Your Guide on How to Pay Off $50,000 in Student Loans
It takes courage to be willing to tackle a large amount of student loan. But no matter how intimidating it is, there are ways to make repayments that works for your lifestyle, too.
Every situation is different, so below are three common scenarios, plus a suggested strategy on how to pay off $50,000 in student loans while still meeting other financial goals. The estimates assume a family size of one and a 5.3% interest rate on your student loan.
Scenario 1: You owe $50,000 or less and you can afford the payments.
Pay it off quickly. The less interest accumulates, the more money you save. Go for the Standard Repayment Plan if you are paying off a federal loan. With this plan, you pay a fixed amount for up to 10 years. The size of your loan determines the monthly repayments. For example, if you earn $50,000 annually and the loan is the same amount with an interest rate of 5.3%, you need to pay $538 monthly and the student loan will be cleared in 10 years!
Scenario 2: You owe $50,000 or less and are employed in public service.
A public service job is defined as any position for the government or a non-profit organization. If you have this kind of job and work over 30 hours weekly, you can qualify for Public Service Loan Forgiveness. Pay your student loan consistently for 10 years and the rest of it will be forgiven.
There are four types of Federal Repayment Plans that are adjusted based on your income: income-based, income-contingent, pay-as-you-earn, or revised pay-as-you-earn. Paying small monthly amounts is ideal since paying more monthly does not have any reward.
Choose the last option as it caps the payments at 10% of your income. For example, if you earn $25,000 annually and the interest rate is 5.3%, your payment with a Revised Pay-As-You-Earn repayment plan will start at $60 a month. It will increase as your income increases, too.
Scenario 3:You owe $50,000 or less and are struggling with your repayments.
Go for larger payments with the four-income driven repayment option. This means a shorter repayment period with less interest over time. The two most useful income-driven options because of the large monthly payments are the income-based repayment plan and the income-contingent repayment plan.
The former has fixed monthly payments of 10% of your income, meaning, if you make $25,000 annually, you pay $60 monthly. The latter has fixed monthly payments at 20% of your discretionary income or what you pay on a fixed repayment plan in a 12-year term that is adjusted for income. For example, if your income per year is $25,000, your monthly due is $219. Your remaining balance may be forgiven after 25 years.
Evaluate your situation and find which option works best for you. No matter how large your student loan seems to be, there is always a way to dissolve it. The most important part is that you start today.