Author Topic: Student Loans / Housing / Kids / Los Angeles  (Read 5345 times)

uneven_cyclist

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Student Loans / Housing / Kids / Los Angeles
« on: May 03, 2019, 01:32:05 AM »
Hello forum, I am hoping to get your advice about what might be the best steps for me to take as I make financial / life plans with my wife and family in Los Angeles.

Our situation in a nutshell:
We are expecting a child in December
We live in LA in an $1800/month one-bedroom apartment. It's expensive here, but we have family in LA, so that's why we are here.
She is a school principal earning 90K; I am a manager at a retail store earning 40K.
She has a $115K student loan.
She probably has about 50K in retirement savings, I have about 20K.
I have another 12K in index funds/ETFs, she has roughly 5K in cash savings/emergency fund savings.
She has a Prius worth 9K, I have a Subaru Forester worth 6K, both paid off.  I would like to sell the cars and get a single electric vehicle, but have not done it yet.

Our goals:
1) Pay off her student loan
2) Buy a house
3) Get out of our apartment in the near future so that we have a bit more space for when our baby is born--whether that means buying a house, or moving temporarily to a larger apartment.
4) Save as much as possible and retire as soon as we can.

With all of that in mind, I am particularly curious about what advice the forum might have with regard to accomplishing goals 2 and 3: buying a house and/or moving to a larger apartment.  Do folks think that it would be wise for us to take on a mortgage on top of her 115K student loan?  Or, would it make more sense to pay down the loan for a couple/few years and then spend some time saving for a down payment, and then make efforts to buy a house farther down the line?  I have not tried to apply for any loans at this point, and have no idea what types of terms we might qualify for etc.  In LA, most 3-bedroom townhouses that I see on Zillow seem to start around 600K which, to a lifelong renter, feels astronomically expensive.

My fear with buying is that we might take on more debt than we could handle and that the house might have unforeseen costs that would make it more expensive than our current rental. 

However, my fear with renting is that the rates on both rentals as well as on property for sale will continue to rise until a point where we might no longer be able to afford to buy and where the cost of renting would be debilitating.

I recognize that much of our problem has to do with the fact that we are in LA, where property costs a fortune.  However, I would also hate to leave our family behind. 

I would be grateful for any input and advice that the forum might be able to provide.

Thank you for taking time to look this over. 

Watchmaker

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #1 on: May 03, 2019, 09:32:59 AM »
What interest rate are the student loans at? If it's above ~5% I'd pay it off aggressively, if it's below that I'd just keep paying the minimum.

Combined you make 130k. I know people make different calculations in HCOL areas, but there's no way you could convince me that you should be buying a 600k house at that income. What would rental of a larger apartment or SFH cost in the areas you'd want to live?

How much do you spend each year right now? And how much are you saving?




   

ixtap

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #2 on: May 03, 2019, 10:22:08 AM »
The baby won't be mobile (rolling over) for at least 3, probably 4, months after it is born. That is a year from now. Even then, many families make do in a one bedroom for a couple of years. Keeping it small means you won't accumulate as much of the baby stuff. You can always tell do gooders "You know we don't have room for that!" For LA, it sounds like you have a good deal. Don't be in a rush to move on.

Don't let FOMO make your housing decisions. Renting is superior to buying in most markets of Southern California. If you save the difference, you will have more and more options as time goes on, not less. Y'all don't even have a down payment, you barely have an emergency fund, as the current taxable accounts listed cover 9 months rent, if you don't eat. Do you know how much the birth will cost, assuming no complications?

As for the cars, what is the plan for charging an electric vehicle? How do you currently use the separate vehicles? If used to 2, going to 1 requires a lot of communication. It has been over a year since my husband drove consistently and he still forgets that he needs to plan ahead. Do it now, so that you have plenty of time for new habits before the baby comes.

legalstache

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #3 on: May 03, 2019, 12:11:52 PM »
What's the plan for caring for the baby? Are you going to stay home, your wife, family help? Obviously how this shakes out could have a significant effect on your future income.

Do you have any options for increasing your income? That would probably be the quickest way to get you closer to your goals.

leavesofgrass

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #4 on: May 03, 2019, 12:31:27 PM »
Goals #2 and #3 may significantly delay #4.

I wouldn't buy a house, especially one that was $600K+ on your income. I think living in a 1 bedroom with a kid should work for a few years at least.

If you are currently living in a non-rent controlled apartment, I can understand the worry of being priced out of your rental. I'd start looking at other apartment options in areas with good schools, particularly ones that are rent controlled. With a lot of hunting, you can probably find a great option at a similar price point to what you're at now. I live in LA too, and all my apartments have been rent-controlled and found via Craigslist. (I check the listings several times a day, because good places go very quickly).

Can you increase your income? Career change perhaps?

I'd also really think about your car plan. The costs savings of buying 1 electric vehicle  may not outweigh the benefit of 2 paid-off vehicles, especially with a kid. It sounds very challenging if you're not living somewhere where it's easy to commute to work via bike/public transportation for one of the working parents. Why not just keep the 1 Prius, which already has great gas savings and is paid off?


cincystache

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #5 on: May 03, 2019, 07:26:13 PM »
Congrats on the new baby! I would try the 1BR out for the first year of the baby's life and see how it goes. Buying probably isn't a good idea in your situation. Pay off the student loans first. If you want to go to one car just keep the prius as others have said. No reason to get a new electric car right now.

I'd focus on getting your income up. I know it is easier said than done. Median income is 69k in LA and with your wife's income cleaning up the student loans it would help if you could hit median income on your own.

Are there opportunities to move up in your company. You say you're a manager, 40k seems pretty low. Do you have any other skills or job options? Can you start a side hustle or get a second job between now and when the baby comes?




Peachtea

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #6 on: May 04, 2019, 07:42:54 AM »
Your wife is a principal...does she work at a public school? Are her loans PSLF eligible?

Laserjet3051

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #7 on: May 04, 2019, 04:07:29 PM »
I live a bit south from you but am familiar with most markets in socal. For comparison, our household income is more than yours, we have much less student loan debt, and in my opinion, our family still cannot afford to buy in this market (homes in our area are similar to what you quoted).  As another poster pointed out, in socal, it is generally significantly cheaper to rent than buy, all other things being equal.

Do you have 20% downpayment?
Do you have 12 months EF? (if you lose your job and it takes you quite some time to find another equally paying one, how will you pay the mortgage)?
How secure are your jobs? Can you say (like some other posters on this board), that there is little to no chance of being terminated?
Would you be able to fund and maintain an annual house maintenance fund => 1% of the purchase price ($6k/year)?
How long would you plan to stay in that specific home? =>6 years is recommended

IMHO, I've already been priced out of this market.

uneven_cyclist

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #8 on: May 04, 2019, 11:52:53 PM »
Hi All, thanks for the replies and input.  From conversations I've had with folks in the past few days and from the replies in this thread, I think that I will:
1) Delay purchase of a home, at least for the time being.
2) Re-assess the idea of buying a house once we have boosted our income and saved a bit more money farther down the line--maybe we could build careers in LA and then consider moving to a location where cost of living is more reasonable in the future?
3) Continue to work on efforts to earn more money -- I am currently working on building a career in web design and graphic design.

Answering a couple of questions from above:
*Interest rates on the loans are currently around 8% but we will be refinancing/consolidating them to bring the rate down to something more like 5% or a little less through SoFi or something similar.  She is eligible for loan forgiveness -- however, that would not take effect until about 10 years from now, by which time we would likely have paid the full amount of the loan even at the minimum payment amount.
*Paying back this loan is our first priority right now financially -- however, I also can't escape the feeling, as a renter, that I am just setting money on fire every month. 

Thanks all for input and advice, I really appreciate it.

MoseyingAlong

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #9 on: May 05, 2019, 12:53:34 AM »
-- however, I also can't escape the feeling, as a renter, that I am just setting money on fire every month

This is a mindset that is really, really tough to change. It's counter-culture for many of us.
Do you think the money you spend on groceries every month is set on fire?
Maybe instead of buying from the grocery store, you "should" buy a homestead so you'll always be able to provide your own. That seems a little extreme to me but I hope it makes my point.

Food and shelter are recurring needs and paying for them is not setting money on fire.
The rent vs. buy calculations are like smart grocery shopping. How can you provide your needs at the lowest cost? And invest as much as possible to reach FI as soon as possible.

Best wishes.

uneven_cyclist

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #10 on: May 06, 2019, 05:36:26 PM »
I live a bit south from you but am familiar with most markets in socal. For comparison, our household income is more than yours, we have much less student loan debt, and in my opinion, our family still cannot afford to buy in this market (homes in our area are similar to what you quoted).  As another poster pointed out, in socal, it is generally significantly cheaper to rent than buy, all other things being equal.

Do you have 20% downpayment?
Do you have 12 months EF? (if you lose your job and it takes you quite some time to find another equally paying one, how will you pay the mortgage)?
How secure are your jobs? Can you say (like some other posters on this board), that there is little to no chance of being terminated?
Would you be able to fund and maintain an annual house maintenance fund => 1% of the purchase price ($6k/year)?
How long would you plan to stay in that specific home? =>6 years is recommended

IMHO, I've already been priced out of this market.


Thanks Laserjet3051 for these guidelines on renting vs. buying -- they can help inform decisions about whether to rent vs. buy.  I had not considered the idea of having a 1% house maintenance fund, although it certainly makes sense.  As for the other questions, I would say that I feel close enough on most of it--as a renter.  i.e. We both have emergency funds to last us for a few months of unemployment, and we have jobs that seem secure enough. 

However, if we were to buy a house, then the down payment would eat up just about all of what we have saved during the past few years, at which point we would be starting over.  I feel fine with the idea of putting off buying for a little while at this point, but I am still eager to figure out when (or if) I should try to make a purchase.

Right now I have the books "Home Buying Kit for Dummies" and "How to Buy a Home When You Can't Afford It."  Are there any other books or resources that folks recommend for making the determination to buy vs. rent?  One poster above mentioned that renting is, in general, the better way to go in Southern California.  This makes sense to me in many situations, but I have to think that there are certain scenarios in which it makes more sense to own property rather than to rent it.  What do those situations look like?

I understand the basics as far as this goes: people with lower incomes, lower credit, and less money accumulated for a down payment will be forced to pay more for their homes in the long run because they will have to finance a larger amount of the initial cost and because they will not be able to do so on the kind of favorable terms as wealthier buyers.

However, with all of this in mind, would it not be a fairly simple matter to get onto SoFi or Rocket Mortgage or any of a number of other sites to figure out what the month-to-month cost of buying would be and then plan a budget from there?

I have not actually applied for any loans at this point, so I really have no idea what we might be looking at in terms of interest rates and so on.   

Two questions then:
1) At what point does it make sense to buy in Southern California?
2) Are there any folks who bought a home (in SoCal or elsewhere) who are happy with their choice or who regret their decision, and would you be willing to share your advice?

Thank you for taking time to look this over. 

waltworks

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #11 on: May 06, 2019, 05:55:22 PM »
You need to figure out how to either drastically increase your income, or else how you'll balance childcare and work between the two of you - because if you're only making $40k/year before taxes, you might as well quit your job and stay home (unless your wife's school has subsidized daycare of some kind).

You are not on a <10 year plan for house buying (unless you move to a LCOL area), IMO. Incomes too low/houses too expensive/too much debt. Sorry.

In your shoes, I would stay in the apartment as long as possible, pay down the loans as fast as possible, and then reassess in a couple of years.

-W

Peachtea

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #12 on: May 06, 2019, 07:27:04 PM »
OP I feel like you donít really understand loan forgiveness b/c your response doesnít really make sense. Maybe Iím wrong due to lack of details and filling in with assumptions, but Iím going to give you a detailed explanation and hopefully itís helpful in making an informed choice.

Iím specifically talking about PSLF and your wife would be eligible if she works for a public school, has all federal direct loans or consolidates her federal loans to federal direct loans, and applies for an income based repayment plan. If she is on an income based repayment plan, the payments are less than the normal 10 year amount. Since the balance is forgiven with no tax consequences, this means you pay less in that 10 year period and can put that money elsewhere like retirement accounts or say extra rent for a larger place when you have a kid.

I can give more specific info if you provide more details.How long has your wife worked at a public school? Are all her loans direct federal loans (word direct is somewhere in title of the loan)? When did she occur the loans, pre or post 2007, before or after she started working for a public school? What payment plan is she on?

