Author Topic: Funky Student Loan Math! [Alaska, $230k Loans]  (Read 628 times)

STEMorbust

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Funky Student Loan Math! [Alaska, $230k Loans]
« on: January 11, 2019, 04:32:50 PM »
Hi Mustachians,

I recently posted about my GFís student loan situation and how weíre working to handle it as a couple. A curveball has been thrown in to the mix: the opportunity for her to work in Alaska. Weíre strongly considering it since I can take my remote job up there as well. This introduces interesting numbers that Iíd appreciate help sorting out!

Private Loan ($133k)
$133,230 @ 5.38% Fixed, 9 YR 1 MO ($1,560/mo)

Federal Loans ($101k)
- $4,577.02 @ 6.8%
- $4,457.84 @ 6.8%
- $14,122.92 @ 6.75%
- $1,066.60 @ 6.75%
- $21,974.33 @ 6%
- $24,233.58 @ 5.84%
- $22,807.01 @ 5.31%
- $3,278.23 @ 4.5%
- $3,118.96 @ 3.4%

Earner 1
Salary: $96,000
401k Cont: $19,000
AK Taxes: $17,584
Take-Home: $78,416 (More with off/on contracts)

Earner 2
Salary: $110,000 (PSLF Eligible Job)
IHS Benefit: $20,000*
401k Cont: 5% from employer, vested after 3 years
AK Taxes: $26,225
Take-Home: $83,776 (+$20k to loans)

Est. Annual Spending: $24,000 (free housing, but flights to lower 48 once per year or more)

*The IHS benefit is $20k towards federal loans per year. Starts immediately but no money is paid out until end of second year (treated as two-year contract with $40k bonus, then option to extend indefinitely for $20k per year).

What Iím trying to figure out is the best strategy to pay off the loans while putting any and all extra towards our savings/goal of FIRE. We donít want to be up there more than there years, but would consider it if all is going well. What would you recommend, given the provided parameters?

Specific Qís
- Should both of us be maxing 401k contributions during this time?
- Considering that this job is PSLF eligible, does it make sense to tackle the federal as fast as possible or should we minimize AGI and do 10 years in PSLF?

Old post for reference: https://forum.mrmoneymustache.com/case-studies/late-20s-with-$230k-in-student-loans-help-us-to-fire/msg2225987/#msg2225987

secondcor521

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Re: Funky Student Loan Math! [Alaska, $230k Loans]
« Reply #1 on: January 11, 2019, 04:53:19 PM »
- Considering that this job is PSLF eligible, does it make sense to tackle the federal as fast as possible or should we minimize AGI and do 10 years in PSLF?

Consider this data:

https://www.marketwatch.com/story/this-government-loan-forgiveness-program-has-rejected-99-of-borrowers-so-far-2018-09-20

STEMorbust

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Re: Funky Student Loan Math! [Alaska, $230k Loans]
« Reply #2 on: January 11, 2019, 04:59:08 PM »
- Considering that this job is PSLF eligible, does it make sense to tackle the federal as fast as possible or should we minimize AGI and do 10 years in PSLF?

Consider this data:

https://www.marketwatch.com/story/this-government-loan-forgiveness-program-has-rejected-99-of-borrowers-so-far-2018-09-20

Yes -- consensus, from what I've seen, is that the process has improved drastically. It would definitely be something to be mindful of while this job wrapped up and she made the choice between finding a PSLF eligible job or moving to private sector.

Apple_Tango

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Re: Funky Student Loan Math! [Alaska, $230k Loans]
« Reply #3 on: January 11, 2019, 05:20:47 PM »
I didnít see your first post so I donít know how serious you are about this GF. What I would do is take this job, move, and have the both of you  live off your salary and devote 100% of her salary to her debt. That way she could be debt free Somewhere between 3-5 years (imagining that about  $75,000 would go to loan repayment and $25,000 would go to taxes). I would max out your 401k, and I would have her contribute up to the match in hers. Hereís why I wouldnít do 10 year pslf: you have to hope she doesnít get screwed over by the program at the end of 10 years, and 10 years is a freaking long time to put her life on hold messing around with the debt and having to take jobs with the condition of PSLF instead of being able to negotiate for other jobs.

PSLF is a good second choice, but it would not be my first choice. But yes I would take the Alaska job if the pay and benefits allowed for a super fast pay-down relative to the current plan. I would not take the Alaska job if the only upside was PSLF.
« Last Edit: January 11, 2019, 05:23:59 PM by Apple_Tango »

STEMorbust

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Re: Funky Student Loan Math! [Alaska, $230k Loans]
« Reply #4 on: January 11, 2019, 05:31:19 PM »
I didn’t see your first post so I don’t know how serious you are about this GF. What I would do is take this job, move, and have the both of you  live off your salary and devote 100% of her salary to her debt. That way she could be debt free Somewhere between 3-5 years (imagining that about  $75,000 would go to loan repayment and $25,000 would go to taxes). I would max out your 401k, and I would have her contribute up to the match in hers. Here’s why I wouldn’t do 10 year pslf: you have to hope she doesn’t get screwed over by the program at the end of 10 years, and 10 years is a freaking long time to put her life on hold messing around with the debt and having to take jobs with the condition of PSLF instead of being able to negotiate for other jobs.

