Married Monday: Lowering Student Loan Payments (A Guest Post from Ariella Monti)

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Let me start off by saying that I’m not an accountant. I’m a professional writer, which means I’m bad with numbers. The purpose of this post is to share something that my husband and I did to better our financial situation. I encourage you to speak with your accountant, financial planner, or hell, anyone you know who can add up numbers better than I can.

Let me start off by saying that I’m not an accountant. I’m a professional writer, which means I’m bad with numbers. The purpose of this post is to share something that my husband and I did to better our financial situation. I encourage you to speak with your accountant, financial planner, or hell, anyone you know who can add up numbers better than I can.

 

Onward.

 

Married-Monday-Lowering-Student-Loan-Payments

 

Like pretty much everyone who went to college in the 90s and early 2000s, my husband and I have student loan debt. Between the two of us, we’re looking at about $40,000.

 

For both of us, our monthly payments came out to about $500 a month.

How you choose to split your bills is a choice that only you and your spouse can make, but for us, everything goes in one pot and all the bills are paid from that pot.

Since moving to North Carolina, our collective salaries have always hovered just above the poverty line. We were paying our regular bills, but had to put things like gas, doctor visits and sometimes food on our credit card. We could keep the lights on, but not fill the car to go to work without credit.

This lead to more credit card debt than we could imagine.

Part of this problem was our $500 a month student loan obligation. We owed almost double than what we made so my husband began looking into income based repayment.

What’s This You Speak of?

 

Income based repayment (IBR) lowers your monthly student loan bill so that it is more inline with your income. If your new monthly payment doesn’t cover the interest on your loan, it is picked up by the federal government for the first three years.

We applied and brought our monthly loan payment down to about $50 a month. Needless to say, this is much more manageable.

The upside to IBR is lowering your monthly payments.

After 25 years in the program, your debt is forgiven. If you work a public job, your debt is forgiven in 10.

But it isn’t all rainbows and butterflies.

IBR is based on your most recent tax return. It doesn’t take your debt to income ratio into consideration. It doesn’t matter that your rent is $2,000 a month because  you live in an area with a high cost of living. It doesn’t matter that you’re paying $1,000 a month for child care or that you have $10,000 in medical bills.

It’s based solely on income so it’s quite possible that you could be scraping by every week, but make way too much to be considered for IBR. This also means that you have to reapply every year so if your income has changed, like ours did, your monthly payment will change, too.

And since it’s based on your tax return, your spouse’s income is counted if you file jointly. It’s not his loan and her loan, it’s their loan at this point. If you didn’t file jointly, then you can just claim your income.

IBR will extend how long it will take you to pay off your loan. While you aren’t accruing interest those first three years, if you’re still in the program afterward, you’ll be tacking on more interest to your loan. You’ll end up owing more for longer.

Despite some of the downsides, IBR has helped my husband and I get back to a stable place. Our monthly loan payment would not only keep us in debt, but it would probably inhibit our ability to pay our regular bills, like the rent and the electricity.

Our income did increase a bit so now we’re able to put more money toward our credit cards each month on top of just not using them at all. We can finally put gas on our debit card instead of our credit card. By the time that the three-year interest-free run is over, we will have hopefully paid off our credit card and we can begin making full payments on our student loans again.

Visit the federal student aid website for more details about this program. I also encourage you to do some other research before signing up. I really can’t tell you how this decision will affect us in the future. Maybe we’ll find that we’ll regret it later, but food needs to go on the table now, so it is what it is.

You will have to call your loan provider to find out what kind of paperwork is needed since all banks are different. Expect to spend quite a bit of time on the phone.

Good luck!

Ariella Monti is a broke journalist living in Raleigh North Carolina. She was the woman behind the blog, L.I. Budget Bride until she got married and got way too busy with three jobs to manage the site. She misses it and is happy to be writing for Cris while she’s out being a mommy. For pictures of her dog, cats and latest garden adventure, follow her on Twitter at @AriellaM.