Author Topic: Loan Forgiveness considerations  (Read 2399 times)

cynicalSoftware

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Loan Forgiveness considerations
« on: January 09, 2016, 09:07:29 AM »
Hello all.  While I plan on doing a reader case study in the future, this post is more to get the community's thoughts on a few more general topics.

(Also, I did attempt to search for post about this, but the search function kept erring out on me with a database error)

Some background:  Living in Illinois, USA.

1)  My girlfriend (soon to be fiancee) has $146,000 of student loans.  Which... is a bunch.  She is currently paying $585 a month under the income base repayment plan.  She got her doctorate in physical therapy and as such she signed up for a program that will allow all of her debt(including interest) to be paid off after 10 years of working at non for profits as long as she continues the $585 payments.

I'd like to evaluate this only financially speaking.  Based on a rough calculation of $600 per month (factoring some buffer for her getting raises which will then raise the payment amount) she's looking at paying $72,000 over the ten years.

It seems to me it makes sense to pay this way and get the loan forgiven rather than spend twice as much to pay it off herself. 
Am I missing any considerations?



2)I have a student loan through my parents for $12,000.  There is no interest associated with this and I pay $430 to them every month, full principal.  Is there any reason I should attempt to accelerate paying this loan to them off (perhaps because I will benefit from investment gains sooner rather than later?)

Thanks for your time!

Lski'stash

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Re: Loan Forgiveness considerations
« Reply #1 on: January 09, 2016, 09:31:09 AM »
1) I am under the PSLF program for my student loans. Right now, I pay $282 per month, but have over $64,000 in loans (teacher). As long as you feel you trust the government enough to keep their promise on this (some on here don't), I see no reason to not go this route. Your gf can also max out all 403bs and 457 plans to lower her income level, thus lowering her federal loan monthly payments.

I would highly consider filing separately once you are married. This does depend on the version of the plan that she is on, but on the earlier plans, you can file separately an avoid adding your income into the IB payment calculation.

2) this depends on how you feel about your parents and debt in general to family members. Personally, I just wouldn't want that hanging over my head. I also wouldn't want to give my family the opportunity to use it against me.

little_brown_dog

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Re: Loan Forgiveness considerations
« Reply #2 on: January 09, 2016, 09:34:26 AM »
This subject has been debated quite a bit on the forums. As someone who had 100k of debt, I personally wanted it gone asap, regardless of whether or not it meant I had to pay more. For me, it was more about the psychology of it than the actual finances. 10 years is a very long time to be under the black cloud of student debt. There are alot of assumptions -that your gf will want to work full time 10 years in a row at a nonprofit, or that she will be able to. Many women have kids and want to take time off or work part time. People get laid off or get too sick to work. Or maybe they decide they hate the nonprofit sector and want to move into a position elsewhere. You don't want to be stuck in a job just because you are banking on your debt getting eliminated in 10 years. While you may only want to think about it from a financial standpoint, it is very possible she will end up in one of the 3 scenarios I listed above. If she switches or leaves halfway through, you could end up with an even bigger bill than if she just buckled down and tried to eliminate it asap.
« Last Edit: January 09, 2016, 09:38:30 AM by little_brown_dog »

ender

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Re: Loan Forgiveness considerations
« Reply #3 on: January 09, 2016, 10:02:47 AM »
Also consider the future earnings/career impact of being tied to a job for ten years.

That's a long time.

Villanelle

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Re: Loan Forgiveness considerations
« Reply #4 on: January 09, 2016, 10:08:41 AM »
For the parent loan, it would absolutely feel to me like taking huge advantage of my parents to not pay that money back at the very earliest possible moment.  If you were paying anything close to a fair market interest rate, they would be benefitting and I'd say there is no rush.  But they are losing money every day by not having that money out in the market working for them.  I would be on a beans and rice diet, in total hair-on-fire debt emergency mode, until that was paid off.  Or I'd offer to start paying them interest. 

seattlecyclone

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Re: Loan Forgiveness considerations
« Reply #5 on: January 09, 2016, 10:19:04 AM »
Yes, I agree with ender. Restricting yourself to only working for a certain set of employers for ten whole years in exchange for a bit of debt forgiveness could prove to be a penny wise, pound foolish plan. Depending on how the physical therapy job market works, the loan forgiveness may be the best plan, or it may not. How much could her income increase over that time if she worked for a private practice instead? Would that make up for the increased loan payments? It's worth thinking about.

If you get married and file jointly, your income may be added to hers when calculating the loan payment. If you file separately, you may miss out on certain tax break that you could qualify for if you filed jointly.

mozar

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Re: Loan Forgiveness considerations
« Reply #6 on: January 09, 2016, 02:53:27 PM »
It's not terrible. One poster I saw had similar amount of debt but a 30 year repayment plan. I decided to pay 120k of my debt over five years making 55k on average. So it is possible to pay it off soon. 10 years is too long for me. But I'm an impatient person.

cynicalSoftware

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Re: Loan Forgiveness considerations
« Reply #7 on: January 09, 2016, 03:03:29 PM »
Thanks to all of you for your advice, I definitely agree with the pros of getting rid of it sooner than the 10 year time span!

Cassie

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Re: Loan Forgiveness considerations
« Reply #8 on: January 09, 2016, 03:08:24 PM »
I had a similar arrangement when I got my 2nd graduate degree but it was paid off in 3 years instead of 10.  Yes I would take the free $. YOu guys are young and 10 years is not long:))

ReadySetMillionaire

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Re: Loan Forgiveness considerations
« Reply #9 on: January 10, 2016, 09:56:33 AM »
Thanks to all of you for your advice, I definitely agree with the pros of getting rid of it sooner than the 10 year time span!

There's a common debate on the forums about whether to pay off a mortgage. I'd say 60% agree it's not wise because it doesn't make mathematical sense, then the other 40% state that the emotional benefit is worth it.

Compare that debate to the student loan debate on here and it's comical. Most people don't understand the student loan relief programs and scream "PAY OFF YOUR DEBT" because they are emotionally averse to anything other than mortgage debt.

Don't get emotional about this. Make the right choice based on the numbers. And assuming you like your employer and working in the public sector, the numbers are clear that it would be personal finance malpractice to pay off her loans when she is eligible for PSLF.

Tell her to max 403b/457 and take all deductions possible to get that payment down. Pay as little as possible towards the loan over ten years. Treat it as an expense.

Be smart about this. Student loans are not like other debt.