Author Topic: Getting niece out of 160K student debt  (Read 3373 times)

SummerLovin

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Getting niece out of 160K student debt
« on: March 19, 2021, 03:33:07 PM »
My brother is less that a year out from early retirement, and he recently found out that his adult daughter (living at home, paying utilities and her own expenses) has nearly 160K of student loans. Only child, mother is deceased.
90K in private loans @ 10% variable ( deferred)
65K in federal @6% fixed (deferred)
10K in federal that he co-signed but she pays down faithfully.

My niece works for-non profit @ 50K per year but drowning in student debt. She does put into 401K for employer match, and is using the snowball method.

My brother was planning on paying off the loan he co-signed and paying off his home before he retires. He was considering taking a cash out refinance for himself to invest and give himself a bigger cash cushion until he gets his pension at 60 ( He has most of his money in 401K ~850K, 85K cash, ~50K in brokerage, 25K in Roth IRA)
He currently owes 40K on home valued at about 400K, with no other debt.

He's considering a cash out refinance of the home to pay off the private loan,(93K) and she would just pay him.
She cannot refinance the private student without a cosigner, (which he would happily do), but then he is on the hook.

I don't normally agree to going into retirement with a mortgage, but he had budgeted for one in case he took the cash out/invest option.
He's not living in the home ( SO has her own home he contributes) and his daughter would get the home when he passes.
In her current situation she would never be able to afford a home on her own, and he wants to help her now when she needs it not as an inheritance when she doesn't and he's gone.

Aside from a bigger shovel for her, what are other options or pros/cons that he hasn't thought about. Please don't ask how he didn't know this, or why she didn't come clean sooner, but I've beat that horse to death.
They will be sitting down to go over her detailed spending, and help work out a plan of action,

Sibley

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Re: Getting niece out of 160K student debt
« Reply #1 on: March 19, 2021, 03:39:56 PM »
Given that he didn't know, that tells me there's some bad decisions on her part, combined with lying/concealing/otherwise not honest and straightforward communication. I would hesitate to bail her out, because that's enabling.

It might be simpler to sell the house and use the proceeds to pay off the debt. However, the bulk of the loans are deferred, so waiting and seeing what she does might be the best option. If she's going to continue to make bad decisions he should not sink any (more) money into her. If she is taking steps to remedy whatever got her into this mess, then perhaps he can help.

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Re: Getting niece out of 160K student debt
« Reply #2 on: March 19, 2021, 04:08:00 PM »
Your niece is already getting a big subsidy from your brother by living rent-free in his $400k house.  She is paying utilities: is she also paying the tax, insurance and interest on the mortgage? 

One answer might be for your brother to sell his house (his single daughter living on $50k a year and in debt obviously can't afford to live in a $400k house even with her father subsidizing her), buy a small apartment for his daughter, use some or all of the difference in value to pay off some or all of her debt and have her pay rent to him for the apartment.

The disadvantage to this is that your brother should think about keeping a degree of housing security independent of his SO, in case his own housing situation ends through whatever life events may occur.  That might mean buying a second rental for him to move into himself if needed, or investing his cash to provide for a future purchase or rent payments.


Malcat

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Re: Getting niece out of 160K student debt
« Reply #3 on: March 19, 2021, 06:47:29 PM »
Your niece is already getting a big subsidy from your brother by living rent-free in his $400k house.  She is paying utilities: is she also paying the tax, insurance and interest on the mortgage? 

One answer might be for your brother to sell his house (his single daughter living on $50k a year and in debt obviously can't afford to live in a $400k house even with her father subsidizing her), buy a small apartment for his daughter, use some or all of the difference in value to pay off some or all of her debt and have her pay rent to him for the apartment.

The disadvantage to this is that your brother should think about keeping a degree of housing security independent of his SO, in case his own housing situation ends through whatever life events may occur.  That might mean buying a second rental for him to move into himself if needed, or investing his cash to provide for a future purchase or rent payments.

But where would he live?? Why would he sell his own home to buy his daughter an apartment and then leave himself with nowhere to live?? I'm so confused.

