My Recommendation

Recommendations Column

STANDARD - Your current loan plan

This is the current plan the user is currently on. If you are on a different type of plan, such as an extended plan or another income-driven plan, that will be listed here. The terms of your plan will also be listed here. All the terms are defined below. 

PAYE - The blue column is the recommended loan plan.

This is the best loan plan that our algorithm recommends. LoanSense has analyzed over 20 federal plans, inclusive of all income-driven plan (PAYE, REPAYE, IBR, and ICR), extended plans, graduated plans, even refinance and consolidation options for you. However, LoanSense's algorithm prioritizes income-driven plans because they provide borrowers interest subsidies and forgives interest at the end of the borrowing term. Income-driven plans also require paperwork to be filed annually, but the benefits often outweigh the cost of annual filing.

Plan Explanation

The plan details on the right hand side provide the main summary of the plan we are recommending. The key pieces we explain include: does this plan qualify for Public Service Loan Forgiveness, how the monthly payment amount capped based on your "discretionary income", and the way the interest subsidy works for this particular plan. 

Definition of terms

Each term provides a side-by-side comparison of what you currently pay as opposed to what LoanSense recommends. This allows the user to compare options of items they value the most - is it the lowest possible payment or the lowest overall total they have to pay or length of time they are expected to pay? We break it down for you. 

Monthly Payment - This is the monthly amount you are currently paying on your student loan based on your student loan data file. The monthly amount in the right column is what you would be projected to pay. 

Total You Pay - This is the total amount you will be expected to pay over the lifetime of the student loan. This is inclusive of every payment on your current plan. The right column allows you to compare the overall expected amount you will pay over the lifetime of the loan. The plan we recommend, if it is an income-driven plan accounts for the interest subsidy and therefore is less than the standard plan. However, if you are already enrolled in the right plan, these numbers will read the same. LoanSense can also recommend users change the type of income-driven plan based on their entered information.

Term- This is the length of time you are expected to pay back your loan in years. The standard plan everybody is automatically put on is 10 years or 120 monthly payments. Income-driven plans for those who are not public servants is 20 to 25 years. The current screen Pay As You Earn for private-sector employees is 20 years. The plans that are shown do have different payback timelines.  A reminder of Loan Plans

This includes your monthly payments, the total amount you are expected to pay, the overall time you are expected to pay, the total forgiveness amount you will receive, and the tax obligation.  Tax obligation is the taxable amount you are expected to pay at the end of your loan term. 

Total Forgiveness - This amount is the total amount that will be forgiven at the end of your loan term assuming you file the paperwork or comply with the loan terms. Standard plans, graduated, and extended plans do NOT have any forgiveness associated with them. The amount you get forgiven in income-driven plans is based on your debt-to-income ratio. We use the assumption your income will increase annually at a 3% rate. 

However, if your income increases at higher rates, then the total forgiveness pay decrease. This is why updating your financial profile in the account menu in the top right-hand corner, where your name is, allows you to receive updated information about the best loan plan and overall forgiveness amount.

Tax Obligation - If you are in the Public Service Loan Forgiveness Program, then you will have no tax obligation. If you are not and are still enrolled in an income-driven plan due to your debt-to-income ratio, you will have a tax liability at the end of the payment term. We do not know exactly what the tax rate will be at the end of your loan term, so we assumed a 30% tax liability for the amount forgiven.

Calculate your monthly tax obligation recommend you save.

We recommend that you save monthly for this tax obligation. Divide the total by the number of months you have left to pay and I'd save 90% of that amount to be safe. In the example above, let's say I'll have to pay $6280 in 15 years (180 months) then $6280/180 = $34.89 monthly. I'll take 90% of $34.89 ($34.89 x 90% = $31.4). The reason we advise 90% is that if you put these funds in an interest-bearing account, it will grow over the 15 years. 

Analysis - Your loan payment of $11 + $31.4 (savings) = $42.2  That's still a huge savings as compared to $375. The $332.80 you can now save towards retirement or buying a home!

Obviously, you know your situation best. If you know your income situation is temporary and you'll make more money soon, then your payment may not remain this low and you will receive less forgiveness and a lower tax obligation. You can change your financial profile in the user settings to analyze your future income scenarios as well. 

Any inquiries can be made to loanhelp@myloansense.com

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