For example, if you consolidate using Sofi or another private company, you lose the federal benefits. If you get a 5% interest rate for 115k and 10 repayment schedule, thatís $1220 a month in payments. With a federal repayment plan like REPAYE, based on your income and assuming no retirement contributions that would be a $872 a month. But PSLF also encourages you to save for retirement (traditional accounts only, Roth doesnít count) by reducing your payment the more you put in a 401k or IRA since itís based on your AGI. So if you max two 401ks (38k a year combined), your monthly payment drops to $555 a month. Add a kid and it drops to $500 a month. If your income goes up, so does your payments, but if your wife has access to a 403b she can stash even more in retirement to keep payments down. Hereís the repayment calculator to estimate based on various incomes etc:

https://studentloans.gov/myDirectLoan/repaymentEstimator.action?_ga=2.16679477.2046159223.1557190475-832702481.1556456894#

At your income, PSLF + maxing 401ks would both let you save for retirement now and be rid of the loans in 10 years (if you have to start from scratch). I estimate maxing 401ks would save you $9650 in federal and state taxes a year, plus it lowers her payments $7,980 a year. Essentially itís like getting 38k in savings for only $20,370, which is only about 15% of your income and IMO the minimum you should be putting towards retirement.

Also for rent vs buy, check out the nytimes calculator which takes all the variables into account compared to just a mortgage calculator.

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

leavesofgrass

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #13 on: May 06, 2019, 07:31:13 PM »
You need to figure out how to either drastically increase your income, or else how you'll balance childcare and work between the two of you - because if you're only making $40k/year before taxes, you might as well quit your job and stay home (unless your wife's school has subsidized daycare of some kind).

You are not on a <10 year plan for house buying (unless you move to a LCOL area), IMO. Incomes too low/houses too expensive/too much debt. Sorry.

In your shoes, I would stay in the apartment as long as possible, pay down the loans as fast as possible, and then reassess in a couple of years.

-W

Completely agree. Even if you didn't have any debt or upcoming childcare expenses, I don't see how you can afford a $600K house on a $130K income.

You should focus on getting rid of that debt ASAP.

Reassess the house purchase once you have your kid and pay off your debt.

uneven_cyclist

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #14 on: May 06, 2019, 10:50:31 PM »
OP I feel like you donít really understand loan forgiveness b/c your response doesnít really make sense. Maybe Iím wrong due to lack of details and filling in with assumptions, but Iím going to give you a detailed explanation and hopefully itís helpful in making an informed choice.

Iím specifically talking about PSLF and your wife would be eligible if she works for a public school, has all federal direct loans or consolidates her federal loans to federal direct loans, and applies for an income based repayment plan. If she is on an income based repayment plan, the payments are less than the normal 10 year amount. Since the balance is forgiven with no tax consequences, this means you pay less in that 10 year period and can put that money elsewhere like retirement accounts or say extra rent for a larger place when you have a kid.

I can give more specific info if you provide more details.How long has your wife worked at a public school? Are all her loans direct federal loans (word direct is somewhere in title of the loan)? When did she occur the loans, pre or post 2007, before or after she started working for a public school? What payment plan is she on?

For example, if you consolidate using Sofi or another private company, you lose the federal benefits. If you get a 5% interest rate for 115k and 10 repayment schedule, thatís $1220 a month in payments. With a federal repayment plan like REPAYE, based on your income and assuming no retirement contributions that would be a $872 a month. But PSLF also encourages you to save for retirement (traditional accounts only, Roth doesnít count) by reducing your payment the more you put in a 401k or IRA since itís based on your AGI. So if you max two 401ks (38k a year combined), your monthly payment drops to $555 a month. Add a kid and it drops to $500 a month. If your income goes up, so does your payments, but if your wife has access to a 403b she can stash even more in retirement to keep payments down. Hereís the repayment calculator to estimate based on various incomes etc:

https://studentloans.gov/myDirectLoan/repaymentEstimator.action?_ga=2.16679477.2046159223.1557190475-832702481.1556456894#

At your income, PSLF + maxing 401ks would both let you save for retirement now and be rid of the loans in 10 years (if you have to start from scratch). I estimate maxing 401ks would save you $9650 in federal and state taxes a year, plus it lowers her payments $7,980 a year. Essentially itís like getting 38k in savings for only $20,370, which is only about 15% of your income and IMO the minimum you should be putting towards retirement.

Also for rent vs buy, check out the nytimes calculator which takes all the variables into account compared to just a mortgage calculator.

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

Hi Peachtea,
Thank you for the detailed info!  It helps to get advice from someone who knows the system.  Her loans are currently Stafford (unsubsidized and subsidized) and Grad PLUS loans, neither of which qualify for PSLF.  However, she could consolidate the loans and reconsolidate through PSLF; her job does qualify her for this.  We have considered this, but one concern that we have is that with the current state of affairs in the US Dept. of Education, we worry about a scenario in which we might invest 10 years of making minimum payments only to end up not being forgiven after some kind of change taking place within the Department that would change the nature of the loan.  This feels like a significant risk to us.  She has regularly gotten conflicting information when calling in the Dept. of Ed. to ask for help and information about the loans and at one point she thought that they were going to be forgiven two years ago, but then it turned out that that was not the case.  She has been making minimum payments for 9 years at this point. From what we understand, the interest rate under consolidation would come out to roughly 6% and the interest rate under consolidation through SoFi or similar would be between 4% and 5%.  At this point we are eager to simplify the loan and knock it out and to then move on toward accomplishing other financial goals.  What do you think?

uneven_cyclist

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #15 on: May 07, 2019, 12:45:19 AM »
OP I feel like you donít really understand loan forgiveness b/c your response doesnít really make sense. Maybe Iím wrong due to lack of details and filling in with assumptions, but Iím going to give you a detailed explanation and hopefully itís helpful in making an informed choice.

Iím specifically talking about PSLF and your wife would be eligible if she works for a public school, has all federal direct loans or consolidates her federal loans to federal direct loans, and applies for an income based repayment plan. If she is on an income based repayment plan, the payments are less than the normal 10 year amount. Since the balance is forgiven with no tax consequences, this means you pay less in that 10 year period and can put that money elsewhere like retirement accounts or say extra rent for a larger place when you have a kid.

I can give more specific info if you provide more details.How long has your wife worked at a public school? Are all her loans direct federal loans (word direct is somewhere in title of the loan)? When did she occur the loans, pre or post 2007, before or after she started working for a public school? What payment plan is she on?

For example, if you consolidate using Sofi or another private company, you lose the federal benefits. If you get a 5% interest rate for 115k and 10 repayment schedule, thatís $1220 a month in payments. With a federal repayment plan like REPAYE, based on your income and assuming no retirement contributions that would be a $872 a month. But PSLF also encourages you to save for retirement (traditional accounts only, Roth doesnít count) by reducing your payment the more you put in a 401k or IRA since itís based on your AGI. So if you max two 401ks (38k a year combined), your monthly payment drops to $555 a month. Add a kid and it drops to $500 a month. If your income goes up, so does your payments, but if your wife has access to a 403b she can stash even more in retirement to keep payments down. Hereís the repayment calculator to estimate based on various incomes etc:

https://studentloans.gov/myDirectLoan/repaymentEstimator.action?_ga=2.16679477.2046159223.1557190475-832702481.1556456894#

At your income, PSLF + maxing 401ks would both let you save for retirement now and be rid of the loans in 10 years (if you have to start from scratch). I estimate maxing 401ks would save you $9650 in federal and state taxes a year, plus it lowers her payments $7,980 a year. Essentially itís like getting 38k in savings for only $20,370, which is only about 15% of your income and IMO the minimum you should be putting towards retirement.

Also for rent vs buy, check out the nytimes calculator which takes all the variables into account compared to just a mortgage calculator.

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

Hi Peachtea,
Thank you for the detailed info!  It helps to get advice from someone who knows the system.  Her loans are currently Stafford (unsubsidized and subsidized) and Grad PLUS loans, neither of which qualify for PSLF.  However, she could consolidate the loans and reconsolidate through PSLF; her job does qualify her for this.  We have considered this, but one concern that we have is that with the current state of affairs in the US Dept. of Education, we worry about a scenario in which we might invest 10 years of making minimum payments only to end up not being forgiven after some kind of change taking place within the Department that would change the nature of the loan.  This feels like a significant risk to us.  She has regularly gotten conflicting information when calling in the Dept. of Ed. to ask for help and information about the loans and at one point she thought that they were going to be forgiven two years ago, but then it turned out that that was not the case.  She has been making minimum payments for 9 years at this point. From what we understand, the interest rate under consolidation would come out to roughly 6% and the interest rate under consolidation through SoFi or similar would be between 4% and 5%.  At this point we are eager to simplify the loan and knock it out and to then move on toward accomplishing other financial goals.  What do you think?

I'm going to look into this more Peachtea -- it would be a challenge for us to put 37K / yr into retirement savings, but we could probably come close.  One hurdle is that my employer does not have a 401(K).  I have been curious about solo 401(K) plans, and maybe I'll look into that.

Still my biggest concern would be that we might somehow make a mistake and then end up at a point 10 years from now, thinking that we had done everything right, and that the loans should be forgiven, only to discover that we had made some tiny mistake at some point and that we had to start all over again. 

Thank you again for your advice -- I appreciate any and all suggestions that might help us in this situation. 

noplaceliketheroad

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #16 on: May 07, 2019, 05:18:25 PM »
PTF, here for the buying vs. renting advice in los angeles.

what is a good rule of thumb on how much house someone can afford? (assuming 20% down payment is saved) 3x yearly income? gross? net?

ysette9

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #17 on: May 07, 2019, 06:12:25 PM »
Iíd recommend checking out to resources that the White Coat Investor has on his website for ha sling student loans. It is a complex subject, from what I gather, and you absolutely want to understand everything and get it right. He even recommends student loans advisors who you can pay for an advising session to help you plan the best course of attack.

His message is aimed at high income, high debt medical professionals, but a lot of it would be applicable to your situation as you have a lot of student debt as compared to your household income.

ysette9

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Student Loans / Housing / Kids / Los Angeles
« Reply #18 on: May 07, 2019, 06:20:41 PM »
PTF, here for the buying vs. renting advice in los angeles.

what is a good rule of thumb on how much house someone can afford? (assuming 20% down payment is saved) 3x yearly income? gross? net?
I started the other way around. What were our big goals in life? What would it take to fund those goals? By when do we want to achieve these goals? From there, how much do we need to be saving each month to make that plan happen?

Once you know how much you want to be saving, you can back out how much is left to spend on things like housing and anything else you want in life. From your monthly housing allowance you can determine how much house you can afford, should you chose to buy.

In our case we decided that our number one Big Goal in life was to retire by X date. From that decision everything else flowed. How much we spend determines how much we have to have invested to be able to retire. How much we need to retire determines how much we need to be saving each month in order to meet that goal in our stated timeframe. Whatever money is left over can then be spent on housing (and food and everything else .....). Finally that last number can be put in a mortgage affordability calculator to see what purchase price matches up to that monthly payment.

Get your Big Goals right first. Why do you want to buy? Where? When? Donít just buy because society tells you it is The Thing To Do. Been there, done that, and it doesnít necessarily lead to the best outcomes.

Peachtea

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #19 on: May 07, 2019, 06:21:33 PM »
I donít want to get your hopes up, but both those type of loans can be direct loans eligible for forgiveness. Stafford loans can be direct or the very old ones are not; Iíve never heard of non-direct plus loans (but doesnít mean they donít exist). And if sheís been paying minimum payments for 9 years, it sounds like she might be on an income based plan. Whatever you do, donít refi until you are completely sure sheís not 1 year from forgiveness.

The conflicting info she received might be because customer service reps really donít know what theyíre talking about. If she has some loans that qualify and others that donít that might lead to different answers, even though if some are eligible they should say that. If she called and said she has ďstafford loansĒ the rep also might think those were not eligible if she didnít also use the phrase direct, even if she actually has direct stafford loans. I would only get your info from the government website online; thatís the most accurate. Studentaid.ed.gov or studentloans.gov (same website, the key part is the .gov) The people you call at dept of Ed and your loan servicer are customer service reps, likely tying to answer your questions through prompts. Try to avoid calling unless you absolutely have to do so to get something fixed. This article explains how horrendously inaccurate the reps are: https://www.washingtonpost.com/education/2019/02/14/watchdog-blasts-education-department-sloppy-oversight-loan-servicing-contractors/?noredirect=on&utm_term=.53506430bd9b

So step 1 is to confirm the current situation before deciding between PSLF consolidation vs sofi. Because you might not have to get to that point (and if sheís been paying for 9 years, you would also want to consider the taxed 20 year forgiveness plan thatís broader). Have her login in on studentloans.gov, click repay loans menu and the estimate your payment link. Scroll down to the big blue ďView or Add LoansĒ button. It will list all her loans. Any loan with the word direct in it, like Stafford Direct or Graduate PLUS Direct, is PSLF eligible. Alternatively you can give the new PSLF Help tool a try, that is also under Repay loans menu and tells you if your loans and/or payment plan is PSLF eligible.

