The author, Leo Aquino.
Jia Nocon
I owe $35,590 in federal student loans. The last time I made monthly payments in 2018, I paid $370.
With Biden’s $10,000 student-loan forgiveness, my monthly payment can be as low as $150 a month.
I asked a financial planner to help me decide which repayment plan might work best for me.
When President Biden announced in August that $10,000 worth of student loans per borrower would be forgiven, I didn’t think it would make a difference in my particular situation. After all, I still owe $67,000 in private student loans with a monthly payment of $462, thanks to a recent refinance.
Back in 2018, I used to pay $370 a month under the REPAYE plan, a type of income-driven repayment plan that gets forgiven after 10 years of payments. Between 2018 and 2020, I had my student loans on economic hardship deferment.
To start planning for federal student loan payments to come back in 2023, I spoke to financial planner Travis Sholin at Keystone Financial to help me figure out how my monthly payments would change and how to choose a repayment plan. I also called my servicer to clarify my options.
My student loan payments could drop to $150 a month
My current federal student loan balance is $35,590 with a 5% interest rate. Here’s a comparison of what my monthly payments used to be, and what they might be after $10,000 in student loan forgiveness.
Payment planRepayment timeMonthly payment before student-loan forgivenessMonthly payment after $10,000 in student-loan forgivenessStandard repayment
10 years
$377$271Extended fixed repayment25 years$222$150Revised Pay As You Earn (REPAYE)25 years$413$207
REPAYE is a type of income-driven repayment plan where monthly payments are capped at 10% of a borrower’s discretionary income. While I paid $370 a month in 2018, my salary has increased since then so my new monthly payment, without $10,000 of forgiveness, would be $413 if I choose to stay on REPAYE.
To get the new estimated monthly payments for the standard 10-year repayment plan and 25-year extended fixed repayment plan, Sholin said he used a time value money calculator. However, a simple google search for “student loan payoff calculator” helped me get similar estimates.
The new REPAYE estimate is half of my current monthly payment, since income-driven repayment plans will be capped at 5% instead of 10% of a borrower’s discretionary income under Biden’s new plan.
Besides the payment plans listed above, I can also choose to be on a 10-year or 25-year graduated repayment plan, which starts at $150 a month, then increases by $20 per month each year. Because of the annual increases, it was harder to calculate how much that monthly payment will change after factoring in $10,000 in student loan forgiveness.
I chose the simplest repayment plan with the lowest monthly payment
My biggest concern was choosing a payment plan that helps me avoid the dangers of capitalized interest on federal student loan debt. For example, the 10-year standard repayment plan with a monthly payment of $271 will cost me roughly $7,500 in interest over the life of the loan. The 25-year extended fixed repayment plan, on the other hand, will cost $19,000 in interest, even though it has a lower monthly payment of $150 a month.
Even though REPAYE has the option of forgiveness after 10 years, it still stresses me out to think the monthly payment amount can change each year. If I’m offered a higher-paying job later in my career, I don’t want to be scared of making more money just because my student loan payments will increase.
Sholin encouraged me to choose the lowest monthly repayment plan, and focus on increasing my retirement contributions instead. He says,”The stock market long term has averaged 10% growth each year. If you’re getting an interest rate of 6% or less on your student loans, you’re better off having your money in the stock market.”
When student loan payments resume in 2023, I plan on using the extended fixed repayment plan because it’s the simplest option with the lowest monthly payment. Here’s hoping even more student loans get forgiven.