How Student Loan Forgiveness Can Cost You A Fortune

After publishing my post on actions to take in a rising LIBOR environment, it dawned on me that besides refinancing your adjustable rate mortgage, you should also consider refinancing your student loans as well, if you have any. It feels like a lifetime ago, but I used to have ~$40,000 in business school loans that were paid off in 2008. Student loan forgiveness can actually cost you a fortune. 

During my time, there was no such thing as student loan forgiveness. Come hell or high water, you had to pay back what you owed with interest. You also couldn't go straight to the corner office without paying your dues either. As our country has grown wealthier, softer, and more focused on instant gratification, student loan borrowers have pressured the government into giving them more options and it's worked! 

Here are some various options borrowers have to repay their loans and how student loan forgiveness can actually end up costing a borrower more. I had no idea there were this many choices. I'm hoping by the time my kids go to college in 20 years, tuition will be free or highly subsidized, just like it is in Europe, Asia, Canada, and the rest of the world. It's fun to have someone else pay!

How Student Loan Forgiveness Can Cost You

How Student Loan Forgiveness Can Cost You A Fortune

When it comes to managing your student loan debt, you may feel overwhelmed by all of your options. Federal repayment programs offer to make your debt more manageable, but they all have some drawbacks, too — including those that promise student loan forgiveness.

Some experts encourage income-driven repayment (IDR) plans for people struggling to keep up with their payments. Not only do these plans lower payments, but they wipe away any remaining balances after 20-25 years of repayment. Sweet deal, right? Not so fast.

Student loan forgiveness does work in certain cases. But you need to check the math, because there are many cases when it simply won’t. In some cases, pursuing student loan forgiveness by enrolling in an IDR plan may actually cost you tens of thousands more.

Summary Of Student Loan Repayment Plans

Before we look at various student loan forgiveness plans. Here's a recap of the main student loan repayment plans.

1) Income-Based Repayment (IBR), caps your monthly payments based on a certain percentage of your discretionary income. This plan is a good option for borrowers who are struggling with monthly payments and need something more manageable.

Payment amount: 10 – 15 percent of discretionary income, depending on the date of the first loan. The 10 percent amount is for new borrowers who never borrowed from the Direct Loan or Federal Family Education Loan (FFEL) Program) until July 1, 2014 or later. The 15 percent amount is for everyone who began borrowing before that date.

Repayment period: 20 – 25 years. It’s a 20-year term for new borrowers as of July 1, 2014 or later, and 25 years for everyone else.

2) Pay As You Earn (PAYE) was unveiled in 2012 and is similar to IBR but has stricter requirements. To qualify for PAYE, you need to demonstrate need and be a fairly recent borrower — you must be a new borrower as of Oct. 1, 2007 (meaning you didn’t have any student loans before this time) and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011.

Payment amount: 10 percent of discretionary income.

Repayment period: 20 years.

3) Revised Pay As You Earn (REPAYE), which became available in December 2015, is the newest income-driven repayment plan. This plan is similar to PAYE with a few differences.

The most notable difference: anyone, regardless of when the started borrowing federal student loans. It’s estimated that REPAYE allows about 5 million more borrowers to qualify to cap their student loan repayments at 10 percent of discretionary income.

Payment amount: 10 percent of discretionary income.

Repayment period: 20 – 25 years.

Now that you understand the student loan repayment basics, let's look at three scenarios and see how the numbers all shake out.

Three Student Loan Repayment Scenarios

1. The Average Borrower

Annual income: $50,561

Student loan debt: $37,000 in Direct Subsidized undergraduate loans at 3.76% APR

The 2015 median starting salary for a graduate with a bachelor’s degree is $50,561, a 5.2% increase over last year according to a survey from the National Association of Colleges and Employers. For this and all calculations, annual income is estimated to increase at 5% annually, which the Dept. of Ed. currently uses for their Repayment Estimator tool.

So if you have $37,000 in Direct Subsidized undergraduate loans at 3.76% APR, you will pay back a total of $44,532 under the Standard Repayment Plan.

Alternatively, under the Revised Pay As You Earn Repayment plan (REPAYE), you would pay $45,670 with no remaining balance to be forgiven.

