First, avoid Dave Ramsey. He suggests paying down debt by size rather than interest rate. This is bad math, and given his connections to financial institutions might be getting paid to be a personal finance terrorist.
With over 160,000 USD in debt, a user contacted me to come up with the best decision for paying down student loans.
Before I was presented with every option, this seemed to be an easy interest rate problem.
So far, this should make sense. Pay back highest interest rates first, invest in markets when the returns are better than interest.
The Pay As You Earn Plan is the unfortunate recommendation. Unfortunate because it encourages not paying back loans, and this will likely fall burden on the taxpayer or cause a change in government policy.
PAYE is where you pay 10% of your discretionary income for the next 20 years(or until its paid off).
Filing independent of a Significant Other, an Efficiency user calculated that after expenses, he has about 30,000 dollars in discretionary income.
The full equation:
Paid Loans in 20 years = 20 Years * 0.1 * (Annual Income – 1.5*Poverty Expense)
For this User,
The total loan was $160,000. The correct decision here would save this user 100,000 dollars in their lifetime.
Do the math yourself with your own loans. 100,000 dollars can buy all sorts of toys. The time it takes to understand your situation will pay better per hour than any job on the market.
By doing this payment plan, you can take the other 90% of discretionary income and
Note: I understand the feeling of having a loan over you. Knowing that you owe money is a mental burden. Life isnt black and white, find out what works for your particular situation.
If you are reading this, I have taken time off Efficiency Is Everything with the plan to reboot this fall with a few high value surprises. A few users asked for the math, and hopefully you have found this one-off article helpful.