How should I pay off $300k in student loans?

[Anonymous]

Anonymous wrote:
In 2018, the Department of Education released data that indicated 29,000 borrowers had applied to have their student loans forgiven under PSLF, but only 96 received forgiveness. That means that over 99% of borrowers who applied were rejected

In response, Congress authorized an expansion of the program. However, a 2019 Government Accountability Office report found that approximately 99% of loan-forgiveness requests under that newly expanded program were rejected

1. PSLF has nothing to do with the OP. PSLF is for people working in public service.

2. The 2018 numbers are meaningless because the first person became eligible in OCTOBER 2017 and there was lots of confusion at the beginning.

3. I am in a Facebook group for pslf and there have been hundreds who received forgiveness just in the group over the last year.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:We have $300,000 in grad school loans. Fed loans with interest rates between 5-8%. We are on an income drive plan currently which means we pay 10% of our discretionary income for 20 years and whatever is left over get forgive. The current monthly payment is $1600/month (although has been stopped because of COVID). I’m wondering if anyone on here can relate and has gotten rid of this burden what are your suggestions. And for those who don’t carry this weight, what are your thoughts? Should I try to make extra payments and pay it down quicker or should I invest in the market instead since most of it will be forgiven anyway? TIA

Refinance that interest rate is ridiculous.

Not a good idea if she's in some sort of forgiveness program.

And if it's PSLF, there is no tax hit.

I was forgiven $150k last year through the PSLF program, so it happens.

OP said 20 years which isn't pslf.

One more thing to consider is that regular 20 year forgiveness comes with a tax burden. There is a temporary amnesty on It through 2025 but no guarantee that will become permanent.

If you are set on paying them on quickly, you may want to consider consolidation but you would lose out on any potential federal benefits that may come out like a chunk of money being forgiven.

[Anonymous]

Anonymous wrote:I'd be very skeptical of the debt forgiveness based on past programs.

https://www.google.com/amp/s/www.cnbc.com/amp/2021/03/23/the-us-already-has-student-debt-forgivenessbut-barely-anyone-gets-it.html

"The National Consumer Law Center estimates that while approximately two million student loan borrowers have been in repayment for more than 20 years, just 32 borrowers have ever qualified for loan cancellation through the federal government's income-driven repayment program."

The program OP is on has not even been around for 20 years ago so this quote and whatever program it's talking about are irrelevant.

[Anonymous]

The program details are always technical. For example, you mention that your payments have stopped due to Covid, but that will likely also push out your eligibility (program requires 20 years of payments, if I recall correctly) while interest continues to accrue.

This debt number is going to hang over your head and your finances until it is forgiven.

Some questions:

How much do you make right now?

How many years are you into your repayment plan?

What other near and medium term goals do you have?

What other career options do you have (e.g., PLSF).

My burden was about $100k on a single income household (with kids). Paid it off in 4 years by living well below our salary and putting all extra money toward paying off the loans. Bonus, tax return, extra monthly payments, etc....

[Anonymous]

What program is this? I don’t understand a debt repayment program that will let you invest money while not paying that much and then getting the debt forgiven after 20 years. It sounds like a good deal!

[Anonymous]

God. I would live like a poor person and pay off my loans in 2 or 3 years. Probably live with my parents and do that. Of course I would max retirement too.

[Anonymous]

Anonymous wrote:What program is this? I don’t understand a debt repayment program that will let you invest money while not paying that much and then getting the debt forgiven after 20 years. It sounds like a good deal!

Certain federal student loans. Not something that happens with private loans

[Anonymous]

Anonymous wrote:What program is this? I don’t understand a debt repayment program that will let you invest money while not paying that much and then getting the debt forgiven after 20 years. It sounds like a good deal!

Probably the income contingent one. Ends up with most people paying full amount and not getting forgiveness. Fed overall makes money on student loans doesn’t lose money on them. I still wouldn’t pay it off early though or refinance so that you can buy a house and save for retirement and 529’s.

[Anonymous]

OP here - HHI is $220k. I’m on the PAYE program. I do not work in public service or government.

[Anonymous]

I would pay the minimum for at least the next year and be extremely frugal with the rest of your money - max out retirement, IRAs, save for a down payment if you're not homeowners yet, build up your emergency fund. If a student loan forgiveness bill gets passed reevaluate - if $50k is forgiven for each of you, pay the rest off aggressively. If it's $10k/each, you might stick with PAYE. But spend this year making sure that you use the discretionary income you're not directing at your loans to improve your bottom line, and get a feel for what your life looks like directing all of your discretionary income at a financial goal instead of having cushion.

[Anonymous]

Anonymous wrote:God. I would live like a poor person and pay off my loans in 2 or 3 years. Probably live with my parents and do that. Of course I would max retirement too.

What do you mean “would”? Why don’t you do it, if you’re so sure you would?

I’m guessing you actually don’t have the risk tolerance to take on the high risk/high reward expensive grad degree in the first place.

