Author Topic: 250K student debt  (Read 31950 times)

AMG

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250K student debt
« on: February 19, 2016, 02:47:02 PM »
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?   

justajane

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Re: 250K student debt
« Reply #1 on: February 19, 2016, 03:08:32 PM »
Others on here might have better options, but it seems to me that your best bet is to just ride it out. I can't imagine the tax bill will be worse than paying 100K+ more than you actually borrowed.

chesebert

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Re: 250K student debt
« Reply #2 on: February 19, 2016, 04:18:19 PM »
What's the future income stream look like. You should model out different income stream scenarios and see if IBR still makes sense. With some frugality muscle and annual income increase ( $100k a year sounds very low), you can probably knock the 250k out in 5-6 years (I think some hardcore folks here will probably tell you it's doable in 4 years:). After you are done with that, you can continue to spend the same and invest the difference and you two would be done by the time your kids hit college age (I am assuming all of them are very young).

Btw, folks here talk about saving a million or more in a relatively short period of time with reasonable but not high income. So 250k is really nothing in comparison.
« Last Edit: February 19, 2016, 04:24:38 PM by chesebert »

thingamabobs

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Re: 250K student debt
« Reply #3 on: February 20, 2016, 10:29:17 AM »
You are not limited to the payment amount set by IBR, you can pay more.  The benefit of being on IBR would be loan forgiveness if you qualify and ability to defer payments if for some reason you have financial hardship. Also, what's your interest rate?

You need to sit down and calculate how much your payments will add up to be until you reach loan forgiveness and how much you estimate your taxbill to be. This will tell you if it's worth paying extra to pay off the loan or let it ride until the loan is forgiven.

Bucksandreds

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Re: 250K student debt
« Reply #4 on: February 20, 2016, 10:56:21 AM »
If you're planning to work once the kids are in school then your Income Based Payment will skyrocket. There is a perverse incentive in that system to keep income low. I would pay it off ASAP and go to work if I were you once the youngest starts kindergarten. You could put all of your salary to the student loans. Otherwise you've got decades of an albatross around your neck.

abhe8

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Re: 250K student debt
« Reply #5 on: February 20, 2016, 05:36:53 PM »
So you have 6 yrs in... Does that mean that loans will be forgiven in 4 yrs?

justajane

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Re: 250K student debt
« Reply #6 on: February 20, 2016, 05:41:37 PM »
So you have 6 yrs in... Does that mean that loans will be forgiven in 4 yrs?

No, you're thinking of Public Service Loan Forgiveness (PSLF), which is forgiveness after 10 years. You have to be in certain sectors for this.

IBR is usually 20 or 25 years.

chesebert

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Re: 250K student debt
« Reply #7 on: February 20, 2016, 05:42:30 PM »
So you have 6 yrs in... Does that mean that loans will be forgiven in 4 yrs?

19 more years to go...I don't even want to run xls to see how much OP will owe when the chickens come home to roost.

abhe8

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Re: 250K student debt
« Reply #8 on: February 20, 2016, 05:48:13 PM »
Ok. I'm on IRB too, but with forgiveness in 10 yrs. PSLF requires IRB, which is why I asked. Op if the expect your income to go up, I would make that happen sooner rather then later and knock out the debt. Otherwise you will pay hundreds of thousands extra in interest. I would start by staying on IRB but pay extra to cover interest, so at least your loan won't keep growing. Or, could your dh look for a job that would qualify for PSLF?
« Last Edit: February 21, 2016, 01:04:58 PM by abhe8 »

Paul der Krake

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Re: 250K student debt
« Reply #9 on: February 20, 2016, 05:57:03 PM »
Has anyone been hit with the tax bill yet?

AMG

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Re: 250K student debt
« Reply #10 on: February 20, 2016, 07:15:38 PM »
Wow! I'd love to know how to save that much.  I think there's no way possible to pay this off in 5-6 years.  We'd have a $4500 monthly payment each month to do that.  And I think unfortunately we've gotten ourself into a higher mortgage than maybe we ought to have.  (We'd be ok if we had no debt...)  So we don't have much wiggle room for extra saving.

Thanks for your input.

What's the future income stream look like. You should model out different income stream scenarios and see if IBR still makes sense. With some frugality muscle and annual income increase ( $100k a year sounds very low), you can probably knock the 250k out in 5-6 years (I think some hardcore folks here will probably tell you it's doable in 4 years:). After you are done with that, you can continue to spend the same and invest the difference and you two would be done by the time your kids hit college age (I am assuming all of them are very young).