And under Pay As You Earn (PAYE), which is effectively the same plan as Income-Based Repayment (IBR) for new borrowers, you would pay back $45,943. And as you can see, there’s no student loan forgiveness granted in this case.

Repayment PlanFirst Monthly PaymentLast Monthly PaymentTotal Amount PaidProjected Forgiveness AmountRepayment Period
Standard$371$371$44,532$0120 months
REPAYE$273$500$45,670$0124 months
PAYE/IBR For New Borrowers$273$371$45,943$0134 months

2. Low-Income, High-Debt Borrower

Annual income: $35,000

Student loan debt:

  • $37,000 in Direct Subsidized undergraduate loans at 3.76% APR
  • $38,000 in Direct PLUS loans at an interest rate of 6.31% APR
  • Total: $75,000

If you’re like many borrowers, your student loan debt might exceed your annual income.

Opting for an income-driven repayment plan can give you breathing room in your budget, but you might also spend substantially more on your debt overall. Plus, you could end up with a hefty tax bill.

For example, let’s say you’re a graduate school student loan borrower. You have $37,000 in Direct Subsidized undergraduate loans at 3.76%, as well as another $38,000 in Direct PLUS loans at 6.31% APR. You only make $35,000 a year.

On the 10-year Standard Repayment Plan, you would pay back a total of $101,280. On the other hand, you would pay back even more under REPAYE — $107,639 — and have $67,345 in debt forgiven at the end of the repayment term. However, that would be considered taxable income.

The best deal appears to be with PAYE, where you would pay back only $71,171 and receive forgiveness in the amount of $79,829. Not bad! However, according to IRS tax code, you will be on the hook for taxes based on the $79,829 in forgiveness.

Repayment PlanFirst Monthly PaymentLast Monthly PaymentTotal Amount PaidProjected Forgiveness AmountRepayment Period
Standard$798$798$95,753$0120 months
REPAYE$143$681$107,639$49,483300 months
PAYE/IBR For New Borrowers$143$507$71,171$79,829240 months

3. High-Income, High-Debt Borrower

Annual income: $125,000

Student loan debt:

  • $37,000 in Direct Subsidized undergraduate loans at 3.76% APR
  • $113,000 in Direct PLUS loans at an interest rate at 6.31% APR
  • $40,000 in private loans at 7.5% APR
  • Total: $190,000

For borrowers who have a large amount of student loan debt, but also have a high income, income-driven repayment plans are usually not cost-effective.

For the federal student loans under this scenario (more on the private loans below), you would pay back a total of $196,987 on the Standard Repayment Plan. Under REPAYE, you would pay back $236,110 over the course of nearly 15 years and have no debt left over to be forgiven. Repayment under PAYE results in similar numbers.

Both income-driven repayment options fall well short of the repayment term required to receive forgiveness. And you’ll end up paying around $40,000 more over the 15 years of repayment if an income-driven plan is selected over 10-Year Standard repayment.

In this case, let’s consider an additional option: student loan refinancing.

Let’s assume you’re able to refinance all these loans into a new, private loan with a fixed rate of 5.0% APR.

Repayment PlanFirst Monthly PaymentLast Monthly PaymentTotal Amount PaidProjected Forgiveness AmountRepayment Period
Standard$1,642$1,642$196,987$0120 months
REPAYE$893$1,858$236,110$0179 months
PAYE/IBR For New Borrowers$893$1,642$234,895$0181 months
Refinanced federal loans at 5.0%$1,591$1,591$190,918$0120 months

By refinancing, you can save about $6,000 over the life of your federal student loans. But wait! We haven’t factored in the private student loans yet.

Refinancing the $40,000 in private loans at 7.5% down to a rate of 5% would save an additional $6,000 over 10 years, bringing the total savings between federal and private loans to about $12,000 when compared to the Standard Repayment for both federal and private loans.

If you had opted for income-driven plan, refinancing would result in about $50,000 less in total amount repaid than that option.

How much student loan debt do you have?

View Results

Loading ... Loading ...

Refinancing Your Student Loans To Save

As you can see, student loan forgiveness isn’t so simple; income-driven repayment plans that offer student loan forgiveness don’t work for everyone. So rather than blindly pursuing forgiveness, test out the math to make sure you aren’t going to be on the hook for more money overall.

