I have to choose between using my savings to pay off a chunk of my student loans or enrolling in an Income-Based Repayment (IBR) plan. Here are my details:
I have about $30,000 in student loan debt.
My savings amount to approximately $15,000.
I’m employed full-time with a stable income, but not exceptionally high.
Monthly expenses are manageable, but I want to plan for the future wisely.
I’ve heard that paying off loans quickly can save on interest in the long run, but I’m also attracted to the lower monthly payments IBR offers, which could help me save more each month.
What do you think would be the better option in my situation?
If you have a stable income and can manage with slightly higher payments, paying off a chunk of your loans could save you money on interest over time. However, if you want more flexibility and lower monthly payments, an IBR plan can help ease the monthly budget. It’s a balance between long-term savings and short-term comfort. Maybe start with paying off part of the loan and see how it feels before committing fully.
The SAVE and IBR plans are both income-driven repayment options for federal student loans that base my monthly payments on 10% of my discretionary income. The key differences are the repayment period and interest subsidies. SAVE offers forgiveness after 20 years for undergraduate loans and 25 years for graduate loans, while IBR is 20 years regardless. SAVE also provides a 100% interest subsidy, meaning my loan balance won’t grow, while IBR only subsidizes interest for the first 3 years on subsidized loans. Additionally, SAVE allows me to file taxes separately from my spouse to determine my payment, while IBR considers my spouse’s income. Ultimately, SAVE results in lower monthly payments for most borrowers due to a higher projected income threshold and the interest subsidy, but IBR may be better if I expect significant income growth in the future.
I faced a similar decision with my student loans and savings. With $30,000 in student loan debt and $15,000 in savings, I chose to put a portion of my savings towards paying off a chunk of my loans while enrolling in an Income-Based Repayment (IBR) plan for the remaining balance. This approach allowed me to reduce my debt significantly, lower my monthly payments, and maintain a financial cushion. Paying off a part of the debt helped reduce the total interest over time, while IBR gave me manageable payments based on my income. Balancing between paying off some debt and taking advantage of IBR can be a wise way to handle student loans and plan for the future.