Btw, folks here talk about saving a million or more in a relatively short period of time with reasonable but not high income. So 250k is really nothing in comparison.

AMG

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Re: 250K student debt
« Reply #11 on: February 20, 2016, 07:20:40 PM »
I don't think it would work for me to get a job that qualified for PSLF.  All this debt is 100% my husbands.  I had 0% debt.  So for me to get a job in PSLF wouldn't work for the loans.  right?

Ok. I'm on IRB too, but with forgiveness in 10 yrs. PSLF requires IRB, which is why I asked. Op if the expect your income to go up, I would make that happen sooner rather then later and knock out the debt. Otherwise you will pay hundreds of thousands extra in interest. I would start by stating on IRB but pay extra to cover interest, so at least your loan won't keep growing. Or, could your dh look for a job that would qualify for PSLF?

LeRainDrop

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Re: 250K student debt
« Reply #12 on: February 20, 2016, 07:23:41 PM »
I think I must be missing something here.  Your husband is a lawyer earning $100k per year, but you two can only afford the $500 per month minimum payment on the loans?  It seems to me that on $100k per year income, your husband should be able to knock that debt down much more quickly than is currently happening.

AMG

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Re: 250K student debt
« Reply #13 on: February 20, 2016, 07:33:15 PM »
Some loans are 8.5% others are 6.6%, so they are total killer!!!  I know we can pay more than what IBR sets, I just wonder if it's worth it to kill ourselves trying to pay extra each month, if we are going the route of seeking for forgiveness.   

We had an analysis done showing roughly what we are paying now, and at the end of the term we'd only pay off $150K and have $342K forgiven.  Seems like a no brainer from this, BUT then it estimates a $85K tax liability.  Which I realize is still less than the 250K we currently have.  But this is also assuming our pay stays exactly the same for the next 20 years, which I highly doubt.   So the more our income increases, the more we pay.   I guess I just wonder if we could somehow get off now and afford the $1500 payments we could be free of it sooner. 

You are not limited to the payment amount set by IBR, you can pay more.  The benefit of being on IBR would be loan forgiveness if you qualify and ability to defer payments if for some reason you have financial hardship. Also, what's your interest rate?

You need to sit down and calculate how much your payments will add up to be until you reach loan forgiveness and how much you estimate your taxbill to be. This will tell you if it's worth paying extra to pay off the loan or let it ride until the loan is forgiven.

randymarsh

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Re: 250K student debt
« Reply #14 on: February 20, 2016, 07:34:49 PM »
Has anyone been hit with the tax bill yet?

No, the plans didn't exist except for loans taken out after like ~2007. We've got a good 10 years before people start freaking out when the IRS wants tens of thousands of dollars.

AMG

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Re: 250K student debt
« Reply #15 on: February 20, 2016, 07:37:53 PM »
on the IBR we have only been required to pay $500/month and I think it's because of our family size of 7.   We could have been paying more I suppose, but I wasn't aware how bad it was getting until now.   We have a high mortgage and 2 car payments (I know, you are all sighing right now), so we really don't have a lot extra a month.  I realize we could take a hard look at the budget and get more frugal and cut some places (which I will), but it won't come close to covering what it would cost if we were to get off IBR (getting a better interest rate) and be on a standard repayment plan.  And if we stay on the IBR, I wonder why we would kill ourselves trying to pay a bunch extra each month if we are going to seek for forgiveness anyway.  Is that wrong thinking?

I think I must be missing something here.  Your husband is a lawyer earning $100k per year, but you two can only afford the $500 per month minimum payment on the loans?  It seems to me that on $100k per year income, your husband should be able to knock that debt down much more quickly than is currently happening.

randymarsh

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Re: 250K student debt
« Reply #16 on: February 20, 2016, 08:02:48 PM »
And if we stay on the IBR, I wonder why we would kill ourselves trying to pay a bunch extra each month if we are going to seek for forgiveness anyway.  Is that wrong thinking?

No, logically if you're pursuing forgiveness you should be on the repayment plan that results in the lowest monthly payment. The Department of Education directly recommends this. 

The issue with forgiveness is that it requires 19 more years of payments (I'm assuming your husband took out loans before 2014 when the rules were changed) or nothing is forgiven.

You shouldn't kill yourself to necessarily pay more on the student loans. You should however work hard to cut expenses/increase income in order to save or invest it. You admitted you have an oversized mortgage and two car payments. You need to get this stuff under control.