[Anonymous]

Anonymous wrote:I would pay the minimum for at least the next year and be extremely frugal with the rest of your money - max out retirement, IRAs, save for a down payment if you're not homeowners yet, build up your emergency fund. If a student loan forgiveness bill gets passed reevaluate - if $50k is forgiven for each of you, pay the rest off aggressively. If it's $10k/each, you might stick with PAYE. But spend this year making sure that you use the discretionary income you're not directing at your loans to improve your bottom line, and get a feel for what your life looks like directing all of your discretionary income at a financial goal instead of having cushion.

Op here - thanks. We already max out our 401k, and back door ira, we are homeowners and pay mortgage, we have 529s for both kids which we fund each month, and otherwise we put some in a brokerage account. Any thing else I should be doing that I’m not?

[Anonymous]

Anonymous wrote:

Anonymous wrote:I would pay the minimum for at least the next year and be extremely frugal with the rest of your money - max out retirement, IRAs, save for a down payment if you're not homeowners yet, build up your emergency fund. If a student loan forgiveness bill gets passed reevaluate - if $50k is forgiven for each of you, pay the rest off aggressively. If it's $10k/each, you might stick with PAYE. But spend this year making sure that you use the discretionary income you're not directing at your loans to improve your bottom line, and get a feel for what your life looks like directing all of your discretionary income at a financial goal instead of having cushion.

Op here - thanks. We already max out our 401k, and back door ira, we are homeowners and pay mortgage, we have 529s for both kids which we fund each month, and otherwise we put some in a brokerage account. Any thing else I should be doing that I’m not?

In that case I'd send every discretionary dollar to the brokerage for the time being. When loan forgiveness gets figured out, you might be able to knock out your loans all at once with what you have invested - or you might look at your balance sheet and decide that you'd rather invest and pay the minimum and build your net worth, even if it means another 15-18 years of $1600/month payments.

Your professions matter here too - if one of you is BigLaw and might be getting $40k-$100k bonuses in the next few years, you can just knock out your loans with the bonuses. If one is a doctor you can count on a high and increasing income and it might make sense to knock out the loans first, knowing you can quickly rebuild. But if you're both feds or something, nearing the top of your earning ability, you should probably get comfortable on your income minus 1600 and make plans with those figures.

I paid off $175k in ~6 years, with 2 years of unemployment, by always paying double/triple the minimum when I had a job, snowballing the little ones out of the way, not putting the loans into deferment when I was unemployed, and using all bonuses and tax refunds. It sucked, but when the loans were gone I had this giant chunk of money I was accustomed to not spending, and it all went to savings/investment.

[Anonymous]

Hi OP, we just went through this. We put our loans in income based repayment (REPAYE) and did not pay ahead on our federal loans, just private. As much as we could extra towards the private loans while still having enough income to support buying a house and having kids. Having kids was especially important to us as I am older and the window of fertility was not kind to us if we wanted to pay down the debt first.

Mostly, we paid what we had to but had a significant amount of debt for years. Any bonus went directly toward repayment but around 5 years after graduating, we had one kid in public school and a large salary bump so that we had more income and paid off the private loans.

We kept the federal loans as is for probably 2 more years before looking at our financial situation and determining that we could afford to lose the protections federal loans offered (income based repayment, deferrals, forbearance) and refinanced for a much much lower private loan rate (SoFi). Though we ended up just paying off all the loans entirely about 6 months later as COVID was kind to us, financially.

[Anonymous]

Anonymous wrote:OP here - HHI is $220k. I’m on the PAYE program. I do not work in public service or government.

PP that paid off $100k in 4 years here.

I’m usually the biggest proponent of delevering and paying off your debt, but $300k is a lot. In your case, you may need to ride out PAYE. I’ll assume your salary is upwardly mobile.

Option 1. If no kids and aren’t planning on having kids in near future, move your lifestyle down to as if your household income was $100k and the balance of your pay needs to go to the loans. Everything extra goes towards the loans. You’ll make serious progress against the balance in 5 years. Note, even if you pay it off, it’ll feel good, but in 5 years you’ll feel like you’re just now reaching square 1 when your peers will be much further ahead.

Option 2. If planning on having kids in near future, just ride out PAYE. Accept that it will be hard to buy a house and this will hang over your finances until it is done. Live frugally so that you can save up for the type of home purchase you would really want after you’re done.

Regardless of what you do:

a. Keep making your payments even if government is allowing a holiday. PAYE requires 20 years worth of payments. Not just 20 years in program. So you need to make a total of 240 PAYE conforming payments to qualify for forgiveness. Taking advantage of payment holidays like during Covid when you don’t otherwise have to is only setting your final payment further out into the future.

b. You and your partner have to chase higher salaries and lower cost of living. Even if your PAYE amount goes up, you need to get ahead of the debt to create additional breathing room in your budget.