Hi Money Minder,
Hey there! So, I’ve got a bit of a loan situation that’s been on my mind. I’ve got a total of 9 federal loans adding up to $128k. Here’s the breakdown:
- Direct unsubsidized: $4,300 @ 6.8%
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Direct unsubsidized: $25,000 @ 5.8%
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Direct unsubsidized: $23,000 @ 5.3%
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Direct unsubsidized: $23,000 @ 6%
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Direct Grad PLIUS: $15,000 @ 6.8%
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Direct Grad PLUS: 14,700 @ 6.3%
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Direct Grad PLUS: 14,500 @ 7%
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Direct subsidized (undergrad): $4,300 @ 3.4%
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Direct subsidized (undergrad): $3,600 @ 3.8%
I’ve been on PAYE since 2019 and my payment is super low at $250. I’ll be sticking with this amount until October 2025 according to the payment schedule email they sent me. My income is $115k with a $20k annual bonus, and our household gross income is $175k with two kids in part-time daycare. So, my payment will shoot up to around $900/month when filing jointly.
I don’t think IDR forgiveness will benefit me considering my income trajectory over the next 15 years. What do you think is the best long-term payment strategy for me? Should I keep the low monthly payment until next year and then adjust to the higher amount? Or maybe try to aggressively attack it somehow? Possibly refinance when the feds eventually cut rates, considering I’ve got an excellent credit score?
Would really appreciate any suggestions you have!
Farewell from
Seeking Advice
Response from THE MONEY MINDER:
Hello There,
Congratulations on your success in managing your federal loans thus far. It’s clear that you’ve put thought into your current situation regarding your income, family responsibilities, and loan payments. Your concern about the increase in monthly payments due to your income trajectory is valid, and it’s essential to plan for the long term.
Given your income and potential payment increases, transitioning from the current low monthly payment to a higher one can be challenging. However, it’s crucial to consider your financial goals and priorities. One practical approach could be to gradually increase your payments as your income grows. This strategy allows you to balance your financial obligations while making progress on reducing your loan balance.
Additionally, assessing your financial situation annually and adjusting your payment plan accordingly can help you stay on track with your loan repayment. Considering when to make larger payments to aggressively attack the loan balance depends on your other financial goals and obligations. Allocating any bonuses or additional income towards loan repayment can expedite the process.
Refinancing your loans when federal rates eventually decrease could be an option to consider, especially if you have an excellent credit score. However, it’s essential to weigh the benefits and potential consequences of refinancing, such as losing federal loan benefits like income-driven repayment options and loan forgiveness programs.
Ultimately, a realistic and practical approach to managing your federal loans is to create a balanced repayment strategy that aligns with your financial goals, income, and family dynamics. Your proactive mindset will undoubtedly help you navigate the complexities of loan repayment effectively. Thank you for reaching out for advice. Remember, financial decisions are personal, so choose the path that best fits your unique circumstances.
Farewell from THE MONEY MINDER.
