I am a chiropractor who just graduated with $300k of student loans with an average interest rate of 7.5%. Between friends, family, and the internet we are torn on how to manage this debt. I have a starting salary of 80k but within 3 years expect to be making over $120k. My wife makes just over 100 and we can comfortably afford all our expenses on her salary, putting us in a possible position to pay off the loans aggressively with my full salary alone.
The options we have been considering are:
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Aggressively repaying over the course of 6-7 years maximum using 100% of my salary (do we refinance if we choose this option?)
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Use IDR in whatever form it exists after PAYE over the next 20-25 years and deal with the massive tax bomb at the end, but lower payment now.
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Pay it off over 10 years at the default fast rate and put roughly 30% of my salary into investments (long term stocks, real estate, saving for buy into practice)
What should I do with my student loans? I've been getting conflicting advice
byu/zachman327 inStudentLoans
Posted by zachman327
8 Comments
Personally – I gave up
At 7.5% there is little marginal utility in trying to invest while the debt remains. If it were 5% or less the math would be different.
Aiming for 25 year forgiveness at this income level is silly.
Every spare dollar you have should go towards this debt until it is gone.
Pay off aggressively with 100% your salary in 7 years. Hate the idr plan, you’ll pay so much more all together with 25 years of interest and tax bomb. Your interest rate and loan amount are high enough that I would not roll 30% of your income into a market account.
Pay it off as fast as you can so those dollars can be recirculated to high school graduates who will enter college in August
It kind of depends on what you’re comfortable with. Paying on 10 year Standard results in about $430K paid over the life of your loan. Paying even a little more each month cuts that drastically. RAP would result in $360K paid over 30 years with a little under $300K forgiven as a tax bomb (around $460K total paid). IBR is the only other option that will be around long term, and that results in about $200K paid over 20 years with a $550K+ tax bomb (around $300K total paid). For the RAP and IBR estimates, I used a Married Filing Singly tax assumption, so that will increase your household tax liability. Also keep in mind that inflation of salary could easily push the IDR monthly payments higher long term.
Overall, it looks like aggressive repayment is your best option if you can afford to make $4K or more monthly payments or IBR long term.
Paying it off aggressively is certainly your best bet, get it to the point you can refinance it to a lower rate and then switch to making the minimums and investing the rest. Make sure you find *some* limited money to travel and enjoy your health while you have it. Spending 10 years never going on a vacation so you can pay off a debt is going to ruin your relationship even if you both agree on the idea at the outset.
Omg
Rap at your current income (mfs) would include an interest subsidy. Couldn’t you sign up for RAP and make the minimum payments but save extra money and then lump sum payment (make sure the lump sum is applied only to principal) every year or so in order to lower the principal and take advantage of the interest subsidy especially if your income stays between 80-120k?
Paye has an interest subsidy too for up to 3 years (don’t know much about paye). Getting a lower payment now and saving to make a large principal payment after two years might also work as long as the interest isn’t growing.