Student loan forgiveness is one of the key items on President Biden's financial reform plan. However, Biden says he plans to forgive only $10,000 in student loan forgiveness.

The $50,000 some Democrats are asking for is way too extreme. After all, people who have huge student loan forgiveness tend to be the upper-middle class.

Related post: The Best Strategy To Get Out Of Debt And Get Happier

Wealth Planning Recommendation

College tuition is now prohibitively expensive if your child doesn't get any grants or scholarships. Therefore, it's important to save and plan for your child's future. Check out Personal Capital's new Planning feature, a free financial tool that allows you to run various financial scenarios to make sure your retirement and child's college savings is on track. They use your real income and expenses to help ensure the scenarios are as realistic as possible.

Personal Capital College Planning Feature

Once you're done inputting your planned saving and timeline, Personal Capital with run thousands of algorithms to suggest what's the best financial path for you. You can then compare two financial scenarios (old one vs. new one) to get a clearer picture. Just link up your accounts.

There's no rewind button in life. Therefore, it's best to plan for your financial future as meticulously as possible and end up with a little too much, than too little! I've been using their free tools since 2012 to analyze my investments and I've seen my net worth skyrocket since.

Personal Capital Retirement Planning Comparison Chart

Refinance your student loans today. Check out Credible, a student loan marketplace that has qualified lenders competing for your business. Credible provides real rates for you to compare so you can lower your interest rate and save. Getting a quote is easy and free. Take advantage of our low interest rate environment today!

Check out my Top Financial Products Page and subscribe to my free newsletter to help you achieve financial freedom sooner, rather than later.

48 thoughts on “How Student Loan Forgiveness Can Cost You A Fortune”

  1. One thing I want you to take a look at. I was in a big debate about this the other day with someone.

    You demonstrated in Scenario 2 that someone with relatively low income compared to very high debt (your ratio of debt to income was pretty close to 2.1:1) can come pretty close to breaking even with PAYE, even after the taxable event on the forgiveness.

    You showed about $71,000 paid over the 20 years with about $80,000 forgiveness. If we assume the top marginal tax bracket of 40% would apply (to be conservative) the tax liability would be abut $32,000. $71,000 + $32,000 = $103,000.

    This is only slightly more than on the standard 10 year repayment plan, but has the advantage of taking 20 years, so when you factor inflation into the mix, the guy doing PAYE is probably coming out ahead of the guy doing the standard repayment plan.

    Anyway, my question is really about Scenario 3. Because that person’s income is so high, they pay too much over the course of the 20 years with the PAYE plan, resulting in insufficient forgiveness to bring the total amount paid down to a decent level. They would be paid off in full before any forgiveness, and eat a lot of interest.

    However, what would happen if the person in Scenario 3 sheltered a lot of their income? They can reduce their AGI, which is what determines payment size under PAYE, by making contributions to tax deferred retirement investments.

    What happens if the guy in scenario 3 is contributing $22,500 per year by maxing out a traditional IRA and a 401(k)? Punch in the student loan interest deduction, and this guy’s AGI is now more like $100,000. What if the guy then buys a house rather than renting, so he now gets the home mortgage interest deduction, and his housing payments serve to further reduce his AGI, which brings down his payments under PAYE? What if he gets married and has kids and his wife earns very little relative to him, further reducing his AGI, and lowering payments?

    If a savvy borrower in the position of the guy in Scenario 3 does this, what happens? I bet there is a point at which they would get loan forgiveness, rather than paying off in full. I also bet there is a point at which the total amount paid (including the tax liability at the end) under the PAYE plan still exceeds the amount paid on a standard plan, but the value of the tax-deferred investments greatly exceeds that difference.

    I would love to see you plot this out with a guy with a ratio similar to the guy in Scenario 2 (2:1), but much higher income (say $195,000 debt but only $100,000 income). Then plot it out with the guy maxing out tax-deferred retirement investments and factoring in the student loan interest deduction. Just those two forms of sheltering your income equal exactly $25,000. Now the guy’s income for the purposes of calculating PAYE payments is actually only $75,000.

