Author Topic: 250K student debt  (Read 29338 times)

TrulyStashin

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Re: 250K student debt
« Reply #50 on: February 22, 2016, 10:11:33 AM »
Jay-sus.

This has got to be the most dead-to-irony place in this whole quarter of the galaxy.

[Unless this is just a line of meta-ironic japing. Or maybe it's only a lawyer thing.  But then, most of the people I went to law school with seemed to have a more than merely vestigial and utterly non-functional sense of humor.  Maybe it is some new crippling brain virus that spreads through building ducts in law palaces, like Legionnaire's. ]


Say it ain't so, boys..

[Knowing this may in turn bring on the grim relentlessness of the local gender-neutrality vigilantes]

Ha, use better sarcasm font next time.



Don't look at me; you're going to have to unstuff your own shirt.

On a forum where there are threads devoted to saving money by refusing to buy toilet paper, sarcasm font is necessary.  Some posters here would have been totally serious with this suggestion.

ReadySetMillionaire

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Re: 250K student debt
« Reply #51 on: February 22, 2016, 10:16:13 AM »
Jay-sus.

This has got to be the most dead-to-irony place in this whole quarter of the galaxy.

[Unless this is just a line of meta-ironic japing. Or maybe it's only a lawyer thing.  But then, most of the people I went to law school with seemed to have a more than merely vestigial and utterly non-functional sense of humor.  Maybe it is some new crippling brain virus that spreads through building ducts in law palaces, like Legionnaire's. ]


Say it ain't so, boys..

[Knowing this may in turn bring on the grim relentlessness of the local gender-neutrality vigilantes]

Ha, use better sarcasm font next time.



Don't look at me; you're going to have to unstuff your own shirt.

On a forum where there are threads devoted to saving money by refusing to buy toilet paper, sarcasm font is necessary.  Some posters here would have been totally serious with this suggestion.

My thought as well.

little_brown_dog

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Re: 250K student debt
« Reply #52 on: February 22, 2016, 10:36:20 AM »
I think you have received some good thoughts on the student loans. I personally had 100k in student debt and we chose to attack it full force and demolish it rather than string it along with lower payments for decades. This was the right move for us, given how rapidly our income has risen over the last 5 years and the fact that we kept our lifestyle expenses low to throw increasingly large amounts at the debt. We will be paying these loans off in full, 2 months before we hit the 5 year anniversary of them going into repayment.

I am more interested in the psychology of these decisions – you mention you are a sahm (me too!) with 5 kiddos and whopping debt loads. To me this suggests a history of repeated, poor financial planning in the family – either you had the kids (and then continued to have more) while drowning in debt, or your husband took out the loans after having the kids (or while more kids were on the way). Both are not smart financial moves. Remember, your financial stability ultimately benefits your kids more than you, so making smart decisions from now on is in their best interest.  Really try to work on rectifying your finances now, so that you can better support your kids in the future.

Have you posted a case study of your finances? The forum can help you figure out where to cut back and how to move forward for your specific situation.

teen persuasion

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Re: 250K student debt
« Reply #53 on: February 22, 2016, 11:16:14 AM »
I hope you are joking. All Mustachians know savings rate is by far the most important variable to FI. You can rapidly increase your stash while simultaneously decrease your FI requirement. You can have a 5% savings rate and never be able to retire or achieve FI during your life time.

Also, forgo a 6-7% guaranteed return by not paying off the debt makes no sense to me. You are on the wrong side of the wealth curve and getting drowned by the ever higher debt tidal wave. Instead of peddling full tilt to get on top and hopefully in front of it, you are telling the OP to relax and coast?

You are talking in early retirement numbers, I am talking wealth numbers.

Person A: Income of $100,000, starts investing $25,000 every year from age 20 until age 50.

Person B: Income of $100,000, starts investing $60,000 every year from age 35 until age 50.

Person A invests a total of $750,000, and assuming 7% return, has $2.53M at age 50.

Person B invests a total of $900,000, and assuming 7% return, has $1.61M at age 50.

Like I said, three things contribute to wealth: time, rate of return, and savings rate. Run almost any scenario you want, and time is the most important factor when it comes to accumulating wealth.

I understand early retirement and FI is a different calculation. But my initial statement concerned wealth.


Also, forgo a 6-7% guaranteed return by not paying off the debt makes no sense to me. You are on the wrong side of the wealth curve and getting drowned by the ever higher debt tidal wave. Instead of peddling full tilt to get on top and hopefully in front of it, you are telling the OP to relax and coast?

The first sentence of my post is about how student loans are different from traditional debt. I can go on and on about that. But the biggest one--and I can't believe I forgot this--is that the government subsidizes 50% of unpaid interest under REPAYE, thus dramatically reducing the actual interest rate.

The real interest rate is thus around 4% when that is factored in (also note that interest is never capitalized under REPAYE). And then you only have to pay 38% of unpaid debt at the end. And as others have suggested, that burden might not even be there due to the current political climate.

Thus, I bet the student debt at the end of 25 years is way lower than I calculated above. And OP still came out ahead using REPAYE!!!

(OP--this is a huge red light with a siren screaming that REPAYE is the right option).

No it does not. There is a $250k tax bill waiting at the end of the 19th year (assuming 7% after tax student loan interest rate, $500/month payment and 38% tax bracket for deemed income of $680k at year 19). There is also a reverse incentive to increase income while on income-based payment. Did I mention your entire financial future is based on the whim of the political sentiment in the future? It is entirely possible for the IRS to say these "windfall" should be taxed at the highest tax bracket 40-50% or even higher or to forgive only 50% of the debt?

This calculation ignores subsidized interest and is way off.

As to your point about the IRS screwing student loan borrowers, there's no way. Absolutely no way. I will give you every cent in every account I have if they increase the taxes on student loan forgiveness.

To summarize the student loan trend: government introduced Public Service Loan Forgiveness (capping payments to 10% of AGI for public employees if they qualified). Government then expanded this so all graduates (public and private sector employees) could participate, and did so via IBR (income driven repayment; 15% of AGI) and ICR (income contingent repayment; variable). Government then expanded this to PAYE (reducing payment to 10% of AGI, but could only use if borrowed after 2007). Government then expanded this to REPAYE (10% of AGI, can't get kicked out of plan, anybody can enroll).

The wind is blowing one direction. And that direction likely also points in favor of the tax burden being removed altogether or at a dramatically low tax rate rather than it being increased.

What happens if they stop being eligible for the IBR mid-way through the 19 years? Right now they have a family size of seven, but in 19 years, all but one or two of the children might be grown up and out of college, depending on how old they are now. So towards the end of the time period, the OP might have a larger income, much larger debt (especially if parents are helping with college), smaller number of dependents, and different eligibility status with regard to the student loans. What then?

You can never become ineligible for REPAYE. Once you are in, you are in. The trick is that your payment isn't capped at the 10 year repayment like it used to be, meaning that if your income goes way up, then you'll have a large monthly payment.

But making too much money is a great problem to have.

In this thread, people talking about how an upper middle class family can make less money and save less money in order to qualify for government entitlement program.

Nope. Just talking about reducing AGI in much the same way people at RootOfGood and GoCurryCracker do.

Make all the money you want. But put it in tax sheltered accounts so your payment is low.


Last note to OP: OP, you're going to get a lot of information and advice from people in this thread that simply don't understand the ins and outs of REPAYE and the student loan system. Take everything said in here with a grain of salt. Then run the numbers (especially stuff concerning subsidized interest), see that REPAYE is the best option, drink a beer, and have a laugh. Life's good.

I'm following this thread with great interest since my kids have student loans, and our state just introduced their own version to piggyback on the federal program.

I did not realize that unpaid interest was at least partially subsidized by the program.  That entirely changes my view on using this, for my kids.  It makes good sense to enroll in the best program (for your circumstances, and that you qualify for) to have your interest subsidized.  The question I have is: can you make payments above your required minimum, and how are those credited?  If your minimum payment is $50/month, and your interest is $150 (just pulling numbers from the air), would the government pay the $100 interest balance, even if you chose to make your "normal" $300 payment?  My kids would prefer to just pay on schedule to knock them out, rather than accrue more, but depending on how exactly this is implemented it could help them pay off the loans earlier!

ReadySetMillionaire

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Re: 250K student debt
« Reply #54 on: February 22, 2016, 12:00:57 PM »
I'm following this thread with great interest since my kids have student loans, and our state just introduced their own version to piggyback on the federal program.

I did not realize that unpaid interest was at least partially subsidized by the program.  That entirely changes my view on using this, for my kids.  It makes good sense to enroll in the best program (for your circumstances, and that you qualify for) to have your interest subsidized.  The question I have is: can you make payments above your required minimum, and how are those credited?  If your minimum payment is $50/month, and your interest is $150 (just pulling numbers from the air), would the government pay the $100 interest balance, even if you chose to make your "normal" $300 payment?  My kids would prefer to just pay on schedule to knock them out, rather than accrue more, but depending on how exactly this is implemented it could help them pay off the loans earlier!

Please note that interest is only subsidized under PAYE and REPAYE, not IBR or ICR. Make sure they are on the right plans. Also note that interest is subsidized at the end of ever year, not every month.

As to your question, you can always pay more. I'm not quite sure whether it would go to all unpaid interest or whether you could allocate it to a specific loan because I think that will be specific with each loan servicer. Have them call their loan servicers to find out.

teen persuasion

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Re: 250K student debt
« Reply #55 on: February 22, 2016, 12:22:00 PM »
I'm following this thread with great interest since my kids have student loans, and our state just introduced their own version to piggyback on the federal program.

I did not realize that unpaid interest was at least partially subsidized by the program.  That entirely changes my view on using this, for my kids.  It makes good sense to enroll in the best program (for your circumstances, and that you qualify for) to have your interest subsidized.  The question I have is: can you make payments above your required minimum, and how are those credited?  If your minimum payment is $50/month, and your interest is $150 (just pulling numbers from the air), would the government pay the $100 interest balance, even if you chose to make your "normal" $300 payment?  My kids would prefer to just pay on schedule to knock them out, rather than accrue more, but depending on how exactly this is implemented it could help them pay off the loans earlier!

