My student loans are 50k total and I decided to do an extended repayment plan with a very low monthly amount thinking the money saved invested will make it work given my loans interest rates. I was also thinking inflation will make this payment insignificant in 15 years. Am I missing something? It seems like the best option but I am concerned I missed something given how much some others pay, unfortunately.
Extended Repayment Plan
byu/Commercial-Sale-2737 inStudentLoans
Posted by Commercial-Sale-2737
4 Comments
I have a similar balance and I’m thinking the same thing. It’s nice to lock in the lower payment that’s not income based and you can always throw more at it as you earn more.
The con to the extended payment plan is that your payments increased every 2 years and your balance isn’t going to start going down by much for quite a while.
The part that is defeating is if annual interest isn’t paid then by year ten you’ll have made payments equal to the total loan amount and still owe basically the same as you do today.
I agree with the idea of lowering payments, assume inflation will make $50k feel like a small personal loan, and starting investing today.
Look at the standard repayment plan and use that as your benchmark. Invest the difference between the standard payment and the extended plan payment, but also plan on making large semiannual payments to cover the loan interest. Otherwise you’ll have $20k invested and still have $50k in student loans after ten years. Maybe ten years of the student loan interest tax credit will bump you up to $30k invested.
That inflation perspective also is only successful if you’ve doubled your income every 5-7 years. Know the trade offs, plan for failure, hope for success.
Nope. You’re spot on for all the reasons you mentioned. It’s practicality criminal how little love extended graduated repayment plans (EGRPs) get IMO. What happens is people see the “total interest paid” amount when they run their payment options and act like they have to write a check for it tomorrow; they don’t though. You’ve correctly realized and appreciate the time-value of money. You’re taking the long-term view and looking at it in terms of net worth.
Because I’m a nerd, I’ve run the numbers and basically if you can’t repay your loans within 2–3 years, you’re better doing a 20–25 year EGRP.