You can hand check what years she was on an eligible payment plan by going: my account, my documents, drop down menu Income-Driven Payment Plan Applications. There should be one for every year but the first year. Only payments after October 1, 2007 count towards forgiveness. Note that if she has eligible loans but was on an extended or graduated payment plan rather than income based, there is currently a temporary fix for this. So she should switch to an income based plan now and hope at the 10 year mark (1 ish year from now?) the temporary forgiveness program is still available: https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service/temporary-expanded-public-service-loan-forgiveness

If after looking at her studentloans.gov account it looks like her loans and payments were eligible, the. give a hip hip hurray and fill out the employment certification form (one for each employer, get prior employers if any to fill out separate ones). She fills out part, her employer the other, and then she submits it to her loan servicer (preferably online not mail) who after a 2-3 months will calculate and send a letter (electronically) indicating how many qualified payments she made and how many she has left for forgiveness. This may be inaccurate, check your own records if it doesnít match the number of months you anticipated! You can dispute their calculations. It will suck, but better now than at Year 10. Hereís the link to employment cert: https://studentaid.ed.gov/sa/sites/default/files/public-service-employment-certification-form.pdf

If her loans truly are not eligible for PSLF and her only options are consolidate to make them eligible or do sofi consolidation, come back and Iíll give my long opinions on that. Short version is I think all the fear mongering over PSLF pushes people to not take the time to weigh the real pros and cons based on their situation, leading them to hastily make uninformed decisions and permanently give up their rights and advantages under the federal loan program. I think PSLF in general makes sense for many with large SL balances but not for those with smaller 20-40k balances. Plus, I would look into the 20 forgiveness, since she would only be 11 years away from that - weigh the lower income based plans + anticipated taxes, vs 10 years PSLF (more hoops but no taxes), vs private consolidation.

Also I would check if any of her stafford loans can be forgiven under the 5 year teacher forgiveness plan (assuming she used to teach before becoming principal). https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/teacher#apply

Finances_With_Purpose

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #20 on: May 07, 2019, 10:12:00 PM »
PTF, here for the buying vs. renting advice in los angeles.

what is a good rule of thumb on how much house someone can afford? (assuming 20% down payment is saved) 3x yearly income? gross? net?

It varies significantly.  Are you buying newer/great build, or older/needs more maintenance?  What's the local housing market pricing like: LCOL or HCOL?  Because that will drive the cost of local services, which in turn drive your housing costs still further.

I and many here would encourage folks to think in terms of the minimum they need rather than the most they could squeak by with, especially with housing, since it's the main driver of costs for most budgets and also the least flexible once you buy...

Finances_With_Purpose

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #21 on: May 07, 2019, 11:44:38 PM »
I'm going to jump in since I feel for you: why you want to buy, when, where, and so on.  Reading your posts brings a wave of deja vu from when we were in that place. 

For that reason - I really feel for you here - I'm going to share the things I wish younger me had known and fully accepted.  And some of the many, many things we've learned through the process of becoming home owners. 

For starters, though, you can always do a full case study where we can see the whole picture and then give better input.  You don't give your age, for instance, that I saw. 

Before housing, though, you've already gotten sound wisdom here from some folks, starting with @ysette9.  Her tip is key: get with your wife and seriously consider your goals and how much they're worth to you.  Rank them.  That'll help you as much as anything else here.

--

Now, on to housing.  Right now, you have one unbelievably incredible asset: flexibility.  You can move places.  To new jobs.  From bad jobs.  To lower-cost areas.  From higher-problem areas.  To better schools.  Away from worse ones.  Towards aging family members.  Or away from family.  To an improving neighborhood.  Away from a declining one.  To a well-run city.  Away from a city in decline. 

You get the point.  You have this asset.  It's not on your balance sheet, but it adds immense value to your life, especially at this stage, before you're really anchored somewhere, especially before you're anchored somewhere with such high costs. 

And, you can do all of those things above for the cost of a single move: maybe $2,000?  (I'm being generous, though: put it as high as $3-4,000 if you like.) 

And, better still, you have another asset (as any parent can relate): time.  You will probably not have as much time and flexibility again for years, even if you have tons of support and the best kid in the world.  It's just not possible. 

Back to housing: all of that changes once you buy a house.  You no longer have flexibility.  You're anchored somewhere.  Your costs are anchored.  Your commuting situation is anchored - at least without large job changes.  This, too, may make hopping jobs for income far less attractive: for Homeowner You, it may not be worth it financially, even though for Renter You, a job move would be a terrific decision.  You won't even pursue the same opportunities once you buy, because you'll probably lose a lot of the desire to chase things that are so expensive and costly to transition towards. 

To move homes, you've got to be willing to ante the realtor cost (or nearly that), often as much as 6% of the home value.  At 600k, you're talking $36,000 just to sell a house.  But what if someone offered you a $12,000/year raise, assuming you move?  You wouldn't even break even for three years

You mention burning money by renting (more on that below), but you're wanting to leap into throwing away time, right at the life stage where you're about to not have nearly as much of it anymore.  And time is by far your most valuable asset: time with your kid, your wife, not maintaining a house, and so on...and your time is about to get a lot more valuable to you and those around you. 

And, for what it's worth - more on this later - in most cases you throw far more money away by owning than by renting.  That's been my experience with almost everyone I've witnessed, and especially for the first 10-15 years.  (Which is the exact same time where you'd most benefit from more savings and compounding.) 

All else equal, you burn a lot of money by tying it up in housing.  You can't use it for retirement (unless you cash out), and you anchor yourself to spending a lot of after-tax income that you could shovel away in tax-deferred accounts otherwise.  You sound like you've got the discipline to do that - make a plan and stick with your goals - in which case you'll find that buying a house can cause you to burn a lot of money, especially the more income you make.  You pay an extra 20+% up-front on every dollar you have to take as ordinary income above what you'd otherwise need (assuming you make enough; adjust to your situation); you pay the highest marginal tax rate rather than stuff money into savings.  So, you'd only get to spend $450 on housing for every $600 you could save if you'd put it in a tax-advantaged account, and plus, you get to earn on that money tax-free for decades. 

It's really, really hard to overstate the financial value of that compounding, especially with the immediate impact of a 20%+ tax advantage/savings. 

Nothing makes someone want a house like a baby incoming, which you have, and nothing changes one's life like having a baby.  If I could recommend anything, it would be to give it a couple or three years before even thinking about buying a house seriously.  A lot of things may easily change for you soon: you, your wife, your lifestyle, your time availability, your financial situation.  And that's without a big housing change.

Childcare may change.  Your wife's desire to work may change.  Your desire to work - or work for long hours - may change.  You're literally at the most change-apt point possible in life right now. 

You really, really want to be cautious before even thinking about anchoring yourself to a decision that can get very complicated to undo. 

And much can change on a dime, outside of your control: What if your kid spends weeks in the NICU, as some do?  (Our first spent more than a week there and was perfectly healthy.)  Or needs an ear surgery or two in year one (see many threads/posts here re: those issues)?  Etc... 

The point is this: you have a ton of hurdles coming at you and you don't even know what they are yet; you can't.  You may well want to design a life that allows you to do many, many things, all of which get dramatically more difficult once you anchor to owning a home. 

Housing also drives more of your costs than anything else; it's why some competent planners use that as the basis for figuring out retirement figures.  You buy a $600k house, and you need to hire guys who'll work in a place where houses cost $600k minimum, or carry enough insurance to do so, and so on...it drives your service costs and consumption in a lot of other ways.  (E.g.: What does a competent, reliable handyman/roofer/etc. who will do work in a reasonable timeframe charge in a place where it costs $600k to even own a home?  You don't know that now, nor would you want to find out who the lowest bidder is, but you'll be painfully aware of that ballpark once you own.)  Your wife will want things that look nice in a $600k house, which tends to push other consumption metrics.  Your neighbors will buy things that people who can afford $600k in debt tend to buy.  Etc., etc., etc. 

I'll share a fun anecdote on exactly this point: My neighbors joked this weekend at the neighborhood party about how they all buy the same type of toy once one of them does.  Joe buys a latest-and-greatest power washer, and, within a few weeks, they all have one.  And they're pretty self-aware (ergo the jokes): you would think that a bunch of buddies who've lived here for years would realize this and vary things since they all lend each other things.  Even I had noticed that tendency.  But no: they have the same expensive toys. 

For a corollary, see this book, which talks about that phenomenon.  Where you live drives your costs. 

Also, lest I be misinterpreted above: I have an amazing wife who's more frugal than I am and more willing to forego luxuries than any wife I know.  She moved in and painted one room, then touched up another to cover up some issues, but that was it.  Yet owning a home still encourages both of us to spend more than we would be encouraged to if this were not a place that we own.  In short, home ownership drives costs even in ways that are hard to plan for or anticipate.  (Many threads on this site attest to that.)

As others mentioned, home ownership is overpriced in most markets, especially HCOL markets.  It's a luxury now.  It's far cheaper to rent. 

Plus, you want a significant amount of excess cash flow going into a house.  That first year, you're going to find every possible thing wrong with the place, and every thing that the last guy didn't fix because he knew he was going to move soon-ish.  I'd say triple your maintenance budget estimate (or more) for year one, then go down from there.  What if you need a new A/C unit?  A new roof?  Or several such things?  It can get really painful if you stretch yourself to buy a house and then don't have a large sinking fund available already. 

You've nailed the single best option for you to buy with some hope of salvaging your other goals: increase your income, save, and then, if you're still set on buying, consider moving somewhere else where housing is far cheaper.  In fact, you'll find a lot of HCOL ex-pats who've done the same in many areas. 

--

All of this is coming from someone who started in a better financial place when we began considering home ownership.  We own a home and we love it, but it's also an extreme luxury that I'm not sure we would opt for again, and if so, probably not on the same timeline, at the same cost, or so on. 

You feel like you're throwing money away - and that's common - and those feelings are real.  So acknowledge them.  But they're not your reality.  Your financial reality is very different.  The cold hard math says that, most of the time, renting is far cheaper than buying.  In a HCOL area, buying is a plain luxury.  It's far more expensive.  (There are other threads on that around here.)  In your particular situation, it's not even close. 

Ergo the quick answers from some responding to this thread. 

For what it's worth, we bought our place.  Soon after, a relative moved to a place almost as nice as ours, almost as large as ours, in the exact same area, and rented it for less than our mortgage, and significantly less than our mortgage and basic expenses.  No maintenance, no taxes, no hassles, just living where we do - for a mere portion of the cost.  With an owner who maintains things well and would love the renter to stay for decades and keep paying similar rent, just to cover some of the mortgage.  And the relative can move at any time.  You tell me who's throwing away money and who's throwing away time.  (Hint: they're the same person!) 

--

For what it's worth, and for background here, we were debt-free when we entered home ownership, plus we had more than 20% down saved up.  We also had a nice sinking fund going in the door.  And we even had other contingencies that wouldn't cost us much in case we needed a good bit more capital the first few years.  We also made a lot more income relative to home prices than in your situation. 

So, if we made a mistake, it wouldn't be a financial-life-ending one, even if it did end up costing us a lot more. 

We jumped in for a lot of reasons, and one in particular reminds me of your situation: we live in a HCOL area where we could just afford to jump in at the time while prices continued rising and pricing many people out.  We bought, we kept it frugal, and we love our place.  But I can tell you we're worse off financially than we would have been had we not bought a home, even though we planned extensively and sought wisdom for years to know what we were walking into.  The financial math is strong against homeownership, and we even knew that going in.  We also tied our hands in many other ways (such as making moves for jobs and other things more costly and annoying). 

We have enough income that we could make the leap without affecting much beyond our retirement date, and we were willing to make that tradeoffs.  But the tradeoff was real, substantial, and would be painful to undo.  Even with all the prep, I can genuinely say we didn't anticipate how large the impact would be, especially the first few years. 

--

I notice that I'm the first to point out the fact that you can do a full case study here, and I suspect that's because it would be wise to listen to the wisdom of @waltworks and @leavesofgrass.  (Paging @Ben Kurtz for more solid wisdom on the cost of things here.)  They're being nice and don't want to pop your bubble/facepunch you by being too blunt, but even with your rough numbers it's apparent that you need drastically more income to accomplish all four of those goals anytime in the near future.  At least not without putting yourself and your wife in a severe bind at exactly the wrong life stage. 

Housing simply overwhelms you at that income level, there's no way around it.  There's especially no quick or easy way to own and reach a reasonable retirement goal on a normal timeframe.  Realistically, you will be trading housing for the others to a large degree. 

Housing is a limiting factor: you live in a place where you need to make significantly more for it to make any sense to even consider owning a home.  And even then, it's a luxury that you would have to trade off other goals for (until you get to much higher levels of income, like 3x+ what you make now).

--

Personally, I would load up the emergency fund now since you have a kid coming - that's just good financial sense.  You need a much larger cash cushion.

You also want to ensure you're both adequately insured (disability and life) in case either of you goes down; you rely on that income even more with a kid(s). 

Next, I would pay off the student loan.  You're planning to anyway, and you need to get the debt-to-income down before buying a house makes sense: right now you're carrying probably more than you could pay off in a number of years with the student loan alone.  That's the fastest road towards home ownership if you still desire to get there. 

By contrast, adding more debt to that situation will only add to your stress. 

I wouldn't even consider house buying until the student loan is completely gone or quite small.  And then, you'll have to reassess and start saving for the down payment, which will take a good while. 

