Wife's Student Loan

[rjbf65]

Looking for some thoughts and suggestions on how to tackle the wife's student loans.  It's not a big amount but it is something I'd like to see gone.  Her parents made the agreement long ago that they are the one's that will pay for this and they have never missed a payment since she graduated a few years ago.  Her parents also paid for her older sibilings school loans and those are paid off.  I personally paid my own way through college as did all my siblings.  There is currently about $17K still owed.  My wife is a teacher and there will be $5K forgiven after this school year as she has been teaching in low income school districts for 5 years.  The reason I want to pay for this ourselves is her mother has had a run of real tough luck with health and career lately.  Long story short, shes not working and may not be able to for a while.  My wife and I make a decent, comfortable living.  Her father is retired and I think he's sitting pretty well financially.  He even mentioned recently that he'd like to start a college fund for our son who's just 6 months old.  So far, we have not made a single payment to these loans and have instead focused on paying off our house.  I'm going to take some cash we are sitting on and send the final amount (coincidently about $17K) to pay that off in December.  So I'm a little backwards than normal on my debt payoffs as the house is usually the very last thing.  I don't feel like we will be truly debt free after the house is gone because we will still have the school loans in her name even though her parents have been adamant that they will pay for that and they always have. 

It's not really fair to her father to pay her mothers half only.  And if I paid this as aggressively as the house then we would probably miss out on the $5K gift.  When I pay off stuff, I usually throw every available penny at it until it's gone.  On this house payoff it's been $2K per month on average, so this could be gone pretty quickly.  But it's also money we could earmark for something else.   

What does the MMM community think of this?

[Freedom Invested]

I would pay off the remaining balance on the loan at the end of the school year after the 5k gift.

It would ease her mother's situation and it would be fair to her father. And who knows, her father might end up gifting his amount to her anyway; perhaps happily so given you would be showing him you want to be fair to him. In which case you could put that money towards the mortgage. Or perhaps if you're feeling generous, help her mom out?

I know I would rather carry the mortgage and invest the money, but I understand you don't want to owe anything.

[BlueHouse]

This is a tough one. Mother could feel slighted that she didn't get to do this for the daughter and could feel you usurped her role. Could you let mom continue to pay off loans while you set aside money to help her with health concerns?  Even if it's the same amount, it might help mom save face. Or just ask her if it's important to her. When adults have health issues, they feel like losing control, so maybe diet her be in control of this promise she made and is keeping.

[rjbf65]

I would pay off the remaining balance on the loan at the end of the school year after the 5k gift.

It would ease her mother's situation and it would be fair to her father. And who knows, her father might end up gifting his amount to her anyway; perhaps happily so given you would be showing him you want to be fair to him. In which case you could put that money towards the mortgage. Or perhaps if you're feeling generous, help her mom out?

I know I would rather carry the mortgage and invest the money, but I understand you don't want to owe anything.

I like this plan.  Honestly, I imagine her hospital bills will be almost insurmountable at this point.  She's having a major surgery today with atleast 2 or 3 weeks in a rehab center to follow.  And I do understand the investing vs mortgage argument.  We have been doing 15% of our gross income into retirement savings the whole time with plans to ratchet that up after debts are gone.  I'll feel much better about things being under our control and something that can't be held over our head if it came to that.  If they truly want to keep helping, they can earmark money for the grandchild's future college needs as far as I'm concerned.  It's still helping us out without a mandatory debt payment associated with it. 
       

[Dicey]

SIGH. The sequence you are using is sub-optimal, at best. I really want to use the word "stupid", but I wouldn't want to be accused of calling you that personally, because I am referring specifically to this sequence of payoffs. What you are proposing makes you look like a guy with a good and generous heart. However, since mortgage rates are creeping upwards, hanging on to cheap mortgage money now is a smarter and smarter move.

Assuming that her parents are divorced, I propose the following: Speak to your FIL. Tell him that due yo her present circumstances, you'd like to lift your MIL's burden. Propose paying off her half and see if he'd be willing to clear his portion of the debt at the same time. If he can afford the payoff of his half, he might be happy to see the monthly obligation go away. Of course, you don't want to miss the loan forgiveness. Can you (two) pay off all but the last $5k?