OP, does he have to pay off ALL of her loans? Why? If he was already planning on paying off 93K of her loan, that are a like an amazingly generous start.

nessness

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Re: Getting niece out of 160K student debt
« Reply #4 on: March 19, 2021, 06:58:54 PM »
Is she eligible for PSLF? I'm not an expert, but I think most people working for nonprofits are. That is definitely a route to consider.

nessness

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Re: Getting niece out of 160K student debt
« Reply #5 on: March 19, 2021, 07:01:46 PM »
Your niece is already getting a big subsidy from your brother by living rent-free in his $400k house.  She is paying utilities: is she also paying the tax, insurance and interest on the mortgage? 

One answer might be for your brother to sell his house (his single daughter living on $50k a year and in debt obviously can't afford to live in a $400k house even with her father subsidizing her), buy a small apartment for his daughter, use some or all of the difference in value to pay off some or all of her debt and have her pay rent to him for the apartment.

The disadvantage to this is that your brother should think about keeping a degree of housing security independent of his SO, in case his own housing situation ends through whatever life events may occur.  That might mean buying a second rental for him to move into himself if needed, or investing his cash to provide for a future purchase or rent payments.

But where would he live?? Why would he sell his own home to buy his daughter an apartment and then leave himself with nowhere to live?? I'm so confused.

OP, does he have to pay off ALL of her loans? Why? If he was already planning on paying off 93K of her loan, that are a like an amazingly generous start.
He doesn't live there now, he lives with his SO. But it would be a significant risk if they broke up, or if the SO passed and did not leave him the house.

Malcat

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Re: Getting niece out of 160K student debt
« Reply #6 on: March 19, 2021, 07:30:32 PM »
Your niece is already getting a big subsidy from your brother by living rent-free in his $400k house.  She is paying utilities: is she also paying the tax, insurance and interest on the mortgage? 

One answer might be for your brother to sell his house (his single daughter living on $50k a year and in debt obviously can't afford to live in a $400k house even with her father subsidizing her), buy a small apartment for his daughter, use some or all of the difference in value to pay off some or all of her debt and have her pay rent to him for the apartment.

The disadvantage to this is that your brother should think about keeping a degree of housing security independent of his SO, in case his own housing situation ends through whatever life events may occur.  That might mean buying a second rental for him to move into himself if needed, or investing his cash to provide for a future purchase or rent payments.

But where would he live?? Why would he sell his own home to buy his daughter an apartment and then leave himself with nowhere to live?? I'm so confused.

OP, does he have to pay off ALL of her loans? Why? If he was already planning on paying off 93K of her loan, that are a like an amazingly generous start.
He doesn't live there now, he lives with his SO. But it would be a significant risk if they broke up, or if the SO passed and did not leave him the house.

Lol! I totally missed that. I'm on my phone and don't always read carefully.

Anon-E-Mouze

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Re: Getting niece out of 160K student debt
« Reply #7 on: March 19, 2021, 07:31:41 PM »
He might consider offering a loan payment matching program to her for a year or so, so that he can assess how she is managing her finances and to create incentives for her to pay down her student loans. He shouldn't second-guess how she spends her money (that's a recipe for a family crisis), but he could simply say "Show me the proof of your payments on an semi-annual or annual basis and I'll make a payment on the highest interest loan equal to X% of your payments." He should make clear how long the commitment is for before it gets re-considered, so that there is some flexibility if he is suddenly in a very different financial position.

mozar

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Re: Getting niece out of 160K student debt
« Reply #8 on: March 20, 2021, 10:27:23 AM »
Living rent free is enough of a gift. She should be able to pay this all off in less than 5 years. That's what I did. I had 135k in student loans. I lived in pos housing and paid it off mostly in 5 years, while making only a little bit more salary than her.

She's got decades left to earn money. The dad doesn't.

scantee

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Re: Getting niece out of 160K student debt
« Reply #9 on: March 20, 2021, 10:43:51 AM »
Given that he didn't know, that tells me there's some bad decisions on her part, combined with lying/concealing/otherwise not honest and straightforward communication. I would hesitate to bail her out, because that's enabling.

