When Income Driven plans may not be the best idea for you

I will probably be the only loan counselor that will ever tell you this. Like most of us , I believe in the right situation that Income Plans are great. For example if you have tried all the other plan options and you aren’t making a lot of money, it is phenomenal.

However I’ve seen people come to depend on it. For example I had one borrower explain to me they wouldn’t want to get a job where they made 10,000 more a year because their payment would go up 300 dollars a month. That is giving up $10,000 to save $3,600. In addition, if you can pay it off faster and avoid the cancellation, it is better. Remember any income that is left over at the end of the 20 or 25 years (this includes any accrued interest) is canceled. However this canceled debt is subject to tax and if you aren’t planning for it can cause a very uncomfortable conversation with the IRS down the road  (this may change with the new PAYE plan but for now definitely the case!).

I guess this also shows the Dave Ramsey follower in me. The idea is to get rid of debt as fast as possible if you are able. Even if it takes some extra work. Here is the basic conclusion to consider. Is the Income Driven plan a great tool to use if necessary? Absolutely! Is it something that can have a downside that will cause you to pay a lot more in interest down the road if your situation changes and can maybe cloud your overall decision making  Absolutely! Like any other portion of your student loans, you have to look at the pros and cons and reevaluate as needed. But that is what us representative are here for. If you need any help figuring out what works for you, just let us know!