Please note that interest is only subsidized under PAYE and REPAYE, not IBR or ICR. Make sure they are on the right plans. Also note that interest is subsidized at the end of ever year, not every month.

As to your question, you can always pay more. I'm not quite sure whether it would go to all unpaid interest or whether you could allocate it to a specific loan because I think that will be specific with each loan servicer. Have them call their loan servicers to find out.

The info I downloaded comparing the different programs said that there was interest subsidization thru IBR as well, similar to that of PAYE.  REPAYE was better, since it included unsubsidized loans as well as unsubsidized loans, and continued beyond 3 years.

I meant to ask about your earlier comment that interest is never amortized under REPAYE - I did not see that in my info file, either.  What do you mean?

ReadySetMillionaire

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Re: 250K student debt
« Reply #56 on: February 22, 2016, 12:50:12 PM »
The info I downloaded comparing the different programs said that there was interest subsidization thru IBR as well, similar to that of PAYE.  REPAYE was better, since it included unsubsidized loans as well as unsubsidized loans, and continued beyond 3 years.

I meant to ask about your earlier comment that interest is never amortized under REPAYE - I did not see that in my info file, either.  What do you mean?

You're right about subsidization and IBR. But it's so low on IBR that it's barely worth mentioning. (BTW, this is just one more example of the wind blowing one direction).

As for saying interest is not amortized, it used to be that if you had $100k in loans and, even after payments, accrued $5k interest that year, then that $5k would become part of your principal, which would then accrue interest on $105k.

REPAYE (and I think the ones before it) removed that burden because it's patently unfair.


And one more thing regarding unpaid interest--as long as you make less than $67k (or around there), you get a $2,500 deduction on your taxes, thus reducing the effective interest rate even more.
« Last Edit: February 22, 2016, 12:52:12 PM by ReadySetMillionaire »

teen persuasion

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Re: 250K student debt
« Reply #57 on: February 23, 2016, 09:10:10 AM »
The info I downloaded comparing the different programs said that there was interest subsidization thru IBR as well, similar to that of PAYE.  REPAYE was better, since it included unsubsidized loans as well as unsubsidized loans, and continued beyond 3 years.

I meant to ask about your earlier comment that interest is never amortized under REPAYE - I did not see that in my info file, either.  What do you mean?

You're right about subsidization and IBR. But it's so low on IBR that it's barely worth mentioning. (BTW, this is just one more example of the wind blowing one direction).

As for saying interest is not amortized, it used to be that if you had $100k in loans and, even after payments, accrued $5k interest that year, then that $5k would become part of your principal, which would then accrue interest on $105k.

REPAYE (and I think the ones before it) removed that burden because it's patently unfair.


And one more thing regarding unpaid interest--as long as you make less than $67k (or around there), you get a $2,500 deduction on your taxes, thus reducing the effective interest rate even more.

I looked for more details on the amortization issue.  It appears that interest is not amortized under REPAYE unless you leave the plan.  Under PAYE and IBR, if your income increases to the point that your monthly payment would be larger than your "normal" 10 year payment, your unpaid interest is amortized, but your payments revert to a max of the "normal" 10 year payment. Your unpaid interest is also amortized if you leave either program.  REPAYE has no cap on payments.

So REPAYE does appear to be the best program - fewer restrictions to eligibility, more interest subsidization, no chance of interest amortization unless you leave the program.  The only drawback is the lack of payment cap, but that's a good problem to have (high enough income to exceed original payment ).

So why is the OP's balance growing, if unpaid interest is only amortized when leaving the program?

ReadySetMillionaire

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Re: 250K student debt
« Reply #58 on: February 23, 2016, 09:14:44 AM »
I looked for more details on the amortization issue.  It appears that interest is not amortized under REPAYE unless you leave the plan.  Under PAYE and IBR, if your income increases to the point that your monthly payment would be larger than your "normal" 10 year payment, your unpaid interest is amortized, but your payments revert to a max of the "normal" 10 year payment. Your unpaid interest is also amortized if you leave either program.  REPAYE has no cap on payments.

So REPAYE does appear to be the best program - fewer restrictions to eligibility, more interest subsidization, no chance of interest amortization unless you leave the program.  The only drawback is the lack of payment cap, but that's a good problem to have (high enough income to exceed original payment ).

So why is the OP's balance growing, if unpaid interest is only amortized when leaving the program?

Obviously pure conjecture on my part, but my educated guess is that the vast majority of OP's loans are unsubsidized "grad plus" loans with interest rates in the 8.0-8.5% interest range. Since OP's husband is in IBR, the interest on these loans is not subsidized, which is leading to a ballooning balance.

It goes to show why OP's husband should get enrolled in REPAYE as soon as humanly possible.

teen persuasion

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Re: 250K student debt
« Reply #59 on: February 23, 2016, 09:23:18 AM »
Hello,

I'm new here.  I'm a SHAM and have 5 children - seeking to get in a better financial future.  My husband is a lawyer making 100K.   We started out with $170K in student loan debt and felt our only option at the time was in IBR plan. (started out at less than 80K)   We have been in IBR repayment plan for the last 6 years.  Now 6 years later our $170K has ballooned into $250K.  I'm wanting to get out from this plan, but don't know if we can.   I don't work (have 5 kids - hence childcare would be exorbitant), and if we were to go off IBR our monthly payments would be $1500.  Where we are currently only paying $500.  But I feel like staying on it only binds us to it more and more since the interest will only continue to increase our principal at an alarming rate.  I guess my question is, is it worth it to stay on IBR and seek for the loan forgiveness, and then get hit with that awful taxbill?

OP, is the interest being added to the principal, or are they two separate line balances?

The one thing I have learned in my research - don't go off the plan!   You can switch plans, you can pay extra, but don't leave the plan.  That would definitely trigger amortization of the unpaid interest.

JustGettingStarted1980

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Re: 250K student debt
« Reply #60 on: February 23, 2016, 10:14:03 AM »
Hi OP,

My family was where you are about 8 years ago (except my wife and I have 3 less kids).
Our Income was around 100K, and we had >250K in student debt.

As a professional, your spouse's income will rise over the coming years (hopefully), which will greatly ease your student loan pain.

My $0.02 are to suggest staying on IBR/Repaye for the low minimal payments, minimizing expenses, and simply throwing each and every last dollar into your student loans over the next 5-7 years (as the family income increases). You'll be down to <100K in no time.

Over time, the low expense/increase in income ratio will continue to widen, and you'll be able to refinance your loans to more reasonable rates (4% or less at current rates), which will further decrease your loan burden.

25 years is a long time to have 250+K hanging over your head. It's stuff like that which can really affect you emotionally. Whereas, working to eliminate the debt will be one of the largest accomplishments of your life.

I agree with poster above who said that the skills you learn by paying this off with follow you for the rest of your life, and will lead to long-term prosperity.

I wonder if I would have ever learned frugality and financial management skills if I hadn't NEEDED to in order to survive. Probably not. I'd probably be in a clown car right now instead of getting ready of my 5 minute walk home.

To the optimizers out there --> I'm fairly sure I could have saves 20-50K or so depending on interest rates by going the PSLF/IBR way for student loans, but I REFUSE TO ALLOW POLITICAL WHIMS AFFECT MY LONG TERM PROSPERITY, and took my loans as a challenge to overcome. The winds will allows change eventually, and I'd prefer to have my financial status under my own control, ala MMM.

FYI: My debt per year ran something like this:

2008: -250+ (at combined interest of 5.25%)
2009: -250+
2010: -240
2011: -210
2012: -200
2013: -160
2014: -120
2015: -80 (now at <3%)

Hope this helps,

JGS

ReadySetMillionaire

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Re: 250K student debt
« Reply #61 on: February 23, 2016, 10:53:56 AM »
Hi OP,

My family was where you are about 8 years ago (except my wife and I have 3 less kids).
Our Income was around 100K, and we had >250K in student debt.

As a professional, your spouse's income will rise over the coming years (hopefully), which will greatly ease your student loan pain.

My $0.02 are to suggest staying on IBR/Repaye for the low minimal payments, minimizing expenses, and simply throwing each and every last dollar into your student loans over the next 5-7 years (as the family income increases). You'll be down to <100K in no time.

Over time, the low expense/increase in income ratio will continue to widen, and you'll be able to refinance your loans to more reasonable rates (4% or less at current rates), which will further decrease your loan burden.

25 years is a long time to have 250+K hanging over your head. It's stuff like that which can really affect you emotionally. Whereas, working to eliminate the debt will be one of the largest accomplishments of your life.

I agree with poster above who said that the skills you learn by paying this off with follow you for the rest of your life, and will lead to long-term prosperity.

I wonder if I would have ever learned frugality and financial management skills if I hadn't NEEDED to in order to survive. Probably not. I'd probably be in a clown car right now instead of getting ready of my 5 minute walk home.

To the optimizers out there --> I'm fairly sure I could have saves 20-50K or so depending on interest rates by going the PSLF/IBR way for student loans, but I REFUSE TO ALLOW POLITICAL WHIMS AFFECT MY LONG TERM PROSPERITY, and took my loans as a challenge to overcome. The winds will allows change eventually, and I'd prefer to have my financial status under my own control, ala MMM.

FYI: My debt per year ran something like this:

2008: -250+ (at combined interest of 5.25%)
2009: -250+
2010: -240
2011: -210
2012: -200
2013: -160
2014: -120
2015: -80 (now at <3%)

Hope this helps,

JGS

Just curious: what does the balance on your retirement accounts look like?

justajane

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Re: 250K student debt
« Reply #62 on: February 23, 2016, 11:20:30 AM »
@ ReadySetMillionaire
Clearly you are very passionate about proselytizing....I mean arguing that people should approach their student loan debt a certain way.

I don't have a problem with you or anyone else availing themselves of a government created program to reduce their student loan debt. I certainly don't have a problem with you arguing with those ad nauseum who paint you and others as leeches or duty-shirkers for using IBR or REPAYE.