It might be simpler to sell the house and use the proceeds to pay off the debt. However, the bulk of the loans are deferred, so waiting and seeing what she does might be the best option. If she's going to continue to make bad decisions he should not sink any (more) money into her. If she is taking steps to remedy whatever got her into this mess, then perhaps he can help.

I donít think this is necessarily the case. It doesnít sound like he was helping her pay for college so how did he think she was paying for it? Seems like there is a lot going on here on both sides and this isnít as simple as her lying to him.

Anyway, my guess is that he is going to go ahead and refinance to get the loan and pay-off the private student loans. He is pretty far in thinking through how it would all work which is a pretty good indication that itís going to happen. My recommendation is he should just pay off the private loan and not ask to be paid back.

I realize that will not be a popular opinion here but is the route that will lead to the most happiness on all sides. She gets a reduction in her high-interest loans (but still needs to pay off the substantial remaining loans), he gets the good feels that come from helping his daughter, neither of them has a family loan situation hanging over them.

He should work and extra year or two to pay off the refinanced loan and retire once that is gone.

Sibley

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Re: Getting niece out of 160K student debt
« Reply #10 on: March 20, 2021, 01:05:10 PM »
Given that he didn't know, that tells me there's some bad decisions on her part, combined with lying/concealing/otherwise not honest and straightforward communication. I would hesitate to bail her out, because that's enabling.

It might be simpler to sell the house and use the proceeds to pay off the debt. However, the bulk of the loans are deferred, so waiting and seeing what she does might be the best option. If she's going to continue to make bad decisions he should not sink any (more) money into her. If she is taking steps to remedy whatever got her into this mess, then perhaps he can help.

I donít think this is necessarily the case. It doesnít sound like he was helping her pay for college so how did he think she was paying for it? Seems like there is a lot going on here on both sides and this isnít as simple as her lying to him.

Anyway, my guess is that he is going to go ahead and refinance to get the loan and pay-off the private student loans. He is pretty far in thinking through how it would all work which is a pretty good indication that itís going to happen. My recommendation is he should just pay off the private loan and not ask to be paid back.

I realize that will not be a popular opinion here but is the route that will lead to the most happiness on all sides. She gets a reduction in her high-interest loans (but still needs to pay off the substantial remaining loans), he gets the good feels that come from helping his daughter, neither of them has a family loan situation hanging over them.

He should work and extra year or two to pay off the refinanced loan and retire once that is gone.

Yeah, it could be fine. But in my experience, a father doesn't end up completely unaware that the daughter has $160k in student loans UNLESS there's bigger relationship/communication issues at play. Whatever they might be. And given that, caution is warranted.

Of course, people do dumb things and the father isn't going to listen to a stranger on the internet. Particularly since there are likely bigger relationship/communication issues involved. Just watch for gift tax implications, I don't know the rules off hand.

ysette9

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Re: Getting niece out of 160K student debt
« Reply #11 on: March 20, 2021, 03:46:50 PM »
Iíd recommend checking out The White Coat Investorís resources on student loans. He is pretty knowledgeable in this corner of the finance world due to medical professionals often struggling under huge student loans burdens. There are even professionals you can hire for a few hours who will advise you on your student loans, which loan forgiveness program might be best, refinancing, and so forth. It all sounds complicated and with such a low income, it probably makes sense to get professional help.

My first impression is that she canít afford to work for such a low paying job unless she is going for PSLF and will get it forgiven tax free in a few more years. https://www.whitecoatinvestor.com/student-loan-advice/

LaineyAZ

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Re: Getting niece out of 160K student debt
« Reply #12 on: March 20, 2021, 06:22:09 PM »
Did she happen to accumulate this student loan debt from one of those shady for-profit colleges? 
There was a news headline about the Dept. of Education forgiving federal loans for those who were defrauded by these places.  I don't know the details yet but if she's in that category it would be worth checking out.

mistymoney

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Re: Getting niece out of 160K student debt
« Reply #13 on: March 20, 2021, 06:38:34 PM »
I'm not sure I see the need for anything drastic here.

