Hello from California and Seeking Advice / Student Loans

[ashelbashel]

Hello there!

I am finally officially joining this forum after lingering around ever since hearing about Mr. Money Mustache on a You Need a Budget (YNAB) podcast.  I enjoy perusing these forums and have received so much great information just by reading others' posts and responses to them.

A little about our situation.  Any feedback is welcome and greatly appreciated, as I feel a bit stuck, and writing out all of our finances makes me incredibly anxious.  My fiance and are each 30 years old, getting married this fall.  We have been together around 7 years and have lived together for the past 5, sharing household financial responsibilities, et cetera, since then.  We each enjoy our careers quite a bit at this point in time so a retirement goal of 55 is sounding nice to us, though I imagine we would each like to continue to do some part time consulting, maybe open a small practice (We are both in the mental health fields) and keeping working part time.  I am detailing our basic financial information below:

MONTHLY INCOME:
Monthly Gross Income from Full Time Jobs: $18,410
Monthly Gross Income from Consulting/Side Jobs: $2400
Monthly Gross Income from Rent: $1895

MONTHLY FIXED EXPENSES:
Monthly Rent/Bay Area: $2450
Monthly Mortgage/Taxes/Insurance: $2250
Car Payments: $500
Insurance (Rental Dwelling/Life/Auto/Renters/Professional Liability): $500
Monthly Rent for Fiance's Shared Apartment in Work Location: $200
My Student Loan: $850 (Currently under IBR - see question below)
Fiance Student Loan: $1250 (Currently under IBR and Public Service Loan Forgiveness - slated for remaining balance to be forgiven in 2020)

ASSETS:
Home worth $400,000
Non-retirement brokerage accounts: $4,000
ROTH IRAs: $65,000
401Ks: $31,000
Vested pension with a cash value of $44,000

LIABILITIES:
Mortgage @ $370,000 (not living here now due to a hopefully temporary job relocation)
Credit Card debt of $10,000 (This should be paid off by September 2016).
Car Loans @ $30,000 -- 2 cars, both upside down as we both put a lot of mileage on our vehicles for work
Fiance Student Loan: $220,000 (Slated to be forgiven in 2020 as he is part of the Public Service Loan Forgiveness Program)
My Student Loan: $220,000

My most pressing question is what I should do with my student loans.  I am currently paying around $800 a month in Income-Based Repayment, but the balance of the loan rises each month.  I have made 2 years of payments so far on IBR, so the remainder is supposed to be forgiven in 23 more years, with possibly a quite hefty tax burden at that time.  Additionally, if my income rises, so will my Income-Based-Repayment.

I applied to refinance my student loans for a 20 year term at an interest rate of 3.5% (current rate for federal loans is 6.75%) but was denied unless I had a cosigner.  Another option is for me to refinance the loans with my current loanholder for a 25 year term, which would increase the payment to $1600 a month, but the balance would not increase every month, the payment would be set for that 25 years, and I could possibly refinance at a lower interest rate when I got the balance down a bit.  It is frightening to me to take on another $800 a month in obligations, but it is also disheartening to see that loan balance rise month after month, even under IBR.

Any advice would be greatly appreciated.

Thanks so much!!!

[MDM]

I applied to refinance my student loans for a 20 year term at an interest rate of 3.5% (current rate for federal loans is 6.75%) but was denied unless I had a cosigner.

Have fiance co-sign?  $220K at 3.5% for 20 years is $1276/mo.  With ~$21K/mo income, that is well affordable.

Reading between a few of the lines in your post, the case study spreadsheet indicates you could be FI in <15 years - and that might be conservative.  You could throw your own numbers in there to see what you get, and/or use one of these tools:
http://www.firecalc.com/
http://www.cfiresim.com/
http://www.i-orp.com/
https://www.bogleheads.org/forum/viewtopic.php?t=115839#p1686175

Are the two of you combined contributing the full $36K to 401ks and $11K to backdoor Roth IRAs?  You'll likely need to use the backdoor Roth method due to the MFJ limits being less than 2X the single limits on MAGI for normal Roth IRAs.

[ashelbashel]

Thanks so much for your response.  I thought about that, but would absolutely hate for him to be on the hook for those loans should something happen to me.  I have life insurance but not disability insurance, and I bring home about 40% of our income.  It is possible that if I tried to re-apply after we were married (and have a married tax return showing both of our incomes) I would qualify, so maybe that is an option!

As for your other question about savings rate, I do suspect we will be contributing the max for the year 2017.  This year, we will probably be at about 60% given our wedding and the recent expenses related to relocation.

Thanks again for your response!

