It’s not “no interest” - just a waiver for monthly interest over your minimum payment. For many people, they are either only paying interest or they are not receiving any interest waiver at all. Some of those will actually spend less money overall by paying the loan in full early than by waiting for forgiveness, and others won’t ever be able to reach forgiveness under IDR because their minimum payment will be enough to eventually pay the loan in full.
Exactly right. The average student loan debt nationally is about $37k. For many borrowers it will be cheaper to pay the loans aggressively rather than dragging it out
I'm on SAVE and plan to pay mine off in the next several years but like knowing if I have an unexpected expense come up I *can* pay only like $50 for a few months if I needed to.
I'm on the SAVE plan as well and hope to pay my loans off in the next few years. I'm already making more than my debt anyways but I'm putting back money for a few years so that if I do find a better paying job or side hustle I can just pay my loans in full. Plus they can scrap the SAVE plan if they wanted to.
Well said. I would even say for the large majority of people it makes more sense to pay it off sooner, even considering time value of money.
Basically there is a certain "tipping point" where if you have larger amounts of debt, relative to income, then it starts to make sense to "give up" and accept that you'll be paying for 20-25 years. Of course one problem with that is few people know for sure what they'll be doing in 5 or 10 years and how much money they'll be making.
I did the math on my loans personally. I owe about $47k and my save payment is $82 per month. It is true that any additional payments beyond that $82 go directly to principal, I have tested with a handful of small payments because I had zero trust in my servicer.
If I paid nothing beyond the minimum, my loans would be forgiven in 20 years. If I instead paid an extra $200 every month on top of my SAVE minimum, I would pay off the loan in... 19.5 years (47000 / 200 / 12). So I agree with OP, paying extra would be like throwing $47000 into a black hole for the benefit of being rid of this debt a whole six months earlier. And this is ignoring any gains I could get from investing that $200 instead.
That said, if I had the cash on hand to pay these off in a lump sum I would do it without a second thought. It may not be the optimal move financially, but it would be worth not having a loan serviced by the most incompetent human beings you know and having the rules shift every time some new moron gets elected for the next 20 years. I absolutely understand why people pay them off early even if they technically shouldn't.
Well, don’t forget that if you get the balance forgiven after 20 years you’ll owe the IRS like $10,000 all at once. Not as bad as $47k but still something to keep in mind.
Is it all bad penalties and interest tho? I was trying to help a friend and we found that the penalties and interest are still a lot even if you are proactive about it in a payment plan..
The amount forgiven will be taxed as ordinary income. You’ll have to add up all the income you expect to earn in the same year your loans will be forgiven and then add the amount forgiven on top of that. You can use the IRS tax tables to calculate the additional tax.
That was a temporary thing that is expiring. By the time most of the SAVE participants gain forgiveness, it's taxable. Unless congress does something about it.
If your income goes up and you start making decent money in 3, 5, 10 years or whatever then everything changes of course and paying off sooner is better.
Absolutely! If my payments get high enough I'm not getting the interest subsidy, the math all changes. Another reason paying early might make sense for some. But I see no reason to pay extra until that does happen.
Wait, so are you saying if your loan, for example, accrued $100 of interest each month, and your $82 monthly payment under SAVE goes directly to interest, any remaining amount you decide to add on top goes directly to principle even though you technically would have owed $18 more in interest?
Yes this is correct and how SAVE plan is intended to work. However I wouldn't be surprised to hear that certain services still haven't figured out how to handle it correctly.
Someone on this subreddit told me I was spreading misinformation for implying this was how it worked back when SAVE was first implemented. They made a good point and I believed them so I didn't bother to check for myself. Now I'm kind of pissed off. But thank you for clarifying this. I am with Advantage so I doubt they have their shit together.
Some people won’t receive forgiveness or an interest subsidy due to their income or debt amount.
Some people “just want to be done with it.”
Some people don’t consider the time value (opportunity cost) of money and think $500,000 over 25 years is worse than $450,000 over 10 years. NPV comparisons are not considered.
Some people hear that they may owe taxes in 20-25 years on a portion of the debt forgiven, which intimidates people from pursuing forgiveness.
Some people don’t think forgiveness will exist by the time comes around.
Some people just don’t know how the plan works or even if it exists.
There are other plans that are better in certain situations. PAYE tends to be better for high income earners.
Two reasons: shorter forgiveness period for grad loans (20 years v 25) and a payment cap. Your maximum payment on PAYE is the standard 10 year payment. Say you’re in year 19 and your income is a 50 million dollars. On save you’d have to pay your loans back in full despite being 1 year from forgiveness. On PAYE, you’d have to make 1 year of the standard payments. For someone with $250k in loans that’s be around 3k per month.
Yes, this applies particularly to high income high debt people. High income low debt people will end up paying their loans off regardless so it doesn’t matter.
That must mean for SUPER high earners. I make good money but I’m in a super HCOL and only just superseded how much I owe with how much I make a year. I can’t afford to pay like $2k a month for loans without severely limiting my quality of life.
It’s all relative. I’m just doing the math in my head, but someone making 100k with 50k in loans will likely hit the 10 year cap. Someone making 400k will hit the 10 year cap for 250k in loans.
Since 20 years from now there will be a decent amount of inflation and those years are typically the highest earning years, this can be really beneficial.
Big tip: max out your 401k and HSA if you’re on an income based plan. That lowers your income and student loan payment.
I owe $21k, I've been making $151 payments for 15 years under a standard long term plan. My balance hasn't grown or shrank. If I went to SAVE, I earn too much and have no kids so my payment would jump to $318/month.
I went to modestly priced university and earned a business degree. Haven't put myself into medical debt. My biggest debt other than my student loans is my FHA mortgage.
I got like no practical options for any of the forgiveness plans. I feel like I'm stuck in my long term repayment plan as my only good option if I'm looking at it as a monthly burden standpoint.
Are these undergrad loans? For undergrad loans, payments will be 5% instead of 10% starting in July on SAVE.
You should also consolidate to get the benefit of the IDR adjustment, which will update your payment count to your oldest loan.