You might want to reach out to Justin at www.rootofgood.com. He was a lawyer and retired at ~31 but with law school debt that's on an IBR plan. This is something else to consider. Let's say you were able to amass enough in a 401k and taxable accounts to FIRE. Because the IBR payment is based on income and not assets, you could potentially end up with a payment that's low. Like $0 if you kept your income to 40K during retirement.

From my reading, IBR plans are based on your adjusted gross income (AGI). So if you or your husband grow your income and put it into a 401k, you can keep the benefit of forgiveness without increasing your monthly payment.
« Last Edit: February 20, 2016, 08:13:59 PM by thefinancialstudent »

James

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Re: 250K student debt
« Reply #17 on: February 20, 2016, 08:17:11 PM »
Wow! I'd love to know how to save that much.  I think there's no way possible to pay this off in 5-6 years.  We'd have a $4500 monthly payment each month to do that.  And I think unfortunately we've gotten ourself into a higher mortgage than maybe we ought to have.  (We'd be ok if we had no debt...)  So we don't have much wiggle room for extra saving.

I think you addressing this from the wrong perspective. The statement "(We'd be ok if we had no debt) So we don't have much wiggle room for extra saving." seems to be a key problem here. I think you need to start from scratch and figure this out, rather than starting out with your current spending and trying to fit the student debt into it. You have this debt, no amount of closing your eyes and just looking at the currently required payments will fix this for you. There are very large and very real numbers at stake, and you need to find out what those numbers are. How much will it grow to if you stay on IBR until forgiveness? Can you stay on IBR until forgiveness? How much would you own in taxes if you did that? What is your interest rate if you go off IBR? Can you pay aggressively while still on IBR? Does it make more sense financially in the big picture (this means over your life time, not for current cash flow) to pay it off instead of waiting for forgiveness? You may need professional financial help to figure that all out.

My guess based only on all the instances I've seen in the past and all the numbers I've seen thrown around from friends with large loans and others who have posted here, is that you are best off paying it off. That would mean short term pain instead of long term pain. That might mean selling your house you shouldn't have bought, spending less than you feel you should have to spend, avoiding pleasantries you have grown used to, etc. It would have been so much easier if you had avoided lifestyle inflation, avoided having 5 kids, avoided buying new(er) cars, etc, etc. But that's water under the bridge and kids are wonderful, don't ever live in regret, that way lies danger... You can live happily on a lot less, hundreds of millions do. But whatever you do, now is the time to figure it out. Well, actually you should have figured it out before going on IBR, you could have gradually increased your payments every year. The reason your debt is now $250k isn't some nefarious thing, it's because you failed to pay it back like you could and should have been paying it back. If you want to wait and let it be forgiven that is your choice, but you better be dang sure that is what you want to do, because that's a hell of a lot of debt hanging out there by the end of 25 years. As your income grows it could easily chew up a lot more of your income over the next 19 years than you would have paid in the course of paying it off.

These two links might be helpful:
http://www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/
https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action

Rewdoalb

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Re: 250K student debt
« Reply #18 on: February 20, 2016, 09:02:26 PM »
As a long time lurker, James (above) has a lot of Street cred here and that sounds like good wisdom to me.

I would suggest making a more detailed case study (separate post that links back to this one for reference) so you can get some motivation and help on the budgeting / lifestyle side of things. This will only work if your while family is on board...

Good luck! It's still doable!

ReadySetMillionaire

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Re: 250K student debt
« Reply #19 on: February 20, 2016, 09:13:49 PM »
The first thing you need to realize--and it's absolutely critical--is that student loan debt is not like traditional debt. There are a lot of different payment options, a lot of strategies to consider, and a wealth of other things that simply don't apply to traditional debt.

The second thing you need to realize is that the members on this forum are (a) usually very debt averse and (b) don't know the ins and outs of the student loan system. James (one of the above posters) is a great contributor on these forums, but for the reasons below, I strongly disagree with his post.

I think it's absolutely necessary that you read every post in this thread (copy paste the link if the hyperlink isn't working): http://forum.mrmoneymustache.com/ask-a-mustachian/gaming-repaye-and-the-student-loan-system-($148-000-debt)-to-achieve-fire-at-45/

Once you've read that entire thread (seriously, stop reading this post until you've read every post in that thread), let's get to your specific situation.

(1) The Department of Education just expanded PAYE to include borrowers who borrowed before 2007--this is called Revised PAYE, or REPAYE for short. This means that you can (and probably should) sign up for REPAYE. This will reduce your payment from 15% of AGI to 10% of AGI. Your years enrolled in IBR will roll over to REPAYE.

