Profiling RedTwoGreen on how they can pay down their $600,000 in student debt

[tmoneyearlyretiree]

I met Amber and Danny from commenting on their site RedTwoGreen.com. They are a family of three with a crushing loan balance of almost $600k from dental school and law school, all from the federal government with an avg interest rate of ~6.8%. I saw where they were planning on doing the REPAYE plan and putting as much as they could afford into their loans so I suggested that they refinance with one of the online student loan companies with a five year variable rate, could save them $745,000 compared with REPAYE, $200,000 compared with the standard repayment plan. They're drastically cutting back their expenses to make supercharged payments on the balance, which I think is pretty mustachian of them.

If you have any suggestions on how you would best handle paying down $600k in debt with a reasonable income (~$300k a year combined), let them know. I'll send them the link to this discussion so they can see the responses.

The analysis I did for them is here: http://millennialmoola.com/2016/07/12/half-million-dollars-in-potential-student-loan-savings/

*Side note: holy crap dental school is expensive. Makes even law school look like a community college tuition by comparison

[therethere]

I'd be hesitant to advise for a variable rate on the entire balance. I mean eventually the rates will go up and get back to near historical averages right? My variable loans were as high as 9% in around 2006-2009. They may be better off doing a variable rate for the portion they know they can pay off in the near term and then lock in a low fixed rate for the bulk of the balance. Rinse and repeat as the overall balance gets lower if the rates stay low. Just a thought. Otherwise, I think if they stay motivated the debt isn't that insurmountable. We paid off nearly 250k in debt in 9 years on an average salary of 130k/year (once accounting for layoffs and such). So 600k loans with 300k starting salary my only advice is.... Put extra money towards it religiously. Small payments add up. Add in moderate travel, hobbies, and fun stuff so your spending plan is sustainable because its going to take awhile. There's not really any other advice you can give... Oh yeah, max out retirement accounts (at least 401k) to save on taxes. I regret only adding a piddly 6% to my 401k for the first 8 years of debt repayment. Now I have a lot of ground to make up.

I also think you may be misled or maybe I misunderstood how you were using the term "private loan".  My Earnest refinance still will cancel the loan at death or total permanent disability. One of the main drivers I had for refinancing is because my parent's were cosigners on my previous loan.

[tmoneyearlyretiree]

I've just heard from people that private student loan refinancers have much less protections when it comes to death and disability than federal student loans. I've never seen the specifics to prove it. If anybody has knowledge there please share.

Good point on the partial variable and partial fixed. They could do 250k variable and the rest fixed something like that. The bond markets are certainly expecting super low rates for the next five years. Maybe if the debt : income ratio was something like 1:1 instead of 2:1 all variable makes more sense because you could scrimp and pay it off immediately if you had to

[Captain FIRE]

I really wonder how he racked up $561k in dental school loans.  That's over two times what google tells me it costs, so I'm really wondering what's the missing story here.  My sister and her husband wrapped some student loans into their house loan, and then they persisted in believing that their house was hugely underwater (and it may have been underwater, but to know they'd need to remove the student loan amount from the equation).  I wonder if something funny has happened here too, either with the math, or perhaps starting a different career and then restarting dental school?

Agree with therethere on variable being risky to do the whole loan as variable.  I too maxed early loan payments on my 8.5% loans instead of my 401k, which would have reduced my tax obligations.  Not the best move.  (And to compound it further - when I did start contributing, I did a Roth 401k despite the fact I knew my salary was likely to be less in retirement than now.  Just had been taught that Roth was *always* better.)

[therethere]

Also, I had to report my 401k balances to Earnest which I believe helped lower the rate I was offered. So if they can begin to max out their 401k's having more assets will help them with any further refinances in the future.

Direct from my loan document:
 
Loan Discharge Provisions.
 You will discharge (forgive) my Loan if (a) I die and you receive acceptable documentation of my death consisting of a
certied copy of my death certicate or other documentation acceptable to you; or (b) if I become totally and permanently disabled (“TPD”) as
dened below. In order to establish total and permanent disability

It also provides deferments for enrolling in school, military deployment, and forbearance in case of job loss. So other than not being eligible for the IBR and such I don't see anything obvious missing. I think its just misinformation that keeps getting repeated.

[tmoneyearlyretiree]

Good to hear that your 401k balances can result in better rates. As to the balance being so high, if you put all your living expenses in grad school on your loans and it accrues at 7% it grows pretty quickly I suppose. I think his dental school was more expensive than average as well