PSLF is a good second choice, but it would not be my first choice. But yes I would take the Alaska job if the pay and benefits allowed for a super fast pay-down relative to the current plan. I would not take the Alaska job if the only upside was PSLF.

Thank you. It would be a massive jump in income from her current salary of $65k with no IHS benefits. If we made the move, we’d do the paperwork to log PSLF but I think you’re right — after paying off private, gears should be switched to knocking out federal as well.


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peeps_be_peeping

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Re: Funky Student Loan Math! [Alaska, $230k Loans]
« Reply #5 on: January 11, 2019, 05:42:33 PM »

Est. Annual Spending: $24,000 (free housing, but flights to lower 48 once per year or more)


How much do you know already about cost of living in Alaska? If IHS is providing your housing, can I assume the job is not in Anchorage? Where is it? Bethel? Kotzebue?

Everyday necessities like food and gas are VERY expensive in rural Alaska. Not to say you can't figure out ways to save if you are frugal and make regular trips to Fairbanks or Anchorage to stock up. Here in Anchorage I often see people at Costco filling up giant Rubbermaid totes full of groceries for trips back to the village.

Also for remote work you might want to check into high speed internet availability. Some areas have excellent high speed internet, some don't. Either way it will be more expensive than the lower 48.

No matter what it looks like an amazing opportunity. You might even find yourself falling in love with Alaska and staying forever. My parents thought they would move to AK for 2 years back in 1975 and they are still here.

Edited to add that health care providers are overpaid in Alaska. This is definitely true for specialty physicians and I assume other providers are also earning more than in the lower 48, though probably not quite so much more. Here's a quote in case you cannot read the article linked below: "As an orthopedic surgeon in Juneau, [Dr.] Gross said he worked three to four days a week and earned up to $2.5 million a year. He made that much money performing only five or six surgeries a week. Many surgeons do more and can make proportionately greater incomes, he said." https://www.adn.com/opinions/2017/12/03/this-doctor-quit-his-practice-disillusioned-now-he-works-to-reform-alaskas-overpriced-health-system/
« Last Edit: January 11, 2019, 05:50:51 PM by peeps_be_peeping »

STEMorbust

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Re: Funky Student Loan Math! [Alaska, $230k Loans]
« Reply #6 on: January 11, 2019, 06:24:22 PM »


All spot on!

The job is in Kotzebue. COL seems like it would be especially reasonable because: free housing, no vehicle, hunt/fish for meat, buy bulk at Costco in Anchorage and fly supplies back. Flights to our home state to visit family would be $1k per person, once or twice a year.

An option that we'd consider would be having her in Kotz and myself working and living in Anchorage, but flying up regularly to visit. One trip per month would be $300 RT, and would give me the opportunity to bring food/supplies regularly. This would be especially relevant if the internet up there couldn't support my remote work (pretty heavy data stuff).

Alaska is a beautiful, humbling place. I've been fortunate to visit twice (although once was when I was a toddler). I think we'd greatly enjoy our few years there, but would likely move back to New England once kids were in the picture in order to satisfy the gradually intensifying thirst for grandchildren from both sides of the family.

PS That is outrageous about surgeon/health care earnings. I wonder if the White Coat Investor has covered the perks of doing a few years in AK to hit FIRE near-immediately.

peeps_be_peeping

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Re: Funky Student Loan Math! [Alaska, $230k Loans]
« Reply #7 on: January 11, 2019, 06:46:29 PM »
Quintillion serves up high speed internet in Kotz with a brand new fiber optic cable system that came online December 2017.

I wouldn't necessarily count on hunting and fishing to supplement your grocery budget. My understanding is that both activities require a level of skill, knowledge of the land, experience, and time that I have never been willing to develop or invest. Now I'm a vegetarian so I don't think I ever will! Someone once told me only 20% of moose hunts are successful. But you may be the expert that I am not. :-)

You might want an ATV to get around Kotz instead of a car. You can walk but will you want to when it's really cold and dark and windy? Taxis are available but ridiculous, like $20 to go 1/2 a mile.

Are you a dog person? Cause if you do you will want to adopt them all. No veterinarians in the village means sooooooo many adorable puppies everywhere.

Living separately may not be a bad idea if you can handle it. Your GF probably would appreciate a weekend in Anchorage at least once a month. I am excited for you!

STEMorbust

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Re: Funky Student Loan Math! [Alaska, $230k Loans]
« Reply #8 on: January 11, 2019, 10:38:13 PM »
Quintillion serves up high speed internet in Kotz with a brand new fiber optic cable system that came online December 2017.

