly ~150k-160k in debt. My normal 10 year plan payments were going to be like ~1900 a month. My 10 year graduated payments started at ~1000-1100/month for the first 2 years. The maximum my payments would increase to would be $3,300 in the last two years.

This worked for me for a few reasons. 1) the initial few months with a lower payment I spent building a rock solid emergency fund/cash reserve in case I ever lost my job. 2) Once I did that, I started overpaying on my loans for $3500/month.

If I stayed on the normal plan, it would have taken me an extra few months to build emergency savings before I started overpaying. Plus, I'm well on track to paying off my loans before my payments increase to the highest level.

I think the graduated/extended graduated payment plans then are a good bet if your debt level is such you could realistically pay it off within 3-4 years.