    Once the guy gets to the point of $75,000 income (for the purposes of calculating PAYE payments) compared to $195,000 debt, he will pay off substantially less in 20 years, and I bet he will get sizable forgiveness. Add the tax liability for the forgiveness the the total paid over 20 years and see how it compares to a standard plan.

    Then, calculate a reasonable ROI of about 7% for the retirement investments of $22.5k every year over 20 years.

    I want to see who comes out ahead here, the guy on PAYE or the guy doing standard (or extended) payments.

  2. As a Floridian, $50,000 for a starting annual salary is insane! I’ve got friends graduating law school – with high marks – making about that. I have even more friends making $29-34k a year. Even a financial analyst at the Verizon corporate office is making in the low $40’s.

    There is so much competition for any “good” starting job that it’s depressing. I went to school for economics – kept a great GPA and challenged myself academically – and amounted to not even getting interviews for over 500 jobs. I made it a full-time job to apply every day. Writing cover letters and tailoring my resume. I think in total I got like 10 interviews. Most of my interviews came as I lowered my standards down to the $30,000/yr jobs.

    That didn’t stop my $40,000 in loans coming due though. The statistics are overblown. For every student and colleague I knew that got a $50,000/yr job, I know 30 that were straight A student’s and another 50 that were A/B students that are making $30,000.

    Maybe it’s just the Florida market, but I always laugh when I see “students are doing well and making $50,000!”

    1. Wow, that’s crazy, but now I don’t feel so bad. I relocated to NYC from Philadelphia in 1996, and was making 50K then, with continued prospects to grow that number, and I did. Now with an MBA and undergrad in Engineering, many jobs are 45K with barely any benefits. After paying for healthcare, you’re left with bringing home a few hundred bucks a week. It seems that big venture capital money is driving down the wages, with a disregard to experience. The larger companies simply play a waiting game, leaving positions open for years. I was lucky I figured out a way for my employers to pay for both my degrees. That could be the smartest financial move of my life.

  3. It would be interesting to see a poll with the 5 categories of:
    1. The Average Borrower
    2. Low-Income, High-Debt Borrower
    3. Low-Income, Low-Debt Borrower
    4. High-Income, High-Debt Borrower
    5. High-Income, Low-Debt Borrower

    And Include defined definitions with each

  4. As an Australian, I think that the Australian system is a fair balance between not being free and not being completely insane. In undergrad, everyone is commonwealth supported, so you pay a maximum of ~$10,000AUD a year (~$6,000 for liberal arts, ~$9,000 for science and engineering, $10,000 for medicine and commerce) for the three year degree which is deferred on an income contingent loan indexed to inflation that you only repay when you exceed a reasonable threshold on your income (around ~$55,000 a year). When/If you decide to do a masters, they are largely full fee which means the uni can charge what they want (usually around $30,000 a year) but they reserve places for the best academically and minorities. It’s all run through the same program, so even if you pay full fee there still isn’t the stress of the loan growing in real terms.

  5. I consolidated my loans and am taking advantage of IBR. Before I got serious about changing my finances, I just assumed they’d be around forever. Now that I’m working on increasing my income, I think I’ll be able to pay them off without having the forgiveness/tax bill problem.

  6. “I’m hoping by the time my kids go to college in 20 years, tuition will be free or highly subsidized, just like it is in Europe, Asia, Canada, and the rest of the world. It’s fun to have someone else pay!”

    That is only going to work if access is severely restricted, which would require a very serious cultural and academic shift. I honestly can’t see it working.

  7. This is a really insightful post. Thank you for highlighting the different scenarios and the actual numbers behind them. I didn’t know there were these many choices either.

    Student Loan Hero has some great content and is developing a nice portfolio of different lenders consumers can choose from to refinance.

  8. Cave.CanemX

    Beautiful, beautiful post! Dead on w/ every detail and options!