What I do have a problem with is your zealousness that seems to overlook the fact that this might not be the best decision for everyone. Or that there are perfectly valid ways to approach paying off student loan debt that don't avail themselves of the program or that accelerate payment in a way that you haven't chosen to do. Correct me if I'm wrong, but your short reply to JustGettingStarted1980 implies to me that you are going to challenge the path he has chosen.

Why?? I personally think that prepaying a mortgage is dumb, dumb, and dumb. But at some point, you have to step back from your own passionate views and realize that other ways work as well. I find it hard to really criticize someone who is prepaying their mortgage because it's still a good decision. In that sense, JustGettingStarted1980 is making a good decision for him to prepay while on IBR, even if it's not what you would do.
« Last Edit: February 23, 2016, 11:22:26 AM by justajane »

JustGettingStarted1980

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Re: 250K student debt
« Reply #63 on: February 23, 2016, 11:41:48 AM »
Hi ReadySetMillionaire,

I don't appreciate your tone. This forum isn't that kind of place, that I remember.

On the other hand, my retirement accounts are doing just fine, thank you so much for asking... and they will continue to grow due to the lessons I learned by paying the debt off the hard way. Not only that, but as I suggested on my prior post, I expect that my Net Worth at 10 years, 15 years, 20 years with be astoundingly higher due to the approach to money that I learned while paying this debt off.

From my understanding, part of Mustachianism is to find that path in life that makes you happy, and pursue that path like a bat out of hell.  Freedom of choice is also a recurring theme in his posts.  I'm not advocating that MY PATH is the best for everyone, but it has worked very well for me.  My above post was a demonstration to the OP that IT CAN BE DONE, and to be wary of relying upon others (i.e. the government, employers) when rules can change rather arbitrarily. I agree that REPAYE should be in OP's interest short term.

The Psychological effects of Debt wear some people down more than others. It's good for the OP (or anyone, really), to consider these effects prior to heading down one road or another.  I think Jane's comment on prepaying a Mortgage is an excellent example.

Oh, and thanks for coming to my defense Jane, that was sweet.

therethere

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Re: 250K student debt
« Reply #64 on: February 23, 2016, 11:50:15 AM »
Not all of us with high student loan debt were lucky enough to be offered a bail out like REPAYE. Some of us had no choice but to start tackling our loans and ignore retirement savings and sacrifice. So good job on hammering on JustGettingStarted1980 for paying off his debts like they were intended. Keep rubbing it in that your bailout makes you more well off, when those who graduated in 2008 did not have that option....

ReadySetMillionaire

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Re: 250K student debt
« Reply #65 on: February 23, 2016, 12:05:04 PM »
@ ReadySetMillionaire
Clearly you are very passionate about proselytizing....I mean arguing that people should approach their student loan debt a certain way.

I don't have a problem with you or anyone else availing themselves of a government created program to reduce their student loan debt. I certainly don't have a problem with you arguing with those ad nauseum who paint you and others as leeches or duty-shirkers for using IBR or REPAYE.

What I do have a problem with is your zealousness that seems to overlook the fact that this might not be the best decision for everyone. Or that there are perfectly valid ways to approach paying off student loan debt that don't avail themselves of the program or that accelerate payment in a way that you haven't chosen to do. Correct me if I'm wrong, but your short reply to JustGettingStarted1980 implies to me that you are going to challenge the path he has chosen.

Why?? I personally think that prepaying a mortgage is dumb, dumb, and dumb. But at some point, you have to step back from your own passionate views and realize that other ways work as well. I find it hard to really criticize someone who is prepaying their mortgage because it's still a good decision. In that sense, JustGettingStarted1980 is making a good decision for him to prepay while on IBR, even if it's not what you would do.

This is an inevitable reply to all my student loan posts.

First, you took my short post the wrong way. I saw a lot in JGS's post that I both admired and disagreed with, but I was honestly curious as to how much JGS set aside for retirement because I was interested if he was able to balance saving for retirement and aggressively pay down debt, because it is often mutually exclusive (as is the case with me, and it seems like OP as well). In fact, I think a case study comparing JGS and my plan would be one of the most interesting case studies possible on these forums, and it would likely illuminate positives and negatives of both avenues (aggressive debt repayment and aggressive utilization of REPAYE).

JGS--honestly sorry if I offended you. That was 100% not my intention. I should have prefaced with "Good job, interesting story," but I was very curious as to your whole financial picture because hell, I might follow suit if you showed me some good math. Anyway, congrats on paying down your debt--keep it up.

As to my zealousness, yes, I am passionate about this topic. I didn't used to be until I posted my plan on this forum and was pretty much attacked from every angle imaginable. I've been called unethical a crazy amount of times, called an "idiot" for accruing so much debt, called an "indentured servant to the federal government," and a thousand other things.

I have thick skin, and I don't really care about the above for longer than 30 seconds. But what gets me borderline steaming mad is the gross amount of misinformation about student loan programs and how borrowers in significant debt are perceived on this forum.

I don't really respond to posts about mortgages or refinancing because I don't know much about them. I also don't post much in the investing subforum because my investing strategy is S&P500 Index Fund and call it a day. I don't post in the rentals/landlording forum because I don't know about it.

Student loan repayment is equally complicated as any of the above topics, yet people on here have created a 275+ post thread in the "wall of shame" section shaming student loan borrowers with significant debt. I think that's a steaming pile of shit and should be scolded as much as possible.

Right or wrong, I've assumed the mantle of defending student loan repayment strategies at all costs. My tone is the same as MMM's when it comes to "clown cars" and the like--I don't really care whether I offend people, I'm just looking to make sure people are at least aware of REPAYE and its benefits.

As is always the case, when I make a thorough post about REPAYE (go look at my original post in this thread), I inevitably receive backhanded criticisms from people who haven't done the math. I then spend literally hours responding to questions and hypotheticals (as I've done in this thread) in an effort to make sure I spread as much information as possible.

To your last point, I 100% agree that personal finance is personal. I get it. I'm probably going to slightly prepay my mortgage. I spend money on cable and might get a new car here soon. To each their own.

But the tone and misinformation on this forum about student loans, as well as the attitude towards high debt student loan borrowers, are absolutely unacceptable. I am thus going to continue posting zealously about alternative repayment options until my hands fall off. If that comes off as harsh, oh well.
« Last Edit: February 24, 2016, 07:32:47 AM by ReadySetMillionaire »

charis

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Re: 250K student debt
« Reply #66 on: February 23, 2016, 12:45:25 PM »
...Keep rubbing it in that your bailout makes you more well off, when those who graduated in 2008 did not have that option....

Why don't you have access to these repayment options?  I graduated in 2008 and am confused by this.

therethere

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Re: 250K student debt
« Reply #67 on: February 23, 2016, 12:49:17 PM »
Didn't PAYE start around 2011? Sure there's the standard IBR. But this REPAYE or PAYE or whatever where they subsidize the interest indefinitely and will payoff the loan after xxxxx payments if you keep a low AGI did not exist as far as I know.

charis

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Re: 250K student debt
« Reply #68 on: February 23, 2016, 01:08:49 PM »
whatever where they subsidize the interest indefinitely and will payoff the loan after xxxxx payments if you keep a low AGI did not exist as far as I know.

How that is unlike the IBR?

The PAYE did come later (I don't know when), but applied to new borrowers after Sept 2007.  The REPAYE, which became effective this past November, now includes older borrowers.  The IBR is similar to both (subsidized interest and forgiveness) but at a higher percentage of AGI and a longer payment period prior to forgiveness. 

AMG

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Re: 250K student debt
« Reply #69 on: February 23, 2016, 08:44:45 PM »
Thank you to all who have given suggestions.  I'm so new at all this, much of it is like a foreign language to me.  It's going to take me awhile to digest all of this and figure it out.  I fully accept responsibility for some poor financial choices that both my husband and I have made, but I will NEVER regret the decision to have 5 kids and it was not a "colossal mistake" as some have suggested.  I could talk about all the reasons we did what we did, but no point really.  I know this is a blog and forum for folks seeking to retire early.  My purpose in joining was not to retire early or even amass great wealth.  It was to start picking up some broken pieces and changing our ways by learning more about finances.   Even still my family is and will always be more important than money - and even debt.  We are in a pretty crappy situation right now and I have a lot to learn and think about. 

I would like to look more into this REPAYE thing that has been talked about a lot.  Initially I thought we didn't qualify for that because of the type of loans we had, but maybe we will.  My husband and I have already taken a hard look at our budget and talked about ways to cut it.  We have been living an inflated lifestyle and things are going to have to change.  I once was good at frugality, but as income increased and family size increased over the years so did spending.  I will have to get back to those old ways, even more so.

We are currently thinking of staying on IBR, but attacking the debt.  I am also in the process of looking for some work, either in the evenings, early mornings or things that I can do from home and then everything I make will go towards paying off debt.  Clearly most of our money goes towards housing, cars and health care.  And while I know the biggest thing to do would be to sell our house and get rid of our cars -- easier said than done.  (I'm sure many on here have done that though)  There is a lot to consider.  One car is only months from being paid off, and the other newer car houses me and the 5 kids.  We wanted a reliable car that was not going to break done and require a lot of maintenance.  But having said that, a heavy thought is still to sell it and get something less.

One other piece of information is that my husband in back in school getting an MBA.  But his job is paying for it!!  So no more loans on that one.  Because of this we just found out our loans have gone into deferment.  Interest will of course accrue, except for the subsidized loans the govt will pay the interest.  We plan on still paying as much as we can and focusing on the highest interest, biggest amounts first.  About 20K of the debt is around 2%, so we won't bother with that during this time, and then I think around 60K is subsidized.  That still leaves the majority gaining interest.  We have considered pulling out a few of the higher interest loans from IBR and putting them on a shorter, lower interest standard plan during this 2 year deferment period.  Attacking those and paying the interest on the IBR loans to hopefully prevent it from continuing to balloon.  We expect that income will increase significantly in the coming years and then we can pull out more at a time.

What are some thoughts on this strategy?

EnjoyIt

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Re: 250K student debt
« Reply #70 on: February 23, 2016, 09:30:42 PM »
Sounds like you have an amazing plan to get yourself out if this hole.  Hopefully after the 2 years and the MBA his income will rise and it get even easier.

