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Since March, I have been taking time to focus on articles about student loan forgiveness. From an article about how I used Student Loan Forgiveness to pay off $22,500 of student loans to articles detailing the steps needed to successfully have your student loans forgiven.
In all of these articles, I focused on the facts of the topic, but I never gave my opinion of utilizing student loan forgiveness. Student loan forgiveness is great in theory, but is it worth it?
Every situation is different, but in most cases it really isn't worth the time that it takes to receive student loan forgiveness. To better illustrate the decision making process, I will use multiple scenarios to show the decision making process.
Dave has completed 3 years out of 10 years in his loan forgiveness program. He currently owes $13,000 on his student loans and does not have any other debts. After 7 years of paying on his student loan, he would have $3,000 left to be forgiven. Dave loves his current job and can't imagine leaving.
NOT WORTH IT!!! Dave should should begin to throw as much extra money as possible at his student loans. Depending on income, Dave should be debt free in less than 1 year. Once Dave is debt free, he could change jobs in the future. Just because Dave loves his job today, does not mean he will love his job in 5 years.
Aubrey has completed 3 out of 5 years in her student loan forgiveness program. She has $30,000 in consumer debt and $22,000 in student loans. She is eligible for up to $17,500 in student loan forgiveness. She is not happy in her current position, but plans to stay in her job until her student loans are forgiven.
WORTH IT!! Aubrey only has two more years of work left, before her loans will be forgiven. With less than two years left and other debts hanging around, it makes sense to pay the minimum on the student loans and attack the other debts. With this scenario, Aubrey could be debt free in just over two years (Pay off $15,000 per year and have the $17,500 in student loans forgiven). By the two year mark, Aubrey will be close to having her student loans paid down to $17,500.
Kennedy has just completed college! She is beginning her career as a teacher and wants to utilize the student loan forgiveness program. She has $13,000 in students loans, $5,000 in credit cards and a $9,000 car loan. With the Teacher Loan forgiveness program, she can have up to $5,000 forgiven.
NOT WORTH IT! Kennedy should shoot to pay off approximately $14,000 per year and be completely debt free in 2 years. This would allow her to start investing or saving for a home earlier. Not only can Kennedy start saving, but she would be free to find a different job, if she doesn't enjoy it in the future.
Freddy has completed 6 years out of 10 years in his loan forgiveness program. He currently owes $50,000 on his student loans and does not have any other debts. After 4 years of paying only the minimum on his student loan, he would have $34,000 left to be forgiven. Freddy doesn't mind his job, but he is looking forward to moving onto a different company.
NOT WORTH IT! Freddy is already interested in looking for another job or career. He should take his passion and leave his current situation. Sure, you may be thinking, "What??? He only has four years left!" That's four years of being held back by debt. That's four years of doing something that he doesn't love. He could easily be debt free in 2-3 years on his own terms and he wouldn't have to wait on the government to 'forgive' his student loans. Many financial bloggers around the world wide web have dumped $40,000 of debt in two years, so it is possible!
In all of the scenarios above, I wanted to show that sometimes choosing debt forgiveness is okay. It's not great, but okay. I took the student loan forgiveness path. I choose to sit in perpetual debt for five years.
That's the Negative of Student Loan Forgiveness:
You Are Stuck!
In my situation, I was two years away from student loan forgiveness, when I finally became financially savvy. Therefore, I made a choice to continue on my path, because I only needed 1.5 years of teaching until debt freedom. I even regret my decision sometimes, because I should have just jumped on my debt freedom path right out of college and I could have been debt free in two years. Instead, I sat around for three years and wasted my money.
In all of the scenarios above, one common thread arose. TIME. Student loan forgiveness takes time and life away from your years. It takes up your ability to live your life on your own terms. You may wait to leave a job that you hate, just because you want that student loan forgiveness.
You may miss a great career opportunity, just because you are waiting on student loan forgiveness. You can't let student loan forgiveness hold you back from your career goals. To illustrate, one last scenario is listed below.
One Final Scenario for the Road:
Doug has been working at a government job for 3 years. He currently makes $35,000 a year and has seven years left of work until his student loans are forgiven. However, he has been offered a job in the private industry offering him $60,000 a year. He is afraid to make the job switch, because he doesn't want to lose the opportunity of having his $50,000 of student loans forgiven in 7 years.
What should Doug do? He should make the jump to that new job! He alone will be making an EXTRA $25,000 a year. If he lives on his previous salary and focuses on paying off his debt, he would be debt free in two years. That sounds better than seven years to me and he will still be making that EXTRA $25,000 every year after reaching debt freedom.
In the end, it's a choice. You can choose to stick around your job and have no options or you could say "Screw It! I'm taking control of my life." Live your life on your own terms and don't wait on the government.
Where are you at on your debt freedom journey? Anyone planning on using student loan forgiveness? Want more info on this topic? Check out Bobby's post on Student Loan Forgiveness at MillennialMoneyMan.com.