Ok, so we’ve all heard my rant about student loans, if you haven’t I will save you the irritation and self-loathing.
I think for those military people with loads of student loans though, this is a pretty relevant topic. If you don’t like math, I apologize, you should probably just run now.
To IBR or not to IBR?
Ok, IBR or the Income Based Repayment plan passed by Obama in 2009 caps your student loan payments at a specific percentage of your income. After 25 years of payment (OMFG, I know…) whatever is left just magically disappears. Tada! This sounds fantastic doesn’t it?
Major Downfalls: Interest capitalizes and compounds and then capitalizes again. Basically, they take whatever you’ve gained in interest and add it to the loan and then take the whole loan (plus your interest) and smack it with interest again. NOW//caveat… my calculator that I found hidden on the Sallie Mae website seriously claims that JoJo (keep reading) will not have any capitalized interest. It also says that she and the DH basically paying interest only on their student loans and then they’re forgiving a bunch. You’re making payments for 25 effing years (again, OMFGWTFBBQ…). You have to actually fill out insane amounts of paperwork and face your student loan debt (super sad face and sobbing). You don’t actually know what your payment is going to be, it’s based off your income and will change yearly. Translation: If you land some super killer job, you probably need to stop doing the IBR plan and just pay those godforsaken things off. I am NOT a finance person so this could be a little skewed but seriously…
BONUSes: Your payments are ridiculously low assuming you make crap for money, and let’s be serious… us military wives… we don’t make bank. Hell, half of us don’t even work. If you make good money one year and then crappy money the next year, your payments go down with your pay. You can actually have a payment of less than $5. If your payment is less than $5, they assume your payment is 0. It’s only 300 payments (EEK).
Ok, so lets talk “hypotheticals” and we’ll do this in military terms because it’s easier for most of us to understand.
Airman Jones & his wife Mrs. JoJo (SEE!) Jones have a combined “Loan Portfolio” of 126,905… give or take 5k (at this point, does it even matter??). Amn Bob is ridiculously overqualified for his Amn job and is ridiculously over-educated (see Master’s degree). Do you see the tie in here? hah. Anyway, so Amn Jones’s intelligent wife JoJo is planning for student loan repayment and is freaking out. JoJo’s loans are 45k and Amn Jones’s loans are 82K. Yeah, holy crap I know. They get crap for pay and she is in serious need of a career or a surrogate ability that pays 50k, but that wouldn’t even pay off the loans. They basically bought a nice house with their education but can’t live in it. The economy sucks so bad that they aren’t possibly the only people in this situation.
Anyway, according to Mr. Sallie Mae (i hate you) Loan Repayment Calculator, JoJo’s initial monthly payment is less than 100 bucks. Now assume JoJo becomes a SAHM or takes a lower paying job, or a similar one that only gets a 2% raise a year… her maximum payment would be 95 bucks. Now, Amn Jones (who won’t be an AMN forever)’s payment starts around 162/month. The estimated total payments for JoJo is 27,798. Even if JoJo gets a job that makes more than that at some point, she has 44K in student loans. Now Amn Jones has 82K in student loans and will most likely pay back somewhere in the ballpark of 54K. Even if Amn Jones becomes 2LT Jones, he still owes 82k now. Over the course of 20 years paying that crap off, he’ll probably owe about 120k. Total loan forgiveness in this fun little scenario… 187,680.
If you have 20k in student loans, this is obviously not going to be able to help you.
Give me 3 good reasons why Airman and Mrs Jones shouldn’t be in an IBR plan?
Now, the situation is pretty hypothetical but in all honesty, I’m probably going to be making student loan payments for 30 years anyway. Once you have over X amount, they let you do an extended repayment. This is basically a kinda high insurance payment for the next 30 years instead of 25 and I’d be paying more… I think. I think it’s about time to call the evil sallie mae company and ask them… hopefully I will get someone who can actually answer questions. I’m tempted to call direct loans instead, their customer service is much better.
An option for avoiding extremely high school debt is to take degree courses online. Tuition is less expensive and online classes give you the freedom to carry on your day-to-day life.