I think there are a lot of great comments in this thread as well as the mathematics and intricacies regarding the PAYE/REPAYE program.  In all honesty I do not know the details behind these programs.  I am aware of human emotion though since I am human and have emotions.  I can only imagine the psychological feeling to have a debt that is 2.5 times your household income and is steadily growing.  This has got to be a massive burden sitting on both of your shoulders, and I can't imagine dragging it along for 19 more years even if the math may prove better sticking with REPAYE.  Therefor I completely understand the desire to pay it off and wish you both the best of luck.

I did find this link that explains the different programs:
http://www.usnews.com/education/blogs/student-loan-ranger/2015/11/04/a-side-by-side-comparison-of-3-income-based-repayment-plans.

I still highly recommend you allow the members of this board to dissect your budget though an appropriate case study.  You may find the best approach to paying this off while still building wealth.  For example, if you pull out of REPAYE then those loans will capitalize their interest which if paid aggressively will be a massive tax deduction in that year. You may even want to do a Roth IRA contribution for that year.  You will find that actually preparing the information for a case study will be extremely education for yourself as it will force you to really think about all of your spending. 

Also, you may consider paying off the smallest loans first even if they are not at a higher interest rate (excluding the 2% loan.) The reason for this is 2 fold.  1) You get the satisfaction of paying off a loan. 2) You will end up decreasing the the minimum payment amount and therefor increase cashflow if ever needed.  Once your loans are smaller, you will be able to refinance them to a more reasonable rate.  Unless you are able to quickly pay off the highest interest rate loans within that 2 year span you discussed above.

teen persuasion

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Re: 250K student debt
« Reply #71 on: February 24, 2016, 06:10:07 AM »
Quote
We have considered pulling out a few of the higher interest loans from IBR and putting them on a shorter, lower interest standard plan during this 2 year deferment period. 

Why would the interest be lower on a standard plan outside IBR?  Do you mean refinancing that portion?

Why not just leave them inside IBR (so the accrued interest is not amortized when they leave the program) and send additional principal payments to those loans you want to target?

The other problem I see with removing loans from the program is that the smaller amount of loans remaining inside IBR combined with your DH's growing income could tilt the payment calculation to the point where the payment meets and then exceeds your original 10 year plan payment.  You would be capped at the 10 year payment amount, but this would trigger amortization of accrued interest.

ReadySetMillionaire

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Re: 250K student debt
« Reply #72 on: February 24, 2016, 07:14:10 AM »
Thank you to all who have given suggestions.  I'm so new at all this, much of it is like a foreign language to me.  It's going to take me awhile to digest all of this and figure it out.  I fully accept responsibility for some poor financial choices that both my husband and I have made, but I will NEVER regret the decision to have 5 kids and it was not a "colossal mistake" as some have suggested.  I could talk about all the reasons we did what we did, but no point really.  I know this is a blog and forum for folks seeking to retire early.  My purpose in joining was not to retire early or even amass great wealth.  It was to start picking up some broken pieces and changing our ways by learning more about finances.   Even still my family is and will always be more important than money - and even debt.  We are in a pretty crappy situation right now and I have a lot to learn and think about. 

I would like to look more into this REPAYE thing that has been talked about a lot.  Initially I thought we didn't qualify for that because of the type of loans we had, but maybe we will.  My husband and I have already taken a hard look at our budget and talked about ways to cut it.  We have been living an inflated lifestyle and things are going to have to change.  I once was good at frugality, but as income increased and family size increased over the years so did spending.  I will have to get back to those old ways, even more so.

We are currently thinking of staying on IBR, but attacking the debt.  I am also in the process of looking for some work, either in the evenings, early mornings or things that I can do from home and then everything I make will go towards paying off debt.  Clearly most of our money goes towards housing, cars and health care.  And while I know the biggest thing to do would be to sell our house and get rid of our cars -- easier said than done.  (I'm sure many on here have done that though)  There is a lot to consider.  One car is only months from being paid off, and the other newer car houses me and the 5 kids.  We wanted a reliable car that was not going to break done and require a lot of maintenance.  But having said that, a heavy thought is still to sell it and get something less.

One other piece of information is that my husband in back in school getting an MBA.  But his job is paying for it!!  So no more loans on that one.  Because of this we just found out our loans have gone into deferment.  Interest will of course accrue, except for the subsidized loans the govt will pay the interest.  We plan on still paying as much as we can and focusing on the highest interest, biggest amounts first.  About 20K of the debt is around 2%, so we won't bother with that during this time, and then I think around 60K is subsidized.  That still leaves the majority gaining interest.  We have considered pulling out a few of the higher interest loans from IBR and putting them on a shorter, lower interest standard plan during this 2 year deferment period.  Attacking those and paying the interest on the IBR loans to hopefully prevent it from continuing to balloon.  We expect that income will increase significantly in the coming years and then we can pull out more at a time.

What are some thoughts on this strategy?

If you're going to pay down your loans, enroll in REPAYE for two reasons: (1) more of your loans will be eligible for subsidized interest in REPAYE vs. IBR; and (2) your payment is only 10%, not 15%, which means you can allocate a lot more money to the higher interest rate loans.

I also want to say it's a very good choice to stay in these programs for the "insurance" aspect of it--if something happens to your husband, your payments go down to $0. Conversely, if you refinanced, you wouldn't have that luxury. I therefore think the higher interest rate in federal student loans is completely worth it.

I second what others have said above in that you should post a "case study" post. The advice is going to be harsh, and frankly I don't think it's possible to do 100% of what people say; but the most therapeutic part about it is just writing everything down and realizing what you've been making monthly payments towards for years.

Lastly, congrats on finding this forum. The people here can be harsh and annoying, but holy shit are they informative and persuasive with regard to their perspectives. You really will change your life if you become an active member here. Keep it up.

Paul der Krake

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Re: 250K student debt
« Reply #73 on: February 24, 2016, 07:25:59 AM »
Lastly, congrats on finding this forum. The people here can be harsh and annoying, but holy shit are they informative and persuasive with regard to their perspectives. You really will change your life if you become an active member here. Keep it up.
ReadySetMillionaire, you get a lot of heat for some of your posts, but please don't stop. Your discussions on the repayment methods of student loans are the most comprehensive and well-sourced. I don't agree with some of the ethical positions you take, but that doesn't make your posts any less valuable.

charis

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Re: 250K student debt
« Reply #74 on: February 24, 2016, 07:32:08 AM »
Definitely do a case study.  As for removing some of your loans from the IBR, I actually did that recently.  Because our SL interest is triple the tax deductible amount, I paid off a smallish loan with our lower interest HELOC and then aggressively paid that off in a few months.  Of course, I'm an idiot and forgot to deduct the interest on my tax return so I'll have to file an amendment if I want my 8 bucks back :)    But I would not "refinance" federal loans under any other circumstances, nor larger ones.   We are now in the process of switching to the REPAYE, which should take effect by next month.

little_brown_dog

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Re: 250K student debt
« Reply #75 on: February 24, 2016, 09:36:04 AM »
Thank you to all who have given suggestions.  I'm so new at all this, much of it is like a foreign language to me.  It's going to take me awhile to digest all of this and figure it out.  I fully accept responsibility for some poor financial choices that both my husband and I have made, but I will NEVER regret the decision to have 5 kids and it was not a "colossal mistake" as some have suggested.  I could talk about all the reasons we did what we did, but no point really.  I know this is a blog and forum for folks seeking to retire early.  My purpose in joining was not to retire early or even amass great wealth.  It was to start picking up some broken pieces and changing our ways by learning more about finances.   Even still my family is and will always be more important than money - and even debt.  We are in a pretty crappy situation right now and I have a lot to learn and think about. 

Don’t take the criticisms regarding family size too personally – a lot of people on the forums prefer smaller families and so there is always a bit of a backlash anytime someone has more than the “allowable” two children. I am from a big family and plan on having 3 or 4 kids myself. Cue the eye rolls and distressed sighing :)

But you should not completely dismiss the valid criticism inherent in these sentiments – which is that the decision to have so many children on such shaky financial ground may not have been a truly rational decision carefully weighed to mitigate the financial risk to yourselves and your existing kids. I mentioned your family size as a possible point for introspection – it is fair to assume that someone who went with their heart on big things like family size, may also be making other life/financial decisions (where to live, etc) in the same manner, and not necessarily with their rational head. Too much heart in decision making can lead to repeated poor circumstances. It is so easy to dismiss money as not important, but when it comes down to it, your financial stability is one of the biggest predictors of how successful and well adjusted your children will be as adults. So in essence, prioritizing money and saving can certainly be a way of putting family first.
As you start thinking about your finances, it is always good to ask "do I want this because of how it makes me feel, or do I want this because it is really what is best for us financially?" This type of thinking is really important when weighing big decisions like dealing with your home, cars, etc.


« Last Edit: February 24, 2016, 09:43:34 AM by little_brown_dog »

Easye418

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Re: 250K student debt
« Reply #76 on: February 24, 2016, 10:23:16 AM »
Hi ReadySetMillionaire,

I don't appreciate your tone. This forum isn't that kind of place, that I remember.

From my understanding, part of Mustachianism is to find that path in life that makes you happy, and pursue that path like a bat out of hell.  Freedom of choice is also a recurring theme in his posts.  I'm not advocating that MY PATH is the best for everyone, but it has worked very well for me.  My above post was a demonstration to the OP that IT CAN BE DONE, and to be wary of relying upon others (i.e. the government, employers) when rules can change rather arbitrarily. I agree that REPAYE should be in OP's interest short term.


disregard
« Last Edit: February 24, 2016, 12:27:52 PM by Easye418 »

randymarsh

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Re: 250K student debt
« Reply #77 on: February 24, 2016, 12:01:30 PM »
Hi ReadySetMillionaire,

I don't appreciate your tone. This forum isn't that kind of place, that I remember.

From my understanding, part of Mustachianism is to find that path in life that makes you happy, and pursue that path like a bat out of hell.  Freedom of choice is also a recurring theme in his posts.  I'm not advocating that MY PATH is the best for everyone, but it has worked very well for me.  My above post was a demonstration to the OP that IT CAN BE DONE, and to be wary of relying upon others (i.e. the government, employers) when rules can change rather arbitrarily. I agree that REPAYE should be in OP's interest short term.


