32yo. Currently, I have $211,304.16 student loan debt (interest included, all federal) with income of about $42-50,000 annually or $3,500-$4,166 monthly (it fluctuates higher and lower due to being a 1099). No other debt other than my car.
Constant fixed monthly expenses (varies seasonally and yearly, but this is an approximate): $1,600
Savings: $30,000
Initially, I wanted to pay off the loans as fast as possible to have them gone and reduce the cost over the long run, but I don’t even know if that’s an option anymore. I’m blessed to live at home, which helps my mom and I and keeps expenses low. I had planned out a detailed 10 year repayment under SAVE Plan where I’d pay it all off without any forgiveness because the lack of accruing interest. Life circumstances have been turned upside down the last few years. So, I had not been able to start payments and imagining the (lack-of) future with SAVE, I’ve been saving rather than paying on them (to put toward the loans, bolster emergency funds, and start planning retirement, which hasn’t been started yet, either).
During SAVE, my plan was initially the snowball method: pay off the smallest loans, then move any of their payments onto the other larger loans to pay them down. My smallest loan is $1,700 and the largest is $24,000. Majority are 6-7% interest rate with some 3.4-4.66%
Tonight, I calculated accruing interest and got very disheartened. I find myself asking: Is it still a good strategy to put all my effort into paying off the debt? Or with this debt to income ratio is it a better financial choice to pay the least and funnel excess to savings/retirement accounts?
Has anyone been in a similar situation? What was your strategy/what worked for you?
Realistic repayment strategy for student loans with high debt to income ratio
byu/ApprehensiveKey9340 inpersonalfinance
Posted by ApprehensiveKey9340
4 Comments
If your savings account rate is lower than the student loan interest rate, then use some of the Savings account $ to pay the loan down but still leave at least $5K or whatever you feel comfortable with for an Emergency Fund.
I’m going to ask the tough question that’s key to really solving your problem: Why do you have so little income? You paid a lot for your degree, why doesn’t it get you a good job?
The corollary is that you should be able to make a lot more money, either by switching jobs or adding a second job. You’re totally right that you’re in an impossible position right now, but the math won’t math unless you make more.
You should stop paying into retirement until you get these loans to manageable levels. Anything you have saved past 3-6 months emergency savings should be thrown on your debt. And all extra money moving forward should go to debt once you have a small savings account to fall back on if needed. Also, I’d be looking to increase income asap
I may be wrong – but I don’t think you have an easy way out. Student loans are not dismissible in bankruptcy and you’re far offsides in the income-to-debt ratio. Use any federal program to minimize your fed loan payments or pursue any available deferment. Build a 3-6 month emergency fund (all mandatory expenses for 3-6 months in savings), then pay into your highest interest rate loans aggressively. Cut costs aggressively – you mentioned family being a reason for low income and I suggest living with them if you aren’t already. Do not consider paying into retirement UNLESS you get a free employer match or you have no 5%+ loans remaining. If interest rates drop, refinance anything you can to a lower interest rate. Find a way to make more as soon as possible, otherwise you will never get out from beneath this.