Pay off student loans within 3 years or stretch them 10 years and qualify for public service loan forgiveness?
I will have about 50,000 in student loans at the end of my doctoral program. The public service loan forgiveness requires 120 consecutive payments before the government pays the remaining portion. I could stretch the loan 10 years and qualify for loan forgiveness or make the necessary sacrifices to pay the loan in full within 3 years.
Chuck:
The interest saved by paying the loan off in 3 years will more than make up for any amount forgiven by your employment in a public service profession.
If you were already planning for a career in public service – good for you – and far be it for me to discourage you from pursuing that path.
If you weren’t sold on a career in public service – don’t forget that the private sector pays far more in almost every instance.
I love numbers, so let’s look at an example:
Paying off $50,000 at 6.8% interest over 3 years will require a monthly payment of $1539. After you make 36 of those whopping payments, you will have repaid $55,414 – which is only $5,414 in interest.
Paying off that same $50,000 at 6.8% over 10 years requires a monthly payment of only $575. On the other hand, you’ll pay $69,048 in total – that’s $19,000 in interest – and 14 grand more than you’d pay on the 3 year plan.
Your decision to participate in the public service forgiveness plan will not save you $14,000. Your decision to make the payments in 3 years will. If you can afford to make $1500 monthly payments – that’s the far better option.
Good luck!
