Recently, the country’s student debt hit a new high, reaching . And while the average debt load is about $ 31,000 among the 45.2 million Americans with such a burden, according to the National Center for Education Statistics, about 2.5 million Americans are in debt of $ 100,000. or more.
Higher degrees, such as those required for legal and medical professions, have a premium. But if these graduates, whose debt exceeds the national average, carefully consider their repayment options, they could save hundreds of dollars each month and up to hundreds of thousands of dollars over the life of their loans.
Paying off student debt can take decades. There are several repayment options for people with high debt, but it is difficult to know which one is best for a borrower’s particular situation.
“Some plans make monthly payments easier to manage, but cost more in the long run,” says Brianna McGurran, student loans expert at NerdWallet. “Others, including refinancing, could mean larger payments but get you debt free sooner. Borrowers should understand all of their options and make a decision based on their income, total debt, financial goals, and credit history.
NerdWallet calculated student loan debt payments and interest for four professions based on four repayment options available to federal borrowers:
For the details and requirements of each of these reimbursement options, .
The median student loan debt of MBA graduates in 2016 was $ 55,800, according to NCES. These graduates are unique in that the median MBA student loan debt is low compared to the average high income. So, an income-driven plan like REPAYE would result in the highest monthly payments, but pay off the debt in the shortest possible time.
On the flip side, a graduate able to refinance after graduation – with a high credit score and low debt-to-income ratio – would balance tolerable payments with a reasonable repayment term and potentially save $ 5,300. compared to the standard 10-year repayment plan.
The future lawyers, who graduated with a Juris Doctor in 2016, left school with a median debt of $ 133,500, according to the NCES. Assuming that they earned an average annual salary of $ 141,900 during the first decades of their careers, they would pay off their loans under the REPAYMENT before they could qualify for the pardon. Additionally, the income-based repayment plan would let them pay around $ 38,700 more over the life of the loan compared to the standard 10-year repayment plan.
However, refinancing their loans after graduation would save $ 19,500 compared to the standard repayment.
Dentists graduate with the highest student debt of any profession analyzed – $ 274,100 in 2016, according to NCES. It is because of this high balance and relatively average salary that they will get the most benefit from canceling student loans as part of REFUND in our analysis.
After 25 years of monthly payments of $ 1,300, they would be eligible for the cancellation of the remaining principal of $ 150,500. Yet those carrying that amount of debt would pay less over the life of the loan by sticking to the standard 10-year plan or refinancing at a lower rate. If the higher monthly payment for these options is manageable, the borrower could save $ 20,700 or $ 64,700, respectively.
Prospective doctors, leaving medical school with an MD, also walked away with a median student loan debt of $ 228,500, according to the NCES. This group may see the lowest monthly payments by entering an extended repayment plan, but stretching these smaller payments over 25 years would provide the highest total amount paid – $ 452,200 over the life of the loan.
Joining the REPAYE plan would avoid high payments, but still cost $ 115,500 more than the standard repayment plan in the end, and given the average GP salary, the loan would be repaid sooner. that our doctor cannot take advantage of any forgiveness.
“To choose the right repayment option, balance how each plan fits into your long-term career plans,” says McGurran. “Graduates who work in nonprofit or government hospitals, for example, might be eligible for after 10 years of payments, which would make an income-based repayment plan the best approach. “
For those not in government or nonprofit jobs, the solution may be to combine approaches – getting into an income-driven plan like PAYBACK for the first few years, then refinancing once their incomes increase and allow larger monthly payments, for example. Lenders also offer shorter refinance terms that could allow high-income borrowers to repay their debt even faster than the standard 10-year repayment period.
Borrowers should use a to see how much they can save with a lower interest rate. A shows payments under income-based repayment plans.
Median debt levels represent the cumulative amount owed on all loans by program of study and were obtained from the 2015-2016 National Post-Secondary Student Assistance Study of the National Center for Education Statistics.
Weighted interest rates were estimated using 2017-2018 as the last year of the course. The rates represent a mix of direct unsubsidized loans and direct PLUS loans from the US Department of Education.
Annual salaries are based on data from the Bureau of Labor Statistics’ National Occupational Employment and Wage Estimates for May 2017 and represent an approximation of what professionals would earn, on average, in the first 25 years of their careers.