Is she living in the home alone? Can she get some roommates? If she had a few roommates, that should pay for the household expenses and much/all of her living costs and then her salary could go towards the loans. Dad could throw her 1k here or there if he wanted to help out more, and it would be a nice boost to see an extra 1k off the balance 1-2 a year.


those private loans at 10% are a killer. I bet she borrowed a whole lot less than her balance right now.

caleb

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Re: Getting niece out of 160K student debt
« Reply #14 on: March 21, 2021, 10:05:11 AM »
Oof.  The public loans are fine, it's the private loans that are tough.

Step 1: Consolidate the Federal loans into a Direct Loan so that they're eligible for PSLF.  File for an Income Based Repayment Plan, and set the (minimal) payments to draw automatically.  Turn in an Employment Certification Form annually.  Ten years from now they should be forgiven.

Step 2: Figure out some way to get the interest rate on those private loans down.  Just the interest on them is probably 15-20% of her take-home, and that's just to tread water.  Maybe refinance them with SoFi, or with the Bank of Dad.  One way or another, she's got to get the interest rate down or they'll eat her alive.

This isn't my business, but there probably needs to be a father-daughter reckoning as part of this solution.  Most bad student debt situations I've seen have been contributed to by the parents, either actively or passively.

caleb

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Re: Getting niece out of 160K student debt
« Reply #15 on: March 21, 2021, 10:13:58 AM »

I donít think this is necessarily the case. It doesnít sound like he was helping her pay for college so how did he think she was paying for it? Seems like there is a lot going on here on both sides and this isnít as simple as her lying to him.


One of the primary ways undergrad students end up in private student loan debt is that their families don't meet the expected family contribution.  The parents qualify for Parent Plus loans from the DoE, but if they decline them the eligibility for that aid does not transfer to the student (i.e. the student can't take out additional federal loans to cover the ones their parents didn't take out).  The student is then faced with the choice of either dropping out or going into the private marketplace for student debt where rates can be 10%.  I have no idea if that's the case here, but it's the normal explanation of how students end up with private loans at graduation.


Fishindude

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Re: Getting niece out of 160K student debt
« Reply #16 on: March 22, 2021, 07:28:49 AM »
I don't think any drastic measures need to be taken either.
Guessing the $50k salary she makes with this degree working at a non profit is less than what she could make with a for profit employer?   Seems like she should start looking for higher paying employment and in the meantime be working a second job to boost income.

This is not an insurmountable debt.   She needs to knuckle down and pay it off while she is living so cheaply under dads roof.

FLBiker

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Re: Getting niece out of 160K student debt
« Reply #17 on: March 22, 2021, 08:56:43 AM »
Personally, I feel like the first thing that would need to change is the way they communicate about money.  If they're still not communicating openly (as in, he didn't know about these loans until now) I think further entanglement might only exacerbate things.

Bee21

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Re: Getting niece out of 160K student debt
« Reply #18 on: March 30, 2021, 02:21:02 AM »
So, how did this happen? 160k loans for a job which pays only 50k, especially when she still lives at home.....there are some serious underlying issues they need to address here, especially if this whole mess came as a surprise.

I would not sell the house and pay off the loan (bc who knows what happens next, he needs his ow nest egg as i presume ge does not want to be a burden later on).

I might consider paying off the 10k loan to help her, but that's all. She is an adult.

ericrugiero

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Re: Getting niece out of 160K student debt
« Reply #19 on: March 30, 2021, 07:12:08 AM »
I don't like the idea of a private loan where she owes her Dad money.  The idea of matching her payments makes the most sense to me.  That gives her the opportunity to learn while still helping her.  Also, renting out rooms could make a big difference.  The Dad could allow that while requiring the daughter to take some steps to take care of the home.  All the rent money could be applied to the loans. 

frugaldrummer

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Re: Getting niece out of 160K student debt
« Reply #20 on: March 31, 2021, 02:53:19 PM »
I like the idea of her getting roommates and the rent money from them going directly into paying off her loans. She should also consider getting a side hustle. If dad really wants to clear the loans for her, he should consider working an extra year or two. Some kind of matching would be good, just so the daughter learns to budget.


former player

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Re: Getting niece out of 160K student debt
« Reply #21 on: April 01, 2021, 04:56:58 AM »
I like the idea of her getting roommates and the rent money from them going directly into paying off her loans. She should also consider getting a side hustle. If dad really wants to clear the loans for her, he should consider working an extra year or two. Some kind of matching would be good, just so the daughter learns to budget.

