Best Way To Pay Off Student Loans

Now a days it is so difficult to graduate from school without owing money.  I managed to get my Master's degree without owing money but it took me twice the amount of time because I took one class a term, charged it to my credit card and paid it off before the next term.  I know so many others who borrowed money to finance their degrees and ended up owing in the $60,000 to $70,000 range.  In addition, many students who head to college from high school, end up having to borrow money to do it.  

Recently, I cam across an article that looked at the most efficient way to pay off student loans since most people either try to pay it off as soon as possible if they have the money, or they take the payment plan sending in so much every month and are able to get the remainder forgiven after 20 to 25 years of payment.

Several mathematicians decided to explore which of the above possibilities is best or is one should use a combination of them so they created a mathematical model to see which works best.  The model was designed to look at specific borrowers and their circumstances. For some borrowers designing a hybrid payment plan is best but for others it is best to stay with one of the standard choices.

Researchers concluded there are three possibilities to pay the student loans off quickly.  If you only had to borrow a small amount of money, the best thing is to pay it off as soon as possible because you'll only pay a little bit of interest. If you owe a large amount, enroll in an income based payment scheme that allows you to pay monthly payments based on the amount of money you make each year.  The hybrid version suggests you pay as much of the loan as possible over the first few years before switching to an income based payment schedule. 

The model these folks created is based on the idea that people have to pay tax on the amount that is forgiven in the income based scheme, and the compounded interest that is common for various student loans. This model finds the point known as the critical horizon when it is best to switch from regular payments to the income based payments.  The critical horizon is the point when the costs of compounding interest matches the benefits of loan forgiveness. 

Currently, this model asks students to estimate their future income level, tax rates, and possible living expenses but the creators are hoping to refine it so that lifestyle changes such as marriage, having children, or buying a house can affect the motivation of the borrower. Most people in order to choose a future income level have to look at career stats to get an average amount but it doesn't allow for people who might do extremely well in their chosen field. The current model doesn't take into account the possibility of someone changing fields within a couple of years.

This model was created because there has been little research done on this particular question and it is important to think about so people are able to pay their loans off in the most efficient manner with the least extra cost.  Let me know what you think, I'd love to hear.  Have a great day.