For years, the SAVE plan made student loan forgiveness a no-brainer for many borrowers. The payments were so low that keeping your loans and planning for forgiveness seemed like the obvious choice. But with SAVE going away, the student loan landscape has shiftedโand so has the decision-making process.
Now, millions of borrowers are left wondering: Should I switch to PAYE or IBR? However, focusing on that question first is a mistake. The real question isnโt about which repayment plan to choose. Itโs about whether loan forgiveness is even the right path for youโor if paying off your loans might save you more in the long run.
This is one of the most critical financial decisions youโll make. And getting it wrong could cost you tens of thousands of dollars.
In this post, weโll explore two real-world examples to help you make sense of this new realityโone for regular loan forgiveness and another for PSLF.
Sarahโs Story: From Forgiveness to Paying Off Loans
Sarah had been pursuing regular loan forgiveness on the SAVE plan. Her monthly payment was $350โfar lower than the $1,250 she would have paid on the standard 10-year plan. Because SAVE freed up an extra $900 each month, forgiveness seemed like a no-brainer.
But with SAVE gone, Sarahโs payment under IBR was set to increase to $850. Initially, her primary concern was whether she should choose PAYE or IBR. However, after speaking with a FitBUX Expert, Sarah realized she was asking the wrong question.
Instead of continuing to pursue forgiveness, Sarah decided to focus on paying off her loans. Why? Because paying off her debt faster would allow her to free up cash to invest sooner. In the long run, this decision would leave her nearly $100,000 better off than if she stayed on the forgiveness path.
To make this work, Sarah adjusted her short-term priorities and committed to paying off her loans in just five years instead of ten.
Johnโs Story: Rethinking PSLF
John was in a different situation. He had been pursuing Public Service Loan Forgiveness (PSLF) for three years, with seven years to go before his loans would be forgiven.
With PSLF, John would save about $10,000 compared to paying off his loans over ten years. But there was a catch: his monthly payments were about to jump significantly.
For John, the uncertainty of staying in a nonprofit role for seven more years was a major concern. What if he wanted to change jobs or his circumstances shifted? The potential savings no longer seemed worth the risk.
Ultimately, John decided to prioritize paying off his loans.
How to Decide: Rules of Thumb vs. a Holistic Plan
So, how do you decide whether to pursue forgiveness or pay off your loans? There are two main approaches: a general rule of thumb and a more comprehensive financial plan.
General Rules of Thumb
- For Regular Loan Forgiveness:
If your total student loan debt is 1.5 times your annual income or less, paying off your loans is often the better financial choice. For example, if you earn $80,000 and owe $120,000 or less, paying off your loans might save you more in the long run.Conversely, if your debt is more than 2.25 times your annual incomeโsay, $180,000 or more on an $80,000 salaryโloan forgiveness may be the smarter option.
If your debt falls between 1.5 and 2.25 times your income, youโre in a grey area where either option could make sense.
- For PSLF:
If your debt is equal to or greater than your annual income (a 1:1 ratio), PSLF is likely to provide some financial benefit. For example, if you earn $80,000 and owe $80,000 or more, pursuing PSLF could save you money.
The Recommended Approach
While rules of thumb can provide general guidance, financial decisions are rarely that simple. Your loans donโt exist in a vacuumโevery part of your financial life is interconnected.
Thatโs why the best approach is to build a financial plan that considers your entire situation. By incorporating your loans, income, expenses, and long-term goals, you can make a more informed decision about whether forgiveness or payoff is right for you.
Take Action: Donโt Let a Costly Mistake Hold You Back
The stakes are high, but the good news is that you donโt have to navigate this decision alone. At FitBUX, we specialize in helping borrowers like Sarah and John understand their options and build personalized financial plans.
If youโre ready to take the first step, download our free Student Loan Checklist and start gaining clarity on your next move.
The wrong moves can cost you thousands. The right plan changes everything.