Agree that if the house isn't to be sold it needs to be put to work either by letting out as a whole on a commercial basis or by bringing in roommates.  Daughter and father need money to deal with the debt and the house is a big under utilised asset that properly managed could bring in the money to do it.  A single woman on a lowish income and having big debts doesn't get to live rent free in the family house while having other people come up with the money to pay for her mistakes.

simonsez

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Re: Getting niece out of 160K student debt
« Reply #22 on: April 01, 2021, 12:53:37 PM »
The issue to me is not that the dad didn't know about the level of debt, it's the career path.  If she wants to make 50k at a non-profit and drown in student debt while also taking on that student debt and not telling her father, that's her issue.  If dad wants to help out in any way, amazing!  But the career choice after taking on the loans cannot be ignored.  So it's weird to me the questions are being posed only about the loan debt and not the salary. 

The OP lists how:
In her current situation she would never be able to afford a home on her own, and he wants to help her now when she needs it not as an inheritance when she doesn't and he's gone.
So yeah, change the current situation.  Get a higher paying job or additional part-time jobs.  Act like your hair is on fire.  Thank dad for any dollar he provides toward paying down loan debt but really that should be a happy bonus and not a crutch.  Yes, she needs help.  She needs to help herself and make her situation more sustainable instead of relying on others.

BTW - people can buy houses while making 50k/year.  It might not be a 400k house in a nice neighborhood but the entire country is not all upper middle class.

+1 @former player

Heroes821

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Re: Getting niece out of 160K student debt
« Reply #23 on: April 06, 2021, 01:59:20 PM »
I can't believe this hasn't been said already, but if you're her Uncle and your brother clearly has some level of head on his shoulders... why aren't you sitting her down in front of the computer and showing her MMM and rich dad poor dad and FIRE and how she needs to be the power of her own change?


If I had debt past my eyeballs and was struggling like your niece and one of my Uncles showed me the light at the end of the tunnel I'd be devouring as much information as I could find. 

I think the biggest thing is what many folks here struggle with, they think that the debt and the lifestyle is NORMAL. Its what all her colleagues have, its the poor woe is me mentality that I hear all the time from people I grew up with who don't know how to change their circumstances by looking at their own habits.

therethere

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Re: Getting niece out of 160K student debt
« Reply #24 on: April 06, 2021, 02:09:44 PM »
Honestly, the best way in the long run would be for her to tackle her debt herself. If the dad wants to help out, maybe match the principal payments every month as an extra payment. Or set aside a house downpayment fund for her (that she doesn't know the amount of) that is contingent on her paying down a certain amount of debt.

Having daddy come in and help her out directly will be counterproductive in the long run. The debt and payments don't appear to phase her as it is. Who's to say she won't saddle herself up with car debt once she lightens up her monthly student loan payments? Teach her responsibility and standing up on her own, not relying on others to bail out her decisions.


TheGrimSqueaker

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Re: Getting niece out of 160K student debt
« Reply #25 on: April 12, 2021, 03:35:22 PM »
If he's feeling generous, he could do OMY and pay down some of Niece's debt, but *not* refinance the house and continue paying it off.

He should definitely kill off the $10k he co-signed for. That could come back to bite him in the rear if Niece ever defaults. This should also give Niece a little more cash flow to continue with her snowball approach. $10k is a magnificent gift and should not be sneezed at. That, combined with free room and board, should put Niece in a very good position for repayment.

Refinancing the house sounds like a bad idea to me because it puts too much of a crimp in a FIREd person's cash flow. It would also be a case of him taking on debt to solve a problem that Niece created, instead of letting her solve it herself.

There's no reason Niece can't take on a second job or moonlight a bit. Even a hundred dollars a week, or an extra $5k a year, would pay down her debt nicely. She won't be out of it overnight unless she finds a job that pays better than the one she has.