OP,

You came in a forum, posted something extremely personal, you got someone's opinion, and then your feelings got hurt? 

JustGettingStarted1980 is not the OP.

Easye418

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Re: 250K student debt
« Reply #78 on: February 24, 2016, 12:28:04 PM »
Hi ReadySetMillionaire,

I don't appreciate your tone. This forum isn't that kind of place, that I remember.

From my understanding, part of Mustachianism is to find that path in life that makes you happy, and pursue that path like a bat out of hell.  Freedom of choice is also a recurring theme in his posts.  I'm not advocating that MY PATH is the best for everyone, but it has worked very well for me.  My above post was a demonstration to the OP that IT CAN BE DONE, and to be wary of relying upon others (i.e. the government, employers) when rules can change rather arbitrarily. I agree that REPAYE should be in OP's interest short term.


OP,

You came in a forum, posted something extremely personal, you got someone's opinion, and then your feelings got hurt? 

JustGettingStarted1980 is not the OP.

Good catch, rescind my comment.

AMG

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Re: 250K student debt
« Reply #79 on: February 24, 2016, 09:25:34 PM »
Definitely do a case study.  As for removing some of your loans from the IBR, I actually did that recently.  Because our SL interest is triple the tax deductible amount, I paid off a smallish loan with our lower interest HELOC and then aggressively paid that off in a few months.  Of course, I'm an idiot and forgot to deduct the interest on my tax return so I'll have to file an amendment if I want my 8 bucks back :)    But I would not "refinance" federal loans under any other circumstances, nor larger ones.   We are now in the process of switching to the REPAYE, which should take effect by next month.

ok, a number of people have suggested a case study.  How do I do this?  what's all the information you need.   Thought I think in a thorough case study I'm going to get completely mutilated!  We'll see.

aFrugalFather

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Re: 250K student debt
« Reply #80 on: February 24, 2016, 09:29:59 PM »
This is a good plan.  Whats the worse that could happen, it can only help.

AMG

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Re: 250K student debt
« Reply #81 on: February 24, 2016, 09:30:29 PM »
Thank you to all who have given suggestions.  I'm so new at all this, much of it is like a foreign language to me.  It's going to take me awhile to digest all of this and figure it out.  I fully accept responsibility for some poor financial choices that both my husband and I have made, but I will NEVER regret the decision to have 5 kids and it was not a "colossal mistake" as some have suggested.  I could talk about all the reasons we did what we did, but no point really.  I know this is a blog and forum for folks seeking to retire early.  My purpose in joining was not to retire early or even amass great wealth.  It was to start picking up some broken pieces and changing our ways by learning more about finances.   Even still my family is and will always be more important than money - and even debt.  We are in a pretty crappy situation right now and I have a lot to learn and think about. 

Don’t take the criticisms regarding family size too personally – a lot of people on the forums prefer smaller families and so there is always a bit of a backlash anytime someone has more than the “allowable” two children. I am from a big family and plan on having 3 or 4 kids myself. Cue the eye rolls and distressed sighing :)

But you should not completely dismiss the valid criticism inherent in these sentiments – which is that the decision to have so many children on such shaky financial ground may not have been a truly rational decision carefully weighed to mitigate the financial risk to yourselves and your existing kids. I mentioned your family size as a possible point for introspection – it is fair to assume that someone who went with their heart on big things like family size, may also be making other life/financial decisions (where to live, etc) in the same manner, and not necessarily with their rational head. Too much heart in decision making can lead to repeated poor circumstances. It is so easy to dismiss money as not important, but when it comes down to it, your financial stability is one of the biggest predictors of how successful and well adjusted your children will be as adults. So in essence, prioritizing money and saving can certainly be a way of putting family first.
As you start thinking about your finances, it is always good to ask "do I want this because of how it makes me feel, or do I want this because it is really what is best for us financially?" This type of thinking is really important when weighing big decisions like dealing with your home, cars, etc.

Thank you.  And I agree with what you've said.  It is a good point for introspection.  I want to be on stable financial footing for myself as well as my children.  So while money is not the most important thing in life, that stability is certainly important.  And again which is why I'm trying to improve things from here.  I never thought I was making such dumb financial moves.

AMG

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Re: 250K student debt
« Reply #82 on: February 24, 2016, 09:40:53 PM »
Thank you to all who have given suggestions.  I'm so new at all this, much of it is like a foreign language to me.  It's going to take me awhile to digest all of this and figure it out.  I fully accept responsibility for some poor financial choices that both my husband and I have made, but I will NEVER regret the decision to have 5 kids and it was not a "colossal mistake" as some have suggested.  I could talk about all the reasons we did what we did, but no point really.  I know this is a blog and forum for folks seeking to retire early.  My purpose in joining was not to retire early or even amass great wealth.  It was to start picking up some broken pieces and changing our ways by learning more about finances.   Even still my family is and will always be more important than money - and even debt.  We are in a pretty crappy situation right now and I have a lot to learn and think about. 

I would like to look more into this REPAYE thing that has been talked about a lot.  Initially I thought we didn't qualify for that because of the type of loans we had, but maybe we will.  My husband and I have already taken a hard look at our budget and talked about ways to cut it.  We have been living an inflated lifestyle and things are going to have to change.  I once was good at frugality, but as income increased and family size increased over the years so did spending.  I will have to get back to those old ways, even more so.

We are currently thinking of staying on IBR, but attacking the debt.  I am also in the process of looking for some work, either in the evenings, early mornings or things that I can do from home and then everything I make will go towards paying off debt.  Clearly most of our money goes towards housing, cars and health care.  And while I know the biggest thing to do would be to sell our house and get rid of our cars -- easier said than done.  (I'm sure many on here have done that though)  There is a lot to consider.  One car is only months from being paid off, and the other newer car houses me and the 5 kids.  We wanted a reliable car that was not going to break done and require a lot of maintenance.  But having said that, a heavy thought is still to sell it and get something less.

One other piece of information is that my husband in back in school getting an MBA.  But his job is paying for it!!  So no more loans on that one.  Because of this we just found out our loans have gone into deferment.  Interest will of course accrue, except for the subsidized loans the govt will pay the interest.  We plan on still paying as much as we can and focusing on the highest interest, biggest amounts first.  About 20K of the debt is around 2%, so we won't bother with that during this time, and then I think around 60K is subsidized.  That still leaves the majority gaining interest.  We have considered pulling out a few of the higher interest loans from IBR and putting them on a shorter, lower interest standard plan during this 2 year deferment period.  Attacking those and paying the interest on the IBR loans to hopefully prevent it from continuing to balloon.  We expect that income will increase significantly in the coming years and then we can pull out more at a time.

What are some thoughts on this strategy?

If you're going to pay down your loans, enroll in REPAYE for two reasons: (1) more of your loans will be eligible for subsidized interest in REPAYE vs. IBR; and (2) your payment is only 10%, not 15%, which means you can allocate a lot more money to the higher interest rate loans.

I also want to say it's a very good choice to stay in these programs for the "insurance" aspect of it--if something happens to your husband, your payments go down to $0. Conversely, if you refinanced, you wouldn't have that luxury. I therefore think the higher interest rate in federal student loans is completely worth it.

I second what others have said above in that you should post a "case study" post. The advice is going to be harsh, and frankly I don't think it's possible to do 100% of what people say; but the most therapeutic part about it is just writing everything down and realizing what you've been making monthly payments towards for years.

Lastly, congrats on finding this forum. The people here can be harsh and annoying, but holy shit are they informative and persuasive with regard to their perspectives. You really will change your life if you become an active member here. Keep it up.

@readysetmillionaire  I finally have gotten through reading your thread all about REPAYE.  And I appreciate the time you have spent in doing some numbers/math for me here.  I think if we are to stay the course at least all or mostly on IBR, looking to switch to REPAYE makes a lot of sense for lowering AGI to 10% and the subsidizing.  My one hesitation is that instead of aggressively paying it off, I don't want to have to always suppress our income for the next 19 years by always lowering our AGI.   I do however, like the protection the IBR/and REPAYE have for things like losing job.  Which is the main reason that in our current situation my husband wants to stay on it instead of going to a standard repayment plan.  If something happens we are stuck, or go bankrupt if we can't pay the $1500+ payment a month.   

If he does continue on his current job, we expect that with his new MBA degree that in 10 years his income should increase to close to 200K.   Of course you can't predict the future.  But I guess you try to plan the best you can and then adapt.

FernFree

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Re: 250K student debt
« Reply #83 on: February 24, 2016, 09:56:37 PM »

ok, a number of people have suggested a case study.  How do I do this?  what's all the information you need.   Thought I think in a thorough case study I'm going to get completely mutilated!  We'll see.

Here are the instructions for the case study:
http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/

Good luck! :)

teen persuasion

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Re: 250K student debt
« Reply #84 on: February 25, 2016, 06:20:55 AM »
Quote
My one hesitation is that instead of aggressively paying it off, I don't want to have to always suppress our income for the next 19 years by always lowering our AGI.

Quote
If he does continue on his current job, we expect that with his new MBA degree that in 10 years his income should increase to close to 200K.   

Do the math: (.10 * (AGI - 150% (FPL)))/ 12.  For your family of 7, that 150% FPL is roughly $55k.  Even if all your kids are independent in 19 years, for a family size of 2 it is roughly $24k.

So at $200k income, the most your payments could become would be
(.10(200k - 24k))/12
(.10 (176k))/12
(17600)12
1467 per month

Your AGI should be lower just from things that you'd do anyways (or should be doing)- saving for retirement, health insurance contributions, HSA contributions, etc. all lower your AGI.

ReadySetMillionaire

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Re: 250K student debt
« Reply #85 on: February 25, 2016, 08:59:53 AM »
@readysetmillionaire  I finally have gotten through reading your thread all about REPAYE.  And I appreciate the time you have spent in doing some numbers/math for me here.  I think if we are to stay the course at least all or mostly on IBR, looking to switch to REPAYE makes a lot of sense for lowering AGI to 10% and the subsidizing.  My one hesitation is that instead of aggressively paying it off, I don't want to have to always suppress our income for the next 19 years by always lowering our AGI.   I do however, like the protection the IBR/and REPAYE have for things like losing job.  Which is the main reason that in our current situation my husband wants to stay on it instead of going to a standard repayment plan.  If something happens we are stuck, or go bankrupt if we can't pay the $1500+ payment a month.   

