Author Topic: student loan repayment options  (Read 245 times)

janelikes

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student loan repayment options
« on: March 14, 2019, 04:00:55 PM »
Student Loan scenario:
Female, 30 year old married, Health Professional with 225,000 (6.8%) in debt. I own my own company doing health care. Last year I worked part-time (I was pregnant, I took care of my first kid the other days) and made around 50,000. I have the income potential of up to 150,000/yr but there is no guarantee as if I do not work, I do not get paid. However, I feel like I could reasonably make twice as much as Iím making now if I take on more clients.
My spouse and I currently file taxes separately and I am on income based repayment ($137 a month). This is because I had been working in a 42,000/year full time job that was eligible for PSLF.
We are thrifty - We live on a budget and stick to it pretty well. Right now we are able to save 30% of our income for debt reduction. For comparison sake, we spend 21% on part time childcare (3 days a week, 2 kids).

I need to make a decision about what I am going to do:

Option A: Continue to work and be filed separately from my spouse. Continue using IBR and put at least $200 a month in a brokerage account in order to pay income on the potential 400,000+ income tax bomb I will encounter in 20 years. I approximate I would need 200,000 saved for the tax man.

Option B: Pay student loans off rapidly. I could work full time with kids in day-care and put away anywhere from 2000-5000 a month towards loan repayment. This will get easier when kids go to school in 5 years. In order to not have my loan increase every year I need to pay down at least 1400 a month. The rest would go to principal. It could take between 4-10 years. I would stop investing in retirement if I did this (currently Iím trying to put away 10%).

Option C: This is an option Iím not interested in but I could go back into a full time job that pays badly that is eligible for PSLF. I would probably have to make a 60 minute commute. I would have to work there for 7 years. 

Thoughts?

Yes I know I have way too much debt and donít make much money. The shame has occurred and now Iím looking for solutions.

ShoulderThingThatGoesUp

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Re: student loan repayment options
« Reply #1 on: March 14, 2019, 04:05:38 PM »
Whatís the income/debt situation if you combine finances?

therethere

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Re: student loan repayment options
« Reply #2 on: March 14, 2019, 04:45:27 PM »
Unless being a partial SAHP is of high value to you, I would choose Option B but without stopping retirement savings. Pretty much follow the Investment Order. I would refinance the loans and continue to check on lower rates every 6 months as it gets paid down. If you're going full-time, I would max out retirement accounts if you can get your loans under 5.5% or so. For the tax savings and to get those gains accumulating. Otherwise, you'll look up at 35 or 40 and have nothing saved.

Really though you need to run some spreadsheet/calculators to fully assess the situation. The hardest part will be sticking to the plan and staying away from lifestyle inflation.

ysette9

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Re: student loan repayment options
« Reply #3 on: March 14, 2019, 08:49:48 PM »
I think the White Coat Investor blog has resources to help you figure out what to do with student loans. Without getting into detailed numbers I agree that I would do Option B in your case. I would hate to live with that hanging around my neck and making little or no progress on the balances. You are in a position financially to crank up the income and get rid of it. Just do it.

Finances_With_Purpose

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Re: student loan repayment options
« Reply #4 on: March 15, 2019, 06:33:25 PM »
Unless being a partial SAHP is of high value to you, I would choose Option B but without stopping retirement savings. Pretty much follow the Investment Order. I would refinance the loans and continue to check on lower rates every 6 months as it gets paid down. If you're going full-time, I would max out retirement accounts if you can get your loans under 5.5% or so. For the tax savings and to get those gains accumulating. Otherwise, you'll look up at 35 or 40 and have nothing saved.

Really though you need to run some spreadsheet/calculators to fully assess the situation. The hardest part will be sticking to the plan and staying away from lifestyle inflation.

This, though I understand stopping the savings and could go either way on that....it's a huge tax savings, but man, that interest kills you at 6+%.  (That is what I did personally, in fact, and repaid over $200k with loans at similar rates...so believe me, I feel for your situation.) 

Any chance you can refi the student loans, or even a portion of them?  Or into another thing of value (HELOC, e.g.) at a significantly lower rate?  This wasn't an option for me, but it's more normal now with SoFi, LendEDU, etc. 

The hardest part will be right now, at the beginning.  As the principal rolls away, the goal will look more and more doable.