--

In sum, you're in a place where housing is wildly unaffordable.  But home ownership is pretty unaffordable now anyway, and for most of us it's a bad financial decision rather than a savings.  Plus, you need all the flexibility you can muster for the next few years until you figure a lot of things out, like how many kids to have, who'll care for the kids, how to pay for that care, how/where to educate them, and so on...right now, for you, flexibility will be king.

I hope you strongly resist the emotional/mental push that's driving you towards home ownership and examine those goals - as well as what you're willing to pay for them.  It's very, very easy to get rose-colored glasses about the situation, but once you jump in, it's hard to jump out.  You can find more than a few threads on here started by people who made that leap around that life stage and then found themselves "house poor" and desperate.  Those threads are painful to see because, by that point, they don't have many options and all of the options are costly.

I can't recommend enough that you keep doing what you're doing and get yourself in a far, far better financial situation before ever considering the home-ownership beast.  You can get literally anything you want through renting, without all the cost, hassle, inflexibility, stress, and poverty that home ownership so often entails.  It's hard to swallow that that's modern reality, especially if you grew up where everyone owns homes, but for better or worse, that's where we are, especially where you live.  The good news is that you can still earn, save, and invest in order to get ahead. 

uneven_cyclist

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #22 on: May 08, 2019, 12:23:51 AM »
I donít want to get your hopes up, but both those type of loans can be direct loans eligible for forgiveness. Stafford loans can be direct or the very old ones are not; Iíve never heard of non-direct plus loans (but doesnít mean they donít exist). And if sheís been paying minimum payments for 9 years, it sounds like she might be on an income based plan. Whatever you do, donít refi until you are completely sure sheís not 1 year from forgiveness.

The conflicting info she received might be because customer service reps really donít know what theyíre talking about. If she has some loans that qualify and others that donít that might lead to different answers, even though if some are eligible they should say that. If she called and said she has ďstafford loansĒ the rep also might think those were not eligible if she didnít also use the phrase direct, even if she actually has direct stafford loans. I would only get your info from the government website online; thatís the most accurate. Studentaid.ed.gov or studentloans.gov (same website, the key part is the .gov) The people you call at dept of Ed and your loan servicer are customer service reps, likely tying to answer your questions through prompts. Try to avoid calling unless you absolutely have to do so to get something fixed. This article explains how horrendously inaccurate the reps are: https://www.washingtonpost.com/education/2019/02/14/watchdog-blasts-education-department-sloppy-oversight-loan-servicing-contractors/?noredirect=on&utm_term=.53506430bd9b

So step 1 is to confirm the current situation before deciding between PSLF consolidation vs sofi. Because you might not have to get to that point (and if sheís been paying for 9 years, you would also want to consider the taxed 20 year forgiveness plan thatís broader). Have her login in on studentloans.gov, click repay loans menu and the estimate your payment link. Scroll down to the big blue ďView or Add LoansĒ button. It will list all her loans. Any loan with the word direct in it, like Stafford Direct or Graduate PLUS Direct, is PSLF eligible. Alternatively you can give the new PSLF Help tool a try, that is also under Repay loans menu and tells you if your loans and/or payment plan is PSLF eligible.

You can hand check what years she was on an eligible payment plan by going: my account, my documents, drop down menu Income-Driven Payment Plan Applications. There should be one for every year but the first year. Only payments after October 1, 2007 count towards forgiveness. Note that if she has eligible loans but was on an extended or graduated payment plan rather than income based, there is currently a temporary fix for this. So she should switch to an income based plan now and hope at the 10 year mark (1 ish year from now?) the temporary forgiveness program is still available: https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service/temporary-expanded-public-service-loan-forgiveness

If after looking at her studentloans.gov account it looks like her loans and payments were eligible, the. give a hip hip hurray and fill out the employment certification form (one for each employer, get prior employers if any to fill out separate ones). She fills out part, her employer the other, and then she submits it to her loan servicer (preferably online not mail) who after a 2-3 months will calculate and send a letter (electronically) indicating how many qualified payments she made and how many she has left for forgiveness. This may be inaccurate, check your own records if it doesnít match the number of months you anticipated! You can dispute their calculations. It will suck, but better now than at Year 10. Hereís the link to employment cert: https://studentaid.ed.gov/sa/sites/default/files/public-service-employment-certification-form.pdf

If her loans truly are not eligible for PSLF and her only options are consolidate to make them eligible or do sofi consolidation, come back and Iíll give my long opinions on that. Short version is I think all the fear mongering over PSLF pushes people to not take the time to weigh the real pros and cons based on their situation, leading them to hastily make uninformed decisions and permanently give up their rights and advantages under the federal loan program. I think PSLF in general makes sense for many with large SL balances but not for those with smaller 20-40k balances. Plus, I would look into the 20 forgiveness, since she would only be 11 years away from that - weigh the lower income based plans + anticipated taxes, vs 10 years PSLF (more hoops but no taxes), vs private consolidation.

Also I would check if any of her stafford loans can be forgiven under the 5 year teacher forgiveness plan (assuming she used to teach before becoming principal). https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/teacher#apply

Thank you, and other posters as well, so much for taking time to share your advice.  We spent some time logged into her student loan account last night and did a bit of investigating.  I will heed your advice and work on learning as much as we possibly can about these loans, especially before diving into refinancing anything.  We'll spend the next couple/few days investigating your suggestions and then I'll post an update as we get closer to having a game plan.  It would be absolutely mind blowing if she were to be only a year or two away from having some or all of these loans forgiven.  It sounds like even if they are not eligible for forgiveness, that it would still be worth considering refinancing through the government.  I'll investigate these options, and also the 5-year teacher forgiveness plan, and then report back once I have a better sense of what is going on and what our options are.  Thank you again everyone who is posting on this thread for all of your time and advice, it is a huge help.

uneven_cyclist

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #23 on: May 08, 2019, 12:58:35 AM »

I can't recommend enough that you keep doing what you're doing and get yourself in a far, far better financial situation before ever considering the home-ownership beast.  You can get literally anything you want through renting, without all the cost, hassle, inflexibility, stress, and poverty that home ownership so often entails.  It's hard to swallow that that's modern reality, especially if you grew up where everyone owns homes, but for better or worse, that's where we are, especially where you live.  The good news is that you can still earn, save, and invest in order to get ahead.

Hey Finances_With_Purpose, this is an encouraging thought in the sense that, in your experience, renters can always find a way.  I am not married to the idea of buying a house, but I do have some fears about rental prices climbing to the point that they might make it difficult to achieve other financial goals.  My concern is that if we hadn't bought a house by that time, then we wouldn't be able to afford it, and we would be stuck with rising rents.  You are certainly right, as well, about flexibility being king.  We all benefit from flexibility -- in society, at work, at home, etc.  Flexibility is certainly an advantage to renting. 

Thanks for sharing your experience here.  I think that what we may actually do is move to a slightly better apartment, maybe with a roommate even, so that we can get things like laundry machines + a garage etc.  In that manner we could maintain our rent at $1800, and then open up options for other means of saving money faster too. 

If we were to share a larger apartment with the right roommate (a good friend who also owns a car, for example), then we could sell both of our cars, replace with a single used electric car, and then invest the remaining cash into an emergency fund or a fund fund for our future child's education etc. 

Options. 

Thanks all for your ideas, it helps a lot to hear thoughts from the forum.

uneven_cyclist

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #24 on: May 10, 2019, 10:29:18 PM »
I donít want to get your hopes up, but both those type of loans can be direct loans eligible for forgiveness. Stafford loans can be direct or the very old ones are not; Iíve never heard of non-direct plus loans (but doesnít mean they donít exist). And if sheís been paying minimum payments for 9 years, it sounds like she might be on an income based plan. Whatever you do, donít refi until you are completely sure sheís not 1 year from forgiveness.

The conflicting info she received might be because customer service reps really donít know what theyíre talking about. If she has some loans that qualify and others that donít that might lead to different answers, even though if some are eligible they should say that. If she called and said she has ďstafford loansĒ the rep also might think those were not eligible if she didnít also use the phrase direct, even if she actually has direct stafford loans. I would only get your info from the government website online; thatís the most accurate. Studentaid.ed.gov or studentloans.gov (same website, the key part is the .gov) The people you call at dept of Ed and your loan servicer are customer service reps, likely tying to answer your questions through prompts. Try to avoid calling unless you absolutely have to do so to get something fixed. This article explains how horrendously inaccurate the reps are: https://www.washingtonpost.com/education/2019/02/14/watchdog-blasts-education-department-sloppy-oversight-loan-servicing-contractors/?noredirect=on&utm_term=.53506430bd9b

So step 1 is to confirm the current situation before deciding between PSLF consolidation vs sofi. Because you might not have to get to that point (and if sheís been paying for 9 years, you would also want to consider the taxed 20 year forgiveness plan thatís broader). Have her login in on studentloans.gov, click repay loans menu and the estimate your payment link. Scroll down to the big blue ďView or Add LoansĒ button. It will list all her loans. Any loan with the word direct in it, like Stafford Direct or Graduate PLUS Direct, is PSLF eligible. Alternatively you can give the new PSLF Help tool a try, that is also under Repay loans menu and tells you if your loans and/or payment plan is PSLF eligible.

You can hand check what years she was on an eligible payment plan by going: my account, my documents, drop down menu Income-Driven Payment Plan Applications. There should be one for every year but the first year. Only payments after October 1, 2007 count towards forgiveness. Note that if she has eligible loans but was on an extended or graduated payment plan rather than income based, there is currently a temporary fix for this. So she should switch to an income based plan now and hope at the 10 year mark (1 ish year from now?) the temporary forgiveness program is still available: https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service/temporary-expanded-public-service-loan-forgiveness

If after looking at her studentloans.gov account it looks like her loans and payments were eligible, the. give a hip hip hurray and fill out the employment certification form (one for each employer, get prior employers if any to fill out separate ones). She fills out part, her employer the other, and then she submits it to her loan servicer (preferably online not mail) who after a 2-3 months will calculate and send a letter (electronically) indicating how many qualified payments she made and how many she has left for forgiveness. This may be inaccurate, check your own records if it doesnít match the number of months you anticipated! You can dispute their calculations. It will suck, but better now than at Year 10. Hereís the link to employment cert: https://studentaid.ed.gov/sa/sites/default/files/public-service-employment-certification-form.pdf

If her loans truly are not eligible for PSLF and her only options are consolidate to make them eligible or do sofi consolidation, come back and Iíll give my long opinions on that. Short version is I think all the fear mongering over PSLF pushes people to not take the time to weigh the real pros and cons based on their situation, leading them to hastily make uninformed decisions and permanently give up their rights and advantages under the federal loan program. I think PSLF in general makes sense for many with large SL balances but not for those with smaller 20-40k balances. Plus, I would look into the 20 forgiveness, since she would only be 11 years away from that - weigh the lower income based plans + anticipated taxes, vs 10 years PSLF (more hoops but no taxes), vs private consolidation.

Also I would check if any of her stafford loans can be forgiven under the 5 year teacher forgiveness plan (assuming she used to teach before becoming principal). https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/teacher#apply

Hi Peachtea,
Okay, we have had a chance to look into her loans in a bit more depth.  She has a total of six loans that were taken out through the Federal Family Education Loan (FFEL) Program, which ended in 2010.  From what we can find, (and I'm sorry because I'm sure I'm getting some details wrong) it looks like these were initially private loans through Sallie Mae that were then bought by the government.  She has a mix of Stafford and Graduate PLUS loans through this program but none are eligible for PSLF without consolidation into a Direct loan after checking using the tool at https://studentaid.ed.gov/sa/.

So, at this point, it feels fairly sure that the loans are not eligible for forgiveness unless there is some sort of a program that I do not know about or unless there is some sort of a mistake that I am unaware of. 

So, we are back to the question of whether to consolidate through the government or through a SoFi type of company.  My feeling right now is to consolidate through the government. 

I do not know if this is your (or anyone else's) area of expertise here, but do you think that there is any real risk that if we were to go for the 10-year PSLF route that laws might change during the next ten years and that we might not be forgiven at all? 

Thank you again for the time and effort that you have put into helping us with figuring out our situation, it has been a major help. 

uneven_cyclist

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #25 on: May 10, 2019, 10:33:47 PM »
I should have mentioned in the previous post, that we are leaning toward government consolidation / PSLF because of what Peachtea pointed out about bringing minimum payments down to $500, which would be a significant savings if we could manage to contribute to our retirement savings at a high enough level (37K per year).

However, if we go down this path, I would like to feel really certain that, after 10 years, the loans are really, truly, certainly going to be forgiven.   

uneven_cyclist

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #26 on: May 10, 2019, 10:35:50 PM »
As another update: I sold the Subaru today for $7000.  Our next step will be to get an apartment where it's possible to charge a Nissan Leaf or similar and then once we're established there, probably with a roommate who has a car, I'll look into selling the Prius and putting that cash to better use. 

