Thursday, January 6, 2011

Early Graduation from Graduated Payments?

In Tuesday's post, I shared my negative net worth statement with you. It forced me to log on to the Direct Loan Servicing website to see the exact amount I owed (up until then, I referred to it as "$30,000+"). Well, it's $30,504.41 (down from the original $32,300). And that's not the only thing I noticed. For the past two years, I've been paying $229.21 a month for my student loans as part of the graduated repayment plan. This amount fit into my $35,000 yearly gross income at the time I began repayment (exactly 6 months after completing grad, I just had a moment....$35K income AFTER graduate school....:<).

Anywho, the graduated repayment plan allows debtors to pay off their loans in the same amount of time as standard repayment debtors (130 months). Rather than paying the same amount month after month (like the standard repayment plan), the graduated repayment plan allows you to pay a smaller amount for two years, then the amount increases for the next two years, then it increases again for two years, and so on. In fact, here's what my graduated repayment plan looks like:

You'll notice that I'm scheduled to pay an additional $36.76/month beginning February 2011 ($265.97-$229.21 = $36.76).  I've anticipated increasing my student loan payments....once my car note has been paid. Fortunately, the February '11 increase is feasible (by the way, the few bucks extra in my paycheck because of the tax holiday covers the $36.76 and then some). What I've started to think about, however, is if I should hurry into the standard repayment plan (that is, once my car note is paid off). By the way, here's the standard repayment schedule:

I'm thinking that I will "free up" more money to save and invest with the graduated repayment versus the standard repayment. The graduated plan costs $1163.54 more in interest; a "drop in the bucket," relatively speaking, but who wants to throw away money? Then again, my money wouldn't be tied up in a 5.3% loan and I could do more (i.e. earn more) by contributing to my Roth IRA, $10,000 goal and brokerage account.

What would YOU do?

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