If he does continue on his current job, we expect that with his new MBA degree that in 10 years his income should increase to close to 200K.   Of course you can't predict the future.  But I guess you try to plan the best you can and then adapt.

I'm not telling you whether to aggressively pay down loans or aggressively utilize REPAYE, but I do want to clear up this false "suppressing income" misconception that you (and others) share.

Under no circumstances ever, not in a million years, am I going to pass up an income opportunity. Just this year I am going to begin refereeing high school athletics (basketball and maybe football) and I'm going to publish 3-4 ebooks. I'm also going to try and bill 1700-1800 hours at work, which will hopefully lead to a raise next year.

So if I make around $10,000 more next year (which is my goal), my total income will be $57,500. I will put $18,000 in 401k, $5,500 in a Traditional IRA, $1,500 in an HSA. I will also still get the student loan interest deduction. All in all, by increasing income $10,000, my retirement savings will go from $18k per year to $25k; my savings rate will go from 46% to almost 50%; and, even with an income increase of $10,000, my student loan payment will increase by just $34/month.

Hopefully this example illustrates why you, nor your husband, should not think "Oh, we are in REPAYE, we need to reduce income." Not at all. You should always, always, 100% of the time seek to maximize income.

But what you do need to do is use tax sheltered savings accounts that will allow three things: (1) keep your student loan payments low; (2) increase retirement savings; (3) increase savings rate.

Furthermore, you have to remember that contribution limits are adjusted for inflation (more complicated than that, but that's the basics of it). The 401k contribution limit was $9,500 in 1996, $10,500 in 2001, $15,000 in 2006, $16,500 in 2011, and it's now $18,000 in 2016. These limits will keep going up. Hell, in 10 years they might be close to $25,000(!!!!).

Teen persuasion just did a great job on the math, but I'll take it a little more detailed:

$200,000 income in 2026
- $25,000 401k
- $5,000 in deductions
- $70,000 (complete guesstimate of 150% poverty level for family of 7)
=
"Disposable Income" of $100,000
x .1
=
$10,000
/12 monthly payments
=
$833 per month.

I'm sure that seems like a lot now, but that would be 4.2% of your gross income (i.e., way lower than 10%). And those payments still wouldn't cover interest, so you'd be getting an interest subsidy as well.

Sure, as kids leave home and you can't claim them anymore, your payments will go up a little. But it's a slight amount.

Again, I'm not trying to convince you one way or another. The point of my whole post is that you being in REPAYE does not mean you should reduce income, it means you should strategically use the tax code to your advantage in order to keep your payments low.
« Last Edit: February 25, 2016, 11:12:51 AM by ReadySetMillionaire »

trashmanz

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Re: 250K student debt
« Reply #86 on: February 25, 2016, 09:05:24 AM »
Thank you to all who have given suggestions.  I'm so new at all this, much of it is like a foreign language to me.  It's going to take me awhile to digest all of this and figure it out.  I fully accept responsibility for some poor financial choices that both my husband and I have made, but I will NEVER regret the decision to have 5 kids and it was not a "colossal mistake" as some have suggested.  I could talk about all the reasons we did what we did, but no point really.  I know this is a blog and forum for folks seeking to retire early.  My purpose in joining was not to retire early or even amass great wealth.  It was to start picking up some broken pieces and changing our ways by learning more about finances.   Even still my family is and will always be more important than money - and even debt.  We are in a pretty crappy situation right now and I have a lot to learn and think about. 

I would like to look more into this REPAYE thing that has been talked about a lot.  Initially I thought we didn't qualify for that because of the type of loans we had, but maybe we will.  My husband and I have already taken a hard look at our budget and talked about ways to cut it.  We have been living an inflated lifestyle and things are going to have to change.  I once was good at frugality, but as income increased and family size increased over the years so did spending.  I will have to get back to those old ways, even more so.

We are currently thinking of staying on IBR, but attacking the debt.  I am also in the process of looking for some work, either in the evenings, early mornings or things that I can do from home and then everything I make will go towards paying off debt.  Clearly most of our money goes towards housing, cars and health care.  And while I know the biggest thing to do would be to sell our house and get rid of our cars -- easier said than done.  (I'm sure many on here have done that though)  There is a lot to consider.  One car is only months from being paid off, and the other newer car houses me and the 5 kids.  We wanted a reliable car that was not going to break done and require a lot of maintenance.  But having said that, a heavy thought is still to sell it and get something less.

One other piece of information is that my husband in back in school getting an MBA.  But his job is paying for it!!  So no more loans on that one.  Because of this we just found out our loans have gone into deferment.  Interest will of course accrue, except for the subsidized loans the govt will pay the interest.  We plan on still paying as much as we can and focusing on the highest interest, biggest amounts first.  About 20K of the debt is around 2%, so we won't bother with that during this time, and then I think around 60K is subsidized.  That still leaves the majority gaining interest.  We have considered pulling out a few of the higher interest loans from IBR and putting them on a shorter, lower interest standard plan during this 2 year deferment period.  Attacking those and paying the interest on the IBR loans to hopefully prevent it from continuing to balloon.  We expect that income will increase significantly in the coming years and then we can pull out more at a time.

What are some thoughts on this strategy?

Can you share more about the law school plus MBA track?  I don't know any lawyers that have benefited from the dual degree and it seems rare a firm would pay for an MBA, I'm curious as to what field of law this would be beneficial for?

TheDudeReturns

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Re: 250K student debt
« Reply #87 on: February 26, 2016, 04:14:01 AM »
Invaluable information that none of you knuckleheads will read...

So I popped on the ole' MMM forum and what do I see? ReadySetMillionaire still trying to do his best to actually help you all in your financial futures (or at least anyone you know that has government student loans) and the same old bickering and dallying about from the crowd.

OP: Listen to RSM! Seriously, you have 5 kids; why would you want to work? Unless you'd be making over $100k on your own (and even that would probably be too low due to the quality of life changes you'd experience from having a job, as well as the increased costs in taking on a job, e.g., child care), getting a job is *not going to be worth it!* 5 kids + 2 parents = 7 members of your household, so even without utilizing retirement accounts, REPAYE will dramatically reduce your payments while at the same time increasing your quality of life by having less money pre-allocated each month. All you have to do is fill out some paperwork.

Also your husband is going for an MBA. Honestly, that is a big red flag there for a stalled career unless that degree is coming from a top or elite school. There is absolutely nothing worthwhile in an MBA curriculum; it is just a "check the box" degree. Any content from an MBA can be learned on one's own from a handful of books. There are a lot of fluff classes in the typical MBA program and maybe one or two classes that could be hard to learn on one's own, like accounting, finance, or supply chain management. Even for the Ivy League types, an MBA is typically just a way to bow out of a "crappy" early career and maybe make a switch to another one. If you are succeeding where you are, there is no reason to get an MBA.

So rather than painting a rosy picture of future income levels, I would really be more conservative and, again, REPAYE would scale payments with what the future could bring. If this is an average MBA, I'd say that a salary jump of maybe $2.5k-$20k per year is possible, if that. Really though, I can't see any value in the MBA for a lawyer. If he wants to get into the accounting or finance sides, he should go for a degree in that, but that's also not a good strategy either since any firm would want someone with operational/transactional experience in those areas, not the fluff the majority of business degrees offer.

Depending on how long he'll be in school, the deferment costs with interest and the like (since you don't have this currently classified as REPAYE) may eat away at any financial benefits for the MBA to be honest...

ReadySetMillionaire

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Re: 250K student debt
« Reply #88 on: February 26, 2016, 07:06:27 AM »
Invaluable information that none of you knuckleheads will read...

So I popped on the ole' MMM forum and what do I see? ReadySetMillionaire still trying to do his best to actually help you all in your financial futures (or at least anyone you know that has government student loans) and the same old bickering and dallying about from the crowd.

OP: Listen to RSM! Seriously, you have 5 kids; why would you want to work? Unless you'd be making over $100k on your own (and even that would probably be too low due to the quality of life changes you'd experience from having a job, as well as the increased costs in taking on a job, e.g., child care), getting a job is *not going to be worth it!* 5 kids + 2 parents = 7 members of your household, so even without utilizing retirement accounts, REPAYE will dramatically reduce your payments while at the same time increasing your quality of life by having less money pre-allocated each month. All you have to do is fill out some paperwork.

Also your husband is going for an MBA. Honestly, that is a big red flag there for a stalled career unless that degree is coming from a top or elite school. There is absolutely nothing worthwhile in an MBA curriculum; it is just a "check the box" degree. Any content from an MBA can be learned on one's own from a handful of books. There are a lot of fluff classes in the typical MBA program and maybe one or two classes that could be hard to learn on one's own, like accounting, finance, or supply chain management. Even for the Ivy League types, an MBA is typically just a way to bow out of a "crappy" early career and maybe make a switch to another one. If you are succeeding where you are, there is no reason to get an MBA.

So rather than painting a rosy picture of future income levels, I would really be more conservative and, again, REPAYE would scale payments with what the future could bring. If this is an average MBA, I'd say that a salary jump of maybe $2.5k-$20k per year is possible, if that. Really though, I can't see any value in the MBA for a lawyer. If he wants to get into the accounting or finance sides, he should go for a degree in that, but that's also not a good strategy either since any firm would want someone with operational/transactional experience in those areas, not the fluff the majority of business degrees offer.

Depending on how long he'll be in school, the deferment costs with interest and the like (since you don't have this currently classified as REPAYE) may eat away at any financial benefits for the MBA to be honest...

As an attorney, I could maybe see having an MBA on my bio being valuable to business clients, and it would also help me. I'm currently involved in a corporate waste case that involves a ton of accounting and tax information that I'm basically having to teach myself on the fly.