I wouldn't necessarily count on hunting and fishing to supplement your grocery budget. My understanding is that both activities require a level of skill, knowledge of the land, experience, and time that I have never been willing to develop or invest. Now I'm a vegetarian so I don't think I ever will! Someone once told me only 20% of moose hunts are successful. But you may be the expert that I am not. :-)

You might want an ATV to get around Kotz instead of a car. You can walk but will you want to when it's really cold and dark and windy? Taxis are available but ridiculous, like $20 to go 1/2 a mile.

Are you a dog person? Cause if you do you will want to adopt them all. No veterinarians in the village means sooooooo many adorable puppies everywhere.

Living separately may not be a bad idea if you can handle it. Your GF probably would appreciate a weekend in Anchorage at least once a month. I am excited for you!

That's great to know. We've heard that having an ATV or snowmobile is a good idea. We'll know at the beginning of this week if she gets the official offer! If you don't mind, I'll take that chance to ask you some more questions about how I might better prepare for the move.

I'm not sure what other questions I have on financials at this point. Looks like we'd proceed with having her put everything towards the loans while I maxed my 401k and paid any bills. To be continued!

kwarden13

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Re: Funky Student Loan Math! [Alaska, $230k Loans]
« Reply #9 on: January 12, 2019, 07:48:54 AM »
So my fiancť is from Alaska and it is one of the most expensive community in Alaska. Not saying this is not a good move but I think your costs will be a lot higher. Also, quality of life is something to consider. There are no roads that go to that area - only barges and planes. It is in the attic circle which will be very extreme for weather. Personally, I would not enjoy living there and would try to find another job opportunity in the lower 48. The money bump really isnít that much after factoring in quality of life, location, and other costs.

http://www.thearcticsounder.com/article/1449store_to_bring_lower_prices_to_kotzebue

Dr Kidstache

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Re: Funky Student Loan Math! [Alaska, $230k Loans]
« Reply #10 on: January 12, 2019, 10:15:47 AM »
IHS is a great way to go for any health care worker who is interested. I'm guessing by salary that your GF is not a doctor? Doctors especially have some great benefits to working for IHS through a career in the Public Health Service. I don't know about other benefits for non-doctors. But IHS has fabulous opportunities all over the country. If you know this particular community in AK and are interested in living there, great! But the same loan repayment is available at other IHS sites that have lower costs of living and are more accessible. My favorite IHS gig was in Chinle, AZ in Navajo Nation. Have you and GF looked at other IHS opportunities?

Peachtea

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Re: Funky Student Loan Math! [Alaska, $230k Loans]
« Reply #11 on: January 12, 2019, 11:01:13 AM »
Wow, what an awesome opportunity. I canít imagine COL being so high as to wipe out a $65k pay bump plus free housing. If your GF buckles down she can wipe out all her SL in 3 years with this move. No need for PSLF. Iíd also consider 3 years in Alaska together an adventure. If your relationship survives such a drastic change, Iíd say youíll be set for the long haul. This is what I would do.

You - max your 401k, IRA, and HSA (if applicable). This is your oxygen mask. Then consider the free rent youíre eligible for via GF in exchange for you picking up all joint household expenses (groceries, utilities, occasional outings, etc.). This allows GF to use almost all income towards SL.

GF - puts in 5% 401k to get match, picks cheapest insurance avail.

She should sign up for PAYE federal SL repayment plan (she has all direct loans for fed loans, right?) to keep fed payments low, while knocking out the private loans first. She should also fill out the employer cert annually for PSLF (just in case things donít work out).

- the rationale for private first is that her 20k loan benefit is only for federal loans, so makes sense to let that pay off fed loans instead. Plus fed loans are more flexible than private ones.

So 110k - 26k taxes - 5500 401k - 7500 fed loan min payments (est) - 3k insurance (est) = 68k - 1k flights - 3000 personal allowance* = 64k to private loans.

- Does she have to put into the fed pension? Iím required to put in like 4.5%, so thatís something to consider when estimating numbers. (If she doesnít stay to 5 year vest, she can cash out her contributions when leaving.) But I donít know how IHS works, if they put into fed pension.

Year 1
133 - 64k + 7k interest (est) = 76k private
100 fed (min payments should mostly cover interest)

Year 2
76 - 64k + 4K interest = 16k private
100 fed - 40k loan benefit = 60k fed

Year 3
16k +1k interest - 17k payment = 0 private
60k fed - 20k loan benefit - 40k extra payment = 0 fed
64 - 17k p - 40k f = 7k put in IRA or towards move costs back to lower 48.
This year I would make sure to leave 20k fed to be wiped out by loan benefit at end. Also, this year if you decide you love Alaska and want to stay longer, I would put the extra 40k payments towards retirement and/or start splitting costs, and let the loan benefit wipe out fed balance in next 2 years instead.

*personal allowance sounds patronizing in the context of you proposing it to her, but I mean it in the context of her setting her own allowance. Both my DH and I have ďallowances.Ē