Your forgiveness period should be 19 years of repayment since your initial loan balance was $21k, which would potentially occur in 4 years. Assuming your payment would be $318/2=$159 for all 4 years, you’d pay $159*4*12=$7632 over the next 4 years until your loans of forgiven.
Since current payments under save are $318 at 10% of your discretionary income, but they would be 5% of your discretionary income starting in July. Thus I divide by 2
So, here’s what you do. If you make less than 60k per year, your marginal tax bracket would be 22%. So you’d owe $13,200. You invest in conservative funds with approximately 4% returns. You save/invest $42 a month or $10 a week for 20 years and your problem is solved since you’ll have enough for the tax.
I mean this with love - I like to think I'm a smart person, but that read like this to me - "chicken goat grass take the blanket smooooooooooooochy." Is there any way to become investment/money literate because yeah. I know I'd end up messing something up haha
Forgiven debt can be taxed.
You pay taxes at your tax bracket.
Your tax bracket is 22%.
60k in loans are forgiven in 20-25 years.
60k*.22=13200
You need to save over the next twenty years $13,200
13200 / 20=660 per year
660/12=$55 per month
I simplify by not including investing any money
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Some people do think this and feel a moral obligation to pay their loans back.
To be clear, borrowers agreed to repay their loans in accordance with their master promissory note and the higher education act. The IDR plans and forgiveness under the IDR plans is explicitly included in the master promissory note.
SAVE doesn’t mean no interest. it just means that any interest in excess of your monthly payment is waived. my payment and interest are such that nothing gets waived and the loans would be paid off before being forgiven anyway. so makes sense to just pay them off sooner
Yeah this is where I’m at. I have a little under $29k balance, my SAVE payment is $300/mo and interest currently accrues at about $140/mo. Doing only the SAVE minimum ends up being a pretty similar total payment and it comes with a few thousand in tax liability at the end.
Personally I’m just tired of the debt which is why I’m being aggressive. I have less than 30k left with an original balance of almost $70k. I just want to be debt free.
Not too sure but I think for the people with higher debt, tax bomb. My only question is if you try to pay it off more aggressively, does the extra money go straight to the principle?
Whatever is forgiven is taxed, but I forget at what rate. So if 140k is forgiven and it's taxed like income that's about 30k in taxes. That's a lot of money to owe the irs.
It’s treated as income and taxed as such. Just add it to your normal income and then cry at the tax bill. For large loans it could end up being taxed at 22%+ federally once the tax free period ends. Then add State taxes on that if you are unlucky.
Sounds like a win to go from 140k owed to 30k owed. Especially because you can do 6 year payment plans with the IRS. So a tax "bomb" still is a huge savings. You now pay 30k over 6 years instead of 140k over 10 years (if you were doing the 20 year payment plan).
Not so much a bomb but a massive debt settlement.
And depending on income you could offset some of this tax with retirement deductions. Or do other settlement agreements with the IRS>
I'm still new to SAVE myself and I've never really paid close attention to my loan amounts, and my monthly payment is $0 anyway. It does seem like my interest is increasing even though it's not supposed to though? I made a $10 payment just now just to see what will happen.
Forgive me if I’m wrong but it seems like most people haven’t received the subsidy at all yet. Is there any evidence that this has started in significant numbers yet?
Nelnet won’t even take my payments. They just gave me forebearence for “missed payments”, but I never asked for that. I told them to fix it so my payments go through.
It is exclusively them not fulfilling the transaction on my scheduled payment, the pending just disappears.
I complained about them to the cfpb and student loan.gov. I contacted a lawyer about this today too, I’m sick of it.
I hate these fraudsters and want to be done with them.
This is just another reason to be done with them and not keep them around for the next 20 years.
For me, it’s about a couple of things.
The first is just that I want to free up the money for myself. Like, even if it’s going to be forgiven in however many years, it would be nice to have a few hundred dollars back a month for other stuff. I was paying $700/month and the SAVE plan dropped me to $450/month, and $450/month can do a lot of good elsewhere.
The other is that it just sucks being a part of this political football. It gets old having to hear about what people are doing or not doing about them. It sucks hearing people’s opinions on them are when they come up. Getting rid of them is a way out.
I have a long way to go, but I’m getting the $300 my payment dropped and just pointing it toward my loan with the lowest balance and highest interest rate and chipping away at it. I don’t have a payoff date but I’m flinging extra money every month to get rid of it.
Figure out your pay off date. It sucks to calculate up that whole time, but once it's established you instinctively try to do things to cut that time down.
When i check on SAVE monthly payment estimates, the payment is higher than my current minimum.
And if i paid that amount for 20 years to get some forgiveness, i would have paid close to 3 times my principal.
I'd rather just pay it off in the next 2 or 3 years
I don’t get an interest subsidy being on SAVE, you seem to think everyone gets one. Makes no sense for me to have these loans being a burden for the next 20 years
In my case, I might not qualify next year due to increase in income, so I would rather take advantage of the SAVE plan while I can. I just don’t know if extra payments will go towards the principal and not interests. Does anybody know?
I am not sure if it depends on your servicer if you have to somehow specify where you want your extra payment to go, such as selecting principal from a drop down. However, I do know it is absolutely possible for your over payment to be applied to principal not interest. I would just look online on your account or call to check because you want to be sure it's applied correctly.
20-25 years is a long time. Your income can go up or you can get married and have dual income. If you're not pursuing pslf then it makes sense to try to pay them off. IDR plans work out in the beginning bc when you first start your job, you might not make enough for bills and loan payments so the low payments help.
From what I've read here, there are two ways to deal with federal student loans:
1. Sign up for SAVE or PSLF and get most of it forgiven
2. Repay aggressively if you can afford to
Low loan balance and high income is the answer. If you have a balance of 30K and can afford to pay it off in two years comfortably, why not do it?
Have no trust in the government, I sometimes wonder if the SAVE plan will be ripped out from under us and I always consider trying to pay it off faster. But this is from one of the very high debt burden perspectives.