That said, thanks for the compliments.

charis

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Re: 250K student debt
« Reply #89 on: February 26, 2016, 12:00:05 PM »
Eirene makes a very good point that you need to do research and decide what is good for your situation and family.    And I'd like to comment on a few things:

Quote
RSM makes a good point that keeping low SL payments lets one invest into retirement - however, you can only do that if you are EXTREMELY disciplined in your budget and the money really goes into investments. If you live as close to the edge as you are, with car loans, high mortgage etc., the low IBR payments just let you thread water whilst interest accrues
Yes - it makes no sense to stay on an IBR unless you are simultaneously slashing your spending and investing the leftover.  We are on an IBR and after collecting spending data and getting our budget down as much as we could, (and after establishing a decent EF) I came to a number equal to the excess income above that budget and that amount gets directly deposited to another bank.  It then goes only to investments or debt repayment. 
Quote
There is a perverse incentive to keep income low while on an IBR plan
I read this a lot and it seems to be written by people who haven't been on an IBR plan.  I have never felt any need to keep my income low.  I've taken every reasonable opportunity to increase our income regardless of whether our payment goes up.  It would be absurd to to otherwise and I don't know anyone who has.  OTOH, I am very motivated to keep our AGI down, which is a very different endeavor and one which has directly contributed to our increasing net worth.
Quote
I qualify for public service loan forgiveness and I chose not to enroll because (a) I plan to pay off my loan BEFORE the 10 years are up and (b) I don't want to make career decisions based on how switching to a private sector job will affect my student loan repayments - in my opinion this is a perverse incentive that will harm me in the long term
Good point.  Unless one knows that they only want to work in public sector (like myself), the PSLF isn't very helpful.  I personally have no interest in the private sector for my field, but I would still be open to it under the right conditions, regardless of the PSLF.

« Last Edit: February 26, 2016, 12:47:06 PM by jezebel »

ReadySetMillionaire

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Re: 250K student debt
« Reply #90 on: February 26, 2016, 12:18:12 PM »
Very good posts by Jezebel and Eirene.  Student loans are a complicated subset of personal finance, but the truism still holds water--personal finance is personal. You have to do what is best for you.
« Last Edit: February 26, 2016, 12:21:22 PM by ReadySetMillionaire »

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Re: 250K student debt
« Reply #91 on: February 26, 2016, 12:28:28 PM »
I just want to fix a couple of misconceptions.  One, you don't get giant student loan interest deductions.  They cap out at $2,500 and if you make more than $65,000 that cap is even lower.

Second, not all private consolidations lose all federal benefits.  SoFi loans for example are still discharged on death or disability, offer hardship forbearance, and even have a career center to help people get back to work that lose their jobs.

That said, with a private refinance even with a company like SoFi you would lose the IBR and PAYE options.  I think those options are great if you are in public service and will get tax free forgiveness in 10 years.  I personally was not comfortable relying on congress not changing the plan for 20+ years and that tax bill would be giant.  I'm going with the aggressively pay off plan.

RSM is on point though when he asks about retirement savings.  Mine leave a LOT to be desired while I pay off my loans.  I refinanced to a lower rate but it's still not low enough for my tastes and I'm shooting to have them gone in 2 more years.  Then all that money will go to retirement accounts.  In the long run RSM's plan might be better but we won't know for another 12 years or so.

ReadySetMillionaire

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Re: 250K student debt
« Reply #92 on: February 26, 2016, 12:50:43 PM »
I just want to fix a couple of misconceptions.  One, you don't get giant student loan interest deductions.  They cap out at $2,500 and if you make more than $65,000 that cap is even lower.

Second, not all private consolidations lose all federal benefits.  SoFi loans for example are still discharged on death or disability, offer hardship forbearance, and even have a career center to help people get back to work that lose their jobs.

That said, with a private refinance even with a company like SoFi you would lose the IBR and PAYE options.  I think those options are great if you are in public service and will get tax free forgiveness in 10 years.  I personally was not comfortable relying on congress not changing the plan for 20+ years and that tax bill would be giant.  I'm going with the aggressively pay off plan.

RSM is on point though when he asks about retirement savings.  Mine leave a LOT to be desired while I pay off my loans.  I refinanced to a lower rate but it's still not low enough for my tastes and I'm shooting to have them gone in 2 more years.  Then all that money will go to retirement accounts.  In the long run RSM's plan might be better but we won't know for another 12 years or so.

Good point on the SL interest deduction cap. 

I'm up for a mutual case study thread that we can update yearly (albeit you'd update retroactively) for the benefit of the community if you're interested. Year 1 v. Year 1, Year 2 v. Year 2, etc.-type comparisons.

I think it'd be very interesting and would show the pros and cons of each plan.

charis

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Re: 250K student debt
« Reply #93 on: February 26, 2016, 12:52:48 PM »
I just want to fix a couple of misconceptions.  One, you don't get giant student loan interest deductions.  They cap out at $2,500 and if you make more than $65,000 that cap is even lower.

It is capped at an MAGI of $65K for single filers. It is $130K for married filing jointly. 

AMG

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Re: 250K student debt
« Reply #94 on: February 26, 2016, 01:06:41 PM »
Invaluable information that none of you knuckleheads will read...

So I popped on the ole' MMM forum and what do I see? ReadySetMillionaire still trying to do his best to actually help you all in your financial futures (or at least anyone you know that has government student loans) and the same old bickering and dallying about from the crowd.

OP: Listen to RSM! Seriously, you have 5 kids; why would you want to work? Unless you'd be making over $100k on your own (and even that would probably be too low due to the quality of life changes you'd experience from having a job, as well as the increased costs in taking on a job, e.g., child care), getting a job is *not going to be worth it!* 5 kids + 2 parents = 7 members of your household, so even without utilizing retirement accounts, REPAYE will dramatically reduce your payments while at the same time increasing your quality of life by having less money pre-allocated each month. All you have to do is fill out some paperwork.

Also your husband is going for an MBA. Honestly, that is a big red flag there for a stalled career unless that degree is coming from a top or elite school. There is absolutely nothing worthwhile in an MBA curriculum; it is just a "check the box" degree. Any content from an MBA can be learned on one's own from a handful of books. There are a lot of fluff classes in the typical MBA program and maybe one or two classes that could be hard to learn on one's own, like accounting, finance, or supply chain management. Even for the Ivy League types, an MBA is typically just a way to bow out of a "crappy" early career and maybe make a switch to another one. If you are succeeding where you are, there is no reason to get an MBA.

So rather than painting a rosy picture of future income levels, I would really be more conservative and, again, REPAYE would scale payments with what the future could bring. If this is an average MBA, I'd say that a salary jump of maybe $2.5k-$20k per year is possible, if that. Really though, I can't see any value in the MBA for a lawyer. If he wants to get into the accounting or finance sides, he should go for a degree in that, but that's also not a good strategy either since any firm would want someone with operational/transactional experience in those areas, not the fluff the majority of business degrees offer.

Depending on how long he'll be in school, the deferment costs with interest and the like (since you don't have this currently classified as REPAYE) may eat away at any financial benefits for the MBA to be honest...

My husband does not work at a lawfirm.  He's legal council at a company.   Thus the MBA actually is beneficial for him.  His boss encouraged him to do it, and ultimately offered to pay for it.  It was the only way I consented. 

And while I think he has the potential for making more money eventually, quite frankly I'm not banking on it.  Maybe I'm more pessimistic than I ought to be.  But I'd rather do scenarios with less money than plan for a future with more and not have it.

I am in the process of reading all I can about REPAYE, because the 50% subsidization seems like a HUGE benefit in our situation.  The interest is what is killer right now which was really the only reason I was thinking of refinancing at all.  And while SoFi does offer hardship forbearance, etc.  it still feels too risky right now to refinance.  I just don't understand how the subsidization works yet. 

And RSM, I guess when I used the term "suppressing" our income, I didn't in any way mean not looking for opportunities to make more money.  Just the idea that the more we make, we continue to keep our AGI low and therefor in terms of discretionary income it won't really increase.  I'm not opposed at all to putting more and more into retirement, because we need to do that.   So that savings aspect is fine and necessary.  But at some point if our income does go up I would like to be able to have more discretionary income to use.  We DO budget, and now are taking a hard look at slimming that budget for sure.  And I believe in a lot of the principals of budgeting, being frugal and new things I've learned on this blog/forum - but since I don't think early retirement is going to work for us at this point, I'd like to be able to enjoy some things a long the way and allow for my children to do things like sports, music, vacations, etc.

Also from my understanding right now under IBR if I were to work, my income would not be counted as part of the AGI that they figure for our family, but under REPAYE if I made any money they would factor it in. Can anyone confirm this?

Someone else mentioned the emotional drawbacks to staying on any IBR plan.  And that really is a heavy burden for me.  So while I know there is no easy or short way out of this, part of me wants to be done with it as soon as possible.

Eirene and Jezebel made some very good points.  I'm really learning a lot here and appreciate the help!

charis

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Re: 250K student debt
« Reply #95 on: February 26, 2016, 01:15:24 PM »
Also from my understanding right now under IBR if I were to work, my income would not be counted as part of the AGI that they figure for our family, but under REPAYE if I made any money they would factor it in. Can anyone confirm this?

We have always filed jointly and the IBR considers both of our incomes.  I think if you file singly, the IBR does not consider the spouse's income.  Under the REPAYE, you are right, your income will be considered regardless of how you file.

AMG

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Re: 250K student debt
« Reply #96 on: February 26, 2016, 01:36:44 PM »
@ ReadySetMillionaire
Clearly you are very passionate about proselytizing....I mean arguing that people should approach their student loan debt a certain way.

I don't have a problem with you or anyone else availing themselves of a government created program to reduce their student loan debt. I certainly don't have a problem with you arguing with those ad nauseum who paint you and others as leeches or duty-shirkers for using IBR or REPAYE.

What I do have a problem with is your zealousness that seems to overlook the fact that this might not be the best decision for everyone. Or that there are perfectly valid ways to approach paying off student loan debt that don't avail themselves of the program or that accelerate payment in a way that you haven't chosen to do. Correct me if I'm wrong, but your short reply to JustGettingStarted1980 implies to me that you are going to challenge the path he has chosen.

