Should You Pay Faster or Pay Less?
As you're preparing to buy a home and figuring out your financial plans, you might wonder, "Should I pay off my student loans faster, or should I pay less each month?" Good question! Let's dig into this. Conventional wisdom often tells us to pay off loans quickly, but that's only sometimes the best choice for everyone. Are there times when it's better to pay less? Absolutely! Here are a couple of essential factors to think about when deciding if you should pay less or pay more quickly: ⚡️Your employer: If you work for a public services organization like a school, university, nonprofit hospital, city, state, or county government, or any other kind of charitable nonprofit, then you could be eligible for Public Service Loan Forgiveness (PSLF). This means you can pay less based on your employment rather than your income. ⚡️Your income: If you earn less than 1.5 times your total student loan debt each year, you might also be an excellent candidate to pay less. For example, this could be if you earn $30,000 a year and owe $45,000 in student loans or if you earn $200,000 and owe $350,000. Even if you work in the private sector, you can still qualify for an income-driven repayment plan based on your debt-to-income ratio. But remember, private-sector loan forgiveness programs are less generous than public-sector ones. You might be making payments for a more extended period and face a "tax bomb" or taxation on the amount forgiven. If you work in the public sector, your student loan debt can be forgiven after 120 on-time qualifying payments, and it's not taxed. Plus, you don't have to make those payments consecutively. So if you leave the public sector and then return, you can pick up where you left off. ⚡️Some critical things for you to think about: Could you keep track of your qualifying payments? You can do this by looking at your student loan data file, or LoanSense can tell you this on your "My Loans" dashboard. Know when you need to file your annual paperwork. This is called your "IDR Anniversary date." Could you make sure to file ahead of this date each year to avoid an increase in your payment? Understand which paperwork you need to file each year. If you're trying to qualify for PSLF, you must file two annual forms - your employer verification form and your IDR renewal paperwork. Know which plan will save you the most money - REPAYE, PAYE, IBR, or ICR. If you're married, determine how filing your taxes will impact student loan payments. Can you file separately and save more money? Paying faster is the right choice if you're in the private sector, have a stable income, and owe less in student loans than you earn in a year. For instance, paying off your loans quickly is a good strategy0,000 a year, and you owe $80,000 in student loans, primarily if you work in the private sector, you earn $10. ⚡️Some questions for you to consider: Can you make larger monthly payments to pay off your loans faster? If you want to pay your loan off quicker, have a stable job, and are close to cutting your payoff timeline to 5 years, have you considered refinancing your loan? Remember, understanding your options is the key to making the best financial decisions. If you have any other questions, feel free to let me know.