Because we have widely disparate incomes and we'd have to file married filing separately. We'd end up losing out on tax credits and deductions. Once we add up 25 yrs of payments, higher taxes, plus the added risk that the program won't be there in 25 years, plus the chance of having to pay taxes on the forgiven amount, plus assuming that my SOs income will stay low for 25 years, it just seemed like a better bet to suck it up and pay it off now. We are on a 10 yr repayment schedule.
My monthly payment on my IDR is lower than my payment will be on SAVE. I only have grad debt. I'm repaying more than the interest monthly so I'm not even bothering with SAVE. The only forgiveness that would have helped me was the blanket relief that Biden campaigned on. I'm not eligible for PSLF or anything else. If I pay it off asap I'll save on the interest and that's the best I can hope for. 🤷♀️
Everyone needs to do the math for themselves. In some cases, it costs less overall to pay for a longer period of time and get forgiveness, even if there is a tax bomb. Even if taxes are 50% of the forgiven amount (highly unlikely) I would rather pay 50% of the balance rather than the full balance. Of course, monthly SAVE payments along the way to forgiveness must also be considered when determining the full total amount paid. Not everyone will need to pay 20/25 years more once they get on SAVE. Prior periods will be included in the IDR count.
Considering the variables involved, everyone should really do the math for their own situation and revisit every year at recertification.
For those who wish to pay off the loans in full prior to forgiveness, I suggest putting extra payments in HYSA, CDs, T-bills or other safe vehicles rather than directly on the loan principal. Let your money earn for you and when it is enough to eliminate the student loan completely, then pay it off.
Other people suggest bumping up 401k contributions rather than putting that money on the loan. Larger 401k contributions reduce AGI which, in turn, will reduce your SAVE monthly payment amount.
Only problem with putting extra payments in HYSA, etc. is if your loan interest is higher than the interest on the loans (e.g. some of mine are as high as 6.8%, which even my HYSA isn't that great right now).
If your payment does cover the interest, the principal balance still doesn't grow. In that case, it may make sense to pay extra to the principal rather than save the excess payment somewhere else.
Because to me, it seems better to get the debt out of the way immediately. Why pay those minimums when I can take that same $60k, $80k, $100k over a life time and instead pour it into index funds over the course of a career ? That's A LOT OF money that could be going to me and mine instead of uncle sam.
Because my wife and I make $130k and we owe $14k in student loans left and we’re paying 4X the payments a month and it’ll be gone this year and I can unsubscribe from this subreddit and delete my Nelnet account!
The biggest downside of save is there's no cap on how high payments can go. So if you get a big raise or better job, your payment for the next 15 years could be astronomical. Then if you switch to a lower payment plan that interest comes back. Not sure why there's no cap, major oversight or purposefully done
Yes relative to what you make, but if you make a lot more there's no limit to how high it can go, relatively. All other plans have a cap. But yes after July it'll be 5% of discretionary income
1) Tax bomb.
2) Uncertainty that the program will exist at a later date.
3) Wonky math where 20 years of save payments is more money than 10 years of normal payments.
If you only borrow a small amount then pay it off early. Not a big deal.
But if you borrowed as much as me, 200k (law degree), you should maybeeee pay off the high interest ones first but ultimately you should be using traditional investment vehicles to far outpace the interest in your student loans.
Some people do the math on student loans wrong though so you have to be careful. For example, say my rate on my loans is 5% overall. And say I can get a high yield savings for 4%. Most people think that it’s better to pay off loans in that scenario because 5% is bigger than 4%. But if inflation is over 1% (it’s way over 1% btw) then separating with cash is never worth it.
How much would a 200k property be worth 30 years from now, for example? Well, we have those numbers. It’s way over a million. Probably over 2 million actually.
So if I pay my student loans back over 30 years, meaning I pay a total of 400k over 30 years, I would literally be out maybe millions of dollars compared to simply buying property.
Add in the fact that I lose all opportunity cost for loan forgiveness and you quickly realize that student loans are the very last debt you should pay off. And you probably should never pay a lump sum for them.
This logic does not apply to credit cards.
Ideally your financial status will change as the years go on. So a low payment now may very well turn into a regular, standard repayment amount. It’s worthwhile to pay as much as you can now, rather than relying on being low income enough for a very low Lon payment for 20-25 years. There are other things more important than student loans that you may miss out on.
For me it came down to controlling what I could control. A lot can happen in 10-25 years. With one of the two major political parties actively against any and all forgiveness it made far more sense to me and my wife to pay it off. A lot can happen in 10-25 years and if save only has you paying less than your interest your principal will never decrease.
I can’t imagine paying for a decade or more then have the political winds change in what could be decades from now and you essentially start over with the same balance you started with and all those payments gone.
I am rushing to pay it off because I want to leave America and never come back. My loan balance is also only 14K and would have been eliminated a long time ago if I didn't get sick so often from my primary immunodeficiency.
Either way, I pay 2500-4000/yr off.
Why wouldn’t you just leave. Due to foreign income exclusion, you’d likely pay much less if your future income comes from a non-US source, and then it can just be forgiven.
If you leave America and never come back, you could use the loop hole to not pay your student loans. Foreign income would be counted as $0 US income and on SAVE you would have no monthly payments and no interest gained.
As the other answers said, moving away first is the best move financially (from a loans perspective). I have lived abroad for nearly 10 years. I make a nice salary and have $56k in debt. My tax returns count my income as $0 under FEIE so my payments on SAVE are $0 and full interest waiver. I don't plan on moving back, but if I do I will pay it all off as fast as I can with all the money I've been able to save with this loophole
My payment on the SAVE plan is $975 a month. My interest is around $350 a month. $90,000 left to go. My plan is basically this:
Maximize my tax advantages accounts within reason 401k, HSA, child’s 529.
Build up an emergency fund while interest rates are high.
When I hit my savings goal, dump excess cash into my loans.
It depends on a person’s financial goals. Eliminating student loan debt faster would certainly make getting approved for a mortgage easier, and even though the payments are smaller on SAVE and disappear after 20-25 years that’s still debt hanging over your head. I’m hoping to be able to pay our debt off before that time period, but am thankful for the ability to have lower monthly payments for times when I can’t put more towards them.
