Why I Pay Only the Minimum On My Student Loan

I have noticed that there are a lot of blogs out there that have a post like “How I paid down $80,000 in Student Loan Debt in 36 months” or some combination of debt and years. My plan would have a crappy title like “How I paid down $5500 in student loan debt in 5 years.” That’s not very impressive. But I am not in a race to get rid of my debt. I am in a race to get the most debt I can forgiven. Having a loan forgiven means that the government pays down the loan balance. In general, the government does this in exchange for a service they deem necessary to our society.

At the end of graduate school, my student loans totaled about $23,000. I took out this debt knowing that I was going to apply for Teacher Loan Forgiveness. Since I am a math teacher in a Title I school, I will qualify for $17,500 forgiven by the federal government. All of my loans are federal student loans. Since I took out the debt knowing that I would take advantage of this program, I don’t want to pay too quickly and make my balances drop below $17,500. That would be leaving free money on the table.

Before I go any further with my plan and what I’ve learned, I want to lay out the Teacher Loan Forgiveness Program and contrast it with Public Service Loan Forgiveness. They are two very similar programs but there are key differences.

From the application for Teacher Loan Forgiveness:

“The Teacher Loan Forgiveness Program is intended to encourage individuals to enter and continue in the teaching profession. Under this program, individuals who teach full time for five consecutive, complete academic years at certain elementary and secondary schools or for certain educational service agencies that serve low-income families and meet other qualifications may be eligible for forgiveness of up to a combined total of $17,500 in principal and interest on their Direct Loan and/or FFEL program loans. “


Qualifying for Teacher Loan Forgiveness…

  • Work for 5 complete, consecutive academic years in a Title I school (or would qualify for Title I services, meaning 30% or more of students get a free or reduced lunch)
  • Get a signature from a school officer at the end of 5 years of service
  • Be a Highly Qualified Teacher (HQT)
  • If you teach special education for any grade –> $17,500 forgiven
  • If you teach secondary math or science–> $17,500 forgiven
  • If you teach elementary school–> $5,000 forgiven
  • If you teach secondary in any other subject that relates to your college major–> $5,000 forgiven


Qualifying for Public Service Loan Forgiveness…

  • Make 10 years of monthly payments (120 payments) on your loans while working at a non-profit or government agency
  • Direct Loans Only
  • Payments must qualify by being part of a qualifying income driven repayment plan
  • Remaining Balance is forgiven after 10 years of payments


The Differences Between TLF and PSLF

The biggest difference between these two programs, besides the timeline, is the requirements for meeting that time. For Teachers, the requirement is to work for five years. For Public service, the requirement is to pay for ten years while working at a qualified employer. Each payment has to qualify for Public Service and you can’t make changes to your loans once you get started, otherwise the clock resets for those 120 payments. The other big difference would be the dollar amounts. For Teachers, you are either getting up to $5,000 or $17,500 and that just depends on what you teach. For Public Service, there is no upper limit on what can be forgiven. It’s just all about making those 120 payments while working at a non-profit or government agency. As a teacher, you can qualify for Public Service Loan Forgiveness. It just doesn’t make sense for my situation because my debt isn’t that high.

Before you get too excited, no, you cannot double dip on these programs. In the Teacher Loan Forgiveness documents, it explicitly states that you must not have received the benefit of PSLF for the same teaching time period: “You must not have received benefits through the AmeriCorps Program under Subtitle D of Title I of the National and Community Service Act of 1990 or loan forgiveness under the Direct Loan Public Service Loan Forgiveness Program for the same teaching service for which you are seeking forgiveness on your Direct Loan and/or FFEL program loan(s).“ If you do not work in a Title I school, your only option is to go for Public Service Loan Forgiveness. If you work in a Title I school, you need to run numbers to determine which program is the better offer for you given your debt balance, interest rate, and also how comfortable you are with debt.


My Plan to Use Teacher Loan Forgiveness

Since I can get $17,500 forgiven, I didn’t want to pay down that $23,000 too quickly. I want to pay just enough so that I can get the full amount forgiven. From a repayment calculator linked into my loan exit counseling I roughly figured out how much I would need to pay in order for the balance to fall to $17500 after five years. It told me I needed to pay $175 a month for that to work out, given a 5.5% interest rate. Many people choose an income driven repayment plan because it gives them a lower amount than the standard repayment plan. But for me the standard plan gave me the lowest amount. I spoke to a representative on the phone and they told me what all of my payments would be for each plan type, Standard, Income-Driven, or Graduated. Since the Income-Driven was over $200 a month, I found no reason to go with that option. I chose standard as it was $154.91 each month, lower than that $175 needed for me to hit exactly $17500 after 5 years. So if I wanted to pay more I could, but I could also do the minimum if I needed to (like needing to save or getting into some kind of financial trouble).

