With a stipend a little over the French minimum wage, about 25 to 30% of my total monthly income goes towards my loans. This obviously doesn’t make me particularly happy, but it’s not going away anytime soon. Learning to live within my means while trying to pay my loans off as soon as possible has proved to be the best remedy against the debt situation (sorry, no miracle remedy). I’ve also studied up a bit on student loans in order to understand the terms of my loans and the possible recourse I have with my student loan servicer. Let’s take a look at my loans:
Current total: $ 34 170 all federal
Monthly payment: $500
Interest rate: 6.55% with capitalization
Repayment period remaining: 7 years
Now, with a little luck and a good postdoctoral contract, I could probably get rid of these in as little as four years. In a worst case scenario, I could also seek out one of the government’s income based repayment options through my servicer. For the distressed borrower, IBR can be a tempting carrot, but, watch out: less financial stress now can lead to big troubles later.
Here’s a few tips for the Weary Borrower:
1. Forbearance and Income Based Payment Plans are a trap.
In the above information about my loans, you’ll notice the part “with capitalization” under the interest rate. That means that unpaid interest is added back to your principal, even during in-school periods for unsubsidized loans. And then you pay interest on your interest … on your interest… Don’t put off payments unless you have no choice. This cost me quite a bit of money early on with my loans.
2. Public service loan forgiveness isn’t forgiven by the IRS.
After 10 years in public service and 120 qualifying payments, you can say goodbye to debt. The amount forgiven then counts as taxable income. Cadeau!
3. Alternative economy: think about loans from family and friends
If you have a network of friends and family with stable incomes, think about borrowing the money that you owe in student loans and paying it back (with lower interest) to the people you know and love. It’s a good deal for you since it lowers your interest rate and a good deal for them, 2.5 to 3.5% is still interesting compared to a savings account at a big bank. Just a caveat, be careful when borrowing money from elderly relatives, long term investments are not a good deal for people over a certain age for medical reasons. In case of an emergency, you don’t want to be caught scrambling to pay back a loan when a loved one needs hospital or assisted living care. In this case, don’t borrow more than you can pay off immediately with emergency funds.
I’ll keep you updated on my progress, though it won’t be fast. I’m more of a student loan turtle than a rabbit.
Until next time, au revoir.