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Switch from IBR to Extended Fixed?

Started by feltstein, October 14, 2019, 03:17:05 pm

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feltstein

I've been on the Income-Based Repayment Plan for about 9 years.  Because my income has been low, my payments didn't even apply to the principal until about a year ago (in fact, the interest on my original principal raised my balance so that I now owe more than I borrowed, despite having made monthly payments for 9 years).  My balance is roughly $50,000.  I just re-certified my IBR and the new payment is going up substantially, $200 higher/month than it would be on an Extended Fixed payment plan.  If I switch to the Extended Fixed plan, my payments would be more affordable and would never change, but the last 9 years of payments would effectively have been wasted.  The Extended Fixed plan doesn't allow for forgiveness, so I would basically be starting over on my loan repayment.  Is this a good idea?  I can't particularly afford to pay the higher amount on the IBR plan, but it seems absurd to just start over and have to spend another 25-30 years paying on a loan I've already been paying for 9 years with no possibility of forgiveness.  Any advice would be appreciated.

TheCollegeInvestor


feltstein

I work for a small private sector business. 

TheCollegeInvestor

Since you currently don't qualify for PSLF, changing only impacts the timeline.

You can do the math - which pays less over the loan: IBR or Extended. Second, you have to ask yourself how your income will rise over the next decade. Maybe you just pay them off under either plan?

Finally, remember that your situation is exactly the "bet" the government is making. They offer these long income-driven repayment plans because statistically, most people earn more money over time - so they won't see loan forgiveness and in most cases, pay off the loans well in advance.

If your income went up, your IBR payment is still capped at 15% (max) of your discretionary income. Don't let your budget inflate simply because you earn more!

If it was me, I'd stay on IBR since you're going to either pay off the loan, or get forgiveness in (at max), 16 years. Shorter than what you'd have on Extended.