If he agrees, take the amount you would have spent paying off his half and put it into taxable investments, NOT the mortgage. Yes, 15% is a good amount to start, but if it's not getting you to your annual limits, it's not enough. Prepaying a cheap fixed-rate mortgage at the expense of retirement savings is penny wise and pound foolish. It's by far not the best use of your hard-earned dollars. How you "feel" now is nothing like what you will feel when compound interest makes your retirement/investment numbers explode. Don't shoot your future self in the foot.

[rjbf65]

SIGH. The sequence you are using is sub-optimal, at best. I really want to use the word "stupid", but I wouldn't want to be accused of calling you that personally, because I am referring specifically to this sequence of payoffs. What you are proposing makes you look like a guy with a good and generous heart. However, since mortgage rates are creeping upwards, hanging on to cheap mortgage money now is a smarter and smarter move.

Assuming that her parents are divorced, I propose the following: Speak to your FIL. Tell him that due yo her present circumstances, you'd like to lift your MIL's burden. Propose paying off her half and see if he'd be willing to clear his portion of the debt at the same time. If he can afford the payoff of his half, he might be happy to see the monthly obligation go away. Of course, you don't want to miss the loan forgiveness. Can you (two) pay off all but the last $5k?

If he agrees, take the amount you would have spent paying off his half and put it into taxable investments, NOT the mortgage. Yes, 15% is a good amount to start, but if it's not getting you to your annual limits, it's not enough. Prepaying a cheap fixed-rate mortgage at the expense of retirement savings is penny wise and pound foolish. It's by far not the best use of your hard-earned dollars. How you "feel" now is nothing like what you will feel when compound interest makes your retirement/investment numbers explode. Don't shoot your future self in the foot.

I understand that there are strong arguments for not paying a penny extra to the mortgage.  And I do appreciate the response.  It's just not my personal  preference to go at it that way.  I have it beat down to the final $17K so I'm going to finish it off.  It's a goal I've had for a while.  If my house was paid off, I'd never mortgage it again to make an investment in the stock market.  The plan is to max everything out I can once it and also the student loan is gone. I don't think I'll regret having a paid for house and I've never met someone who regretted it.  I do understand that I'm sacrificing future dollars.  If I was really concerned about that, then I wouldn't have offered to pay off her loans when her parents said they would.  I'm just concerned how to go about this and be fair to her parents without somehow damaging any kind of relationship as I feel this is the right thing to do.   

[nobody123]

I'd wait to get the $5K forgiveness since you're so close at this point.  Are her parents aware that it will happen?  I assume you're worried about this because the loans are in your wife's name, correct?  Are both parents writing your wife a check every month and she's paying the loans?  How are you certain they are being paid on time?

It sounds like her parents are not a single financial entity for whatever reason (divorce, separate finances, etc.).  If her father has means, he might consider it an insult if you go ahead and pay off what he signed up for.  If they didn't have an amicable divorce, he might not give his $6K if it means the mother doesn't have to give her $6K.  Only you know if that would happen, and if that risk is material to you.  While you might think you'd be easing your MIL's burden, she may be insulted too.  Ultimately, you're making guesses about what their personal finances are like, and as long as they're making the payments and not voicing a concern about their ability to do so, why rock the boat?  Personally, you're going to be related to these folks for a long time, so I'd tread lightly.  If you're worried the MIL is going to miss a payment, put her $6K aside until the loan is paid off, and maybe keep it around afterward to help the MIL if she is in dire straits due to her illness.

If the outstanding loan REALLY bothers you, could you make the case that you'd like to start a 529 for your little one's college so you can do for him what your in-laws so generously did for their daughter, but your conservative nature won't let you start until the wife's loans are gone.  Say you can't wrap your head around paying interest on one education while trying to save for a future one.  Let them know that you plan on paying off the loans after the $5K forgiveness kicks in, and if they'd like to contribute to the 529 plan for whatever they are still on the hook for at that time (over whatever time period they desire, if you'd like to give your MIL a break) you would be very appreciative, but they are under no obligation to do so.  At least that way they know the money is going to the family education and not so you can go buy a boat or whatever.

FWIW, I'm also in the "screw the math, pay your house off early" camp.  I'm not going balls to the wall every last cent towards the mortgage, but I'm putting a little extra toward it every month so I'm on pace to pay it off a couple of months before I plan to retire.  Essentially, if someone handed me a lump sum of cash that was the outstanding amount of my mortgage, I would pay the house off 100 times out of 100, it's just how I'm wired.  I hate owing anyone money.

