Ways To Pay Off Your Student Loan When You Earn Less Than $50k

Student loan debt can affect your ability to save for retirement- especially if you earn less than $50,000 per year. GO Banking Rates featured some of the tips our founder Bobby Matson gave for ways to help pay off student loan debt , without straining your finances. You can read that article here.

We decided to expand on these recommendations further. So if you earn less than $50k, here are the things we think you need to know about paying off your student loan.

Income-Driven Repayment Plans (IDR)

For those earning under $50K, enrolling in an IDR plan can be a lifeline. These plans adjust monthly payments based on income and family size. For instance, the Save As You Earn (SAVE) plan sets payments at 10% of your discretionary income (5% if the loans are all from an undergraduate education starting July 1, 2024).

If your annual income is $45k, you have $58k in federal loans and a family size of 1, your monthly payment could be ~$102 depending instead of ~$480 on the default Standard plan - a monthly savings of $378!

Benefits:

• Affordability: Payments are capped at 5-20% of discretionary income, making monthly payments more manageable for lower-income earners.

• Forgiveness: Any remaining debt is forgiven after 20-25 years of qualifying payments, providing a light at the end of the tunnel.

• Subsidized Interest: For certain plans, the government may pay part or all of the interest charges that accrue monthly.

Drawbacks:

• Capitalized Interest: Lower payments can result in more interest accrued over time on the balance, potentially increasing the total cost of the loan if you switch off the IDR plan.

• Tax Implications: Forgiven debt after Jan 1, 2026 may be considered taxable income in the year it's forgiven, potentially leading to a significant tax bill.

Public Service Loan Forgiveness (PSLF)

If you earn less than $50k, especially if you work in public service, you can benefit from PSLF. After making 120 qualifying payments (10 years), the remaining federal loan balance is forgiven. This is particularly helpful for those with substantial debt relative to their income.

Benefits:

• Forgiveness in 10 Years: Loans are forgiven tax-free after 10 years (120 qualifying payments) for those working in public service, potentially saving thousands of dollars.

• No Cap on Forgiveness: There's no limit to the amount of debt that can be forgiven under PSLF.

Drawbacks:

• Employment Restrictions: Only available to those working full-time for qualifying employers, limiting career flexibility.

• Documentation and Qualification: Requires meticulous documentation and strict adherence to qualifying payments, which can be complex and confusing.

Ensure You Have Emergency Savings

Prioritizing an emergency fund is crucial before aggressively paying down student loans. Your emergency fund will vary depending on your lifestyle, income and costs, but a reasonable goal is to save 3-6 months worth of expenses.

Benefits:

• Financial Security: Provides a financial buffer for unexpected expenses, reducing the need to take on more debt.

• Flexibility: Funds can be accessed at any time for any reason, offering peace of mind.

Drawbacks:

• Opportunity Cost: Money saved in a low-interest savings account could potentially yield higher returns if invested elsewhere.

• It’s A Balancing Act! Saving for emergencies while paying off debt requires careful budgeting and may slow down debt repayment progress.

If you’re a bank, FI or financial wellness organization, you can provide your customers with intelligent debt guidance solutions with Payitoff.