Author Topic: student loan forgiveness  (Read 324 times)

Magnum FI

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student loan forgiveness
« on: December 05, 2017, 01:26:43 PM »
Hey all, I have a student loan question. 

I have $57k in student loans (rates ~6.3% avg).  I work at a non-profit hospital and therefore qualify for loan forgiveness (after 120 payments).  The loans will begin to be forgiven in 2022 and the last ones will be forgiven in 2025.  According to my current income and payment rate I'll be relieved of ~$14k of student loan debt.  From what I can tell if I keep paying my current amount on the income based repayment plan ($584/mo) for the next 8 years it will total $56k, meaning that accounting for the forgiveness this makes my effective interest rate slightly negative. 

As a result of this I'm trying to do what I can to reduce my payment as much as possible in order to get the maximum benefit.  Most of this is reducing my adjusted gross income so that the income based payments are minimal.  However, I think my spouse's student loan burden also factors into the equation for the income based repayment plan, although I'm not sure to what degree.  So I'm also making minimal payments on her loans (23k total, with a rate of 2.75%) to try to keep them around for as long as possible .  We'll probably just pay them off once mine are relieved.  She is not eligible for loan forgiveness by the way. 

Current payment reduction strategies:
-Max out 403b plan
-Max out 457 plan
-max out traditional IRAs for my wife and myself
-use flex spending health care account (FSA)
-Paying my wife's student loans off as slowly as possible as well.

 Does anyone have any other ideas/strategies?  I've toyed with the idea of starting a company and do freelance work in order to access some of the self employment retirement plans, but I'm not ready to pull the trigger on that yet.  Any low hanging fruit that I'm missing?

Thanks for reading

APBioSpartan

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Re: student loan forgiveness
« Reply #1 on: December 05, 2017, 02:09:37 PM »
Personally, and I'll probably get some super face punches for this, I didn't wait on the student loan forgiveness program.  Part of it was that I didn't trust it to still be around in 10 years.  Another part of it was that I didn't know (for certain) whether or not I would still be working in Healthcare.  So instead, I just buckled in, refinanced with SoFi, and slayed the fire-breathing beast of a student loan that I had ($63,000).  In retrospect, I'm kind of glad that I did that... I now work on the healthcare insurance side of the house and I no longer have that balance hanging over my head. That's just me though! 

tharidumuf

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Re: student loan forgiveness
« Reply #2 on: December 05, 2017, 06:17:24 PM »
There is currently a bill that includes dismantling of the PSLF program. If passed, I hope current participants are grandfathered in. The promise of PSLF led many individuals to seek lower paying government positions.

Peachtea

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Re: student loan forgiveness
« Reply #3 on: December 06, 2017, 08:47:58 PM »
If I were in your situation, I would pay off your loans as quick as possible and be done with it. $14,000 forgiven isnít that much when considering the PLSF restrictions. And you can save some of that amount just by not paying interest for another 8 years (by paying them off early). I donít find the forgiveness estimate on the repayment calculator super helpful. Instead you should compare the total (estimated) amount you will pay after PSLF to the total amount you will pay if you make early payments. (I use the bankrate mortgage calculator and just enter 0 for downpayment.) Take the difference and ask if that is worth the limits PSLF puts on your career for the next 8 years. Or the worry about the PSLF program going away without grandfathering before your loans are forgiven.

I say this as someone who is doing PSLF.  But I will have a +$150,000 difference between PSLF and paying it off early.  So for me, 7 more years is worth all the catches and risks. Especially since it would take me another 5 ish years to pay it off early anyways.

Other thoughts:
1) How is that you have some loans eligible for forgiveness in 2022 and others 2025? Did you work full time while going to school and make payments during school? Or take a three year gap between undergrad and grad school? I just want to make sure when youíre calculating your forgiveness dates,  you know that all 120 payments under PLSF have to be made while in a job eligible for forgiveness and while working full time. Also if you have multiple loans be careful that they all qualify for forgiveness. Unconsolidated stafford and Perkins loans donít qualify. And itís probably not worth consolidating at this point, because if you consolidate then any payments made before consolidation donít count towards your 120 payments.

2) Your IBR payment seems high. I have a high income, way more loans, and only pay $425. But I am under PAYE instead IBR. If you qualify for PAYE you should switch - its only 10% instead of 15% of your income (after AGI and etc.) But I guess payments are also different depending on your stateís poverty rate.

3) You should use the payment estimator to see whether your minimum payments would be significantly lower if you file taxes separately (married filed separately vs married filed jointly). My husband and I file separately to keep my payments lower. Under IBR and PAYE if you file separately, they do not count your spouses income when calculating the payment.  We compared the amount saved in loans payments to the amount we would lose in tax deductions. Filing separately won out by thousands. Some tax deductions you lose are those for IRA accounts (but not for employer sponsored retirement vehicles) and student loan interest.

Finances_With_Purpose

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Re: student loan forgiveness
« Reply #4 on: December 06, 2017, 09:30:22 PM »
Personally, and I'll probably get some super face punches for this, I didn't wait on the student loan forgiveness program.  Part of it was that I didn't trust it to still be around in 10 years.  Another part of it was that I didn't know (for certain) whether or not I would still be working in Healthcare.  So instead, I just buckled in, refinanced with SoFi, and slayed the fire-breathing beast of a student loan that I had ($63,000).  In retrospect, I'm kind of glad that I did that... I now work on the healthcare insurance side of the house and I no longer have that balance hanging over my head. That's just me though!

You get nothing but respect here.

The loan forgiveness programs pit you against yourself.  (Financially speaking.)  This case study is a great illustration of that.  (No offense to the author - in fact, I think you're doing the best you can with it.) 

Finances_With_Purpose

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Re: student loan forgiveness
« Reply #5 on: December 06, 2017, 09:34:22 PM »
@Peachtea gave an excellent response.  Do that.

I would strongly consider paying them off anyway. You're not saving that much, from what you have posted, and you rid yourself of the anchor and the uncertainty.  Definitely try the calculation the way @Peachtea suggested - I was thinking the same as I read your post.  That's the easy way to see the size of the difference by the last year. 

Then, you can begin organizing your life around productivity instead of avoiding reported income. 

Also, you may want to double-check whether you can do a TIRA if you are also contributing to a 403b - I would think in most cases you couldn't.