[Dicey]

SIGH. The sequence you are using is sub-optimal, at best. I really want to use the word "stupid", but I wouldn't want to be accused of calling you that personally, because I am referring specifically to this sequence of payoffs. What you are proposing makes you look like a guy with a good and generous heart. However, since mortgage rates are creeping upwards, hanging on to cheap mortgage money now is a smarter and smarter move.

Assuming that her parents are divorced, I propose the following: Speak to your FIL. Tell him that due yo her present circumstances, you'd like to lift your MIL's burden. Propose paying off her half and see if he'd be willing to clear his portion of the debt at the same time. If he can afford the payoff of his half, he might be happy to see the monthly obligation go away. Of course, you don't want to miss the loan forgiveness. Can you (two) pay off all but the last $5k?

If he agrees, take the amount you would have spent paying off his half and put it into taxable investments, NOT the mortgage. Yes, 15% is a good amount to start, but if it's not getting you to your annual limits, it's not enough. Prepaying a cheap fixed-rate mortgage at the expense of retirement savings is penny wise and pound foolish. It's by far not the best use of your hard-earned dollars. How you "feel" now is nothing like what you will feel when compound interest makes your retirement/investment numbers explode. Don't shoot your future self in the foot.

I understand that there are strong arguments for not paying a penny extra to the mortgage.  And I do appreciate the response.  It's just not my personal  preference to go at it that way.  I have it beat down to the final $17K so I'm going to finish it off.  It's a goal I've had for a while.  If my house was paid off, I'd never mortgage it again to make an investment in the stock market.  The plan is to max everything out I can once it and also the student loan is gone. I don't think I'll regret having a paid for house and I've never met someone who regretted it.  I do understand that I'm sacrificing future dollars.  If I was really concerned about that, then I wouldn't have offered to pay off her loans when her parents said they would.  I'm just concerned how to go about this and be fair to her parents without somehow damaging any kind of relationship as I feel this is the right thing to do.   

Rjbf65, pleased to meet you. My name is Diane C and I live in a paid-for house. DH and I regret that we don't have a mortgage all.the.time, especially as rates are ticking up. Don't worry about us, though. We paid cash AFTER we were FI, so totally different story than yours.

I have no problem with you paying off the mortgage. Paying off the mortgage at the expense of retirement savings is sub optimal, and therein lies my concern. Spend your money any way you want to, but come here to learn how to use it effectively and efficiently. Your plan will cost you more money in the long run, but hey, it's okay, it's your money.

However, if I'm reading this correctly, should you kill the SL, then you won't have the money to pay off the house right now anyway, so I don't get why you wouldn't consider changing strategies for a better return. There are better ways to reach the same goals. Paying off a fixed rate mortgage over time with inflation adjusted dollars is kind of like buying used instead of paying retail.

I find it interesting that you focused on this issue and not my suggestions about what is purportedly your "real" question. Speak to your FIL. Don't try to guess what's fair to them, ask them. Or him, in this case. He might surprise you.

Good luck to you. With your determination, you will reach your goals, either way.

[rjbf65]

SIGH. The sequence you are using is sub-optimal, at best. I really want to use the word "stupid", but I wouldn't want to be accused of calling you that personally, because I am referring specifically to this sequence of payoffs. What you are proposing makes you look like a guy with a good and generous heart. However, since mortgage rates are creeping upwards, hanging on to cheap mortgage money now is a smarter and smarter move.

Assuming that her parents are divorced, I propose the following: Speak to your FIL. Tell him that due yo her present circumstances, you'd like to lift your MIL's burden. Propose paying off her half and see if he'd be willing to clear his portion of the debt at the same time. If he can afford the payoff of his half, he might be happy to see the monthly obligation go away. Of course, you don't want to miss the loan forgiveness. Can you (two) pay off all but the last $5k?

If he agrees, take the amount you would have spent paying off his half and put it into taxable investments, NOT the mortgage. Yes, 15% is a good amount to start, but if it's not getting you to your annual limits, it's not enough. Prepaying a cheap fixed-rate mortgage at the expense of retirement savings is penny wise and pound foolish. It's by far not the best use of your hard-earned dollars. How you "feel" now is nothing like what you will feel when compound interest makes your retirement/investment numbers explode. Don't shoot your future self in the foot.