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #27 on: May 11, 2019, 02:10:00 PM »
Thatís a bummer about having FFEL loans, but yes youíre right those are not PSLF eligible without a direct loan consolidation. Did you look at whether the school she taught at qualified for the teacher forgiveness? It looks like that program forgives FFEL Stafford Loans but not grad plus.

Iím not a SL professional, just someone whose had to do a lot of research on it as Iím 4.5 years into the PSLF program myself (250k now in loans!). The fact that Iím still in the program means I have a high degree of confidence that my loans will be forgiven. Hereís why. I do think itís likely the program will be stopped or modified to cap amount of loans forgiven at sometime in the future. BUT Iím very confident that if Congress ends PSLF, those who already have PSLF eligible loans will be able to finish the program. Essentially that we will be grandfathered in.

This year Trump proposed to end the program and it wonít happen, already DOA. This is because right now there is a ton of support for the program and for helping people with SL in general, and Congress votes on what will keep them in office. And even though Trump proposed to end the program, his proposal included language to grandfather in all loans already issued that was eligible by proposing that new loans issued after June 2019 would not include PSLF. If the Trump administration recognizes it can only propose to end the program with grandfathering, I have high faith that future admins will also.

Thereís three main reasons I believe we will be grandfathered in regardless of what happens in terms of politics or them adding up the costs of forgiveness. 1) They will incur massive class action lawsuits for not grandfathering and it will be super expensive, bad press, etc. The direct loan promissory notes all include language about being PSLF eligible, so besides just a general reliance argument there is also a contractual argument for the gov being required to honor PSLF for current direct loans. 2) The public outcry will be ridiculous. Thereís always outcry when any gov attempts to make changes to current benefits. This is why changes to gov pensions, social security, and every other program also grandfathers people in. They grandfather in those currently in the program and make changes to people born after year x, people who started working after x, etc. PSLF will be no different. 3) Millennials are the generation with most SL debt and also now rival the boomers as a voting bloc, plus Gen Z as they come up will be in similar positions. Just like nobody is going to reduce the boomers social security, nobody is going to take away promised forgiveness to millennials and Gen Z. It would be political suicide.

We can already see examples of this today. When the high rate of denials for forgiveness was discovered and people learned it was because they were on the wrong payment plan, often at advice of loan servicers, there was a lot of bad press and outcry. Congress acted by creating the temporary forgiveness program so those who relied on PSLF and werenít eligible due to a ďtechnicalityĒ could still get forgiveness. When the Dept of Ed wasnít properly forgiving teacher loans and creating extra hoops, there was outcry and Congress acted to make them fix it.

td;lr I canít 100% guarantee your wifeís loans will be forgiven, nobody can. But Iím confident enough that they will be, that Iím also doing PSLF.

For me, by the time I paid off all my private loans and built an emergency I was 3 years in. I then calculated how quickly I could pay off my gov loans if my husband and I only put the minimum 5% match in my 401k and threw all our extra money at the loans. Well, paying off loans with barely any retirement contributions would have only got me out of debt like 1.5 years earlier than PSLF, would have cost over 150k more in payments, and would have left us with very little saved in retirement. Compared to option B of doing PSLF and saving all the extra money instead, which will make us (hopefully) only a couple years from FI when loans are forgiven instead.

Compound interest and time is super important for retirement savings, even if you plan on a normal retirement age. Thatís actually one of the reasons the program exists...so that people in public service can still contribute to retirement, have a family, etc at the Ďnormalí timelines. Play around with a compound interest calculator in how much you will have in 10 years if you invest the 8k a year difference in payments now vs waiting 10 years to invest in retirement.

The math I would do for PSLF is figure out how you could cut expenses and what the max you could pay each month towards loans to get it done ASAP. Use a mortgage pay down calculator like bank rateís to figure out paying that amount how long it would take and how much you would pay in loan + interest. Then estimate PSLF payments over next 10 years depending on different anticipated retirement contributions and income levels (using the payment estimator on studentloans.gov) to see whatís the most you will likely pay over 10 years. Figure out if based on your situation if the extra time and saving of PSLF is worth jumping through the hoops of certifying your income each year, certifying employment to track qualified payments etc. Like I said earlier, usually the higher the loan amount the more likely this math and time trade off will weigh in favor of PSLF.

If you decide to go with PSLF, do try to contribute a bunch to traditional retirement accounts to lower payments and increase your savings all at once! The 38k figure was assuming you each out the max in 401k, which is 19 each. If your employer doesnít offer a 401k you canít do a solo 401k, only an IRA which has income limits and a 6k contribution limit. You might be incomed out of a traditional IRA tax deduction without being able to contribute to two 401ks, check that. But if your wife has access to both a 401k and a 403b she should be able to put 19k in 401k and 19k in 403b. Obviously itíd be nice to have half in her account and half in yours, but since California is a community property state I donít think this is a big deal.

Also make sure you pick the PAYE or REPAYE payment plan rather than IBR. PAYE payments is max 10% of discretionary income while IBR is 15% (so higher).

remizidae

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #28 on: May 13, 2019, 03:54:38 PM »

All else equal, you burn a lot of money by tying it up in housing.  You can't use it for retirement (unless you cash out), and you anchor yourself to spending a lot of after-tax income that you could shovel away in tax-deferred accounts otherwise....You pay an extra 20+% up-front on every dollar you have to take as ordinary income above what you'd otherwise need... So, you'd only get to spend $450 on housing for every $600 you could save if you'd put it in a tax-advantaged account, and plus, you get to earn on that money tax-free for decades. 


I'd like to jump in here because I'm facing a similar dilemma to OP. @Finances_With_Purpose , you seem to be assuming that a rent payment is lower than a mortgage payment, so that the renter always has more money that the homeowner to put into tax-advantaged accounts. Is that correct? And how much does your conclusion change in a market where rent is basically the same as a mortgage payment? In other words, if I have to pay $X anyway, I could pay $X and get an asset as opposed to not getting an asset.

JGS1980

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #29 on: May 13, 2019, 04:25:20 PM »
Thatís a bummer about having FFEL loans, but yes youíre right those are not PSLF eligible without a direct loan consolidation. Did you look at whether the school she taught at qualified for the teacher forgiveness? It looks like that program forgives FFEL Stafford Loans but not grad plus.

Iím not a SL professional, just someone whose had to do a lot of research on it as Iím 4.5 years into the PSLF program myself (250k now in loans!). The fact that Iím still in the program means I have a high degree of confidence that my loans will be forgiven. Hereís why. I do think itís likely the program will be stopped or modified to cap amount of loans forgiven at sometime in the future. BUT Iím very confident that if Congress ends PSLF, those who already have PSLF eligible loans will be able to finish the program. Essentially that we will be grandfathered in.

This year Trump proposed to end the program and it wonít happen, already DOA. This is because right now there is a ton of support for the program and for helping people with SL in general, and Congress votes on what will keep them in office. And even though Trump proposed to end the program, his proposal included language to grandfather in all loans already issued that was eligible by proposing that new loans issued after June 2019 would not include PSLF. If the Trump administration recognizes it can only propose to end the program with grandfathering, I have high faith that future admins will also.

Thereís three main reasons I believe we will be grandfathered in regardless of what happens in terms of politics or them adding up the costs of forgiveness. 1) They will incur massive class action lawsuits for not grandfathering and it will be super expensive, bad press, etc. The direct loan promissory notes all include language about being PSLF eligible, so besides just a general reliance argument there is also a contractual argument for the gov being required to honor PSLF for current direct loans. 2) The public outcry will be ridiculous. Thereís always outcry when any gov attempts to make changes to current benefits. This is why changes to gov pensions, social security, and every other program also grandfathers people in. They grandfather in those currently in the program and make changes to people born after year x, people who started working after x, etc. PSLF will be no different. 3) Millennials are the generation with most SL debt and also now rival the boomers as a voting bloc, plus Gen Z as they come up will be in similar positions. Just like nobody is going to reduce the boomers social security, nobody is going to take away promised forgiveness to millennials and Gen Z. It would be political suicide.

We can already see examples of this today. When the high rate of denials for forgiveness was discovered and people learned it was because they were on the wrong payment plan, often at advice of loan servicers, there was a lot of bad press and outcry. Congress acted by creating the temporary forgiveness program so those who relied on PSLF and werenít eligible due to a ďtechnicalityĒ could still get forgiveness. When the Dept of Ed wasnít properly forgiving teacher loans and creating extra hoops, there was outcry and Congress acted to make them fix it.

td;lr I canít 100% guarantee your wifeís loans will be forgiven, nobody can. But Iím confident enough that they will be, that Iím also doing PSLF.

For me, by the time I paid off all my private loans and built an emergency I was 3 years in. I then calculated how quickly I could pay off my gov loans if my husband and I only put the minimum 5% match in my 401k and threw all our extra money at the loans. Well, paying off loans with barely any retirement contributions would have only got me out of debt like 1.5 years earlier than PSLF, would have cost over 150k more in payments, and would have left us with very little saved in retirement. Compared to option B of doing PSLF and saving all the extra money instead, which will make us (hopefully) only a couple years from FI when loans are forgiven instead.

Compound interest and time is super important for retirement savings, even if you plan on a normal retirement age. Thatís actually one of the reasons the program exists...so that people in public service can still contribute to retirement, have a family, etc at the Ďnormalí timelines. Play around with a compound interest calculator in how much you will have in 10 years if you invest the 8k a year difference in payments now vs waiting 10 years to invest in retirement.

The math I would do for PSLF is figure out how you could cut expenses and what the max you could pay each month towards loans to get it done ASAP. Use a mortgage pay down calculator like bank rateís to figure out paying that amount how long it would take and how much you would pay in loan + interest. Then estimate PSLF payments over next 10 years depending on different anticipated retirement contributions and income levels (using the payment estimator on studentloans.gov) to see whatís the most you will likely pay over 10 years. Figure out if based on your situation if the extra time and saving of PSLF is worth jumping through the hoops of certifying your income each year, certifying employment to track qualified payments etc. Like I said earlier, usually the higher the loan amount the more likely this math and time trade off will weigh in favor of PSLF.

If you decide to go with PSLF, do try to contribute a bunch to traditional retirement accounts to lower payments and increase your savings all at once! The 38k figure was assuming you each out the max in 401k, which is 19 each. If your employer doesnít offer a 401k you canít do a solo 401k, only an IRA which has income limits and a 6k contribution limit. You might be incomed out of a traditional IRA tax deduction without being able to contribute to two 401ks, check that. But if your wife has access to both a 401k and a 403b she should be able to put 19k in 401k and 19k in 403b. Obviously itíd be nice to have half in her account and half in yours, but since California is a community property state I donít think this is a big deal.

Also make sure you pick the PAYE or REPAYE payment plan rather than IBR. PAYE payments is max 10% of discretionary income while IBR is 15% (so higher).

PeachTea, I just want to show my appreciation for all you have done by giving out your expertise to the OP in regards to his wife's student loans. The amount of time it must have taken for you to write all of the posts above is rather incredible. This is a great example to members of the MMM community of why we are all here. Well done.

To the OP, keep up with your Updates. Would love to see progress with your long term decisions over time. Congrats on your "awakening", although it appears you weren't a dumpster fire in the past. I love it that you are taking this whole student loan thing by the horns. From my perspective, my wife and I had >250K in loans, taken out prior to PSLF. Paid off in 9 years. Ironically, best education I ever got was figuring out how to pay them off.

ysette9

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #30 on: May 13, 2019, 04:48:37 PM »

All else equal, you burn a lot of money by tying it up in housing.  You can't use it for retirement (unless you cash out), and you anchor yourself to spending a lot of after-tax income that you could shovel away in tax-deferred accounts otherwise....You pay an extra 20+% up-front on every dollar you have to take as ordinary income above what you'd otherwise need... So, you'd only get to spend $450 on housing for every $600 you could save if you'd put it in a tax-advantaged account, and plus, you get to earn on that money tax-free for decades. 


I'd like to jump in here because I'm facing a similar dilemma to OP. @Finances_With_Purpose , you seem to be assuming that a rent payment is lower than a mortgage payment, so that the renter always has more money that the homeowner to put into tax-advantaged accounts. Is that correct? And how much does your conclusion change in a market where rent is basically the same as a mortgage payment? In other words, if I have to pay $X anyway, I could pay $X and get an asset as opposed to not getting an asset.
I think most of us reference The NY Times rent versus buy calculator to help make that call. I know it is different in other parts of the country and world, but in HCOL USA it most always is cheaper to rent than buy. As in I could probably coverage my mortgage if I rented out my house, but not also property taxes and insurance, let alone vacancy, depreciation, repairs and maintenance, and everything else that should be included. OP is in the LA area, so he is in the same situation as me.

uneven_cyclist

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #31 on: May 13, 2019, 11:46:39 PM »
Thatís a bummer about having FFEL loans, but yes youíre right those are not PSLF eligible without a direct loan consolidation. Did you look at whether the school she taught at qualified for the teacher forgiveness? It looks like that program forgives FFEL Stafford Loans but not grad plus.