    I, for myself, have ~$180,000 in med school loans. With a salary of ~$415,000 – $450,000/yr, I’ve decided to allot $3,300/mo and should have all of my loans paid off in 4.5 years. I know… I know… I can should definitely be able to pay down a lot more than $3,300/mo w/ the aforementioned income. However, I max out my employer 401K, max out my ROTH IRA via a backdoor conversion, I put $25,000 into a high-yield savings account w/ Ally at 1% APY (not the best, I know), another $33,000 into a house-fund as I want to purchase my first home in about 2 years w/ $100,000 down (relatively average mortgage of $250,000 to later fix and convert into a rental property; or purchase a couple of cheap fixer uppers, remodel them, and rent them out), and, and the rest to clear up different common day debts (i.e, two cars purchased during the last year of my residency earlier this year which should be paid off by March of next year, and credit cards). Refinancing is not the best option for me as the vast majority of my loans except for two are have an APR of 2.4%… the other two are 6.8%.

    I figured I can speed up the payoff process once I pay off both vehicles by allotting my current car payments to my student loans come March, but we’ll definitely have to see. I’m currently trying to keep my current lifestyle at a modest level, living off of $90,000/yr… I want to continue this lifestyle until I pay all of my student loans off, and thereafter.

    1. Very good idea. You’ll be pleased in a couple of years when all the effort pays off. Live below your means and invest the extra, it opens up so many options. Very hard to do when every car in the physician parking lot is a Maserati or tesla.

      1. Cave.CanemX

        I concur! No need to hold those fancy cars… I bought my queen a Ford Escape and myself a Nissan Maxima… No need for anything fancier.

      1. Darlyn J Victor

        I can imagine! I’m actually interested in starting a blog where I timeline my student loan payoff. I have to read your post regarding that… Planning to do so this wknd!

  9. Financial Panther

    I really think any high income earner would do well to refinance their student loans unless they are somehow working in a field in which they get loan forgiveness (which isn’t likely if you are a high income earner).

    I graduated law school with $87k of student loans. Foolishly, I didn’t know about refinancing, so I spent a year paying 6.8% to 7.9% interest on that. Once I learned about refinancing, I got the rate down to 4.3%. Then I learned about variable interest rates and refinanced it again all the way down to 1.93%. As interest rates started to climb, the variable rate reached a high of 2.17% before I decided to just pay it all of at once.

    My fiance is looking at $131k of dental school student loans, all sitting at between 5% and 8%. She’s still in residency, so refinancing options are limited, but we did recently discover a few student loan refinancing companies that are willing to refinance student loans while still in residency. Of course, being lazy, we still haven’t gotten around to refinancing the dental school loans!

    1. I’m surprised student loans are still at 5%+ in this interest rate environment. I was paying around 3% back in 2006-2008. Got to refinance! 8% is nuts when the risk free rate is ~1.75%.

  10. Jack Catchem

    I’ve always despised the mantra of “more education for everyone, and make it free!” Most people don’t need more education and the crippling debt load doesn’t help them either. The predatory tactics of Trump University, ITT, etc.

    By all means, subsidize the best and brightest, but too many students these days are sold a dream and graduate into a long term debt they won’t be able to pay off.

    Here’s a fun idea: make the public universities close to free and jack up the entrance requirements. Bring back the days when a degree meant something! Many of my peers expect a degree as a birthright instead of something scrabbled for and earned.

  11. Timely post.
    Looking at just the debate last night I have to side with hillary’s plan. Debt free for families making <125k.
    With that deal out there universities will have no incentive whatsoever to cap tuition. Public Pre-paid plans will be a boon. Value will go up based upon the inflated tuition for included public schools vs. nicer private schools so you can roll over the value to a more expensive private institution (at least in my states plan) on the back of state tax payers. I plan to be retired by that time so should easily be able to keep income less than 125k for a couple of years. Add in minority status for my kids based on my wife's ancestry and Harvard here we come!
    Or just cash out when your kids 17 and all you lose is taxes on your gain.
    Alternatively could buy off campus housing and "rent" it to your kid with a guaranteed good tenant for 4 years at whatever level the school predicts for housing costs since you won't need the money for tuition. You can almost guarantee rents are going to go up with all that government money sloshing around university towns…not paying for college? might as well splurge on a nicer pad right?
    The worst thing that could happen is you pay taxes on whatever gain you don't spend on "education" after enjoying a huge profit curtesy of the federal government intervention backed by the state governments guarantee not to lose money. What's the general risk free rate of return right now? I'm starting to like Hillary more and more.
    She's gonna get those rich families making 150k plus!!! Families making 500-1M….not so much so.