(2) Focus on reducing AGI (as explained in my post) and pay as little as humanly possible towards your loans. Have your husband max 401k, Traditional IRA, etc. as much as possible so you pay as little towards your loans as possible. Lower AGI = lower payments, with the side benefit of increasing your savings rate.

Note--never, ever, forego income opportunities. Always look to increase income. But simultaneously get creative with tax laws (as many posters on this forum do) to keep your AGI (and thus your student loan payments) to a minimum.

(3) Figure out some way to save for the tax liability. I (and a lot of others who follow student loan legislation carefully) are quite confident that the tax liability will eventually be removed, but as it stands now, you need to plan for that. I would set aside $5,000 a year in a money market account and let it ride for 19 years, then use that for the tax liability and the rest can roll over to your kid's college expenses.

Now let's build on this and get to some numbers--the fun part.

Option A -- Ride REPAYE All 25 Years: You already have six years of payments under your belt. 72 months x $500 = $36,000. If you sign up with REPAYE your payment should go down. And if you become smarter with reducing your AGI, your payment should go down as well. All in all I think it's fair to say your payment will initially go down when you sign up for REPAYE, it will go down further when you get your AGI down, and it will then go up once income increases. So I think it's fair to say that your payment will average about $500/month over the next 19 years.
$36,000 already paid + (19 years x $500/month) = $150,000 in payments towards the loan.

These payments will not have covered the interest, though, and your loan will likely have a balance close to $500,000. Now you have to pay 38% tax liability on that, or $190,000.

That comes to a total of $340,000 total paid toward this loan.

Option B -- Aggressively Pay Down Loans: The other option, and the one I assume will be recommended, is a bunch of "your debt is an emergency, pay it off ASAP."

Well, your loan has ballooned to $250,000. It's tough to make this calculation because I don't know your interest rates, but I think it would take about 10 years of payments at $2,800/month to pay that off in full.

Guess what? 10 years x $2,800/month = $336,000 total paid towards the loans. That number would be higher if your interest rates are above 7 or 8 percent.


Now, there's obviously lots of variables with both A and B. For instance, increase average monthly REPAYE payments to $750/month--that brings total paid in monthly payments to $171,000...but your tax liability would then be lower. In summary, I think you would probably pay between $340k and $375k towards your loans if you did REPAYE.

Put another way, I'm pretty confident you will pay less towards your loans if you opt with REPAYE. Furthermore, even if you technically pay more, think about the time value of money (i.e., a gallon of milk cost less in 1995 than it does in 2016). Sending in a $500/month payment won't be that big of a deal 15 years from now because $500 will be worth less than it is today.

Note that this is the same logic used by people who argue that you shouldn't pay off your mortgage. "Hey, that $1,000 mortgage payment will barely be anything in 2040, just keep paying the minimum, put your money in and index fund, and drink a beer."

Same logic applies here. Calm down, do the math, and I think you'll find that you'll come out ahead utilizing REPAYE.
« Last Edit: February 20, 2016, 09:16:20 PM by ReadySetMillionaire »

Paul der Krake

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Re: 250K student debt
« Reply #20 on: February 20, 2016, 09:48:36 PM »
We are missing so many variables to make an educated guess as to which is best for your family. We don't know how much cash you could raise in the next 30 days by selling your home and your cars. We don't know what your budget looks like.

(3) Figure out some way to save for the tax liability. I (and a lot of others who follow student loan legislation carefully) are quite confident that the tax liability will eventually be removed, but as it stands now, you need to plan for that. I would set aside $5,000 a year in a money market account and let it ride for 19 years, then use that for the tax liability and the rest can roll over to your kid's college expenses.
Another option is to borrow against the same retirement accounts used to reduce AGI.

chesebert

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Re: 250K student debt
« Reply #21 on: February 20, 2016, 11:30:13 PM »
By learning how to pay off the loan at 50% of take home and living off the balance and assuming the debt is paid off in 8 years, OP will have 11 more years to invest. Instead of being afraid and concerned about the debt at year 25, OP will have 600-700k of FU money sitting in his investment account. I would take this option if I were OP.

Tjat

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Re: 250K student debt
« Reply #22 on: February 21, 2016, 06:28:28 AM »
Unfortunately, it seems that you and your husband have bit off more than you can chew. Between the student loan debt, high mortgage, car payments, and 5 kids...it looks pretty gloomy and you're going to have to get rid of something (probably need to hold onto the kids!). The alternative is living on the public dole and relying on the taxpayer to fund your excess.

