I keep reading from a majority of people that they are going to wait until the last possible day to switch to a different plan. I would like to do the same, but worry that it's not a good idea for high earners. On a 15% IBR plan, I will be paying the monthly cap amount since my income is over 100k. Since the monthly cap on IBR is based on the lain balance when you enroll in the plan, doesn't it make more sense to switch ASAP before more interest capitalizes? Or is it better to just start paying the interest until the switch deadline?
What is everyone with a 6 figure income planning to do?
byu/Agreeable_Lie_5091 inStudentLoans
Posted by Agreeable_Lie_5091
6 Comments
That’s what I’m confused about as well with people saying they’re just going to wait last minute to pay. My loans aren’t that high compared to some people and I’ve already have 1k in interest
Just because many are deciding to wait until the last minute to avoid payments as long as possible doesn’t mean that works out best for their loan balances. Anyone who waits until the last minute will continue to have interest accrue daily and their balance will keep increasing.
It comes down to what matters more to you, getting into repayment now for various reasons or holding out as long as possible to remain in forbearance.
Your interest doesn’t capitalize entering IBR but it does if you exit the plan and go to a different plan.
Edited to add: I started repayment a few years ago after I learned SAVE had a higher payment than other repayment plans. I want out from under this loan and so my priority is paying as fast as possible and just buckling down to pay extra.
There’s a difference between waiting until the last minute to switch and waiting until the last minute to start paying.
If the higher monthly payments won’t lead to IDR forgiveness, there’s no point in not making payments while interest continues accruing.
I think you are right in general.
I have hesitated to switch from SAVE because my interest rate isn’t awful (1.875), and I’m concerned that my back door counts are not completely correct (post yesterday).
I also consider whether I should do married filing separately, in which case my income is much lower than your prompt.
I also wonder if I should aggressively save for the tax bomb before switching (I should only have 8-10 payments left.)
Basically decision paralysis.
Pay their loans
My wife and I are lump sum paying off anything over 5% interest, then doing the 25yr graduated extended repayment plan on the remainder. We don’t intend to take that long, but prefer to keep those funds available in case anything happened to my employment rather than bringing down the balance while HYSA delivers a similar return to the interest capitalization.