Iím not a SL professional, just someone whose had to do a lot of research on it as Iím 4.5 years into the PSLF program myself (250k now in loans!). The fact that Iím still in the program means I have a high degree of confidence that my loans will be forgiven. Hereís why. I do think itís likely the program will be stopped or modified to cap amount of loans forgiven at sometime in the future. BUT Iím very confident that if Congress ends PSLF, those who already have PSLF eligible loans will be able to finish the program. Essentially that we will be grandfathered in.

This year Trump proposed to end the program and it wonít happen, already DOA. This is because right now there is a ton of support for the program and for helping people with SL in general, and Congress votes on what will keep them in office. And even though Trump proposed to end the program, his proposal included language to grandfather in all loans already issued that was eligible by proposing that new loans issued after June 2019 would not include PSLF. If the Trump administration recognizes it can only propose to end the program with grandfathering, I have high faith that future admins will also.

Thereís three main reasons I believe we will be grandfathered in regardless of what happens in terms of politics or them adding up the costs of forgiveness. 1) They will incur massive class action lawsuits for not grandfathering and it will be super expensive, bad press, etc. The direct loan promissory notes all include language about being PSLF eligible, so besides just a general reliance argument there is also a contractual argument for the gov being required to honor PSLF for current direct loans. 2) The public outcry will be ridiculous. Thereís always outcry when any gov attempts to make changes to current benefits. This is why changes to gov pensions, social security, and every other program also grandfathers people in. They grandfather in those currently in the program and make changes to people born after year x, people who started working after x, etc. PSLF will be no different. 3) Millennials are the generation with most SL debt and also now rival the boomers as a voting bloc, plus Gen Z as they come up will be in similar positions. Just like nobody is going to reduce the boomers social security, nobody is going to take away promised forgiveness to millennials and Gen Z. It would be political suicide.

We can already see examples of this today. When the high rate of denials for forgiveness was discovered and people learned it was because they were on the wrong payment plan, often at advice of loan servicers, there was a lot of bad press and outcry. Congress acted by creating the temporary forgiveness program so those who relied on PSLF and werenít eligible due to a ďtechnicalityĒ could still get forgiveness. When the Dept of Ed wasnít properly forgiving teacher loans and creating extra hoops, there was outcry and Congress acted to make them fix it.

td;lr I canít 100% guarantee your wifeís loans will be forgiven, nobody can. But Iím confident enough that they will be, that Iím also doing PSLF.

For me, by the time I paid off all my private loans and built an emergency I was 3 years in. I then calculated how quickly I could pay off my gov loans if my husband and I only put the minimum 5% match in my 401k and threw all our extra money at the loans. Well, paying off loans with barely any retirement contributions would have only got me out of debt like 1.5 years earlier than PSLF, would have cost over 150k more in payments, and would have left us with very little saved in retirement. Compared to option B of doing PSLF and saving all the extra money instead, which will make us (hopefully) only a couple years from FI when loans are forgiven instead.

Compound interest and time is super important for retirement savings, even if you plan on a normal retirement age. Thatís actually one of the reasons the program exists...so that people in public service can still contribute to retirement, have a family, etc at the Ďnormalí timelines. Play around with a compound interest calculator in how much you will have in 10 years if you invest the 8k a year difference in payments now vs waiting 10 years to invest in retirement.

The math I would do for PSLF is figure out how you could cut expenses and what the max you could pay each month towards loans to get it done ASAP. Use a mortgage pay down calculator like bank rateís to figure out paying that amount how long it would take and how much you would pay in loan + interest. Then estimate PSLF payments over next 10 years depending on different anticipated retirement contributions and income levels (using the payment estimator on studentloans.gov) to see whatís the most you will likely pay over 10 years. Figure out if based on your situation if the extra time and saving of PSLF is worth jumping through the hoops of certifying your income each year, certifying employment to track qualified payments etc. Like I said earlier, usually the higher the loan amount the more likely this math and time trade off will weigh in favor of PSLF.

If you decide to go with PSLF, do try to contribute a bunch to traditional retirement accounts to lower payments and increase your savings all at once! The 38k figure was assuming you each out the max in 401k, which is 19 each. If your employer doesnít offer a 401k you canít do a solo 401k, only an IRA which has income limits and a 6k contribution limit. You might be incomed out of a traditional IRA tax deduction without being able to contribute to two 401ks, check that. But if your wife has access to both a 401k and a 403b she should be able to put 19k in 401k and 19k in 403b. Obviously itíd be nice to have half in her account and half in yours, but since California is a community property state I donít think this is a big deal.

Also make sure you pick the PAYE or REPAYE payment plan rather than IBR. PAYE payments is max 10% of discretionary income while IBR is 15% (so higher).

Hi Peachtea,
Thank you for the detailed info and reply.  This makes me feel a lot better about the thought of consolidating the loan into a direct loan and going for forgiveness over the course of the next ten years.  From what I understand, I believe that her loans qualify for the teacher forgiveness plan, but that she did not apply for it originally because the amount of forgiveness ($5000 or maybe $5000 per loan) felt like a drop in the bucket compared to the total amount of debt when she originally took out loans.  However, as we now contemplate consolidation and setting ourselves on a path for the next ten years, and trying to minimize our monthly payment amount, we'll certainly apply for this program before consolidating to see if it might be able to bring the total amount (and our monthly payment amount) down before we set our course.

When you mentioned that it would not be possible for me to get a solo 401k, did you specifically mean that the solo 401k (a type of retirement account) would not serve as a qualifying type of contribution in order to lower our AGI for the purpose of reducing the monthly contribution on a student loan contribution?

I wasn't clear exactly what you meant with your response here -- the solo 401k seems like a less common form of 401k, and potentially one that would be worth looking into, but I did not know if it might not qualify for this situation.

Either way, I will investigate to see if she has the ability to contribute to both a 403b *and* a 401k which might enable us to contribute as much as 38k through her employer.  I am not sure about this, but that would be cool if it's possible.  It's kind of crazy how much disparity there is with these things just based on employers...my employer has no retirement plan at all, not even a Simple IRA. 

*** 
Tomorrow we are headed in for our first doctor's appointment to see how things are looking with the baby, and I have deposited cash after selling the car.  First few days with one vehicle are going well, and I feel a weight lifted after having sold the car because I'm no longer worried that someone might steal it or that I might crash it and lower its resale value while I'm out driving it around etc.  Until we switch to a different apartment, we'll probably just make do with one car. 

I'll post again once I know a bit more, thanks all for your time and help. 

remizidae

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #32 on: May 14, 2019, 06:07:57 AM »

All else equal, you burn a lot of money by tying it up in housing.  You can't use it for retirement (unless you cash out), and you anchor yourself to spending a lot of after-tax income that you could shovel away in tax-deferred accounts otherwise....You pay an extra 20+% up-front on every dollar you have to take as ordinary income above what you'd otherwise need... So, you'd only get to spend $450 on housing for every $600 you could save if you'd put it in a tax-advantaged account, and plus, you get to earn on that money tax-free for decades. 


I'd like to jump in here because I'm facing a similar dilemma to OP. @Finances_With_Purpose , you seem to be assuming that a rent payment is lower than a mortgage payment, so that the renter always has more money that the homeowner to put into tax-advantaged accounts. Is that correct? And how much does your conclusion change in a market where rent is basically the same as a mortgage payment? In other words, if I have to pay $X anyway, I could pay $X and get an asset as opposed to not getting an asset.
I think most of us reference The NY Times rent versus buy calculator to help make that call. I know it is different in other parts of the country and world, but in HCOL USA it most always is cheaper to rent than buy.

So if the NY Times rent versus buy calculator says it's cheaper to buy, would you buy? It does for me (and I'm in HCOL US).  Or how much would it tip the scale for you?

leavesofgrass

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #33 on: May 14, 2019, 10:01:35 AM »
So if the NY Times rent versus buy calculator says it's cheaper to buy, would you buy? It does for me (and I'm in HCOL US).  Or how much would it tip the scale for you?

You should probably post your own case study to get some solid advice. I wonder if you are paying really high rent or looking at fixer-upper homes. I mean, if renting is $10K/month and buying is $5K/mo for the same area and home-type/condition, then buying is obviously a good choice. But there are likely a lot of other variables. I'd be interested in your situation.

Laserjet3051

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #34 on: May 14, 2019, 12:56:01 PM »

All else equal, you burn a lot of money by tying it up in housing.  You can't use it for retirement (unless you cash out), and you anchor yourself to spending a lot of after-tax income that you could shovel away in tax-deferred accounts otherwise....You pay an extra 20+% up-front on every dollar you have to take as ordinary income above what you'd otherwise need... So, you'd only get to spend $450 on housing for every $600 you could save if you'd put it in a tax-advantaged account, and plus, you get to earn on that money tax-free for decades. 



I'd like to jump in here because I'm facing a similar dilemma to OP. @Finances_With_Purpose , you seem to be assuming that a rent payment is lower than a mortgage payment, so that the renter always has more money that the homeowner to put into tax-advantaged accounts. Is that correct? And how much does your conclusion change in a market where rent is basically the same as a mortgage payment? In other words, if I have to pay $X anyway, I could pay $X and get an asset as opposed to not getting an asset.
I think most of us reference The NY Times rent versus buy calculator to help make that call. I know it is different in other parts of the country and world, but in HCOL USA it most always is cheaper to rent than buy.

So if the NY Times rent versus buy calculator says it's cheaper to buy, would you buy? It does for me (and I'm in HCOL US).  Or how much would it tip the scale for you?

I'm in a HCOL area and the NYT rent vs buy calculator says its much cheaper form e to rent than buy. Of course, as you are well aware, there are many variable that go into the calculation.
« Last Edit: May 14, 2019, 02:32:10 PM by Laserjet3051 »

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #35 on: May 14, 2019, 02:12:40 PM »
I'm going against the stream here.

The ultimate goal in life is happiness. Some people achieve it by having sex three times a day, others by drowning themselves in luxury items. The poor lad in Bangladesh may find it by having a roof over his head and enough food to eat. Happiness is a state of mind, and we can try to control our own mind to look for happiness outside material goods.

That makes a great deal of sense. Going hiking costs less than flying airplanes, and preparing a wonderful meal at home costs less than going to a fancy restaurant. But there's a limit to this mind-adjustment, and it is based on past life experience. I'm an immigrant, lived in Sweden, Denmark, Germany, France, Switzerland, and briefly in India, before moving to Florida in 1986 and, finally, to California in 1991. For me the weather and where I live is of utmost importance. You could pay me $1M annually to move to Wyoming or Ohio and I would show you the door. Equally important to me is having a home where I feel at home. I cannot conceive the idea of living in a shitty apartment in the ghetto where low lives and noise keep me awake half of the night, every night. Thus, having a single family dwelling in a nice neighborhood is priceless for me. I'm not talking Mc Mansion, but a cute little piece of paradise. Living in one of the nicest parts of the country (the Ojai Valley for me), this comes with a price tag. Entry level is $500K, and that's really a 1000sq ft. fixer in a not-so-great neighborhood. Something decent starts at around $550K and for $600K you start to smile. (Houses costing several million dollars are just a mile away).

So in your situation, I would definitely look for a cute single family home. I would try to keep the purchase price as low as possible, but it's simply a fact that life in sunny SoCal has its price. The overwhelming majority of millionaires in the United States have achieved that status based on real estate. My neighbors bought their home for $199K in 1999, so 20 years ago. I paid $555K in 2017. They call it real estate because it has an inherent value. My neighbor's house is also worth about $550K now, and I assume his mortgage is paid off by now. Had he rented the past 20 years, and put away another $500 per month ($6K per year x 20), he'd be nowhere near where he is now, financially. But forget the financial part for now. If you own your home, you can do what the f*ck you want. You can run around naked if you like and play rock music at 3 a.m., knowing that it won't bother the neighbors. Our back yard borders on the Ventura River, and we often just sit there with a glass of wine and feel blessed.  Put a price tag on that!


ysette9

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #36 on: May 14, 2019, 02:17:00 PM »
The answer to the question of whether to buy or not if the NYT rent vs buy calculator says the math works for buying is that everything else in your life needs to also line up. Are your jobs stable? Do you have 20% saved for a down payment? Have you killed off high interest debt? Can you afford maintenance? If you need to remodel, do you have cash set aside for that? Are you likely to stay out for the 5 or 10 years you need to in order to recuperate the transaction costs?

If the answer is ďyesĒ to all of the above, then go start getting pre-approved and looming at open houses. If not, then start knocking odd the items in the checklist above until you are ready.

Peachtea

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #37 on: May 14, 2019, 08:02:25 PM »
Hi Peachtea,
Thank you for the detailed info and reply.  This makes me feel a lot better about the thought of consolidating the loan into a direct loan and going for forgiveness over the course of the next ten years.  From what I understand, I believe that her loans qualify for the teacher forgiveness plan, but that she did not apply for it originally because the amount of forgiveness ($5000 or maybe $5000 per loan) felt like a drop in the bucket compared to the total amount of debt when she originally took out loans.  However, as we now contemplate consolidation and setting ourselves on a path for the next ten years, and trying to minimize our monthly payment amount, we'll certainly apply for this program before consolidating to see if it might be able to bring the total amount (and our monthly payment amount) down before we set our course.

