I’m trying to figure out which student loan repayment plan would be the best for my financial situation. Can anyone explain the differences between the various repayment plans, such as standard, graduated, income-driven, and extended repayment? What factors should I consider when choosing a plan, and are there any tools or resources that can help me make an informed decision?
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In terms of strategy, you essentially have to choose between 1) aggressive payback, 2) waiting for the forgiveness of the IDR plan, or 3) pursuing a forgiveness program such as PSLF or something similar. Since you sort of have to project out situations over a 10–25-year timetable and make some assumptions, figuring out which is cheapest for you overall may take some effort and scratch paper.
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Paying off later in time is usually preferable, if both the present and the future are financially sound. Since money now is worth more than money tomorrow, paye stands out at first (albeit I didn’t do any calculations). However, could you elaborate on the simulator you used? I’m curious about how time worth of money is accounted for.
The issue with both the income-driven repayment plan and the SAVE plan is that they focus on reducing monthly payments. While this might seem beneficial in the short term, it actually favors banks and the government. They benefit from prolonged debt and interest payments. Often, the low payments barely cover the interest, leaving the principal balance largely unchanged or even increasing.
The best approach to managing your debt is to review your income and expenses, reduce or limit expenses for a short period (ideally under five years), and make aggressive payments towards your loan.