I understand that there are strong arguments for not paying a penny extra to the mortgage.  And I do appreciate the response.  It's just not my personal  preference to go at it that way.  I have it beat down to the final $17K so I'm going to finish it off.  It's a goal I've had for a while.  If my house was paid off, I'd never mortgage it again to make an investment in the stock market.  The plan is to max everything out I can once it and also the student loan is gone. I don't think I'll regret having a paid for house and I've never met someone who regretted it.  I do understand that I'm sacrificing future dollars.  If I was really concerned about that, then I wouldn't have offered to pay off her loans when her parents said they would.  I'm just concerned how to go about this and be fair to her parents without somehow damaging any kind of relationship as I feel this is the right thing to do.   

Rjbf65, pleased to meet you. My name is Diane C and I live in a paid-for house. DH and I regret that we don't have a mortgage all.the.time, especially as rates are ticking up. Don't worry about us, though. We paid cash AFTER we were FI, so totally different story than yours.

I have no problem with you paying off the mortgage. Paying off the mortgage at the expense of retirement savings is sub optimal, and therein lies my concern. Spend your money any way you want to, but come here to learn how to use it effectively and efficiently. Your plan will cost you more money in the long run, but hey, it's okay, it's your money.

However, if I'm reading this correctly, should you kill the SL, then you won't have the money to pay off the house right now anyway, so I don't get why you wouldn't consider changing strategies for a better return. There are better ways to reach the same goals. Paying off a fixed rate mortgage over time with inflation adjusted dollars is kind of like buying used instead of paying retail.

I find it interesting that you focused on this issue and not my suggestions about what is purportedly your "real" question. Speak to your FIL. Don't try to guess what's fair to them, ask them. Or him, in this case. He might surprise you.

Good luck to you. With your determination, you will reach your goals, either way.

They are divorced and have been for a while.  The loans have been paid as agreed for a while and her mom gave me the login information earlier this year so I could look up what the interest deduction would be for our taxes.  I just linked the account to mint just last week.  Her parents do not speak to each other.  The loans are in my wifes name but the parents verbally agreed to pay for this a long time ago.  I actually think the divorce documents even state that the parents are to pay the loans. My thing right now is her mom is suffering enough physically and financially with her conditions. 

The reason I would do it backwards is for the $5K forgiveness part and having to wait for that.  I can pay the mortgage off tomorrow, then pay minimums on the student loan until the $5K forgiveness happens while piling up the payoff in the savings account.  I will call her father and talk to him about it as Diane C point out.  I do think that is the best approach relationally.  Hopefully this will make him extra generous to our son.

I know my approach isn't the most optimal thing ever, I'm just wired to desire to be debt free. 

[notactiveanymore]

We aggressively paid off my husband's federal student loans and our extra payments were essentially treated as pre-payments. At any point in our payoff, if an emergency happened, we could have stopped paying for months (years even) and would not owe any minimum payments. The interest would continue accruing of course, but since student loans are not amortized, pre-payments are not a problem (as opposed to wanting to specify that your extra mortgage payments are to principle only rather than pre-payments).

That is all to say that you could pay off 12k of this sucker right away and then just pay the interest off each month on the remaining 5k until it gets forgiven. You won't have to pay an additional minimum payment because the 12k will be treated as pre-payments. (So long as these are federal student loans).

As for the interpersonal family relationships, if I were your wife, in addition to having a conversation before the payment, I would write each parent a letter thanking them for their sacrifices and help assisting me through school and that in part because of their generous support we were in a financially secure position to pay off the loans early.

[rjbf65]

We aggressively paid off my husband's federal student loans and our extra payments were essentially treated as pre-payments. At any point in our payoff, if an emergency happened, we could have stopped paying for months (years even) and would not owe any minimum payments. The interest would continue accruing of course, but since student loans are not amortized, pre-payments are not a problem (as opposed to wanting to specify that your extra mortgage payments are to principle only rather than pre-payments).

That is all to say that you could pay off 12k of this sucker right away and then just pay the interest off each month on the remaining 5k until it gets forgiven. You won't have to pay an additional minimum payment because the 12k will be treated as pre-payments. (So long as these are federal student loans).

