Shall I wait for forgiveness or pay off my student loans?

At some point, all of us are in a dilemma regarding student loan repayment. Do we wait for forgiveness or do we extensively repay our loans off?

Updated by Chinmoy Dutta on 22nd July 2020

Federal student loan has one of the biggest perks. Federal student loans may qualify for forgiveness. The most common forms of student loan forgiveness are through the Public Service Loan Forgiveness program or forgiveness as a part of an Income-based repayment such as IBR or REPAYE

Student loan forgiveness programs consist of certain risks. Let’s check out the risks of waiting or chasing student loan forgiveness and find out what is the best option one can find.

It should be noted that are a number of jobs available to help get your loans forgiven. Having an in-depth understanding of the various student loan forgiveness jobs out there is crucial to see if your job can get your loans forgiven.

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Do we chase forgiveness?

We would not recommend chasing student loan forgiveness because no one can predict what is gonna happen in the future. Meaning, if you are in public service and you are hoping to apply for public service loan forgiveness,  there is a chance you might not be able to stay in public service for the required 10 years. Again say you are on an income-based repayment plan, and you get a good raise, your monthly income might increase. Then by the end of 20-25 years, there might not be any amount remaining to be forgiven.

It might also so happen that the government could put brakes on these programs - they might be discontinued. However, it would require an act of Congress and the President’s approval to discontinue these programs. Existing participants might be considered even if the plans are scrapped, but one cannot be sure about these.

Another point that people seem to ignore is that depending on the amount of loan, they may spend more chasing for forgiveness than they would have if they paid off their loans.

What if we don’t wait for forgiveness?

Just as chasing forgiveness is considered dangerous, it might be considered foolish to not wait for forgiveness at all. If you happen to choose the wrong repayment plans, you might end up in a situation where you end up paying more than it is actually required. Not waiting might be devastating for your budget as aggressive payments might disrupt your lifestyle. Aggressive repayment amounts can lead to spending very less for yourself or it could be better spent on retirement or a house and you don’t want to miss out on that opportunity.

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What do we do then?

Going through the above possibilities, we can suggest that anyone should avoid the extremities unless they are specifically boosted by the extremities. We suggest that you find a middle ground for the two above.

There are many risks with whatever option you choose. So first calculate and make a financial plan for yourself. Check about the options you can pursue. Putting out all the plans together and calculating for each plan while keeping your future in mind. This should show what is the best option available for you.

If you are unable to figure out the math then go for the middle ground. With the lenders, you can act like you are chasing for forgiveness. Pay the minimum repayments, get enrolled in the forgiveness programs, and keep the paperwork properly. In this way, you are just making sure you have the option. With your personal finances, act for aggressive payments, however, save the extra money in a bank account that you will never touch.

If at a later stage, you are not applying for forgiveness, you will find the extra amount in the untouched amount to pay off your debts. Or if you are going for forgiveness you can use that money for tax consequences once your loan is forgiven.

The only downside of this approach is the loss of interest earned by the extra money sitting in your account. The amount of interest earned by that money is very less and is almost nothing when compared to student loan interests. This can be considered as money well spent in case you do not know which of the side you want to choose - aggressive repayment or chasing forgiveness.