I currently have about 45k in federal student loan debt and about 20k in private student loan debt, and am considering enrolling in the IBR ( income based repayment plan) that becomes law this July. Under this law, I can take all federally backed loans ( subsidized and unsubsidized) and consolidate them, and then pay 10%-15% of my income for 25 years, when any remaining balance is forgiven. ( I am aware of the tax implications in year 25, and am not concerned; read on)
I am starting law school this fall. With law school, I am eligible to take out stafford loans for tuition, along with grad PLUS loans for living expenses. This will mean a refund after tuition and books of around 8k. I plan to take out the maximum I can until my private school loans and consumer debts are paid off, and after I pass the bar, consolidate under the IBR and pay 10-15% of my income for 25 years. This way, no matter how much I borrow, I can never pay more than 10-15% of my income on student loan payments!
This of great relief to me, as it no longer makes me fearful of the future in the way I once was…
Before anyone gives me grief about “forking it onto the government,” understand that I could care less. The govt. has been more than eager to bailout banks, insurance companies, and auto manufacturers, so why not take my piece of the pie? I don’t believe people should have to pay for a higher education if they want one. This is a principle that I strongly believe in, and any statements that attempts to undermine that premise will be met with my not taking you seriously/ ignoring your post…
I simply want to know: Is this a good strategy?
so what would i do, first i can suggest a good financial reading is the total money makeover by dave ramsey, that said i can suggest you to consolidate your student loans and try as much as you can to pay cash for the rest of your schooling as much as you can, you really don’t want to come out of school with $150,000 in student loans, it almost defeats the purpose of earning a really good salary when you have to payoff that large of a debt. As far as paying off the loans you should pay them off sooner than 25 years if you read the book it will give you the tools to use the “snowball method to pay for your debt”.
good luck
It depends really on three things. (1) what will you make per year as a lawyer. (2) How much will you come out of law school owing (3) what interest rate will you be charged.
But, on the surface, it doesn’t look like a good plan for a high income job such as a lawyer. It could be a very good plan for a lower income worker, such as a social worker. Here is the math for you to think about:
If you come out of school owing consolidated loans of $200,000 in total, at 4%, the payments over a 30 year repayment schedule are $954 a month. Over 20 years, the payments are $1,211 a month.
If you are making $125,000 (typical for a lawyer right out of school), then your payments at 10% of income are $1,041 a month. And, as you get wage increases, those go up. When you are making $180,000 a year (possible at a big firm by year 3), your payment will be $1,500 a month (at 10%). So it is likely that if your income is greater than $100,000, there will be nothing left to forgive when you reach 25 years.
So, if you really want to be a lawyer, and the concept of 10% of your income as student loan repayment is comforting to you, then sure, go for it. But, if you think this will be a windfall like the banks are getting – eh… not so much. It is a good deal for people with modest incomes and high college bills like teachers, social workers, etc.
There are good loan amortization tables and payment calculators on bankrate.com. Excel also has amortization tables. Run through a few scenarios and you can have more information for your decision.
Good luck.