I suggest in order

1. Post a case study to allow us to evaluate all your expenses. I'm betting there arelots of opportunities to cut
2. Sell both cars and buy used with no loans - A lawyer only making $100k doesn't need a fancy car
3. How on board is your husband in this? I ask because moving to a cheaper place be me an option to consider


ReadySetMillionaire

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Re: 250K student debt
« Reply #23 on: February 21, 2016, 07:26:16 AM »
By learning how to pay off the loan at 50% of take home and living off the balance and assuming the debt is paid off in 8 years, OP will have 11 more years to invest. Instead of being afraid and concerned about the debt at year 25, OP will have 600-700k of FU money sitting in his investment account. I would take this option if I were OP.

Disagree.

Three things contribute to wealth: time, rate of return, and savings rate. Of these three, time is by a long way the most important variable.

Sacrificing eight years of time is a multi-million dollar mistake.

SwordGuy

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Re: 250K student debt
« Reply #24 on: February 21, 2016, 08:44:37 AM »
Wow! I'd love to know how to save that much.  I think there's no way possible to pay this off in 5-6 years.  We'd have a $4500 monthly payment each month to do that.  And I think unfortunately we've gotten ourself into a higher mortgage than maybe we ought to have.  (We'd be ok if we had no debt...)  So we don't have much wiggle room for extra saving.

Then sell the damn house if you can't afford it, and replace it with something affordable.

EnjoyIt

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Re: 250K student debt
« Reply #25 on: February 21, 2016, 10:02:43 AM »
This is a spreadsheet problem.

we need to know all the variables.  Exactly what is your loan, and what is your interest rate.  If your interest rate are high, you very well may be better off paying down the debt.  Especially if you can refinance to something small and get aggressive on it.  This debt reduction may have to come at the cost of downsizing your lifestyle.

By doing a thorough case study we can evaluate exact what your numbers look like.  How much you are saving for retirement and what your projected numbers may look like.

chesebert

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Re: 250K student debt
« Reply #26 on: February 21, 2016, 10:07:06 AM »
By learning how to pay off the loan at 50% of take home and living off the balance and assuming the debt is paid off in 8 years, OP will have 11 more years to invest. Instead of being afraid and concerned about the debt at year 25, OP will have 600-700k of FU money sitting in his investment account. I would take this option if I were OP.

Disagree.

Three things contribute to wealth: time, rate of return, and savings rate. Of these three, time is by a long way the most important variable.

Sacrificing eight years of time is a multi-million dollar mistake.

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?


Paul der Krake

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Re: 250K student debt
« Reply #27 on: February 21, 2016, 10:27:03 AM »
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?
False analogy. In OP's situation, the tidal wave stops dead in its track after 19 years.

The choices are:
1) fight the current as hard as possible, potentially wasting all your energy and having to come back from even further if the wave catches up
2) relax, save your strength, and surf the wave for 19 years, relying that the governmental levee will be in place in 19 years, allowing OP to jump off the wave

chesebert

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Re: 250K student debt
« Reply #28 on: February 21, 2016, 11:15:18 AM »
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?
False analogy. In OP's situation, the tidal wave stops dead in its track after 19 years.

The choices are:
1) fight the current as hard as possible, potentially wasting all your energy and having to come back from even further if the wave catches up
2) relax, save your strength, and surf the wave for 19 years, relying that the governmental levee will be in place in 19 years, allowing OP to jump off the wave

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?

« Last Edit: February 21, 2016, 11:29:26 AM by chesebert »

Paul der Krake

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Re: 250K student debt
« Reply #29 on: February 21, 2016, 11:33:44 AM »
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).
The same government that says paying more than 10% of your AGI on your debt is too much of a burden, that government is going to slap the million+ people who signed up for the program with a tax bill in the tens of thousands to comply with the terms of a program that was meant to provide relief?

Sure, that's a possibility. Personally I place the probability of it happening somewhere between Social Security being gutted entirely by a Canadian-born president, and Bernie Sanders converting everyone's IRA balances to marshmallow.

Kwill

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Re: 250K student debt
« Reply #30 on: February 21, 2016, 11:44:49 AM »
False analogy. In OP's situation, the tidal wave stops dead in its track after 19 years.

The choices are:
1) fight the current as hard as possible, potentially wasting all your energy and having to come back from even further if the wave catches up
2) relax, save your strength, and surf the wave for 19 years, relying that the governmental levee will be in place in 19 years, allowing OP to jump off the wave

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?

Paul der Krake

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Re: 250K student debt
« Reply #31 on: February 21, 2016, 11:56:46 AM »
False analogy. In OP's situation, the tidal wave stops dead in its track after 19 years.