For years, the SAVE plan made student loan forgiveness a no-brainer for many borrowers. The payments were so low that keeping your loans and planning for forgiveness seemed like the obvious choice. But with SAVE going away, the student loan landscape has shiftedโand so has the decision-making process.
Now, millions of borrowers are left wondering: Should I switch to PAYE or IBR? However, focusing on that question first is a mistake. The real question isnโt about which repayment plan to choose. Itโs about whether loan forgiveness is even the right path for youโor if paying off your loans might save you more in the long run.
This is one of the most critical financial decisions youโll make. And getting it wrong could cost you tens of thousands of dollars.
In this post, weโll explore two real-world examples to help you make sense of this new realityโone for regular loan forgiveness and another for PSLF.
Sarahโs Story: From Forgiveness to Paying Off Loans
Sarah had been pursuing regular loan forgiveness on the SAVE plan. Her monthly payment was $350โfar lower than the $1,250 she would have paid on the standard 10-year plan. Because SAVE freed up an extra $900 each month, forgiveness seemed like a no-brainer.
But with SAVE gone, Sarahโs payment under IBR was set to increase to $850. Initially, her primary concern was whether she should choose PAYE or IBR. However, after speaking with a FitBUX Expert, Sarah realized she was asking the wrong question.
Instead of continuing to pursue forgiveness, Sarah decided to focus on paying off her loans. Why? Because paying off her debt faster would allow her to free up cash to invest sooner. In the long run, this decision would leave her nearly $100,000 better off than if she stayed on the forgiveness path.
To make this work, Sarah adjusted her short-term priorities and committed to paying off her loans in just five years instead of ten.
Johnโs Story: Rethinking PSLF
John was in a different situation. He had been pursuing Public Service Loan Forgiveness (PSLF) for three years, with seven years to go before his loans would be forgiven.
With PSLF, John would save about $10,000 compared to paying off his loans over ten years. But there was a catch: his monthly payments were about to jump significantly.
For John, the uncertainty of staying in a nonprofit role for seven more years was a major concern. What if he wanted to change jobs or his circumstances shifted? The potential savings no longer seemed worth the risk.
Ultimately, John decided to prioritize paying off his loans.
How to Decide: Rules of Thumb vs. a Holistic Plan
So, how do you decide whether to pursue forgiveness or pay off your loans? There are two main approaches: a general rule of thumb and a more comprehensive financial plan.
General Rules of Thumb
- For Regular Loan Forgiveness:
If your total student loan debt is 1.5 times your annual income or less, paying off your loans is often the better financial choice. For example, if you earn $80,000 and owe $120,000 or less, paying off your loans might save you more in the long run.Conversely, if your debt is more than 2.25 times your annual incomeโsay, $180,000 or more on an $80,000 salaryโloan forgiveness may be the smarter option.
If your debt falls between 1.5 and 2.25 times your income, youโre in a grey area where either option could make sense.
- For PSLF:
If your debt is equal to or greater than your annual income (a 1:1 ratio), PSLF is likely to provide some financial benefit. For example, if you earn $80,000 and owe $80,000 or more, pursuing PSLF could save you money.
The Recommended Approach
While rules of thumb can provide general guidance, financial decisions are rarely that simple. Your loans donโt exist in a vacuumโevery part of your financial life is interconnected.
Thatโs why the best approach is to build a financial plan that considers your entire situation. By incorporating your loans, income, expenses, and long-term goals, you can make a more informed decision about whether forgiveness or payoff is right for you.
Take Action: Donโt Let a Costly Mistake Hold You Back
The stakes are high, but the good news is that you donโt have to navigate this decision alone. At FitBUX, we specialize in helping borrowers like Sarah and John understand their options and build personalized financial plans.
If youโre ready to take the first step, download our free Student Loan Checklist and start gaining clarity on your next move.
The wrong moves can cost you thousands. The right plan changes everything.
