Day 14: Student Loans

My student loan payments right now are not that unmanageable. I have low interest rates on two of them, and a 5% rate on my Perkins loan, which is not really that high when you look at the fixed interest rates being issued now on all loans across the boards.

In my endeavor to reduce our debt, I was looking at consolidating my three loans and possibly getting an Income Contingent Repayment plan, assuming that it would decrease my payments and interest overall. Apparently, based on our income and family size, an ICR would put me on the hook for nearly $925 a month, or approximately 16.5% of our monthly pre-tax income. I'm sorry, but that's almost my mortgage payment! What am I supposed to use to pay, I don't know, my utilities? My car payment? My groceries? Who in the government determined a formula to figure out how much the average person could afford to repay?

I'm sure this is a low end estimate because I used my base salary, not any bonus's that we might receive throughout the year, and my husband is paid hourly. And if you assume that we're paying approximately 25% of our paychecks in taxes, the $925 per month payment becomes 22% of our take home pay. That's just unreasonable.

I was still considering consolidating my student loans, but while investigating repayment options, I saw a statement, in red, that told me that I'm on the grandfathered Graduated payment plan. If I change my payment plan, I can not go back to this plan. My problem is, I don't know if this grandfathered repayment plan is better than the ones that are now offered.

A few years ago, I paid off one of my loans early. My plan was to continue applying that payment amount to the existing Perkins loan, therefore paying it off early. Instead, I applied that payment elsewhere and have continued making the minimum payments. I believe I selected my current repayment plan while looking at the amortization schedule and realizing that overall, my payments would never get higher than I was paying when I first graduated from college.

Now I'm looking towards going back to school and working on a Master's degree. A new degree will mean new loans with higher interest rates and a longer repayment period. In case I haven't mentioned this previously, although my debt payoff mission is primarily to improve our overall financial position, it is also geared towards ensuring that I am able to go to school full time without worrying that I'll need to get a second job to pay the bills, or that one of us will lose our job and our whole family will be underwater.

In my mind, if I can get our credit cards paid off quickly, I will feel a lot more comfortable enrolling full-time in college in September of 2011. Based on our current debt snowball plan, all credit cards will be paid off in November of 2012. That doesn't take into account bonuses, tax returns, any windfall we may receive. Unfortunately, that's just not soon enough.

I keep trying to remind myself that this is a process. It took us five years to accumulate all of this debt, it might very well take us five years to eliminate it. Today, I'm just chipping away.