Paying off loans while in a PhD program and Income-Based Payment Plans

[sdelehan]

Hi All,

I am starting my PhD program this fall and I want to pay off my loans from my masters degree while I am still in school. I owe about $45,000 in total and between my savings, some support from family, and a fairly generous funding package I should be able to afford monthly payments. At the moment I am defaulted in to the standard 10-year repayment plan which comes out to about $500/month. My servicer told me that I would also be eligible for Income-Driven plans such as Pay As You Earn, and I am wondering if anyone could share their experience with plans like PAYE. The most important thing for me is to avoid keeping my loans in deferment while I am in school and having 5-6 years of interest turn an already not fun amount of debt into something really tough. Any one who could share their experiences with paying off debt while in school or with the different payment plans would be doing me a huge help. Thanks in advance!! 

[Horb]

I'm going to give some overall financial advice:

1. Put your loans into deferment (assuming you can make payments while they are in deferment). I recommend this because if you fall on hard times or your family does and can no longer help you out (or need your help!), you can miss "payments" without it affecting your credit. To my knowledge, no loans have a rewards program for paying them off sooner, other than them not making more interest.

2. Build up an emergency fund equal to 6-9 months of expenses. You can do this slowly. For instance, you could pay just the interest on the loans and throw the rest into savings.

3. Once step 2 is accomplished, pay off your loans. Put everything you have towards them. Make them your number on priority.

As for PAYE Plans: they benefit people who can't afford their regular loan payment (you need to pay $300, but only have $100 after all other expenses). The down side is that they usually result in a longer loan and thus a greater accumulation of interest. You can, of course, always pay more and thus reduce the interest, but if you don't have the money to do so, you're just preventing yourself from going into default. 

 

Edited June 19, 2016 by Horb

[Quickmick]

It is my understanding (and experience) that if you are in school full time you don't have to enter to in to a payment agreement to start making payments. You can just start giving them money when you want/can and they will credit your account. As long as you are a full time student you dont (I am pretty sure) have to elect a payment plan at this time.

[Horb]

2 hours ago, Quickmick said:

It is my understanding (and experience) that if you are in school full time you don't have to enter to in to a payment agreement to start making payments. You can just start giving them money when you want/can and they will credit your account. As long as you are a full time student you dont (I am pretty sure) have to elect a payment plan at this time.

This is true but you need to confirm enrollment in order to put the loans in deferment.

[ZeChocMoose]

If your loans are from the U.S. federal government, it might be better to just focus on paying off the unsubsidized loans while you are in school.  The subsidized loans (Perkins, Direct Subsidized, and Stafford Subsidized) do not accrue interest while you are in an in-school deferment.  (The interest is paid by the federal government.)

[maelia8]

I can second @Horb  and @ZeChocMoose as that's exactly what I've been doing - I put all of my loans in deferment when I started grad school, put at least 10% of my monthly stipend earnings into a savings account, and once I have a good enough buffer and am sure I can afford it, make a lump sum payment against the loans (about $2000 at a time), which happens every six to nine months. Since my loans are mostly subsidized, I'm working on the unsubsidized ones first and will then moved on to the sub ones once I'm done with those. It's a slow road, but I'm doing all right so far. I agree that it's far better not to be on a payment plan in grad school - sometimes you'll be rolling right after stipend disbursement, and other times you'll be barely getting by, so it's better to pay when you can rather than trying to make regular payments and risk hurting your credit.