    1. I need to look more into Hillary’s plan given she will be President for the next four years.

      Are you saying I’ve now got to get my income down to under $125,000 in 20 years? Hmmmm. Can you have a $124,000 income and a $20 million net worth and still qualify for free tuition? With Obamacare, you can be a multi-millionaire and still qualify for subsidies if your income is low enough.

      1. Plan is vague but only mention is income of 125k (starts at 80k goes up each year to 125k by 2021 I think). My guess is yes they exclude net worth or California/new York would revolt due to property value in net worth.
        Can you imagine? That’s a lot of value in a pre-paid plan that you can transfer as certainly universities will ramp tuition, they won’t stomp on their indoctrination centers.
        Public university B.S will become the new high school diploma. Rich people that paid cash for a transferable pre-paid education can move that value to a private university or cash out the gain and pay for now “required to get a job” masters degree/professional training.
        It’s a win, I’m buying in this year. Hillary will certainly win and I see good odds of this getting done.

  12. The Green Swan

    College tuition has gotten ridiculous! We’ve started a 529 plan for my son and to calculate what the expected tuition cost will be in 13 years is crazy. Fortunately neither I or my wife left school with any loans. We want to provide that same for our kids, while still teaching them the importance of working and saving.

  13. I’m in my second year of a physical therapy school and trying to come out with less than 60k in loans and the average rate will probably be about 6%. I did a quick write up and apart from flexibility, really the only way the IBR plans are advantageous is if you invest every penny that would traditionally go to the loans. What is interesting is that IBR is based off of AGI. It looks like there is a sweet spot between a salary of around 45-70k where a person can lower their gross income enough via tax-deferred accounts to really benefit from IBR.

    Also, it’s very hard to imagine that the remaining balance won’t be truly forgiven 20 years from now. At that point, the government will almost certainly have broken even or made a profit anyway.

    1. You make a good point about what will happen in 20 years. The government could easily change the rules again as the power shifts. We all know they will be raising the age of retirement to collect Social Security, for example.

      Meanwhile, the estate tax / death tax figure is always changing.

  14. I build a spreadsheet comparing our options for PSLF versus private refinancing for my girlfriend’s $124,000 of med school debt. She used forbearance for about 6 months and consolidated after 4 years of residency before meeting me, so her PSLF clock actually would’ve been 7.5 years. Since she missed out on the residency payment credits towards PSLF, I found we could actually save thousands by refinancing into a 2.2% five year variable rate

  15. College is too expensive for what you get, period. Part of that problem is because loans are “easy money” and colleges, both non profit and for profit, are happy to take advantage of all the “free money” their students have access to by continuously increasing tuition so they can build more buildings and parking garages and sports stadiums named after alums, in addition to paying their presidents 7-8 figures a year on top of all those 6 figure consultants.I work in fundraising and I see this first hand.

    I think the fed and state governments should be more stringent in what schools they give loans to based on, like say tieing the loan and grant aid to a school’s rising tuition costs (if tuition goes up too much, they lose out). In addition, if a school can’t even provide a full ride to their qualified scholarship students (NYU for example doesn’t provide 100% room and board with full tuition scholarships) then they should lose out on federal aid too. NYU has no problem having a huge student population that is taking out $40k a year in loans in liberal arts and that is sickening.

    There are some fields that are low pay and require a master’s degree (social work and psychology for ecample) so I do feel there should be IBR for people in those types of careers. But I also think that there are plenty of majors out there that almost should have limits on how much loans can be provided– ie, no more than Xx of tuition for people in xx majors can be paid by loans (and that would be based on average after-graduation salaries of xx majors). I know all this would be hard to implement and most libertarians would disagree with me but the current system is broken and something has to change.

      1. I also agree. I think the cost of higher education is one of the most absurd issues faced in personal finance. It’s hard to know how much to save in a 529 plan for a child because it is so hard to believe that the cost of college is going to continue to out pace inflation by such a large margin. As a parent, there’s no way I’ll let my child end up with a huge student loan burden (to the extent I can influence this decision). Given the terrible state of things, my position is that we should fully extinguish our own student loans before having children (meaning eat ramen noodles and live with roommates if that’s what it takes), contribute as much as possible to a 529 plan once a child is born, and then help a child make a smart decision about what college to attend and what career path to pursue. I think it is insane that we let 18-year-olds take on so much debt (but they can’t legally drink).

