student loan quandry

[janelikes]

Hello - Newish to MMM, been Dave Ramseying it for 4 years. No current credit card or car payment debt (woohoo!)
I got a fancy degree that doesn't pay much money. I'm working at a non-profit and hoping to utilize the public service loan forgiveness program (https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service)I am on year 3/10. I owe 200,000 at 7% and am paying $195 a month under income base repayment (I know).
I have fear that PSLF will be taken away and I'll have worked in a low-paying job to qualify for a program that will not exist when I need the pay off. We are currently paying off my husband's 23,000 student loan debt with about $3000 a month.

My options:
1.) hope for the best, stay at my job, rainbows will fly out of my butt in 7 years and it will be OK.
2.) Go to the private sector, make more money, pay it off asap
3.) save for the bubble that will burst in 20-25 years, continue paying debt based on my income and work wherever I want.

If option 3 - how do I know how much to save since I'll have to pay income on what is forgiven?

Thanks friends, and yes you may verbally smack me on my student loan decisions, but what's done is done, so please just help :)

[Cole]

2.) Go to the private sector, make more money, pay it off asap

In my opinion you should go with option 2. You know for a fact you will make more money in the private sector. There is no guarantee the government will keep public service loan forgiveness around.

Edit: You are only on year 3/10. How much more would you make in the private sector? If it adds up to close (or over) 200K in the 7 years you have left then it's a pretty easy decision.

[MarioMario]

If they get rid of pslf I cannot imagine them not grandfathering in people who are already making qualifying payments. 

[Ricksun]

I would advise you not to make your job decision based on a student loan forgiveness program.  If you choose a public option for other reasons, great; this is an added benefit only.

Ricksun

[Proud Foot]

Hello - Newish to MMM, been Dave Ramseying it for 4 years. No current credit card or car payment debt (woohoo!)
I got a fancy degree that doesn't pay much money. I'm working at a non-profit and hoping to utilize the public service loan forgiveness program (https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service)I am on year 3/10. I owe 200,000 at 7% and am paying $195 a month under income base repayment (I know).
I have fear that PSLF will be taken away and I'll have worked in a low-paying job to qualify for a program that will not exist when I need the pay off. We are currently paying off my husband's 23,000 student loan debt with about $3000 a month.

My options:
1.) hope for the best, stay at my job, rainbows will fly out of my butt in 7 years and it will be OK.
2.) Go to the private sector, make more money, pay it off asap
3.) save for the bubble that will burst in 20-25 years, continue paying debt based on my income and work wherever I want.

If option 3 - how do I know how much to save since I'll have to pay income on what is forgiven?

Thanks friends, and yes you may verbally smack me on my student loan decisions, but what's done is done, so please just help :)

What is the interest rate on your husbands student loans? On your $200,000 you are adding around $975/mo of interest, assuming the interest is only on the principal and your payment only goes to interest.  By then end of your 7 remaining years this will be around $80,000 if your monthly payment does not change. And your principal will still be $200,000.  That's a lot of money if PSLF is taken away and current enrolees are not grandfathered in. I would not be only paying the minimums and hoping it is still around and you still qualify.  How much more could you make if you went into the private sector? 

[marielle]

Don't forget you have to pay taxes on the forgiven amount, and your income sounds like it's fairly high if you're paying off $3000 a month on debt.

[wonkette]

Don't forget you have to pay taxes on the forgiven amount, and your income sounds like it's fairly high if you're paying off $3000 a month on debt.

This is not true for PSLF, it was designed differently in the original statute. "Note that loan amounts forgiven under the PSLF Program are not considered income by the Internal Revenue Service. Therefore, you will not have to pay federal income tax on the amount of your Direct Loans that is forgiven after you have made the 120 qualifying payments." https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service (too lazy to look up the actual statute but it can be done on thomas.gov) Other loan discharges including disability discharge DO count the forgiven amount as income.

Unless there is a field/job in the private sector that you would chose without student loans as a factor, stick with PSLF. But to CYA document everything from FedLoan servicing and re-certify every year when you recalculate your IBR payment.

[ReadySetMillionaire]

Jane,

I would first advise you not to get worried about PSLF.  That will never get taken away because the backlash would mean every elected representative who let that happen would be voted out of office.  Don't worry about that. It's not happening.

I would next advise you to truly calculate what you are earning by working a public job.  I say this in that my siblings and friends who are public employees focus solely on the salary number when that is just the tip of the iceberg in terms of their compensation.

Two really close friends of mine just had a baby.  From start to finish, they only paid $880 out of pocket--that is absurdly good health insurance compared to the public sector.  For example, if my fiancee were to get pregnant, we would probably pay our deductible ($5k) out of pocket, and then if the pregnancy goes over into the next year, we may have to again.

So don't just focus on your salary/hourly wage.  Focus on everything. What is the real value of your health insurance compared to the private market? What is the real value of knowing you (likely) only have to work 9:00-5:00? What is the real value of the other benefits provided?

Of course, getting back to this thread, there is a HUGE monetary value on being in PSLF. 

If your student loan balance is $200,000, and your payments are $195/month while on PSLF, that means you will pay about $25,000 in loan payments over the life of your loan. 

Meanwhile, if you got emotional and unreasonable and rushed to pay off your loans in ten years, that would cost you approximately $278,000.

More simply, being on PSLF is worth about $253,000 over the course of ten years, or about $25,000 per year. Add in the other benefits I described above and you are probably making great money at your public sector job.

Now, all that said, I agree with the above poster: if you don't like your job and can't stand it for another seven years, then bolt. Life is too short. But if this is purely a financial decision, and you currently enjoy your job (to the highest extent possible), you'd be clinically insane to go to the private sector until your loans were forgiven.

[JustTrying]

I'm in a similar-ish situation, although I feel I'm actually paid relatively well in the public service (and therefore my monthly payment is much larger than yours as well). Here's what I have noticed: I don't think I will know how much I like or dislike my job until the loans are gone. The loans (as Dave Ramsey says) are a noose. Right now I do feel trapped in my job. My job has tons of benefits, but because I feel like I MUST stay to get the loans forgiven, I feel really unsure about if some of my frustrations with my job would seem as terrible if I didn't feel like I had no choice in the matter.

I don't know what the best choice is. I also am scared the program will be done away with...and then all that interest and time feeling trapped in a job would just be terrible. But on the other hand, if it all works out, it would be a huge financial bonus. I'm closer to the 5-year mark as far as payments go, so I have a lot of "I've already made it halfway!" thoughts. I try to keep in mind that in October of this year the first enrollees should be forgiven, so that may give me some clues about how the forgiveness program is actually working (or not working) which will help shape my decision to keep trucking away at PSLF or hit the debt HARD.

Good luck!

[kayvent]

Let's just assume that except for pay a private sector job in OP's field is identical to their non-profit job. Furthermore, assume that the PSLF will be present and OP can work seven more years at an eligible job (ex. OP doesn't plan on becoming a stay-at-home mother for a few years).

With all those predicates, I think we can borrow wisdom from Dave Ramsay: how much is OP forfeiting? Some people will settle for jobs paying tens of thousands less per year to "pay" off their student loans¹. If OP's being paid ~30K less for the non-profit job compared to a private sector job, financially it may be better to forgo PSLF.

Details like benefits or intangibles can swing the equation to either side.

¹ One recent Dave Ramsay call-in was settling for a non-profit job paying 40K less because they had ~120K in student debt. They were forgoing 400K in income to settle 120K in debt.