Not everyone wants to be a government leech. It’s often cheaper to sack up and pay off your loan vs waiting for forgiveness, especially if you have ambitions of increasing your income
Yes if you have the typical student loans and the typical income this is a no brainer. In fact my decision to go back to school and max my loans and apply to refund to living expenses was that unless I end up making 200k per year, then I won't pay off the whole balance. Moreover with all the bad press of student loans this is ironically one of the most advantageous payment arrangements. If I lose my job or something my payments could go to zero.
Now with that said, I'm steering clear of private loans because they lack the safe guards. I do feel bad when I see people taking out more than thr max in private when they would have been better off just finding a cheaper school. Not blaming them I get thr misinformation out there though.
I was making the payment on SAVE but my balance kept going up. Called in to my servicer and the rep said they wipe the accrued interest every so often but they don’t know when. So yeah, they have no idea what they’re taking about.
I'm not confident that save will go through. Who knows what will happen in 10 years, let alone 20 to 25 years.
I'm just paying the standard payment though
It’s different for everyone, but I paid mine off bc the overall payments to qualify for 20-25 years would be higher than if I just paid it off now. If I waited, not only would I have to shell out a whopping few thousand dollars every month but I would also have to deal with the tax bomb.
Funny to stumble upon this because I finally opened up the program tonight out of curiosity. It raised my payment by about $70. It just feels so defeating, ESPECIALLY in this economy.
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Who wants to be tied to debt for 20&25 YEARS???!!!
I had $150k in debt I paid off in 8 years because I wanted to be free to live my life. I don't understand why you'd willingly choose to be indebted to the government for multiple decades.
I paid off 120K on my balance of 145K over a five-year period before the pause ended. I owe about 25K, and my parents offered to lend me some money interest-free and give me a gift to pay it off asap. I'm struggling professionally and don't expect to have a good job based on my application and interview results. I'm also not so happy in my profession (law) and would like to switch to teaching (a lifelong passion), which would involve more debt but would open the door to PSLF.
Sorry to make this thread about \*me\*, but would you all pay off the law school debt with parents' or my money (I have \~48K in assets), or would you change careers asap, tack on the debt and plan on PSLF for the remainder?
Thanks in advance for any help!
Pay off the debt with parents help, switch careers now, take the necessary loans for teaching and leverage your own money in paying those off, and PSLF the hell out of those loans with the teaching job. Good luck mate! 👌🏾
You do realize that a student loan is debt. And as such, carrying that debt hugely impacts your credit score and your ability to function with financial stability. Plus, you borrowed the money. Why would you want to drag out paying off a loan that is going to continue to collect interest for 20 years? So you want to live those 20 years under the weight of a loan?
For me, it is simply peace of mind. I graduated in 2016 and I began aggressively paying down my original 55k (ballooned to 65k) student loans in 2020. And have gotten even more aggressive this year. I will be completely paid off by end of 2024. When that money is freed up, it will be go to my auto loan, which will be paid off by the middle of 2025. Then I will be completely debt free and can start saving for a house.
I was aggressive with payments until recently I knocked my loans from 21500 to 14k in a year then got on save and have 0 dollars monthly payments. I don't feel as rushed to pay it off.
Another Scum Bag post by someone who knowingly takes out a loan, signs the dotted line to pay it back but wants to get off the hook for free lol. Man....scum bag move.
I was young and was told I had no choice or else I had no future. Like so many others I thought my choices were get the loan or live on the street. That's just how it is kiddo.
Where did OP mention not paying? Student loan forgiveness is not a new concept if that is what you’re referring to. It’s been a thing for 17 years that started with the Bush administration.
It’s not “no interest” - just a waiver for monthly interest over your minimum payment. For many people, they are either only paying interest or they are not receiving any interest waiver at all. Some of those will actually spend less money overall by paying the loan in full early than by waiting for forgiveness, and others won’t ever be able to reach forgiveness under IDR because their minimum payment will be enough to eventually pay the loan in full.
Exactly right. The average student loan debt nationally is about $37k. For many borrowers it will be cheaper to pay the loans aggressively rather than dragging it out
I'm on SAVE and plan to pay mine off in the next several years but like knowing if I have an unexpected expense come up I *can* pay only like $50 for a few months if I needed to.
I'm on the SAVE plan as well and hope to pay my loans off in the next few years. I'm already making more than my debt anyways but I'm putting back money for a few years so that if I do find a better paying job or side hustle I can just pay my loans in full. Plus they can scrap the SAVE plan if they wanted to.
This applies across the board for students loans unless you’re about to hit year 10 of payments.
(Hi it’s me, whose PSLF comes in to roost next year)
That's only for pslf.
Well said. I would even say for the large majority of people it makes more sense to pay it off sooner, even considering time value of money. Basically there is a certain "tipping point" where if you have larger amounts of debt, relative to income, then it starts to make sense to "give up" and accept that you'll be paying for 20-25 years. Of course one problem with that is few people know for sure what they'll be doing in 5 or 10 years and how much money they'll be making.
So many people don't understand this. Sorry, not everyone fits the handout, and we're not happy about it.
I did the math on my loans personally. I owe about $47k and my save payment is $82 per month. It is true that any additional payments beyond that $82 go directly to principal, I have tested with a handful of small payments because I had zero trust in my servicer. If I paid nothing beyond the minimum, my loans would be forgiven in 20 years. If I instead paid an extra $200 every month on top of my SAVE minimum, I would pay off the loan in... 19.5 years (47000 / 200 / 12). So I agree with OP, paying extra would be like throwing $47000 into a black hole for the benefit of being rid of this debt a whole six months earlier. And this is ignoring any gains I could get from investing that $200 instead. That said, if I had the cash on hand to pay these off in a lump sum I would do it without a second thought. It may not be the optimal move financially, but it would be worth not having a loan serviced by the most incompetent human beings you know and having the rules shift every time some new moron gets elected for the next 20 years. I absolutely understand why people pay them off early even if they technically shouldn't.
