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Strategies for Lower Payments

By Kari Santos | Dec. 2, 2014

Law Office Management

Dec. 2, 2014

Strategies for Lower Payments

The federal government now offers borrowers several ways to cope with repayment

Working in the public sector or for a nonprofit, you may qualify for the best overall terms under Public Service Loan Forgiveness. After ten years, any remaining debt and accrued interest may be discharged, tax-free.

Once you're enrolled in that program, your best strategy is to arrange for your payments to be calculated using Pay As You Earn (PAYE) because it requires the lowest monthly payments.

As a private-sector employee, you can limit your student debt burden in four basic ways:

1) Avoid taking forbearance or deferring payments because interest will continue to accrue and PAYE makes it less useful.

2) Any time your income or obligations change, reevaluate your repayment plan.

3) Research payment plans, trying your best to find a way to pay off your debt within ten years, starting with loans that carry the highest interest rates. This is by far your cheapest option overall.

4) If there's no way you can make the payments required on a standard ten-year plan, enroll in a reduced-payment program:

PAYE requires the lowest payments (minimum 10 percent of adjusted gross income). But it also could leave you with the biggest income-tax bill at the end when your remaining principal and interest are forgiven.

Income-Based Repayment (IBR) requires minimum installments of 15 percent of income, which forces you to pay down your loans slightly faster. Still, you'll potentially face a large income-tax bill on the amount forgiven.

Under any income-based repayment plan, you may be able to lower your adjusted gross income - and thereby your minimum monthly payments - by taking these steps:
-File your income taxes separately from your spouse.
-Contribute to a Roth IRA.
-Contribute pretax earnings to a health savings account. -N.M.

For more information, see the Department of Education's repayment estimator at to calculate how much you will owe based on your current loan and salary.


Kari Santos

Daily Journal Staff Writer

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