One of my attorney clients took a pay cut to pursue a more fulfilling legal position.

She’s currently on an income-driven plan and was very concerned about the fact that her total loan balance is growing each month.

After taking the lower paying job, her monthly income-driven payments don’t even cover the interest accruing on her loans.

Here’s the shocking news though…

The overall cost of paying off her loans has actually decreased!

This will sound totally backwards, but the most cost-effective way to pay off loans using any income-driven plan is to make the SMALLEST monthly payments possible.

By doing so, a higher loan balance will be forgiven and you will simply owe a “fraction” of the loan amount (i.e. taxes due based on the forgiven balance).

Ask yourself this question – would you rather pay a dollar today, or 40 cents in the future?

I hope you chose the latter, which represents paying taxes on a forgiven principal loan balance rather than paying the balance off dollar-for-dollar today.