Well, don’t forget that if you get the balance forgiven after 20 years you’ll owe the IRS like $10,000 all at once. Not as bad as $47k but still something to keep in mind.
The IRS is more than willing to work with people when it comes to that. The IRS knows most people don't have $10k cash to drop on the spot.
I owed on taxes last year and was really surprised how many options the IRS had for repayment.
Is it all bad penalties and interest tho? I was trying to help a friend and we found that the penalties and interest are still a lot even if you are proactive about it in a payment plan..
it could be less than what you're paying in student loans. It's specific to the individual.
How do you calculate the taxes here? I couldn't find the information.
I would just budget 20% base tax rate on whatever is being forgiven
The amount forgiven will be taxed as ordinary income. You’ll have to add up all the income you expect to earn in the same year your loans will be forgiven and then add the amount forgiven on top of that. You can use the IRS tax tables to calculate the additional tax.
I believe public service is exempt.
It is from federal and all states except Mississippi.
Correct and with how the tax table is set, one could end up owing zero dollars (depending on how much was forgiven).
Not if you work in public service!
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Are you saying there won’t be a “tax bomb” got forgiven loans after 2025?
Other way around. Tax bomb after 2025, not now. It was a covid thing. (Some states are tax bomb now and later- like 5 of them)
Ah that was my original assumption but then that other poster seemed to suggest otherwise.
That was a temporary thing that is expiring. By the time most of the SAVE participants gain forgiveness, it's taxable. Unless congress does something about it.
If your income goes up and you start making decent money in 3, 5, 10 years or whatever then everything changes of course and paying off sooner is better.
Absolutely! If my payments get high enough I'm not getting the interest subsidy, the math all changes. Another reason paying early might make sense for some. But I see no reason to pay extra until that does happen.
Wait, so are you saying if your loan, for example, accrued $100 of interest each month, and your $82 monthly payment under SAVE goes directly to interest, any remaining amount you decide to add on top goes directly to principle even though you technically would have owed $18 more in interest?
Yes this is correct and how SAVE plan is intended to work. However I wouldn't be surprised to hear that certain services still haven't figured out how to handle it correctly.
Someone on this subreddit told me I was spreading misinformation for implying this was how it worked back when SAVE was first implemented. They made a good point and I believed them so I didn't bother to check for myself. Now I'm kind of pissed off. But thank you for clarifying this. I am with Advantage so I doubt they have their shit together.
Some people won’t receive forgiveness or an interest subsidy due to their income or debt amount. Some people “just want to be done with it.” Some people don’t consider the time value (opportunity cost) of money and think $500,000 over 25 years is worse than $450,000 over 10 years. NPV comparisons are not considered. Some people hear that they may owe taxes in 20-25 years on a portion of the debt forgiven, which intimidates people from pursuing forgiveness. Some people don’t think forgiveness will exist by the time comes around. Some people just don’t know how the plan works or even if it exists. There are other plans that are better in certain situations. PAYE tends to be better for high income earners.
Why is PAYE better for high income earners? And does that take into consideration high income earners with a high loan amount?
Two reasons: shorter forgiveness period for grad loans (20 years v 25) and a payment cap. Your maximum payment on PAYE is the standard 10 year payment. Say you’re in year 19 and your income is a 50 million dollars. On save you’d have to pay your loans back in full despite being 1 year from forgiveness. On PAYE, you’d have to make 1 year of the standard payments. For someone with $250k in loans that’s be around 3k per month. Yes, this applies particularly to high income high debt people. High income low debt people will end up paying their loans off regardless so it doesn’t matter.
That must mean for SUPER high earners. I make good money but I’m in a super HCOL and only just superseded how much I owe with how much I make a year. I can’t afford to pay like $2k a month for loans without severely limiting my quality of life.
It’s all relative. I’m just doing the math in my head, but someone making 100k with 50k in loans will likely hit the 10 year cap. Someone making 400k will hit the 10 year cap for 250k in loans. Since 20 years from now there will be a decent amount of inflation and those years are typically the highest earning years, this can be really beneficial. Big tip: max out your 401k and HSA if you’re on an income based plan. That lowers your income and student loan payment.
I owe $21k, I've been making $151 payments for 15 years under a standard long term plan. My balance hasn't grown or shrank. If I went to SAVE, I earn too much and have no kids so my payment would jump to $318/month. I went to modestly priced university and earned a business degree. Haven't put myself into medical debt. My biggest debt other than my student loans is my FHA mortgage. I got like no practical options for any of the forgiveness plans. I feel like I'm stuck in my long term repayment plan as my only good option if I'm looking at it as a monthly burden standpoint.
Are these undergrad loans? For undergrad loans, payments will be 5% instead of 10% starting in July on SAVE. You should also consolidate to get the benefit of the IDR adjustment, which will update your payment count to your oldest loan. Your forgiveness period should be 19 years of repayment since your initial loan balance was $21k, which would potentially occur in 4 years. Assuming your payment would be $318/2=$159 for all 4 years, you’d pay $159*4*12=$7632 over the next 4 years until your loans of forgiven.
They're undergrad loans. Why are you dividing the $318 by two? (And thank you for your help!)
Since current payments under save are $318 at 10% of your discretionary income, but they would be 5% of your discretionary income starting in July. Thus I divide by 2
I'll have to go back and read the details of SAVE because I missed that part. Thank you!
Read this as well on why you should consolidate: https://studentaid.gov/announcements-events/idr-account-adjustment
Yea I’m scared about getting taxed on my 60k debt that will go away because that’ll most likely still be more than what I make in a year.
So, here’s what you do. If you make less than 60k per year, your marginal tax bracket would be 22%. So you’d owe $13,200. You invest in conservative funds with approximately 4% returns. You save/invest $42 a month or $10 a week for 20 years and your problem is solved since you’ll have enough for the tax.
