Let me know if I'm crazy. My wife is close to finishing her Master's degree and we are starting to consider her student loan repayment options. She currently has $103k in loans (60k is grad school alone >.<), weighted average interest rate comes in at about 6% across all of them. She is getting her degree in Psychology and is going into mental health counseling, which requires 2 years to get her license. She can command probably ~35k/year salary during this time, and after that she will see a significant increase (max ~60-70k at first).
Obviously this is rather low compared to her debt. However, I make 75k and we live in a very low COL area, so even before her salary has started to come in we are around a 50% savings rate. I still have ~30k in student loans as well, but have refinanced them to a 3.5% interest rate and am now paying minimum on them for the remaining 5 year term.
Just today, though, I learned that her current 'employer' (she's an intern during school, but has already been offered the job on graduation) is a non-profit, which would qualify her for the 10 year service industry loan federal loan forgiveness program. I am now heavily considering a plan where we take the fullest advantage of income based repayment for the next 10 years, pay as little of her loans as possible, and then have a substantial majority forgiven in 10 years. However, I am trying to decide if this could be too dangerous in it's most extreme form. For example, if we maxed out her 403b + IRA for the first two years, she would pay $0 on an IBR plan, but of course her loans would continue growing. Even after her salary increase, IBR would probably just barely cover interest if we continued keeping her AGI as low as possible with retirement accounts. Because of this, the loans would likely end up growing substantially over the 10 year timeframe.
Does this sound like a viable plan if we use an increase in taxable account contributions to hedge for the fact that her loans will likely be growing over time in case she ends up not being eligible for forgiveness (program is abolished, or she stops wanting to work for a non-profit)? I do not think that abolishment of the program is likely, and her specific field (counseling of children and adolescents) leaves a large number of non-profits and state run schools open to her outside of her current employer. However, if something like this did happen and we have purposely been reducing her payments and allowing her loans to grow, this would put us in an even worse financial situation. Assuming 7% return on the taxable investments, we would definitely not come out ahead in this situation vs paying of the loans early on our own (~3 years probably at the most accelerated rate), but the potential return of following through with the 10 year plan is so astronomical in her situation that I can't help but think that it is well worth the small risk.
Back of the envelope math justifying this in my head:
10 year plan:
$235k+ contributed to her retirement accounts (current 403b+IRA maxes * 10 + more for new yearly limits)
$300k+ contributed to taxable accounts (remainder of her salary every year, considering we already live on less than mine alone)
Very small amount paid into loans (one estimation tool suggested just ~$6-$12k total over the 10 years)
Giant bulk of loans then forgiven (up to 90% of the current balance)
We pay quickly plan:
We pay ~120k into student loans quickly over 3 years
$165k+ contributed to her retirement accounts (current 403b+IRA maxes * 7 + more, not maxing or contributing during super repayment)
~$200K contributed to taxable accounts (remainder of her salary every year after repayment is done)
No loans forgiven