  16. Very interesting. My undergrad and law school loans totaled $90,000 but most of my peers had much higher debt. I went to a state U for undergrad and worked full-time while attending law school part time. And fortunately I was able to consolidate and get ultra low rates at the time. Many of my colleagues have well over $100,000 in debt. I work for the state and believe that the public service loan forgiveness program is available but it didn’t make sense when I did the calculation. My wife and I combined had an income of about $90k (in NYC) and based on the IBR, I’d be pretty much paying the full standard payment so there wouldn’t be much to forgive.

    1. Nice job working FT and attending law school PT. That sounds NUTS actually, more nuts than me going to b-school FT since it’s all about getting excellent grades in law school right? In b-school, all I needed was a B- or better as there is no grade disclosure at Berkeley and many other schools.

      Have you considered hopping to Big Law to make the big bucks?

      I love going to a cheaper state school and ending up in the same company as those who went to a more expensive private school. Feels like getting a great deal every paycheck!

      1. Big Law tends to hire from top tier schools with grads who have excellent grades and were on Law Review, etc, etc. I was a B student in an okay school so there’s no way I could have gotten into Big Law. Not sure my grades would have been good enough even if I went full time so I’m glad I didn’t. I ended up in government which has much better work life balance. That works better for me since I have a family. I wish there was a cheaper state school for law school near me.

        1. Ah, gotcha. Are you happy with your career choice so far? I’ve met a lot of people who went to law school who decided not to pursue a career in law. So it’s great you’re actually doing what you studied!

          1. When I first graduated making $60k with $90k debt I wasn’t too happy. Plus I wasn’t sure I really wanted to practice law but I somewhat enjoy the job I have and my salary has increased over time. Plus the benefits are great…the pension is a bit of a golden handcuff though. If I wanted to leave early there is a significant penalty.

      2. Sam can you elaborate on how the mom grade disclosure works? I thought big banks and consulting firms who are big on grades would want to see your grades so how would doing this non disclosure of your grades work?

        Considering an MBA in a couple years as I close in on 26 so any insight would be appreciated. I got into Berkeley for my phd in electrical engineering so I doubt I will have much issue getting into haas, but never heard anything about this so interesting concept.

  17. It’s crazy how much student debt people end up with these days. I’m from Canada and I remember paying something like $5,000 for my BSC (about 20 years ago) and about $20,000 for my MBA a little over 10 years ago. I just checked and it now costs about $40,000 to get an MBA at my old school. I’m not sure Canada is as good as it used to be with regards to subsidized education.

    My plan for my kids is to take advantage of all the government sponsored education savings plans over here so that they hopefully don’t wind up with much debt. My kids are 6 and 8 years-old and I’ve so far been able to save about $5,000 a year for their education. For that effort the federal and provincial governments over here have given me about $10,000 in free money over the last seven years.

    I also have a British passport and sometimes think about a crazy plan to try and get my kids resident status in the UK or Europe (Brexit might thwart this) and consider having them do their university education over there. Imagine you have $100,000 in money saved up for university and then the tuition ends up being free. What a great start versus $100,000 in debt.

    1. $40,000 in tuition for a Canadian MBA now? Sounds expensive! Does the top Canadian MBA carry as much weight in Canada as the top MBA programs in the US?

      In general, MBA degrees have unfortunately lost its luster. Time for us to get PhDs now to do menial jobs!

      My parents were very wise and frugal to save up aggressively and invest for my college education when they worked overseas. When I decided to go to public school for $2,800 a year there was plenty left over.

      1. I’m pretty sure the top US schools carry more weight. I don’t think a Canadian would turn down Harvard if they had the chance. Looks like 80-90% of grads from the top schools here earn around 90K starting salary.

  18. The only forgiveness when I was in b school was to go into public service. Interesting that they have options that can replicate so much of your debt now. Call me old school, or just old, but I still believe in paying back the money I borrow. Like all types of socialism, when politicians are involved sooner or later you run out of other people’s money.

    That said, I was very fortunate in my timing for grad school and was able to consolidate my student loans at a flat, fixed 2%, so my mortgage is more attractive for any additional payments reach month.