When you mentioned that it would not be possible for me to get a solo 401k, did you specifically mean that the solo 401k (a type of retirement account) would not serve as a qualifying type of contribution in order to lower our AGI for the purpose of reducing the monthly contribution on a student loan contribution?

I wasn't clear exactly what you meant with your response here -- the solo 401k seems like a less common form of 401k, and potentially one that would be worth looking into, but I did not know if it might not qualify for this situation.

Either way, I will investigate to see if she has the ability to contribute to both a 403b *and* a 401k which might enable us to contribute as much as 38k through her employer.  I am not sure about this, but that would be cool if it's possible.  It's kind of crazy how much disparity there is with these things just based on employers...my employer has no retirement plan at all, not even a Simple IRA. 

*** 
Tomorrow we are headed in for our first doctor's appointment to see how things are looking with the baby, and I have deposited cash after selling the car.  First few days with one vehicle are going well, and I feel a weight lifted after having sold the car because I'm no longer worried that someone might steal it or that I might crash it and lower its resale value while I'm out driving it around etc.  Until we switch to a different apartment, we'll probably just make do with one car. 

I'll post again once I know a bit more, thanks all for your time and help.

Youíre welcome! What I meant by the solo 401k is that you can only have one if youíre self employed or own your own business without any employees. Since youíre employed, your only option outside an employer plan is an IRA (with 6k max contribution). But if youíre incomed out of tax deductions for a tradional IRA then contributing to an IRA wonít help with lowering the SL payments. Yeah, itís crazy what a difference employers can have. My husband left one of his jobs in part because of no 401k, when we added extra pay plus tax benefits of 401k plus lower SL payments, it made the move a no brainer.

I think you could consolidate and then apply for teacher forgiveness based on this from studentloans.gov:
Quote
If you have a Direct Consolidation Loan or a Federal Consolidation Loan, you may be eligible for forgiveness of the outstanding portion of the consolidation loan that repaid an eligible Direct Subsidized Loan, Direct Unsubsidized Loan, Subsidized Federal Stafford Loan, or Unsubsidized Federal Stafford Loan.

That would let you end PSLF payments a few months early, since the teacher forgiveness might take months to process. But then again maybe itís safer and less things to keep track of to do teacher forgiveness first and then consolidate. Wish I could help more than teacher forgiveness, but I havenít paid attention much to that (as non-teacher).

Also thatís awesome re the one car! Congrats!

Peachtea

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #38 on: May 14, 2019, 08:15:36 PM »
My neighbors bought their home for $199K in 1999, so 20 years ago. I paid $555K in 2017. They call it real estate because it has an inherent value. My neighbor's house is also worth about $550K now, and I assume his mortgage is paid off by now. Had he rented the past 20 years, and put away another $500 per month ($6K per year x 20), he'd be nowhere near where he is now, financially.

Wait, this sounds like an example of why itíd be better to not buy. 199k in 1999 is 305k in todayís dollar. That means the value only increased 3% above inflation, whereas the stock market is an average of 7% after inflation. The norm would be 20% down with a 30 year mortgage. If your neighborís house continues increasing at the current rate, at the 30 year mark it will be worth 740k, but less 6% selling costs. If your neighbor had invested their down payment ($39,800 in 1999) and the $500 a month difference in own vs rent costs for those 30 years instead, heíd end up with 909k in much more liquid assets. Renting is better in this situation.

Peachtea

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #39 on: May 14, 2019, 08:29:35 PM »
PeachTea, I just want to show my appreciation for all you have done by giving out your expertise to the OP in regards to his wife's student loans. The amount of time it must have taken for you to write all of the posts above is rather incredible. This is a great example to members of the MMM community of why we are all here. Well done.

To the OP, keep up with your Updates. Would love to see progress with your long term decisions over time. Congrats on your "awakening", although it appears you weren't a dumpster fire in the past. I love it that you are taking this whole student loan thing by the horns. From my perspective, my wife and I had >250K in loans, taken out prior to PSLF. Paid off in 9 years. Ironically, best education I ever got was figuring out how to pay them off.

Aww thanks! I feel like I need to pass on all this otherwise useless SL info Iíve acquired. But yeah, my years of trying to pay off private loans led me to personal finance resources and mmm. So while it felt/feels like a chain sometimes, I might never actually have learned how to manage my money, 401k, etc otherwise. Silver linings!

uneven_cyclist

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #40 on: May 14, 2019, 11:05:30 PM »
I'm going against the stream here.

The ultimate goal in life is happiness. Some people achieve it by having sex three times a day, others by drowning themselves in luxury items. The poor lad in Bangladesh may find it by having a roof over his head and enough food to eat. Happiness is a state of mind, and we can try to control our own mind to look for happiness outside material goods.

That makes a great deal of sense. Going hiking costs less than flying airplanes, and preparing a wonderful meal at home costs less than going to a fancy restaurant. But there's a limit to this mind-adjustment, and it is based on past life experience. I'm an immigrant, lived in Sweden, Denmark, Germany, France, Switzerland, and briefly in India, before moving to Florida in 1986 and, finally, to California in 1991. For me the weather and where I live is of utmost importance. You could pay me $1M annually to move to Wyoming or Ohio and I would show you the door. Equally important to me is having a home where I feel at home. I cannot conceive the idea of living in a shitty apartment in the ghetto where low lives and noise keep me awake half of the night, every night. Thus, having a single family dwelling in a nice neighborhood is priceless for me. I'm not talking Mc Mansion, but a cute little piece of paradise. Living in one of the nicest parts of the country (the Ojai Valley for me), this comes with a price tag. Entry level is $500K, and that's really a 1000sq ft. fixer in a not-so-great neighborhood. Something decent starts at around $550K and for $600K you start to smile. (Houses costing several million dollars are just a mile away).

So in your situation, I would definitely look for a cute single family home. I would try to keep the purchase price as low as possible, but it's simply a fact that life in sunny SoCal has its price. The overwhelming majority of millionaires in the United States have achieved that status based on real estate. My neighbors bought their home for $199K in 1999, so 20 years ago. I paid $555K in 2017. They call it real estate because it has an inherent value. My neighbor's house is also worth about $550K now, and I assume his mortgage is paid off by now. Had he rented the past 20 years, and put away another $500 per month ($6K per year x 20), he'd be nowhere near where he is now, financially. But forget the financial part for now. If you own your home, you can do what the f*ck you want. You can run around naked if you like and play rock music at 3 a.m., knowing that it won't bother the neighbors. Our back yard borders on the Ventura River, and we often just sit there with a glass of wine and feel blessed.  Put a price tag on that!

Hey Bernard, thanks for posting a contrarian opinion. It is worth noting that MMM himself talks regularly about spending more than average, and more than he does in other categories, on housing because he really values having a place where he can rest, relax, entertain, etc. For me personally, owning a home in a place where I love to spend time is something that I would love to do and it is something that would give me a sense of peace and happiness.

For the time being, I am going to hit the books in order to gain a deeper understanding of home ownership and of how a house might affect my financial life. In the meantime, I'll enjoy the (relative) flexibility that comes with renting while working on getting this student loan under control. 

I do like the idea of having a small piece of paradise somewhere. All in good time -- I'll get there! Thanks for sharing :-)

uneven_cyclist

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #41 on: May 14, 2019, 11:25:11 PM »
Hi Peachtea,
Thank you for the detailed info and reply.  This makes me feel a lot better about the thought of consolidating the loan into a direct loan and going for forgiveness over the course of the next ten years.  From what I understand, I believe that her loans qualify for the teacher forgiveness plan, but that she did not apply for it originally because the amount of forgiveness ($5000 or maybe $5000 per loan) felt like a drop in the bucket compared to the total amount of debt when she originally took out loans.  However, as we now contemplate consolidation and setting ourselves on a path for the next ten years, and trying to minimize our monthly payment amount, we'll certainly apply for this program before consolidating to see if it might be able to bring the total amount (and our monthly payment amount) down before we set our course.

When you mentioned that it would not be possible for me to get a solo 401k, did you specifically mean that the solo 401k (a type of retirement account) would not serve as a qualifying type of contribution in order to lower our AGI for the purpose of reducing the monthly contribution on a student loan contribution?

I wasn't clear exactly what you meant with your response here -- the solo 401k seems like a less common form of 401k, and potentially one that would be worth looking into, but I did not know if it might not qualify for this situation.

Either way, I will investigate to see if she has the ability to contribute to both a 403b *and* a 401k which might enable us to contribute as much as 38k through her employer.  I am not sure about this, but that would be cool if it's possible.  It's kind of crazy how much disparity there is with these things just based on employers...my employer has no retirement plan at all, not even a Simple IRA. 

*** 
Tomorrow we are headed in for our first doctor's appointment to see how things are looking with the baby, and I have deposited cash after selling the car.  First few days with one vehicle are going well, and I feel a weight lifted after having sold the car because I'm no longer worried that someone might steal it or that I might crash it and lower its resale value while I'm out driving it around etc.  Until we switch to a different apartment, we'll probably just make do with one car. 

I'll post again once I know a bit more, thanks all for your time and help.

Youíre welcome! What I meant by the solo 401k is that you can only have one if youíre self employed or own your own business without any employees. Since youíre employed, your only option outside an employer plan is an IRA (with 6k max contribution). But if youíre incomed out of tax deductions for a tradional IRA then contributing to an IRA wonít help with lowering the SL payments. Yeah, itís crazy what a difference employers can have. My husband left one of his jobs in part because of no 401k, when we added extra pay plus tax benefits of 401k plus lower SL payments, it made the move a no brainer.

I think you could consolidate and then apply for teacher forgiveness based on this from studentloans.gov:
Quote
If you have a Direct Consolidation Loan or a Federal Consolidation Loan, you may be eligible for forgiveness of the outstanding portion of the consolidation loan that repaid an eligible Direct Subsidized Loan, Direct Unsubsidized Loan, Subsidized Federal Stafford Loan, or Unsubsidized Federal Stafford Loan.

That would let you end PSLF payments a few months early, since the teacher forgiveness might take months to process. But then again maybe itís safer and less things to keep track of to do teacher forgiveness first and then consolidate. Wish I could help more than teacher forgiveness, but I havenít paid attention much to that (as non-teacher).

Also thatís awesome re the one car! Congrats!

Okay, thank you Peachtea. I am feeling much closer to having a game plan.

*We'll investigate more to see about whether it makes more sense to apply for teacher forgiveness before or after consolidation.
*Once we are settled on a plan for when to apply for teacher forgiveness, we'll consolidate.
*I'll figure out what our 401k / 403b options are so that we can maximize our contributions, hopefully with a max possible of 38k between two 401Ks and then possibly even more through IRAs.  This might involve me having to switch jobs or even build a business that would allow me to contribute to a solo 401k -- I do not know what might be involved there, but I'll post updates as things progress.

Thank you for all of your time and effort and for your considered responses, it has helped a great deal as we organize our plan of attack with this loan.

MrThatsDifferent

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #42 on: May 15, 2019, 04:47:52 AM »
Ok, hereís a bit of directive advice, do with as you please:
ódo a proper case study and post your income, assets and expenses in detail so that people can help you trim those expenses
órent vs buy is a common theme. I strongly encourage you to read JL Collins series on home ownership and Go Curry Cracker on being a renter for life
óyouíve gotten better advice than I could ever give on your loans so definitely follow that
ówhatever you can do to boost your income would be great. Whatís the plan for when the baby comes? Youíll need to factor those expenses in your budget

Good luck

Finances_With_Purpose

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #43 on: May 17, 2019, 09:22:45 AM »

All else equal, you burn a lot of money by tying it up in housing.  You can't use it for retirement (unless you cash out), and you anchor yourself to spending a lot of after-tax income that you could shovel away in tax-deferred accounts otherwise....You pay an extra 20+% up-front on every dollar you have to take as ordinary income above what you'd otherwise need... So, you'd only get to spend $450 on housing for every $600 you could save if you'd put it in a tax-advantaged account, and plus, you get to earn on that money tax-free for decades. 


I'd like to jump in here because I'm facing a similar dilemma to OP. @Finances_With_Purpose , you seem to be assuming that a rent payment is lower than a mortgage payment, so that the renter always has more money that the homeowner to put into tax-advantaged accounts. Is that correct? And how much does your conclusion change in a market where rent is basically the same as a mortgage payment? In other words, if I have to pay $X anyway, I could pay $X and get an asset as opposed to not getting an asset.

Great question.  There are tons of threads here that address this, too. 

Rent covers your entire housing expense for the month.  A mortgage is just one piece.  You have escrow (which can increase, for insurance + taxes), but more importantly, you have maintenance: you now maintain the place.  A good rule of thumb is to save 1-2% of your house value per year for that expense.  And more the first several years, closer to 5-6% or so the first year. 

