3 reasons I didn't go on an income-driven repayment plan to pay my student loans, even though I would have qualified

Courtesy of Melanie Lockert

Melanie Lockert.

• When I left graduate school with $68,000 of student loans, unable to find a well-paying, steady job, I could have used income-driven-repayment to make my monthly federal loan payments more manageable.
• But I chose not to, for three reasons: I couldn't stand the thought of ultimately paying more interest, I couldn't imagine still paying in 20 years, and I was sick of doing the paperwork it would take.
• Instead, I side-hustled and dipped into my savings to pay off my loans using the Standard Repayment Plan, making more than my minimum payment of $900 a month and paying it off entirely in less than five years.
• Just because IDR didn't work for me doesn't mean it isn't a good option for others. It can help you avoid going into deferment or forbearance, and stay clear of delinquency or default that could wreck your credit score.
• Read more personal finance coverage.

When I decided to go to graduate school, I had already been paying my student loans for several years. I made the minimum payment and didn't think much about it. Going to graduate school meant taking on significantly more debt and I graduated with $68,000 in student loans (down from a high of $81,000).

That might have been OK if I had secured a well-paying full-time job, but that's not what happened. I couldn't find a full-time job, moved to Portland, Oregon, and found only temp jobs making $10 to $12 per hour. During that time, making my student loan payments were a struggle.

I could have gone on an income-driven repayment (IDR) plan to make my life easier, but I didn't.

Income-driven repayment only applies to federal student loans

First, a quick refresher on income-driven repayment plans. If you have federal student loans, you are eligible for income-driven repayment. IDR is comprised of four repayment plans:

• Income-Based Repayment Plan (IBR)
• Income-Contingent Repayment Plan (ICR)
• Pay As You Earn Plan (PAYE)
• Revised Pay As You Earn Plan (REPAYE)

These four plans allow borrowers to lower their monthly student loan payments to a percentage of their discretionary income. Depending on the plan you choose, you could pay 10% to 20% of your income toward your loans for 20 to 25 years.

A major perk of these plans is that if you have a balance after your repayment period is up, you can qualify for student loan forgiveness. Also, if you're close to the poverty threshold, you can qualify for a $0 monthly payment and have that count as a payment, so you remain in good standing.

Given my paltry income (and being on food stamps, briefly), I'm pretty sure I would have qualified for a $0 monthly payment, but there were numerous reasons I didn't want to go on an income-driven repayment plan. Here are the main three:

I didn't want to pay more in interest over time

The primary reason I didn't go on IDR is that I didn't want to pay more in interest over the life of my loans - the longer you pay, the more you ultimately pay in interest. I wanted to stick to the Standard Repayment Plan, which has the shortest repayment period of 10 years and would ultimately cost me the least amount in interest.

When I realized I was paying $11 per day in interest, I was furious. I didn't want to pay a penny more than I had to. So I had to make a difficult choice and decided to chip away at my savings and hustle like crazy to continue making payments. I had $10,000 saved up which I slowly chipped away to $2,000 until I got a better job. I side hustled on weekends as a brand ambassador, pet sitter, event assistant, and more.

I knew that if I went on IDR, the interest would compound and make it nearly impossible to get ahead. Even though I didn't love it (and don't necessarily recommend it), I chose to dip into my savings so I could keep up with my payments. I was lucky to have the savings to begin with, but it felt weird to watch it dwindle away to pay for something when I knew I could have made it more affordable and easier for myself.

I knew my interest would make my balance balloon. Yes, I could have gotten that amount forgiven after 20 to 25 years. But under current law, borrowers are responsible for paying income taxes on that forgiven amount, which could be a bigger bill than I could handle. Based on calculations, my balance would have more than doubled and I'd have to pay taxes on forgiveness of six figures of debt.

I didn't want to pay for 20-plus years

Another reason I didn't want to do IDR, aside from the interest, was that I didn't want to pay my student loans for 20 to 25 years. Of course, that would have depended on my income, but when I made the decision my income was low - around $20,000.

I was 27 when I left New York and started making payments on my student loans. I imagined myself being 47 or 52 paying back my student loans. I didn't want to be so far in the future paying for something so far in my past. I wanted the future to be about saving, investing, and preparing for retirement ... not debt.

I knew that I had to sacrifice now if I wanted it to pay off later. I decided it would be easier to deal with a low income and hustle when I was younger than when I was older. So for that reason, I stuck with a Standard Repayment Plan, and as my income grew over time, I made more than the $900-a-month minimum payments.

I didn't want to deal with more paperwork

If there's one thing I can't stand about adult life, it's all the red tape. There seems to be paperwork and procedures for everything and let's face it: It can all be a bit much.

Under an income-driven repayment plan, I'd have to re-certify my income each year. If I didn't remember, my plan could revert back to Standard Repayment and mess up my payments. While not the most difficult thing in the world, I didn't want another thing to worry about each year. I'd rather just make one payment and not have to verify my income every year and deal with more bureaucracy.

IDR wasn't for me, but it could be right for you

I am not a financial professional, so I can't say what is right for you, I'm only sharing what I did and why. I do think income-driven repayment can be a lifesaver for many student loan borrowers.

If you can't make your student loan payments or want to make them more affordable, talk to your loan servicer about going on an income-driven repayment plan. If you have no income or a very low income, getting approved for a $0 payment and being in good standing may be better than going on deferment or forbearance. Additionally, going on IDR can help you avoid delinquency and default, which have negative effects on your credit and could lead to wage garnishment.

Though IDR wasn't right for me, if lower payments can keep you in good standing, then check out your options to find the best fit for you.

Melanie Lockert is the founder of the blog and author of the book, "Dear Debt." She is also the co-founder of the Lola Retreat, which helps bold women face their fears, own their dreams and figure out a plan to be in control of their finances.

• Considering refinancing your student loans to save money? Learn more about your options:
• Refinancing your student loans with SoFi could save you money - and even help you get a better mortgage rate
• Refinancing your student loans with Earnest can help you pay them back on a timeline that works for you
• Refinancing your student loans with CommonBond can get you ultra-low interest rates and 24 months of forbearance if you need it

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