    1. I would love to have some Socialism come my way too while I had student loan debt. I still have mortgage debt, so maybe there will be a mortgage forgiveness program too! That would be sweet. Then free college education for all in 20 years and life will be peachy!

      I remember paying like 2.8% – 3.2% or something back in 2004-2008 after refinancing. It was cheep, but it was annoying debt. I couldn’t deduct the interest either due to income threshold levels. Interesting how rates were so low then.

  19. We refinanced 200K of dental school loans last year. The interest rate went from 6.8 and 7.5 percent to 4 percent variable, though it has since risen some. We are planning to pay it off in another ~3 years, hopefully before interest rates rise too much. Not sure what we’ll do if they do rise more rapidly – a combination of re-refinance and prioritize to pay them off faster I suppose. It was really easy to refinance and I highly recommend it. We are saving gobs in interest.

    1. Wow, $200,000 is so much student loan debt. But hopefully, your incomes as dentists will be high as well.

      I think it’s great you guys refinanced down to 4% variable and plan to pay it off so soon. It felt incredible paying off my b-school debt. Like a nagging burden off my shoulders. So worth it!

      1. It definitely isn’t uncommon for $200K+ student loans when it comes to the health field. I finished pharmacy school from USC a few years ago and was close to the $200K mark. And that was living frugally at home with my parents, and working a part-time job. I ran the numbers and knew “high income + high debt” didn’t make sense for Loan Forgiveness, so I consolidated to a low rate and am paying it off in <10 years. I know many MDs/Dentists with student loans in the $300K+ range. Talk about being a slave to debt…. ouch

    2. Feel your pain. Have paid down an original balance of $300k to $225k (in 2 years) and plan to pay off the remaining balance next year due to bonus income and sale of our house.

      Funny thing is that we feel fortunate to be able to pay this off at all. In reality I don’t even want to think what we could have done with that $300k. I suppose an ivy league private education is what allows my wife to make the money she does, but still, the loans sting.

  20. Fascinating insights and examples. None of these fancy options were available when I had student loans either. It’s helpful to see the various scenarios above since there there are multiple ways grads can choose to tackle their loans and there is no one size fits all. Factoring in income is a huge part of the equation and also refinancing when opportunities present themselves like right now before rates climb higher.

    It’s pretty nuts to think about how much higher education is going to cost 10, 20 years from now. But perhaps there will be even more options for student loan forgiveness by then!

  21. I do believe college education is heading for a reduced price model in the future. I actually posted on it a few weeks ago but to note it here a few options are already popping up. You can get an masters in computer science online from Georgia tech for instate tuition prices. The degree is indistinguishable from a regular degree. Other institutions are flirting with similar ideas, ultimately it seems like the only logical conclusion to programs like open Yale..

    1. Jack Catchem

      I’ve attended UCLA and got a Masters in Criminology online through the University of Cincinnati. Both are great institutions, but I firmly believe people put too much emphasis on the distance learning model. It’s an intruiging concept to release Yale courses online, but 1) students are unlikely to complete all courses or take as much away from an in person lecture and 2) what employer is going to take a “oh I self educated at Yale Online” seriously.

      The best trick I ever learned in college was to sit in the front row and ask one question per class. The online courses do not allow you to be as involved and interactive with the material. I fear a death of learning.

      1. I think the key here is its indistinguishable to the employer. I took a few online classes towards my MBA though it was not an online program and most of the classes were in person. The model was you came in for the tests. Frankly given how many kids skip lectures these days I’m not sure there is much difference between the two so long as you can ensure no cheating and your willing to give up networking. The kid in front of the class asking questions these days is a rarity per my father in law who retired a professor from a state school after 35 yrs last may.

        1. Jack Catchem

          For better or worse, I did stand out!

          The most dynamic course I ever took was a small 12 student seminar section. The professor (former Ivy League) taught in the truest Socratic method and lit our brains afire with rapid questions. Not par for today’s course at all, but it was amazing learning.

  22. PatientWealthBuilder

    Totally agree that now is a good time to refinance student loans. Now is a good time to refinance anything!

Leave a Comment

Your email address will not be published. Required fields are marked *