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Late 20s with $230k in Student Loans -- Help us to FIRE

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STEMorbust:
Hi MMM community,

We're trying to get the jump on retirement planning. Not married yet. I have a reasonable income in tech space while she (F) has OK income in health space as physical therapist. I'll try to skip the fluff. Our goal is to be debt free and in a position retire early with a home and kids as soon as possible. Located in Oregon.

Earner #1
- M/27 salary of $93,153
- Salary will increase by 3% soon, also doing contract that will make ~$25k add'l in Spring 2019
- Paying 27.9% in taxes
- 15% of income going to 401k & ~$500 per month to Roth
- Loans: $4k student at 3.15%
- Net worth is about $50k, all in retirement account
- $28k loan on vehicle project at 2.49%, paying $668 monthly, expected to sell for min $55k after about 60 hours more work

Earner #2
- F/29 salary of $65,000
- Just graduated physical therapy school in May, loan payments start this month (December)
- Paying 27.4% 25.85% in taxes
- $125 to 401k (just enough to max employer match)
- $230k in student loans with breakdown below

FEDERAL (All Fixed Rate)
- $4,577.02 @ 6.8%
- $4,457.84 @ 6.8%
- $14,122.92 @ 6.75%
- $1,066.60 @ 6.75%
- $21,974.33 @ 6%
- $24,233.58 @ 5.84%
- $22,807.01 @ 5.31%
- $3,278.23 @ 4.5%
- $3,118.96 @ 3.4%

PRIVATE (Sallie Mae)
- $37,565.72 @ 9.625%
- $17,252.99 @ 8.875%
- $17,722.16 @ 8.375%
- $60,743.91 @ 8.125%

One sec feeling like I might throw up after typing that... Our budgets have been independent with me (Earner 1) paying for most everyday things. Here's how each of our budgets stands currently:

Earner 1 (Myself) | Take Home Income $4,321
- Rent: $650
- Utilities: $120
- Groceries: $400
- Dining out: $100
- Auto/Rent Insurance: $268.19 (Both of us)
- Cell: $76
- Car: $668.64 (Investment, built van into RV, almost done and should sell for $20k profit)
- Fuel: $100
- Gym: $162.80 (Both of us)
- Other: $300
- Roth: $500
- Total: $3,345.63 (Remaining $967 has gone towards van project and catching up on Roth contributions)

Earner 2 (Partner) | Take Home Income $3,430
- Orthopedic Residency: $300 (this is extra continuing ed for 24 months, guarantees pay increase at end)
- Rent: $300
- Groceries: $200
- Car: $239 (3 year lease, one year into it)
- Fuel: $50
- IRS tax owing from 2017: $100 ($1,500 left)
- Cell paid by parents
- Flexible money: $150
- Total: $1,339 with $2,091 leftover to put towards loans

Our game plan is to buckle down on the food budget and to finish the van project that is costing almost $700 a month to own. With me cosigning, LendKey has offered to refinance the private loan at 6.29% fixed for 10 years.

Here's where we're looking for in terms of advice:

- How should paying the private and federal loans be prioritized and handled given refinancing options?
- Is the LendKey refinancing option the best you would expect? How often can/should we refinance in the future in order to get a better rate?
- How would getting married impact our plan to pay aggressively? Would we be better off remaining 'single' as far as the IRS is concerned?
- Does the PSLF program make any sense for this situation, given how much of the debt is private?
- Should Earner 2 be contributing more to retirement? Less?
- Where else might we save money?

Thank you in advance for your input.

nereo:

--- Quote from: STEMorbust on December 10, 2018, 02:52:09 PM ---
PRIVATE (Sallie Mae)
- $37,565.72 @ 9.625%
- $17,252.99 @ 8.875%
- $17,722.16 @ 8.375%
- $60,743.91 @ 8.125%


--- End quote ---

Yikes. 


--- Quote from: STEMorbust on December 10, 2018, 02:52:09 PM ---

- How should paying the private and federal loans be prioritized and handled given refinancing options?
- Is the LendKey refinancing option the best you would expect? How often can/should we refinance in the future in order to get a better rate?
- How would getting married impact our plan to pay aggressively? Would we be better off remaining 'single' as far as the IRS is concerned?
- Does the PSLF program make any sense for this situation, given how much of the debt is private?
- Should Earner 2 be contributing more to retirement? Less?
- Where else might we save money?


--- End quote ---

Read, understand and follow the investment order as it applies to you.

Those private student loans are a giant hair-on-fire debt emergency that you need to address now.  Target the one with the highest interest rate ( $37,565.72 @ 9.625%) first, throwing every single thing you can at it.  Once its gone target the next one.  Repeat. Thankfully with your income you stand a chance of eliminating some or most of that debt within a few years.

Typically you only refinance when the rates + refinancing costs make sense to you.  Check out SoFi as well as your local lenders.  One disadvantage you'll have with refinancing is that it will bundle all your loans together, so you won't be able to pay off one loan at a time.  I would ONLY refinance the private loans.

in general you will be better off MFJ.  How are you calculating earner #2 paying 27.4% in taxes with a salary of $65k and that much student loan debt. To be certain though you ought to run your numbers through a tax prep program to see which works better for in your situation.


Marriage - I'd make sure you are both on the same page about paying off debts, saving, etc. 

It makes no sense for earner #2 to contribute any more to retirement beyond what will get the 401(k) match so long as s/he has private student loans with interest rates above 9%. He/she is paying more to service that debt than the markets are likely to return longterm. It also sets up a massive cash-flow problem.

Beyond that there's some low-handing fruit you should address.  Your food budget is extremely high for two people so deep in debt.  Auto-related expenses are similarily high.  This van project 'investment' needs to bear fruit soon, as you can't afford to be shelling out $700/mo in the hopes of getting back $20k at a later date

STEMorbust:
Thanks -- agreed on refinancing the private loans. We'll get that squared away tonight once we figure out the best rate. It looks like it will be around 5.5% fixed.

You're right re: my tax calculations. Her paycheck breakdown to get the tax rate:

Income: $2,500
Fed Tax: 292.45
SS Tax: 152.90
Medicare: 35.76
State Tax: 162.92
State Transit Tax: 2.34
Net Taxes: 646.37

Rate is then 25.8%

ysette9:
Holy student loans, Batman. Why so much? Is earner #2 expected to bring in more as that career progresses?

I second the comments on looking to refinance the private loans and then throw EVERYTHING that isn’t nailed down at those high-interest suckers. Put everything else on hold until you’ve murdered those things. No fancy weddings or new cars or mortgages. Minimum into 401(k) to get employer matches, for both of you once married as you will be a team.

Good luck. Let us know how it goes.

Boofinator:
Nereo has good advice, though I'm going to diverge from him on retirement account contributions. When the private loans are refinanced, long term expected returns from the stock market are much higher than the interest rates, plus you would be purchasing those stocks 'on sale', discounted by your combined federal and state income tax rates. So I would max all tax-deferred accounts (401k) and invest in low-cost index fund options (assuming it actually fits into the budget after loan payments start). As far as an IRA, you probably couldn't deduct tIRA at your tax bracket, and Roth IRA has its drawbacks, so might want to skip that bucket for now to pay off the loans and get out of debt.

This advice is really post-marriage advice, since it doesn't appear that your fiancée has any room to squeeze more 401k investments into her budget at the moment.

I also want to echo this:


--- Quote from: nereo on December 10, 2018, 03:12:31 PM ---Marriage - I'd make sure you are both on the same page about paying off debts, saving, etc. 

--- End quote ---

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