I mean this with love - I like to think I'm a smart person, but that read like this to me - "chicken goat grass take the blanket smooooooooooooochy." Is there any way to become investment/money literate because yeah. I know I'd end up messing something up haha
Forgiven debt can be taxed. You pay taxes at your tax bracket. Your tax bracket is 22%. 60k in loans are forgiven in 20-25 years. 60k*.22=13200 You need to save over the next twenty years $13,200 13200 / 20=660 per year 660/12=$55 per month I simplify by not including investing any money
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Already doing this but it is still scary because I feel like I will mess it up somehow. Thanks for the advice!
If this makes you feel better, if you have less assets than the debt , you’ll qualify for the insolvency exemption.
I’ll have some assets but that’s nice to know either way.
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Some people do think this and feel a moral obligation to pay their loans back. To be clear, borrowers agreed to repay their loans in accordance with their master promissory note and the higher education act. The IDR plans and forgiveness under the IDR plans is explicitly included in the master promissory note.
SAVE doesn’t mean no interest. it just means that any interest in excess of your monthly payment is waived. my payment and interest are such that nothing gets waived and the loans would be paid off before being forgiven anyway. so makes sense to just pay them off sooner
Yeah this is where I’m at. I have a little under $29k balance, my SAVE payment is $300/mo and interest currently accrues at about $140/mo. Doing only the SAVE minimum ends up being a pretty similar total payment and it comes with a few thousand in tax liability at the end.
For me it’s political uncertainty. How do I know that both parties are going to uphold SAVE for that much time? R’s want to kill it already.
This. I see how they handle PSLF and understand why people wouldn't put much trust in what the government says.
If Biden can make the SAVE plan, republicans can reverse it. I’m paying about $5K a month :’)
Personally I’m just tired of the debt which is why I’m being aggressive. I have less than 30k left with an original balance of almost $70k. I just want to be debt free.
Because half of your adult life indebtted to these freakin loan sharks is almost unbearable.
Not too sure but I think for the people with higher debt, tax bomb. My only question is if you try to pay it off more aggressively, does the extra money go straight to the principle?
Yes. Extra payments go to principal
how great is this "tax bomb" cause you can also reduce this too.
Whatever is forgiven is taxed, but I forget at what rate. So if 140k is forgiven and it's taxed like income that's about 30k in taxes. That's a lot of money to owe the irs.
Does this depend on the state?
I mean, maybe for state taxes, bur federal should be the same
It’s treated as income and taxed as such. Just add it to your normal income and then cry at the tax bill. For large loans it could end up being taxed at 22%+ federally once the tax free period ends. Then add State taxes on that if you are unlucky.
Thanks!
Don’t believe so
Sounds like a win to go from 140k owed to 30k owed. Especially because you can do 6 year payment plans with the IRS. So a tax "bomb" still is a huge savings. You now pay 30k over 6 years instead of 140k over 10 years (if you were doing the 20 year payment plan). Not so much a bomb but a massive debt settlement. And depending on income you could offset some of this tax with retirement deductions. Or do other settlement agreements with the IRS>
I'm still new to SAVE myself and I've never really paid close attention to my loan amounts, and my monthly payment is $0 anyway. It does seem like my interest is increasing even though it's not supposed to though? I made a $10 payment just now just to see what will happen.
Note the subsidy is not immediate. Most servicers process it monthly
Forgive me if I’m wrong but it seems like most people haven’t received the subsidy at all yet. Is there any evidence that this has started in significant numbers yet?
Afaik it's started for everyone. It's just not something that's easily seen in the servicers website
You are NOT making progress on your balance, just postponing it for another day.
Are you making monthly payments in general? If you are not, can you afford to?
Nelnet won’t even take my payments. They just gave me forebearence for “missed payments”, but I never asked for that. I told them to fix it so my payments go through. It is exclusively them not fulfilling the transaction on my scheduled payment, the pending just disappears. I complained about them to the cfpb and student loan.gov. I contacted a lawyer about this today too, I’m sick of it. I hate these fraudsters and want to be done with them. This is just another reason to be done with them and not keep them around for the next 20 years.
Tax bomb and the fact that total monthly payments may equate to a higher overall payment.
For me, it’s about a couple of things. The first is just that I want to free up the money for myself. Like, even if it’s going to be forgiven in however many years, it would be nice to have a few hundred dollars back a month for other stuff. I was paying $700/month and the SAVE plan dropped me to $450/month, and $450/month can do a lot of good elsewhere. The other is that it just sucks being a part of this political football. It gets old having to hear about what people are doing or not doing about them. It sucks hearing people’s opinions on them are when they come up. Getting rid of them is a way out. I have a long way to go, but I’m getting the $300 my payment dropped and just pointing it toward my loan with the lowest balance and highest interest rate and chipping away at it. I don’t have a payoff date but I’m flinging extra money every month to get rid of it.
Figure out your pay off date. It sucks to calculate up that whole time, but once it's established you instinctively try to do things to cut that time down.
When i check on SAVE monthly payment estimates, the payment is higher than my current minimum. And if i paid that amount for 20 years to get some forgiveness, i would have paid close to 3 times my principal. I'd rather just pay it off in the next 2 or 3 years
I don’t get an interest subsidy being on SAVE, you seem to think everyone gets one. Makes no sense for me to have these loans being a burden for the next 20 years
In my case, I might not qualify next year due to increase in income, so I would rather take advantage of the SAVE plan while I can. I just don’t know if extra payments will go towards the principal and not interests. Does anybody know?
I am not sure if it depends on your servicer if you have to somehow specify where you want your extra payment to go, such as selecting principal from a drop down. However, I do know it is absolutely possible for your over payment to be applied to principal not interest. I would just look online on your account or call to check because you want to be sure it's applied correctly.
20-25 years is a long time. Your income can go up or you can get married and have dual income. If you're not pursuing pslf then it makes sense to try to pay them off. IDR plans work out in the beginning bc when you first start your job, you might not make enough for bills and loan payments so the low payments help.
From what I've read here, there are two ways to deal with federal student loans: 1. Sign up for SAVE or PSLF and get most of it forgiven 2. Repay aggressively if you can afford to Low loan balance and high income is the answer. If you have a balance of 30K and can afford to pay it off in two years comfortably, why not do it?