It also takes time and resources in other ways.  Once you buy, you're in charge of mowers, mowing - unless you hire a landscaper - and maintenance in all its forms, including the little handyman things, clearing the gutters every year, and so on.  Right now, you pay one tidy sum per month and it's all done for you. 

A home is fundamentally more of a liability.  It costs you money each year.*  Yes, you also have to pay to live somewhere - there's an implied cost of housing - but it's usually far less than what people actually pay for housing when they buy.  Houses, for most, are a huge cost driver. 

Added to that, when you buy, most people take out a mortgage with 20% or less down, so they end up paying mostly interest the first 5-10 years.  That means you really only start seeing more benefits from saving once you're 10+ years in, yet most people sell before then.  (For various reasons, owning a home is inflexible: you can't change jobs, move closer to family, or so on, without paying huge transaction costs - usually more than 6% of the total value.) 

And leaving all that aside, there's also the urge to spend more when you're buying things (like improvements) for something you "own" that is an "investment," ergo the many threads here talking about how buying a house has driven up costs way more than imagined.  (You can see several of those in my post history.)  Once you own a house, it's easy to spend more and more on it, to view that spending (which is usually just spending) as an "investment," and so on. 

Housing drives most household expenses, so increasing your housing will generally increase expenses across the board.  It locks in your commute, locks you into service costs in whatever area/price level, and so on. 

For those reasons, some people peg their retirement plan to their housing alone - see here, for example.  I can see why that makes sense. 

*This can be different if you "house hack," i.e., rent parts of your house out, Airbnb, or the like, but most people aren't considering that, especially people with kids/young kids.  That may change the math. 

At any rate, I would strongly and strenuously avoid ever comparing a mortgage to your rent; those are apples and kiwis.  Compare your total housing costs to your rent, and then also add/compare the premium for flexibility that renting allows you: you can easily move closer to new jobs, better opportunities, family, or whatever, whereas homeowners may only do so at a very high cost. 

Bernard

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #44 on: May 17, 2019, 03:04:44 PM »
Quote
For those reasons, some people peg their retirement plan to their housing alone - see here, for example.  I can see why that makes sense. 

If Suze Orman wasn't a lesbian, I'd have guessed that the author of this piece must be the guy boning her. Rarely I have read as much nonsense. If your house is worth $1,4M now, even if you bought it for $65K 30 years ago, you need to have $10,500,000 in savings in order to retire.
F*cking insane bull manure.

ysette9

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #45 on: May 17, 2019, 03:33:29 PM »
Quote
For those reasons, some people peg their retirement plan to their housing alone - see here, for example.  I can see why that makes sense. 

If Suze Orman wasn't a lesbian, I'd have guessed that the author of this piece must be the guy boning her. Rarely I have read as much nonsense. If your house is worth $1,4M now, even if you bought it for $65K 30 years ago, you need to have $10,500,000 in savings in order to retire.
F*cking insane bull manure.
Such nonsense. I pity the people who fall for this type of advice.

Finances_With_Purpose

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #46 on: May 25, 2019, 05:04:23 PM »
To be clear, I wasn't recommending that *as* one's strategy.  But instead, I was making the point that housing drives expenses, a pretty common point on this forum, and using that as an example.

That particular example derives from a Texas advisor of some sort, and one can really understand why, in Texas, it makes even more sense: they pay 2-3% of their home value each year just in property taxes.  So a $1M home runs $20-$30k/year just to own.

It's less common for folks here to peg retirement costs that way because housing here tends to be more modest in general and folks are unusually expense-conscious.  But even so, housing still accounts for a large percentage of expenses for most people, especially for those who own.

uneven_cyclist

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #47 on: June 09, 2019, 02:19:11 AM »
OP I feel like you donít really understand loan forgiveness b/c your response doesnít really make sense. Maybe Iím wrong due to lack of details and filling in with assumptions, but Iím going to give you a detailed explanation and hopefully itís helpful in making an informed choice.

Iím specifically talking about PSLF and your wife would be eligible if she works for a public school, has all federal direct loans or consolidates her federal loans to federal direct loans, and applies for an income based repayment plan. If she is on an income based repayment plan, the payments are less than the normal 10 year amount. Since the balance is forgiven with no tax consequences, this means you pay less in that 10 year period and can put that money elsewhere like retirement accounts or say extra rent for a larger place when you have a kid.

I can give more specific info if you provide more details.How long has your wife worked at a public school? Are all her loans direct federal loans (word direct is somewhere in title of the loan)? When did she occur the loans, pre or post 2007, before or after she started working for a public school? What payment plan is she on?

For example, if you consolidate using Sofi or another private company, you lose the federal benefits. If you get a 5% interest rate for 115k and 10 repayment schedule, thatís $1220 a month in payments. With a federal repayment plan like REPAYE, based on your income and assuming no retirement contributions that would be a $872 a month. But PSLF also encourages you to save for retirement (traditional accounts only, Roth doesnít count) by reducing your payment the more you put in a 401k or IRA since itís based on your AGI. So if you max two 401ks (38k a year combined), your monthly payment drops to $555 a month. Add a kid and it drops to $500 a month. If your income goes up, so does your payments, but if your wife has access to a 403b she can stash even more in retirement to keep payments down. Hereís the repayment calculator to estimate based on various incomes etc:

https://studentloans.gov/myDirectLoan/repaymentEstimator.action?_ga=2.16679477.2046159223.1557190475-832702481.1556456894#

At your income, PSLF + maxing 401ks would both let you save for retirement now and be rid of the loans in 10 years (if you have to start from scratch). I estimate maxing 401ks would save you $9650 in federal and state taxes a year, plus it lowers her payments $7,980 a year. Essentially itís like getting 38k in savings for only $20,370, which is only about 15% of your income and IMO the minimum you should be putting towards retirement.

Also for rent vs buy, check out the nytimes calculator which takes all the variables into account compared to just a mortgage calculator.

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

Progress update:
*We have submitted our application to refinance under the PAYE program. This will be at roughly a 7% interest rate and will require 120 qualifying payments over the course of 10 years.
*We are working on getting her paperwork filled out to max out her 403(b) plan at work in order to pull down her AGI by 19K/year and to lower her monthly payment. I made the mistake of filing a joint tax return when I did our taxes this year, so that will unfortunately boost our monthly student loan payment to something like $700/month for the year, but it should go down to $500/month or less for next year.
*We'll plan to file separately rather than jointly on next year's tax return, because it looked like this really brought down the monthly payments a lot on the Federal Student Aid website's online calculator.
*I'll continue to see what I can do about finding more income and maybe a 401(k)...that's an ongoing effort.
*I might begin making traditional (rather than Roth) retirement contributions. I am not sure if it would make a significant difference for me to pull my AGI down by $6000 (personal IRA max annual contribution) if we were filing separately. I'll have to get back on the website to confirm, but I believe that it did help.

Other news:
*I called the insurance company and took myself off of her car insurance policy, so that will bring our monthly expenses down by a bit. I very rarely drive anyway, so it made little sense to pay hundreds a year for that luxury.
*I'll continue to investigate home ownership and electric cars and rentals and so on.

Thank you all for your time and advice.  We are on a much better course at this point.

Malkynn

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #48 on: June 09, 2019, 05:36:10 AM »
Sorry...I just want to clarify something:

You are looking to move in with a roommate while you have a newborn??? Did I read that correctly??

Peachtea

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Re: Student Loans / Housing / Kids / Los Angeles
« Reply #49 on: June 09, 2019, 08:59:54 AM »
OP I feel like you donít really understand loan forgiveness b/c your response doesnít really make sense. Maybe Iím wrong due to lack of details and filling in with assumptions, but Iím going to give you a detailed explanation and hopefully itís helpful in making an informed choice.

Iím specifically talking about PSLF and your wife would be eligible if she works for a public school, has all federal direct loans or consolidates her federal loans to federal direct loans, and applies for an income based repayment plan. If she is on an income based repayment plan, the payments are less than the normal 10 year amount. Since the balance is forgiven with no tax consequences, this means you pay less in that 10 year period and can put that money elsewhere like retirement accounts or say extra rent for a larger place when you have a kid.

I can give more specific info if you provide more details.How long has your wife worked at a public school? Are all her loans direct federal loans (word direct is somewhere in title of the loan)? When did she occur the loans, pre or post 2007, before or after she started working for a public school? What payment plan is she on?

For example, if you consolidate using Sofi or another private company, you lose the federal benefits. If you get a 5% interest rate for 115k and 10 repayment schedule, thatís $1220 a month in payments. With a federal repayment plan like REPAYE, based on your income and assuming no retirement contributions that would be a $872 a month. But PSLF also encourages you to save for retirement (traditional accounts only, Roth doesnít count) by reducing your payment the more you put in a 401k or IRA since itís based on your AGI. So if you max two 401ks (38k a year combined), your monthly payment drops to $555 a month. Add a kid and it drops to $500 a month. If your income goes up, so does your payments, but if your wife has access to a 403b she can stash even more in retirement to keep payments down. Hereís the repayment calculator to estimate based on various incomes etc:

https://studentloans.gov/myDirectLoan/repaymentEstimator.action?_ga=2.16679477.2046159223.1557190475-832702481.1556456894#

At your income, PSLF + maxing 401ks would both let you save for retirement now and be rid of the loans in 10 years (if you have to start from scratch). I estimate maxing 401ks would save you $9650 in federal and state taxes a year, plus it lowers her payments $7,980 a year. Essentially itís like getting 38k in savings for only $20,370, which is only about 15% of your income and IMO the minimum you should be putting towards retirement.

Also for rent vs buy, check out the nytimes calculator which takes all the variables into account compared to just a mortgage calculator.

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

Progress update:
*We have submitted our application to refinance under the PAYE program. This will be at roughly a 7% interest rate and will require 120 qualifying payments over the course of 10 years.
*We are working on getting her paperwork filled out to max out her 403(b) plan at work in order to pull down her AGI by 19K/year and to lower her monthly payment. I made the mistake of filing a joint tax return when I did our taxes this year, so that will unfortunately boost our monthly student loan payment to something like $700/month for the year, but it should go down to $500/month or less for next year.
*We'll plan to file separately rather than jointly on next year's tax return, because it looked like this really brought down the monthly payments a lot on the Federal Student Aid website's online calculator.
*I'll continue to see what I can do about finding more income and maybe a 401(k)...that's an ongoing effort.
*I might begin making traditional (rather than Roth) retirement contributions. I am not sure if it would make a significant difference for me to pull my AGI down by $6000 (personal IRA max annual contribution) if we were filing separately. I'll have to get back on the website to confirm, but I believe that it did help.

Other news:
*I called the insurance company and took myself off of her car insurance policy, so that will bring our monthly expenses down by a bit. I very rarely drive anyway, so it made little sense to pay hundreds a year for that luxury.
*I'll continue to investigate home ownership and electric cars and rentals and so on.

Thank you all for your time and advice.  We are on a much better course at this point.

Thatís great that your getting started on handling the loans AND saving for retirement! Must feel good! A short cut for estimating how much traditional contributions will save on the loans is to times it by 10%, since PAYE is 10% of discretionary income. So 6k in a tIRA should lower the payments $600 a year or $50 a month. This is only true for tIRAs if you file jointly though.

You have to do the maths on filing individually for 2019 (loan savings vs tax loss) because when you file individually neither of you can contribute to a Roth IRA and cannot receive deductions for tIRA. You also lose the (up to $2500) student loan interest deduction. So you would only be able to contribute with no deductions to a tIRA this year and would have to withdraw or recharacterize whatever you have put into Roth so far this year. (If you wanted to file separately 2019 rather than wait until 2020.)

This happened to us first year DH and I were married, because we didnít know the IRA rule for filing individually, and my DH had no 401k plan. Luckily his Roth was down like $5, so we were able to just withdraw it with no tax penalties. If you do a tIRA filing individually it wonít help with lowering student loan payments since you wonít get deductions to lower income and your income isnít counted anyways. Also if you decide to contribute to a tIRA filing separately make sure itís a new one, so you donít make our mistake of being unable to track what portion of tIRA received deductions and what didnít. Apparently if you keep track of this then you donít pay taxes on the contributions with no deductions when pulling it out. (I donít know much about how to do this.)

Due to the filing individually and IRA rule, it would be a huge bump in pay for you to get a job with a 401k plan even if the pay is the same. Then you could contribute 19k to 401k and file jointly, the 19k should bring your income down enough that it doesnít increase or even lowers student loan payments when file jointly. Youíll save a bunch on taxes by being able to contribute the 19k. And if your income goes up, then you can both also contribute to either a tIRA or Roth for more retirement saving. Again this is what happened with us. For last 4 years, the savings on student loans by filing individually has outweighed the tax loss. This year DH has a job with 401k that heís maxing, plus a family HSA, so it is finally is better for us to file jointly for 2019. Now we also get to contribute to Roth IRAs. (Weíre incomed out of traditional.) Iím inordinately excited to only have to do taxes once this year.