Why?? I personally think that prepaying a mortgage is dumb, dumb, and dumb. But at some point, you have to step back from your own passionate views and realize that other ways work as well. I find it hard to really criticize someone who is prepaying their mortgage because it's still a good decision. In that sense, JustGettingStarted1980 is making a good decision for him to prepay while on IBR, even if it's not what you would do.

This is an inevitable reply to all my student loan posts.

First, you took my short post the wrong way. I saw a lot in JGS's post that I both admired and disagreed with, but I was honestly curious as to how much JGS set aside for retirement because I was interested if he was able to balance saving for retirement and aggressively pay down debt, because it is often mutually exclusive (as is the case with me, and it seems like OP as well). In fact, I think a case study comparing JGS and my plan would be one of the most interesting case studies possible on these forums, and it would likely illuminate positives and negatives of both avenues (aggressive debt repayment and aggressive utilization of REPAYE).

JGS--honestly sorry if I offended you. That was 100% not my intention. I should have prefaced with "Good job, interesting story," but I was very curious as to your whole financial picture because hell, I might follow suit if you showed me some good math. Anyway, congrats on paying down your debt--keep it up.

As to my zealousness, yes, I am passionate about this topic. I didn't used to be until I posted my plan on this forum and was pretty much attacked from every angle imaginable. I've been called unethical a crazy amount of times, called an "idiot" for accruing so much debt, called an "indentured servant to the federal government," and a thousand other things.

I have thick skin, and I don't really care about the above for longer than 30 seconds. But what gets me borderline steaming mad is the gross amount of misinformation about student loan programs and how borrowers in significant debt are perceived on this forum.

I don't really respond to posts about mortgages or refinancing because I don't know much about them. I also don't post much in the investing subforum because my investing strategy is S&P500 Index Fund and call it a day. I don't post in the rentals/landlording forum because I don't know about it.

Student loan repayment is equally complicated as any of the above topics, yet people on here have created a 275+ post thread in the "wall of shame" section shaming student loan borrowers with significant debt. I think that's a steaming pile of shit and should be scolded as much as possible.

Right or wrong, I've assumed the mantle of defending student loan repayment strategies at all costs. My tone is the same as MMM's when it comes to "clown cars" and the like--I don't really care whether I offend people, I'm just looking to make sure people are at least aware of REPAYE and its benefits.

As is always the case, when I make a thorough post about REPAYE (go look at my original post in this thread), I inevitably receive backhanded criticisms from people who haven't done the math. I then spend literally hours responding to questions and hypotheticals (as I've done in this thread) in an effort to make sure I spread as much information as possible.

To your last point, I 100% agree that personal finance is personal. I get it. I'm probably going to slightly prepay my mortgage. I spend money on cable and might get a new car here soon. To each their own.

But the tone and misinformation on this forum about student loans, as well as the attitude towards high debt student loan borrowers, are absolutely unacceptable. I am thus going to continue posting zealously about alternative repayment options until my hands fall off. If that comes off as harsh, oh well.

This is the other question I have for JGS and others.  If I do stay on an IBR plan, minizime expenses and then still throw extra at student loans.  How do I find the balance between saving and paying off debt?  (I hope I bolded the right thing there)

AMG

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Re: 250K student debt
« Reply #97 on: February 26, 2016, 03:12:20 PM »
UGH!!!!!  I just found out that we don't qualify for REPAYE because our loans are under the FFELP Program.  We would have to consolidate our loans to direct loans in order to then get on REPAYE.  Which also means we would have to start over on our years of payments counted toward the forgiveness.  We'd start on year one instead of 6.5 years down.

The benefit is that we would likely lower our interest rate to maybe 5% (just a guess) where some right now are in the 8.5% range. 


GoBigRed

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Re: 250K student debt
« Reply #98 on: March 01, 2016, 10:04:17 PM »
I am not familiar with the various programs, so can't comment as to those, but I am sure others will chime in soon as to your specific questions.

I went the same route as Blonde Lawyer and set out to tackle loans as fast as possible. For me this was very rewarding. It was daunting, but was able to get rid of about 75k in 2.5 years.  One thing I wish I would have done was refinance with Sofi.  This was still pretty new at that time so decided against it.  My loans were at 6.8%  and some even higher, and with Sofia would have been close to 3 to 3.5% at the time.

In the end, we decided to live well below our means and this site was a great resource. If you choose the route of repaying I would certainly consider Sofi if some of the other options do not pan out.  I also encourage you that it is possible with hard work and sacrifice.  The diligent savings habit also sets up as a great transition into retirement savings.  Based on tax considerations, I still chose to max out my 401k at this time to reduce my taxable income and all extra was put towards the loans.  This was ideal in my personal situation based on my household income, number of exemptions, etc., but it's all personal and so many factors to consider.  I would second some of the comments to do a case study and people may be able to assist even further.  As an aside, I came across a new blog through Rockstar Finance a couple weeks ago, http://mortimersmoneymachines.com/, and he also is an attorney with a fairly similar situation with the size of debt and just beginning on the journey of tackling student loans. I also second Root of Good and GO Curry Cracker as great stories to read, in addition to MMM.


AMG

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Re: 250K student debt
« Reply #99 on: March 15, 2016, 02:36:47 PM »
OK - so I know this thread has died a little bit.  With life being busy as it is, I still haven't been able to make a decision about the best route to take.  So I have continued looking into things and researching and have come up with 4 options.  I would love any analysis/suggestions/criticisms of what I've come up with.  I'm not the best figuring out the math, so some of the numbers might be off a bit, but they are rough estimates.

A little more background:  We started with a total of $170K in loans.  We have a negative amortization happening on our loans currently because over the past 6.5 years our payments have only ever covered a partial portion of the interest.  As far as I can tell all the unpaid interest was then capitalized and added to our principal, and then interest continued to accrue from there.  I think under IBR the first 3 years that interest wasn’t supposed to capitalize, but either way, NOW – 6 ˝ years later our balance is at $230K in outstanding Principal and $21K in outstanding Interest.   So that's where I came up with the figure $250K that I've been using. 

Breakdown of loans: FFEL Plus Graduate = ($133K OP + $15K OI) = $148K  All at interest rate of 8.25%
              Stafford Subsidized = ($37K OP + $2K OI) = $39K   *Most at interest rate of 6.55%
              Stafford Unsubsized = ($59K OP+ $4 OI) = $63K        Most at interest rate of 6.55%

*$20K of the Stafford loans are undergrad and at an interest rate of 2.3%, but the rest is all 6.55%


Option 1:  Stay on IBR
•   Pay minimum amount
•   Save each year for tax liability

I had a computer generated analysis done.  They estimated for 20 years:  $500/mo, payoff = $119K,  Forgiveness = $311K, Tax Liability = $78K     Ultimately pay $197K    (This is what I’m basing it off of since we have 19 years of payments left.

Analysis for 25 years:  $500/mo, payoff = $150K, Forgiveness = $392K, Tax Liability = $85K.  Ultimately pay $235K

This is assuming our income never increases, which seems unlikely.  And as it does we'd pay more each month, so I assume our tax bill at the end would be lower.

My analysis however, (and others who have guessed on here), says the loans would grow closer to $450-$500K.  We’d have paid around $150K.  The tax bill would be somewhere around  $175K.

Would have paid somewhere around $150K over 25 years, + $175 tax bill = $325K
 
To save for tax bill of $175K in 19 years, means saving close to $9,000/yr. or $750/mo.


PROS:  1. Lowish monthly payments
            2. More cash flow to save for retirement/invest
       3. Be able to enjoy life a little more

CONS:  1.Tax Liability at end
   2. Stress of debt for 20 more years.  Longer stay on the plan, more stuck on plan
   3. Rapidly increasing principal = Never really pay it off and likely balance somewhere close to $500K at end.


Option 2: Refinance on Standard Repayment plan

20 year term @ 5.25% Fixed Rate = $1547/mo.     Payoff = $371K

PROS: 1. Lower interest rate
   2. Know we will eventually pay if off, and hopefully sooner than 20 years as income increases over the years.

CONS:  1.  Difficult to save for retirement or invest (at least for next 10 years)
   2. Little protection if life circumstances get hard.
   3.  Must come up with $1600/mo payment 

This option would have to:
1. Drastic life changes = selling house, selling car.
2.  Live extremely tight budget for a long time
3.  I would need to work and earn at least half of this payment


OPTION 3.  Consolidate and switch to REPAYE

To get on the REPAYE plan, we would have to consolidate our loans, giving us a 7.1% interest rate.  This would be considered a whole new loan and then we could switch to REPAYE.   But the consolidation cancels out the 6 years of payments under IBR.  And we would have to start over under REPAYE.

PROS: 1.  Gov’t subsidizes 50% of interest (but I think this is ONLY Subsidized loans, which is less than a 1/3 of what we have)
   2. Only 10% AGI = more cash flow to save for retirement/invest

CONS: 1.  We’d lose our progress towards forgiveness and have to start over with REPAYE
   2.  Still have high interest rate.
   3.  Still, really never be able to pay it off (just seek forgiveness)
   4. Tax bill

OPTION 4:  Stay on IBR, but pull out selected loans and attack those

Leave undergrad and subsidized loans in IBR alone for next 2 years while in deferment. Focus on FFEL Plus loans. 

A. All FFEL Plus loans = $148K
   20 yr. @6.3%  = about $1000/mo. 
B. 2 largest loans = $75K
   20 yr. 6.3% = about $553/mo.
C. 1 Loan = 42K
   10 yr. @5.75% = $461/mo.

PROS: 1. Protection of IBR, but still work on aggressively paying off some higher loans over the next 2 years.
   2. Don’t have to worry about interest on our subsidized or undergrad loans during deferment.

CONS: 1.  Still have a lot sitting in IBR rapidly increasing in balance.  Is it worth it?
   2. After 2 yr. deferment period we would have to factor in additional payments for loans under IBR. 
   3. By pulling loans out of IBR, outstanding interest is capitalized  (But I think it eventually is under IBR anyway - I just can't seem to get a straight answer of when that happens.  monthly/yearly?)

So I'd appreciate any thoughts.  Thank you!