[MDM]

I thought about that, but would absolutely hate for him to be on the hook for those loans should something happen to me.

"For richer, for poorer" etc. :)

Wouldn't surprise me if he wouldn't mind...Gift of the Magi, etc.  Good luck to both of you!

[Goldielocks]

Your rental home is cash negative.  So cash negative on a monthly basis, between insurance, maintenance and potential vacancy costs.   I would sell it, and if you have any equity, put it to your car payment.   (I could not tell if you would net anything with a sale)

If you have two cars, well, underwater is not getting any less underwater. You owe what you owe. Driving it more or less won't change that. Take it as a sunk cost.   Between parking and insurance, does it make sense to both drive cars, or maybe one of you could use transit or bike for less.  Again, you are looking for cash flow here, not total net worth. So what does it look like if you sell a car, and have a much smaller loan?  Once you carve out cash flow, you can work on net worth.

Next, take a look to see if you can rent out a room in your rental to a friend.  Looks like finance is out of the apartment during the work week...  maybe you have a den you can rent out likewise to someone?  I bet you could get a lot more than $200/mo in a high cost of living area, even if just for 3 nights per week.

Hopefully your income will rise quickly?  Given the high student loans, I hope that your $100k++ salary is just a starting point and about to rise up?   I am thinking legal, or doctors, or business majors in the bay area perhaps?

I realize none of these are slam dunk "do" suggestions.   They are just examples of where I would look to carve out more month to month cash flow / breathing room.. especially as you already have a secondary income stream.

[ashelbashel]

Thank you for your responses, I really appreciate it!

We are definitely looking into selling the rental home.  We became landlords by default after an unexpected move (only 6 months after we purchased the home that we anticipated living in for many years).  I definitely don't think we would net anything from it and would honestly be happy if we could just break even.  Even so, it's on our radar but would probably benefit us to push it higher up on the "urgent" list.

As for the cars, I agree. We both travel quite a bit for work and need our cars on a daily basis.  We probably each pay for parking about twice per month, but we are looking at him taking a similarly paying position that would not require such far travel, so if that pans out, I think that we could probably make the one car work.

We do anticipate our incomes will rise, mine a bit more than his since he is a state employee, but the benefits of his public service loan forgiveness and pension seem to make that a good career choice for him for now.  We do not anticipate being in the Bay Area long term as the prices are so high...so hoping that within the next 2 years  or so we can also move somewhere more affordable (ideally back to where we moved from).

I was originally also in the Public Service Loan Forgiveness program, but absolutely miserable in that line of work, not to mention that I honestly wasn't very good at it.  I feel selfish for being in the private sector now and not having the loan forgiveness as an option, but 10 years seems to be a long time to be unhappy at work.  Would you suggest refinancing to the payment plan where I am at least paying down the loan, throwing extra money at it where possible, et cetera, even with the increased payment?  We have the excess cash flow now that we could do it...It would just mean saving a little less while we looked for other ways to free up monthly cash.

Thank you again!

Ashley

[Sibley]

Re your SLs - Given your income, it doesn't make sense to do IBNR in my view. I'd refinance them, either with the current provider or somewhere else, and get the best interest rate you can. Then start working on paying them down.

[SwordGuy]

You are making ~$22,800 a MONTH and you're having trouble paying off your bills?

How is that possible given the numbers you presented?

Where does all the money go?

[Sibley]

You are making ~$22,800 a MONTH and you're having trouble paying off your bills?

How is that possible given the numbers you presented?

Where does all the money go?

SwordGuy, OMG you're right! I missed that.

OP - What are your expenses? The total of what you listed is $8,000. There's a ton of money not accounted for here.

[therethere]

Pay off your student loans as quick as possible. I find it baffling that you are worried about paying $800 more a month on your loans yet your combined salary is nearly 300k.....  Once you get your student loans down a little you'll be able to refinance. Have you tried Earnest for a refinance quote yet?

At your income level I would start maxing out your 401k to reduce your tax burden. Then whatever is left throw at your student loan. The newer refinance companies (Earnest, SoFi, and some other one) look at your assets and income to get you a better rate so contributing to a 401k will help on that end too.

Anyway really you just have to be dedicated to paying off your loan. And START. Start with anything at all. Have a few hundred leftover this month? Pay it towards the loan! Skip a dinner out? Put that $60 towards your loan instead immediately. Any little amount counts. You can still put extra payments towards your loan while you are on IBR without locking in a higher repayment with a refinance if that's what you are looking for.

DH and I have paid off nearly 300k combined in student loans on less than half of your combined salaries with multiple layoffs in there. It took 10 years of sending a few thousand a month. Just start and stay the course.