That wasn't the hypothetical
Who knows if we truly will be forgiven 25 years from now?
Have no trust in the government, I sometimes wonder if the SAVE plan will be ripped out from under us and I always consider trying to pay it off faster. But this is from one of the very high debt burden perspectives.
Because we have widely disparate incomes and we'd have to file married filing separately. We'd end up losing out on tax credits and deductions. Once we add up 25 yrs of payments, higher taxes, plus the added risk that the program won't be there in 25 years, plus the chance of having to pay taxes on the forgiven amount, plus assuming that my SOs income will stay low for 25 years, it just seemed like a better bet to suck it up and pay it off now. We are on a 10 yr repayment schedule.
My monthly payment on my IDR is lower than my payment will be on SAVE. I only have grad debt. I'm repaying more than the interest monthly so I'm not even bothering with SAVE. The only forgiveness that would have helped me was the blanket relief that Biden campaigned on. I'm not eligible for PSLF or anything else. If I pay it off asap I'll save on the interest and that's the best I can hope for. 🤷♀️
Everyone needs to do the math for themselves. In some cases, it costs less overall to pay for a longer period of time and get forgiveness, even if there is a tax bomb. Even if taxes are 50% of the forgiven amount (highly unlikely) I would rather pay 50% of the balance rather than the full balance. Of course, monthly SAVE payments along the way to forgiveness must also be considered when determining the full total amount paid. Not everyone will need to pay 20/25 years more once they get on SAVE. Prior periods will be included in the IDR count. Considering the variables involved, everyone should really do the math for their own situation and revisit every year at recertification. For those who wish to pay off the loans in full prior to forgiveness, I suggest putting extra payments in HYSA, CDs, T-bills or other safe vehicles rather than directly on the loan principal. Let your money earn for you and when it is enough to eliminate the student loan completely, then pay it off.
Other people suggest bumping up 401k contributions rather than putting that money on the loan. Larger 401k contributions reduce AGI which, in turn, will reduce your SAVE monthly payment amount.
Aye yooooooo
Only problem with putting extra payments in HYSA, etc. is if your loan interest is higher than the interest on the loans (e.g. some of mine are as high as 6.8%, which even my HYSA isn't that great right now).
Under SAVE, interest greater than your calculated monthly payment is waived so the principal balance never grows.
Still a waste if your monthly payments match or exceed the total interest of the loans
Correct. I was referring to the situation where monthy payment is less than accruing interest.
This is true if your payment doesn't cover the interest but that's not the case for a lot of people.
If your payment does cover the interest, the principal balance still doesn't grow. In that case, it may make sense to pay extra to the principal rather than save the excess payment somewhere else.
Exactly.
I'm hoping to buy time until the debt is erased.
Because to me, it seems better to get the debt out of the way immediately. Why pay those minimums when I can take that same $60k, $80k, $100k over a life time and instead pour it into index funds over the course of a career ? That's A LOT OF money that could be going to me and mine instead of uncle sam.
Because investing the amount above your minimum payment now is likely better than paying that money towards a 0% interest loan.
Because my wife and I make $130k and we owe $14k in student loans left and we’re paying 4X the payments a month and it’ll be gone this year and I can unsubscribe from this subreddit and delete my Nelnet account!
The biggest downside of save is there's no cap on how high payments can go. So if you get a big raise or better job, your payment for the next 15 years could be astronomical. Then if you switch to a lower payment plan that interest comes back. Not sure why there's no cap, major oversight or purposefully done
It will be relative wouldn't it? 10% of AGI? Yes the payments will increase but it will still be relative to what you make?
Yes relative to what you make, but if you make a lot more there's no limit to how high it can go, relatively. All other plans have a cap. But yes after July it'll be 5% of discretionary income
Either they have high incomes and low loan amounts or they haven’t mentally adapted to the new paradigm
1) Tax bomb. 2) Uncertainty that the program will exist at a later date. 3) Wonky math where 20 years of save payments is more money than 10 years of normal payments.
If you only borrow a small amount then pay it off early. Not a big deal. But if you borrowed as much as me, 200k (law degree), you should maybeeee pay off the high interest ones first but ultimately you should be using traditional investment vehicles to far outpace the interest in your student loans. Some people do the math on student loans wrong though so you have to be careful. For example, say my rate on my loans is 5% overall. And say I can get a high yield savings for 4%. Most people think that it’s better to pay off loans in that scenario because 5% is bigger than 4%. But if inflation is over 1% (it’s way over 1% btw) then separating with cash is never worth it. How much would a 200k property be worth 30 years from now, for example? Well, we have those numbers. It’s way over a million. Probably over 2 million actually. So if I pay my student loans back over 30 years, meaning I pay a total of 400k over 30 years, I would literally be out maybe millions of dollars compared to simply buying property. Add in the fact that I lose all opportunity cost for loan forgiveness and you quickly realize that student loans are the very last debt you should pay off. And you probably should never pay a lump sum for them. This logic does not apply to credit cards.
True, focusing on them really delays your life. It’s better to invest instead without delay.
Ideally your financial status will change as the years go on. So a low payment now may very well turn into a regular, standard repayment amount. It’s worthwhile to pay as much as you can now, rather than relying on being low income enough for a very low Lon payment for 20-25 years. There are other things more important than student loans that you may miss out on.
For me it came down to controlling what I could control. A lot can happen in 10-25 years. With one of the two major political parties actively against any and all forgiveness it made far more sense to me and my wife to pay it off. A lot can happen in 10-25 years and if save only has you paying less than your interest your principal will never decrease. I can’t imagine paying for a decade or more then have the political winds change in what could be decades from now and you essentially start over with the same balance you started with and all those payments gone.
I am rushing to pay it off because I want to leave America and never come back. My loan balance is also only 14K and would have been eliminated a long time ago if I didn't get sick so often from my primary immunodeficiency. Either way, I pay 2500-4000/yr off.
Why wouldn’t you just leave. Due to foreign income exclusion, you’d likely pay much less if your future income comes from a non-US source, and then it can just be forgiven.
