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Negatives to taking on more SL debt under Income Contingent??

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goodygoody
Regular Contributor

Negatives to taking on more SL debt under Income Contingent??

Hi there!  I have an obscene amount of student loan debt from undergraduate and graduate work (original amount was about $76,000, but it's up to $100,000 at this point with interest.  Luckily it was all federal loans, so I'm able to pay under the Income Contingent plan, and my payment is less than $200 a month.  I was recently accepted to 2 graduate programs - 1 of which is $16,000 more in total than the other, but is the one I would prefer attending.  At this point, my debt is so high, I'm figuring I will have to remain in Income Contingent forever (unless I suddenly become wealthy, which I doubt), so I doubt I'd ever pay off the debt before it expires (25 years in IC, I think, and I have 18 left).  So my question is, is there really any downside to enrolling in the more expensive program?  Seems like my payments would be the same either way due to how high the debt is.  But am I missing something?  I don't have any moral aversion to "being in debt" on principal (and I'm already in debt, so...), so is there any other negative that could come of taking on more student loans?

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SCF
Valued Contributor

Re: Negatives to taking on more SL debt under Income Contingent??

This is kind of an interesting conundrum, potential downsides that I see:

- Your  payments could obviously go higher the more debt you take on, so if you do begin a lucrative career your payments would cap out a higher amount.

- Payments are based on your joint income and student loan debts if you file your taxes jointly - so the extra debt could influence financial decisions you make with your spouse about taxes and loan repayment, especially if they have low debt and a higher income than you.

- You have to remain on the IBR plan for 25 years in order for the loans to be forgiven.  I'm not positive on this, but if something happens and you default on the loan, you would no longer be making IBR payments until you rehab, delaying forgiveness.  If the worst should happen, you may find yourself wishing you had less debt.

- 18 years is a long time from now, and not all changes in the law may benefit you.  Relying on a 25 year forgiveness instead of limiting debt now and forming a pay-off strategy is a risky approach.

- Some lenders will look at your total debt amount in addition to, or in place of, your income-based payment plan.  This may make it even harder for you to get a mortgage.

 

Personally, I would try very hard to only dig the hole as deep as absolutely neccessary to achieve my goals, and only if I thought I'd be able to climb out afterward.  Will the more expensive school really provide $16,000 more in value?  Will you likely get a better job faster, or earn a higher wage?  Just prefering one program over another would not be enough to convince me to pay that much more - I would need some really concrete reasons for that decision.

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jd352
Regular Contributor

Re: Negatives to taking on more SL debt under Income Contingent??

In the grand scheme of things, 16k isn't going to be the yes-or-no factor when it comes to applying for future credit. It is the over $100k that is going to be the deciding factor. That being said, you have to weigh the importance of diving deeper into debt for all aspects of your future.

Like SCF mentioned though, you never know how laws can change in the future that may have an affect on your debt plan. 


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