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

[Anonymous]

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

[Anonymous]

I had this situation and decided to pay down aggressively ($5-7k per month). Basically had no savings during this time. Ended up debt free a few years later and started investing.

[Anonymous]

Anonymous wrote:I had this situation and decided to pay down aggressively ($5-7k per month). Basically had no savings during this time. Ended up debt free a few years later and started investing.

Should add that if you are confident the debt will be forgiven, then just make the minimum payments and nothing more — invest any extra money.

[Anonymous]

So your discretionary income per month is 16,000?!

[Anonymous]

Run the numbers:
What is your salary now?
How much do you project salary to increase in next 20 years?

[Anonymous]

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."

[Anonymous]

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

[Anonymous]

You are making way too much money for this plan. As you salary increases, won’t your money payment rise?

[Anonymous]

Even if it’s forgiven you will have to pay taxes on the forgiveness. That will be a huge tax bomb.

[Anonymous]

Which forgiveness program are you in, OP?

[Anonymous]

Just pay as much as you can. That’s a huge amount. Hopefully you make a ton and it’s worth it.

[Anonymous]

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.

[Anonymous]

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.

[Anonymous]

Start listening to Dave Ramsey podcast and read his books.
Downsize life style and live with one income.
Start eating rice and beans and beans and rice.

[Anonymous]

What I would do: calculate the Present Value of the future stream of payments you are likely to have to make before the money is forgiven. For the discount rate I would use the interest rate you can get elsewhere, e.g. 3 percent if you have equity in a house to borrow against.

Then compare that amount against the nominal debt outstanding.

If you owe 300k, but will have to make payments with a Present Value of 400K, I would try to refinance and pay down as quickly as possible. If you owe 300K but are likely to only have to make payments with a Present Value of 200K, then just pay the minimum and wait for it to be written off.

This is simple to do in excel.