As for the interpersonal family relationships, if I were your wife, in addition to having a conversation before the payment, I would write each parent a letter thanking them for their sacrifices and help assisting me through school and that in part because of their generous support we were in a financially secure position to pay off the loans early.

I did not realize the prepayments worked that way. Thank you for that info! So if I made a triple payment on this next month it should bump the next payment date out 3 months. 

[notactiveanymore]

I did not realize the prepayments worked that way. Thank you for that info! So if I made a triple payment on this next month it should bump the next payment date out 3 months.

In our experience, yes. He got kicked off the IRB plan after we got married and filed jointly, so we were on a standard repayment and they were all serviced through FedLoan. If you are worried about it, you could try it out this month and make sure. I'd say call, but it's probably easier just to try it out and keep an eye on it when the next billing cycle starts.

[Goldielocks]

OP,

The obvious solution to me is to provide your MIL with an amount each month that is close to the SL payment she makes, until she's fully solvent again.   This totally sidetracks the MIL / FIL divorce dynamics while addressing your true concern, that MIL is not doing well.

A second concern for me, is that I felt really awkward and strange when my MIL paid for my DH's tuition the first year that we were married.  It was about $3k. I covered the living expenses and books, and the tuition money actually came from a death settlement from when his dad passed away with a minor kid, but still, I felt weird about having someone else contribute to my household.   So, I get wanting to be responsible.

But wait -- is this your wife's debt, or your inlaw's debt?   Are you looking at it correctly?

Please note, that if this student loan debt was taken out under her parents' names, (like ParentPlus) according to their credit worthiness,  it is NOT typically the student's debt.  (e.g., not a federal loan)  It is no different from taking a HELOC to help pay for your kids' education, except that the repayment terms are nicer about delaying interest or principal payments, options for repayment.     I sense that your wife did not abuse the monies given, and that she took the minimum needed to get the education needed.     If that is the case, stop looking at this like it is your debt.   

Focus on what the problem is, that your MIL needs help right now.

[notactiveanymore]

But wait -- is this your wife's debt, or your inlaw's debt?   Are you looking at it correctly?

Please note, that if this student loan debt was taken out under her parents' names, (like ParentPlus) according to their credit worthiness,  it is NOT typically the student's debt.  (e.g., not a federal loan)  It is no different from taking a HELOC to help pay for your kids' education, except that the repayment terms are nicer about delaying interest or principal payments, options for repayment.     I sense that your wife did not abuse the monies given, and that she took the minimum needed to get the education needed.     If that is the case, stop looking at this like it is your debt.   

From OP:

The loans have been paid as agreed for a while and her mom gave me the login information earlier this year so I could look up what the interest deduction would be for our taxes.

If they're taking the interest deduction then these are not Parent Plus loans, they are in wife's name.

[rjbf65]

But wait -- is this your wife's debt, or your inlaw's debt?   Are you looking at it correctly?

Please note, that if this student loan debt was taken out under her parents' names, (like ParentPlus) according to their credit worthiness,  it is NOT typically the student's debt.  (e.g., not a federal loan)  It is no different from taking a HELOC to help pay for your kids' education, except that the repayment terms are nicer about delaying interest or principal payments, options for repayment.     I sense that your wife did not abuse the monies given, and that she took the minimum needed to get the education needed.     If that is the case, stop looking at this like it is your debt.   

From OP:

The loans have been paid as agreed for a while and her mom gave me the login information earlier this year so I could look up what the interest deduction would be for our taxes.

If they're taking the interest deduction then these are not Parent Plus loans, they are in wife's name.

Correct.  It also shows up on my wife's credit report.  It is 100% in her name.  Which I consider our debt since we are married.  Goldielocks is correct that my MIL physical and financial health is my true main concern right now.  Doesn't seem right to me to hold her to an agreement made many years ago when everything was under completely different circumstances than they are now. 


   

[Goldielocks]

Well, the agreement was with FIL as part of the divorce.  There is a chance of opening a can of disgruntled worms if you fiddle with one person's responsibilities and not the other, so I would just give MIL similar money each month, and maybe split the interest deduction back to the both of them, too  (if it was not your expense but you received the benefit).