The choices are:
1) fight the current as hard as possible, potentially wasting all your energy and having to come back from even further if the wave catches up
2) relax, save your strength, and surf the wave for 19 years, relying that the governmental levee will be in place in 19 years, allowing OP to jump off the wave

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?
Those are valid concerns. Like I said, we don't know enough OP's and OP's husband's earning potential to make an informed recommendation. But you are right, there is a breakeven point in income that will sway the balance one way or the other. However, it is generally easier to reduce your income than augment it, especially for someone who reads MMM.

DebtFreeBy25

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Re: 250K student debt
« Reply #32 on: February 21, 2016, 12:04:01 PM »
I suggest in order

1. Post a case study to allow us to evaluate all your expenses. I'm betting there arelots of opportunities to cut
2. Sell both cars and buy used with no loans - A lawyer only making $100k doesn't need a fancy car
3. How on board is your husband in this? I ask because moving to a cheaper place be me an option to consider

+1 Let's evaluate your current expenses first. Regardless of whether you choose to put your savings towards the student loans, your mortgage or invest in an interest bearing account, there will definitely be opportunities to find savings.

Option A -- Ride REPAYE All 25 Years: You already have six years of payments under your belt. 72 months x $500 = $36,000. If you sign up with REPAYE your payment should go down. And if you become smarter with reducing your AGI, your payment should go down as well. All in all I think it's fair to say your payment will initially go down when you sign up for REPAYE, it will go down further when you get your AGI down, and it will then go up once income increases. So I think it's fair to say that your payment will average about $500/month over the next 19 years.
$36,000 already paid + (19 years x $500/month) = $150,000 in payments towards the loan.

These payments will not have covered the interest, though, and your loan will likely have a balance close to $500,000. Now you have to pay 38% tax liability on that, or $190,000.

That comes to a total of $340,000 total paid toward this loan.

I second exploring REPAYE as a potential option.

To respond to an earlier question, no, I don't believe that you can qualify for student loan forgiveness on his behalf by working an eligible job. I'd recommend your husband explore his options for government jobs that offer forgiveness after 10 years or any job that offers a repayment program. (I qualified for an employer student loan repayment program when I worked for the federal government.) Typically employers with repayment programs have a set amount of money that they will directly pay to the debt holder each month on the employee's behalf. (I remember this being a taxable benefit.) Your husband should always inquire about a repayment program when he asks potential employers about benefits as it would make a huge difference in your finances.

chesebert

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Re: 250K student debt
« Reply #33 on: February 21, 2016, 12:27:27 PM »
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.


LeRainDrop

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Re: 250K student debt
« Reply #34 on: February 21, 2016, 12:48:38 PM »
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.

I know, pretty absurd, huh?  And they would have to suppress their income for the next 19 years to make it happen.

abhe8

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Re: 250K student debt
« Reply #35 on: February 21, 2016, 01:19:52 PM »
No, op, I ment your husband should look for a job that qualifies for PSLF. Then u make the same payments as now, stay on IBR, for 10 more years, then the rest is forgiven with no tax on the forgiven amount. You are out in 10 yrs instead of 19, without the tax bill.

I ment the OP should look for work as well, to increase family income. Nights, weekends, evenings, in home daycare or tutoring... There are options.

Of course, he can also look for any new job with some sort of loan repayment as part of the compensation. They vary greatly on terms and conditions, so make sure you know what they are offering. For example, I'm a federal employee in EDRP, which is tax free reimbursement annually of what I paid on my loans, up to a certain limit. Some employers directly pay your load for you or give you extra money each month.

I would focus on increasing his compensation total in some way, as well as getting out of the expensive mortgage and car loans.

Sofa King

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Re: 250K student debt
« Reply #36 on: February 21, 2016, 03:49:29 PM »
I think I must be missing something here.  Your husband is a lawyer earning $100k per year, but you two can only afford the $500 per month minimum payment on the loans?  It seems to me that on $100k per year income, your husband should be able to knock that debt down much more quickly than is currently happening.

I concur.  http://forum.mrmoneymustache.com/antimustachian-wall-of-shame-and-comedy/hard-to-feel-sorry-for-these-people/

ReadySetMillionaire

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Re: 250K student debt
« Reply #37 on: February 21, 2016, 05:17:08 PM »
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.
« Last Edit: February 21, 2016, 05:19:43 PM by ReadySetMillionaire »

bobechs

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Re: 250K student debt
« Reply #38 on: February 21, 2016, 07:41:28 PM »
Why has no one suggested putting the kids to work?

There are five of them and even if their individual pay rates are low, it all adds up.  Plus consider all the valuable life lessons half the people on this forum are continuously extolling themselves for imparting to their offspring...

