Author Topic: How Should Gramps Pay My Student Loan?  (Read 1115 times)

ejmyrow

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How Should Gramps Pay My Student Loan?
« on: March 09, 2018, 09:42:41 PM »
Aloha Awesome Mustachians!
When we get married this summer my Gramps wants to give us some thousands of dollars towards paying off my student loan. We looked up if this could go into a 529 but apparently you can't use 529s to pay loans (not unless they pass a bill - HR529). I'm on 10-year Public Service Loan Forgiveness and making income-based payments. I have 7 years remaining and at the end of the 7 years they will forgive whatever balance remains on the loan. Like a good Mustachian I am deferring lots of income into my 457 and 403B so my monthly loan payment is low. It is going to take at least 7 years to pay on this loan and Gramps is 90; Godwilling he will be around but we don't know. It doesn't make sense to use his gift as a 1-time payment as that would not result in a smaller monthly payment and the feds will forgive whatever remains after the 10 years. If I were to pay off my loan by myself in 10 years, I'd have to pay over $1,000 monthly! We welcome suggestions on how to do this, to move the money to an account earmarked for the loan, and pay it out slowly with these small monthly payments. Should we open a Roth IRA? But IRAs have the $5,500 cap... In whose name should the account be? Mine, my mom's, or my Gramps?  I get a tax break for all the loan interest I pay (1098E)... Can I give the 1098E to my Gramps so he can claim it? Can anyone else get a tax break on this?
Many thanks,
Em

chrisgermany

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Re: How Should Gramps Pay My Student Loan?
« Reply #1 on: March 10, 2018, 01:06:54 AM »
Tell Gramps that his wonderful gift does not help you as you are on the path to loan forgiveness.
Would he be open to gifting instead as part of a down payment of a house?

Villanelle

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Re: How Should Gramps Pay My Student Loan?
« Reply #2 on: March 10, 2018, 02:16:21 AM »
Tell Gramps that his wonderful gift does not help you as you are on the path to loan forgiveness.
Would he be open to gifting instead as part of a down payment of a house?

She has to make payments for the next 7 years before she gets the forgiveness, and it's my understanding that she wants Gramps' money to basically go toward those payments.

If grandpa is willing, I would say just take all the money he wants to give and put it in a high field savings account, or perhaps put ~2 years worth of payments in that and invest the rest (conservatively) in a taxable account, if you are willing to take on slightly larger risk for likely larger returns. Well, do the max into an IRA (in your name, for simplicity's sake) and then the rest in a taxable account since it sounds like you don't have any other retirement investment "space" available.

I'm not sure why you'd complicate matters more than that.  Even if he has the income to fund an IRA in his own name, you'd presumably be the beneficiary.  If the amount he wants to to give you is more than the gift-tax limit, then maybe start looking at other considerations, like an investment account in his name with you as beneficiary, with him gifting you the maximum allowable each year. 

Catbert

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Re: How Should Gramps Pay My Student Loan?
« Reply #3 on: March 10, 2018, 11:15:17 AM »
I speak as someone likely your parents age and of an age where I make random gifts such as this to younger generations.

Think of one concrete option that easy to gift (e.g., fund an IRA, save for down payment, etc).  Propose that as an alternative.  Have a simple explanation handy - probably not that the taxpayers will pick up the tab eventually anyway.  If he doesn't immediately jump on your alternative then drop it.  If he gives you a check for $X then thank him and use it for whatever your conscience allows.

I would be very annoyed if I offered a grandchild $$ to pay off SL and they wanted me to dribble it out monthly or wanted to argue about how to use the money (asking once is ok).  If I was told that the money really wouldn't help b/c the taxpayers would pick up the tab eventually anyway I might decide to take my gift elsewhere since I've already made it by paying taxes all these years.

YMMV b/c your Gramps may not be a grumpy as me.   

PS.  Yes, I'm exaggerating a bit to make my point about looking gift horses in the mouth. 

Edited to add:  There is no way for your Gramps to get a tax write-off for any of this.
« Last Edit: March 10, 2018, 11:43:07 AM by Catbert »

Proud Foot

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Re: How Should Gramps Pay My Student Loan?
« Reply #4 on: March 12, 2018, 08:57:18 AM »
Ho is he wanting to give it to you? If he is wanting to make a payment directly to the loans then do as others have suggested and explain the loan forgiveness path you are on and suggest propose alternatives. If he is going to give you the money directly and expecting you to use it to pay off the loans then why not put it in a high interest account and use that account to make the monthly payments? Or even do whatever you want with it and let it go unsaid what you did with it?