When I first started paying on my loans I was also still getting used to full time budgeting with a full-time income. I was inconsistent with payment amounts. Sometimes I would pay a little more. But what that actually does is lower the next payment, so I’d pay less later on. Now I have it set to pay $160 a month. I never took it up to that $175 I had calculated back when I graduated. For a long time, all of my extra money was going toward saving up for a house. Now I use extra money for my house, my dog, and paying toward my car. Paying off these student loans simply isn’t a huge priority for me because I know I am going to get this forgiveness in two more years. When I get a raise this summer, I am planning to throw more toward my auto loan so that I will get it paid off at the same time I get the loan forgiveness on my student loans. If I make no changes to my payment plan right now, I will have a little more than $1500 left over after forgiveness goes through. At that point I will either just pay it all off from cash reserves or employ a credit card balance transfer if it makes sense. Right now, I have more important goals to focus on. In another year when I get another raise, I may reevaluate.

My Mistakes When Setting Up My Plan

During my first year teaching, navigating debt and finance for the first time, I was misinformed by people who were planning to take advantage of Public Service Loan Forgiveness (PSLF). Under PSLF, you have to make 120 payments on only direct loans, meaning if you have other types of loans, you’d want to consolidate them into a Direct Consolidation Loan so all of the money could be forgiven. And regarding qualifying payments, payments you make while you are in the grace period – 6 months after your graduation date – do not count. None of these caveats apply to Teacher Loan Forgiveness. Someone also told me that it had to just be one loan, which does not appear to be true from any of the information I just reviewed. So my first mistake was that I consolidated my loans, which I did not need to do. And second, I did it in January when I had until March before I had to start paying.

I did not need to consolidate my loans because under Teacher Loan Forgiveness they will domino the forgiveness until all $17,500 is used up. The domino order is “(1) Direct Unsubsidized Loan(s) or unsubsidized Federal Stafford Loan(s), (2) Direct Subsidized Loan(s) or subsidized Federal Stafford Loan(s), and (3) Direct Unsubsidized Consolidation Loan, Direct Subsidized Consolidation Loan, or Federal Consolidation Loan.” It was also incredibly stupid for me to “consolidate” my one subsidized loan with my two unsubsidized loans because they don’t actually consolidate subsidize and unsubsidized loans into one. In my account it lists a Direct Unsub Consolidation Loan and a Direct Sub Consolidation Loan. Since consolidation takes on a weighted average, my subsidized loan balance then went from a 3.4% interest rate to a 5.5% interest rate. Now more interest is building on my subsidized loan than was necessary, which is super annoying, but I can’t go back and change it. Once you consolidate, it’s a done deal. So run your numbers and get help if you aren’t confident about what it all means. It was a mistake of not doing enough research and being overly anxious about money that first year working. I was so worried that I would have to make five years of payments that I rushed into starting that five years when I really didn’t need to. Teacher Loan Forgiveness is based on working, not paying.

Set up Auto Pay!

Did you know that if you sign up for auto draft on a FedLoan serviced loan, it will reduce your interest rate by 0.25% ? This might not seem like much but it can save you a few hundred bucks on a 10 year $20,000 loan. If your loans are more, this will obviously mean more dollars saved. Besides, using autopay makes your life easier because you don’t have to think about it. You never risk missing a payment and you free up brain space and time for more important matters.

The Standard Repayment Plan and My Loan Forgiveness

Regarding Standard Repayment – Standard Repayment plans are explained as being plans that will take 10 years to pay off the loan in full. This is for all types of loans, except Consolidation Loans. Consolidation Loans have terms from 10 to 30 years. Be careful and know what your loan terms are if you don’t have any chance of getting your loan forgiven. Don’t just pay what the standard payment plan puts you on without looking at the details.

My loans now have terms of 233 months. Yes, 233 months to pay off $23,000! That is 19 years and 5 months. If I were to actually take that entire loan term to pay off my loans, I would end up paying $36,094.03. That’s $13k in interest. No thank you! Instead, I have already paid $4504.37 and over the next two years I will pay $3840.00. With that extra $1500 I’ll need to pay after forgiveness, I will have paid a total of $9844 toward my student loans, instead of the $36k that the 233 term standard loan plan would require. I’m paying $26,250 less than the plan asks, just by teaching in a Title I school. Some people assume that I work where I work because I couldn’t get a job somewhere else. But I choose to be there. I love where I work, and I wouldn’t work in another kind of school. I filled out one job application when I was in school. I am just also taking advantage of one of the benefits offered for working in this location. Being a teacher is rewarding work. It’s also exhausting and time consuming. Know what additional financial gain you can heed from your work. If you’re a teacher, it’s highly likely that you can apply for Teacher Loan Forgiveness or Public Loan Forgiveness.

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