And I don't mean getting the very last coal out of the pinched-off runs in the mines.  Have you seen what support staff in a law firm are billed out at?  Somebody has to copy those documents, bind those briefs and assemble the indexes to those exhibits...

Let it be them.

randymarsh

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Re: 250K student debt
« Reply #39 on: February 21, 2016, 07:51:00 PM »
Why has no one suggested putting the kids to work?

There are five of them and even if their individual pay rates are low, it all adds up.  Plus consider all the valuable life lessons half the people on this forum are continuously extolling themselves for imparting to their offspring...

And I don't mean getting the very last coal out of the pinched-off runs in the mines.  Have you seen what support staff in a law firm are billed out at?  Somebody has to copy those documents, bind those briefs and assemble the indexes to those exhibits...

Let it be them.

I'm not sure many people would expect children (who I think are all under ~10) to pay for a parent's law school debt. That's kind of...unfair?

bobechs

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Re: 250K student debt
« Reply #40 on: February 21, 2016, 07:57:20 PM »
Why has no one suggested putting the kids to work?

There are five of them and even if their individual pay rates are low, it all adds up.  Plus consider all the valuable life lessons half the people on this forum are continuously extolling themselves for imparting to their offspring...

And I don't mean getting the very last coal out of the pinched-off runs in the mines.  Have you seen what support staff in a law firm are billed out at?  Somebody has to copy those documents, bind those briefs and assemble the indexes to those exhibits...

Let it be them.

I'm not sure many people would expect children (who I think are all under ~10) to pay for a parent's law school debt. That's kind of...unfair?

Nope, perfectly fair.  They are living in the house and eating the food of the debtor.

What, you want me to pitch in to pay for it?

Besides, like I said this will be an ineradicable life lesson for the kiddies... look at what Dad did, not what Dad says.

ReadySetMillionaire

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Re: 250K student debt
« Reply #41 on: February 21, 2016, 08:25:10 PM »
Why has no one suggested putting the kids to work?

There are five of them and even if their individual pay rates are low, it all adds up.  Plus consider all the valuable life lessons half the people on this forum are continuously extolling themselves for imparting to their offspring...

And I don't mean getting the very last coal out of the pinched-off runs in the mines.  Have you seen what support staff in a law firm are billed out at?  Somebody has to copy those documents, bind those briefs and assemble the indexes to those exhibits...

Let it be them.

I think I speak for all attorneys here: this would be one of the fastest ways possible to lose  a client.

cloudsail

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Re: 250K student debt
« Reply #42 on: February 21, 2016, 08:58:47 PM »
Quote
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.



You can only put so much money in tax sheltered accounts. There's a limit... It's not actually make as much as you want. Both Jeremy at GCC and RoG had modest incomes up to their retirement. If you make $250+k you can only reduce your AGI up to a certain point, and surely lawyers have the potential to make much more than 100k.
« Last Edit: February 21, 2016, 09:00:22 PM by cloudsail »

ReadySetMillionaire

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Re: 250K student debt
« Reply #43 on: February 22, 2016, 07:36:58 AM »
Quote
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.



You can only put so much money in tax sheltered accounts. There's a limit... It's not actually make as much as you want. Both Jeremy at GCC and RoG had modest incomes up to their retirement. If you make $250+k you can only reduce your AGI up to a certain point, and surely lawyers have the potential to make much more than 100k.

I understand that. If OP's husband eventually makes $250k, then REPAYE will work exactly as it was intended--to act as a hedge so student loan borrowers can save for retirement and purchase commercial goods instead of having all disposable income go towards student loans. And once they make enough, boom, pay the loans off, move on with life, drink more beer.

Again, let's do some math on this:

Person A: Income of $100,000, uses REPAYE, pays $500/month towards loans for ten years, maxes 401k and traditional IRA throughout those ten years. By then OP's husband is making $250k, so they stop saving for retirement and pay off the loans in three years. Then they save $100,000 for another 7 years.

Person B: Income of $100,000, takes this forum's advice and slaves away at the loans for ten years, doesn't start saving for retirement until 2026. By then he's making $250,000. Starts saving $100,000 per year for 10 years.

Person A: paid $60,000 towards loans for ten years, then paid $325k to pay them off, so $385k total. But after ten years of saving, they have $347k in 401k and traditional IRA (assuming 7% return). After three years of paying off the loans, without investing a penny, that amount has gone up to $425k. Then they save $100k for 7 years, which adds up to $1.61M.