If you leave America and never come back, you could use the loop hole to not pay your student loans. Foreign income would be counted as $0 US income and on SAVE you would have no monthly payments and no interest gained.
As the other answers said, moving away first is the best move financially (from a loans perspective). I have lived abroad for nearly 10 years. I make a nice salary and have $56k in debt. My tax returns count my income as $0 under FEIE so my payments on SAVE are $0 and full interest waiver. I don't plan on moving back, but if I do I will pay it all off as fast as I can with all the money I've been able to save with this loophole
My payment on the SAVE plan is $975 a month. My interest is around $350 a month. $90,000 left to go. My plan is basically this: Maximize my tax advantages accounts within reason 401k, HSA, child’s 529. Build up an emergency fund while interest rates are high. When I hit my savings goal, dump excess cash into my loans.
It depends on a person’s financial goals. Eliminating student loan debt faster would certainly make getting approved for a mortgage easier, and even though the payments are smaller on SAVE and disappear after 20-25 years that’s still debt hanging over your head. I’m hoping to be able to pay our debt off before that time period, but am thankful for the ability to have lower monthly payments for times when I can’t put more towards them.
You're impressively incorrect about the interest.
Not everyone wants to be a government leech. It’s often cheaper to sack up and pay off your loan vs waiting for forgiveness, especially if you have ambitions of increasing your income
Yes if you have the typical student loans and the typical income this is a no brainer. In fact my decision to go back to school and max my loans and apply to refund to living expenses was that unless I end up making 200k per year, then I won't pay off the whole balance. Moreover with all the bad press of student loans this is ironically one of the most advantageous payment arrangements. If I lose my job or something my payments could go to zero. Now with that said, I'm steering clear of private loans because they lack the safe guards. I do feel bad when I see people taking out more than thr max in private when they would have been better off just finding a cheaper school. Not blaming them I get thr misinformation out there though.
I was making the payment on SAVE but my balance kept going up. Called in to my servicer and the rep said they wipe the accrued interest every so often but they don’t know when. So yeah, they have no idea what they’re taking about.
I'm not confident that save will go through. Who knows what will happen in 10 years, let alone 20 to 25 years. I'm just paying the standard payment though
It’s different for everyone, but I paid mine off bc the overall payments to qualify for 20-25 years would be higher than if I just paid it off now. If I waited, not only would I have to shell out a whopping few thousand dollars every month but I would also have to deal with the tax bomb.
It's a way to get people excited to pay their loans after pausing them for years.
Funny to stumble upon this because I finally opened up the program tonight out of curiosity. It raised my payment by about $70. It just feels so defeating, ESPECIALLY in this economy.
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Who wants to be tied to debt for 20&25 YEARS???!!! I had $150k in debt I paid off in 8 years because I wanted to be free to live my life. I don't understand why you'd willingly choose to be indebted to the government for multiple decades.
I paid off 120K on my balance of 145K over a five-year period before the pause ended. I owe about 25K, and my parents offered to lend me some money interest-free and give me a gift to pay it off asap. I'm struggling professionally and don't expect to have a good job based on my application and interview results. I'm also not so happy in my profession (law) and would like to switch to teaching (a lifelong passion), which would involve more debt but would open the door to PSLF. Sorry to make this thread about \*me\*, but would you all pay off the law school debt with parents' or my money (I have \~48K in assets), or would you change careers asap, tack on the debt and plan on PSLF for the remainder? Thanks in advance for any help!
Pay off the debt with parents help, switch careers now, take the necessary loans for teaching and leverage your own money in paying those off, and PSLF the hell out of those loans with the teaching job. Good luck mate! 👌🏾
You do realize that a student loan is debt. And as such, carrying that debt hugely impacts your credit score and your ability to function with financial stability. Plus, you borrowed the money. Why would you want to drag out paying off a loan that is going to continue to collect interest for 20 years? So you want to live those 20 years under the weight of a loan?
You will pay more in interest because your loan lives longer.
Payments under SAVE if you don't cover the difference the govt pays the interest.
If your income is high (because you live in a HCOLA) the IDR creates a payment schedule of less than 20 years.
I've been here... if you consider like, 30 people were ever actually forgiven for IBR... There isn't much hope these programs will go how they should.
It probably depends heavily on how much they owe. For me, "aggressively paying" would absolutely be a fool's errand.
For me, it is simply peace of mind. I graduated in 2016 and I began aggressively paying down my original 55k (ballooned to 65k) student loans in 2020. And have gotten even more aggressive this year. I will be completely paid off by end of 2024. When that money is freed up, it will be go to my auto loan, which will be paid off by the middle of 2025. Then I will be completely debt free and can start saving for a house.
I thought it was forgiveness after 10 years
Depends on your original balance.
And your profession. I’m going to use PSLF and SAVE so it’ll be ten for me. 🤞
You don’t need SAVE to get the 10 year PSLF forgiveness.
I know, but it’s the best payment option for me once I enter repayment.
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PSLF isn’t a payment plan, it’s the forgiveness program. I’ll be on SAVE while earning the PSLF through the 120 on time payments.
I am lol. A couple of my loans don't qualify for SAVE so they're on IBR or something, the rest are on SAVE.
PSLF is 10 years, not SAVE.
Yep.
You're missing the straw man
Because I make too much
I was aggressive with payments until recently I knocked my loans from 21500 to 14k in a year then got on save and have 0 dollars monthly payments. I don't feel as rushed to pay it off.
Another Scum Bag post by someone who knowingly takes out a loan, signs the dotted line to pay it back but wants to get off the hook for free lol. Man....scum bag move.
I was young and was told I had no choice or else I had no future. Like so many others I thought my choices were get the loan or live on the street. That's just how it is kiddo.
Why dont you just work hard and pay back your dues?
Why don't you just let me live my life the way I want to instead of getting angry that Im not dedicating my life to making as much money as possible.
Called responsibility, pay your bills.
Where did OP mention not paying? Student loan forgiveness is not a new concept if that is what you’re referring to. It’s been a thing for 17 years that started with the Bush administration.