Person B: Paid $325,000 towards loans for ten years. Then they can start saving $100k for retirement each year for 10 years (so an identical time horizon). That leaves them with $1.48M in retirement savings.

A few things are worth noting. First, Person A put $935k in the market and has $1.61M, while Person B put $1.0M in the market and has almost $150k less. Again, this is the power of time I was referring to earlier.

Second, you might be wondering, "Why not save for retirement AND pay down loans???" To which I counter, "Why would you throw away 50% subsidized interest?"

Third, and another glaring thing I'm leaving out--and why REPAYE is a tremendous hedge--what if something happens to OP's husband seven years from now? What if he gets in a car accident and can't work for a couple years? What if he suffers a stroke? If he was paying down his loans, that money is gone. If he was using REPAYE, his payments would go to $0, the clock on his 25 years would continue to run, and student loans would not be an issue at all. And his family could access the money.

To reiterate, REPAYE is a hedge. A tremendous one at that. If OP's husband eventually makes $250k, then what an amazing problem to have--stop saving for retirement for three years, let what you've already contributed compound on its own for three years, and pay down the loans rapidly.

Then OP can laugh it up with her husband's $250k salary, drink more beer and wine, take a lavishly expensive vacation to the Bahamas, and retire in a couple years. Sounds like a plan to me.
« Last Edit: February 22, 2016, 07:39:31 AM by ReadySetMillionaire »

Think

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Re: 250K student debt
« Reply #44 on: February 22, 2016, 07:44:46 AM »
I can't fathom having five children with student loans.  Unlike houses and cars there isn't a way to get rid of the kids.  Colossal mistake. 

Hopefully the wife can go back to work after the youngest is in school full time. 


TrulyStashin

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Re: 250K student debt
« Reply #45 on: February 22, 2016, 08:04:03 AM »
Why has no one suggested putting the kids to work?

There are five of them and even if their individual pay rates are low, it all adds up.  Plus consider all the valuable life lessons half the people on this forum are continuously extolling themselves for imparting to their offspring...

And I don't mean getting the very last coal out of the pinched-off runs in the mines.  Have you seen what support staff in a law firm are billed out at?  Somebody has to copy those documents, bind those briefs and assemble the indexes to those exhibits...

Let it be them.

I think I speak for all attorneys here: this would be one of the fastest ways possible to lose  a client.

Attorney here. This would be INSANE.  Attorneys are ethically liable for the actions of their "employees."  A breach of sensitive client information would have horrific implications.

ReadySetMillionaire

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Re: 250K student debt
« Reply #46 on: February 22, 2016, 08:06:26 AM »
Why has no one suggested putting the kids to work?

There are five of them and even if their individual pay rates are low, it all adds up.  Plus consider all the valuable life lessons half the people on this forum are continuously extolling themselves for imparting to their offspring...

And I don't mean getting the very last coal out of the pinched-off runs in the mines.  Have you seen what support staff in a law firm are billed out at?  Somebody has to copy those documents, bind those briefs and assemble the indexes to those exhibits...

Let it be them.

I think I speak for all attorneys here: this would be one of the fastest ways possible to lose  a client.

Attorney here. This would be INSANE.  Attorneys are ethically liable for the actions of their "employees."  A breach of sensitive client information would have horrific implications.

Ya, I understated my initial post. This would cause the loss of a client, a disciplinary violation, likely a malpractice claim, loss of reputation, etc. Would be an absolute disaster of the highest order.

bobechs

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Re: 250K student debt
« Reply #47 on: February 22, 2016, 09:22:41 AM »
Why has no one suggested putting the kids to work?

There are five of them and even if their individual pay rates are low, it all adds up.  Plus consider all the valuable life lessons half the people on this forum are continuously extolling themselves for imparting to their offspring...

And I don't mean getting the very last coal out of the pinched-off runs in the mines.  Have you seen what support staff in a law firm are billed out at?  Somebody has to copy those documents, bind those briefs and assemble the indexes to those exhibits...

Let it be them.

I think I speak for all attorneys here: this would be one of the fastest ways possible to lose  a client.

Attorney here. This would be INSANE.  Attorneys are ethically liable for the actions of their "employees."  A breach of sensitive client information would have horrific implications.

Ya, I understated my initial post. This would cause the loss of a client, a disciplinary violation, likely a malpractice claim, loss of reputation, etc. Would be an absolute disaster of the highest order.




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]

ReadySetMillionaire

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Re: 250K student debt
« Reply #48 on: February 22, 2016, 09:28:34 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.

bobechs

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Re: 250K student debt
« Reply #49 on: February 22, 2016, 09:47:19 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.