So What's Wrong with the 25 year repayment plan

[gasresident1]

So all the old guys I talk to say that once this student loan freeze is over, make sure you refinance and pay off in 5-10 years. Am I missing something?? Why not just take the longest, most dragged out approach -

-A 10 year loan (even private rates these days) has no better interest rate TODAY (maybe when interest rates plunge back to 2% it may be worth it)
-Why pay $5,000-6,0000 a month (the 10 year IBR monthly cost) to pay these down so quickly when I can coast with $1,500 a month for 25 years (the fixed 25 year monthly cost). $5,000 a month means a hell lot more to me now than $1,5000 will when I 55 years old (heck that will likely be the payment on a Mercedes E class a month in 25 years at the rate we are going...). My interest rate on my loans is in the upper 5's, and anything not going to these loans is going toward a house in a couple years, retirement, or an emergency fund. I stash and hoard money like no one's business.
-It's a difference of $125,000 in interest over the life of the repayment. However, if that allows us to get the house we want sooner / have an emergency fund set up, is that really a deal breaker?
-At the end of the day we could easily go live in a janky apartment for a year and I could pay off all my debt in one year with my salary, but why? Why not look at the whole picture - house, kids, emergency fund, stocks, vacations, enjoying life - and weigh it out accordingly.

Thank you ahead of time for your insight and Happy Easter!

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[aneftp]

It’s a personal decision. I hate all revolving debt.

Get the home first. That I agree.

But take the student loan pay down with extra you have leftover AFTER MAXING your retirement first.

 

[ERRES2288]

You're nuts if you think student loan repayments are restarting any time soon. It's supposed to be "June." My servicer says "Payments resume in October!"

I would bet my loan balance that in June, it'll be the same story as it has been for 2 straight years of unnecessary pauses: "Due to inflation concerns, economic concerns, recession concerns, equity concerns, blah blah blah, the president has extended the student loan pause to avoid catastrophe. Republicans hiss and boo. The Republican congress has vowed to bring a vote on student loans sometime in the next decade."

It'll be at least until the 2024 election is my guess. If Biden wins, then he restarts them because he's lame duck. If someone else wins, then the pause extends. It's now the 4th rail of politics in my opinion.

In short, the old guys telling you this are absolutely clueless to the political reality. Not only that, if you're currently on government IBR programs, the calculated income for that will date back to the last time you were paying, which was over 3 years ago. I imagine most of our pay has substantially increased since then, so it's even less of a burden for another entire year until they actually recalculate the payments to current incomes.

Student loans debt should be of minimal concern to anyone at this point. Use that money for anything and everything else, deal with the problem when/if it actually comes, which will probably be years from now.

I’m not sure president has power to continue suspending payments once the Covid national emergency declaration ends this May. I think payments might actually start again in September.

 

[deleted875186]

I’m not sure president has power to continue suspending payments once the Covid national emergency declaration ends this May. I think payments might actually start again in September.

I disagree. It’s a purely political move, until there is a decision on one time loan forgiveness there will be no repayment restart. And since Biden has not announced any back up plan if the Supreme Court strikes down his one time forgiveness plan, I bet there will be another extension.

In reality, there is a huge student loan crisis looming that republicans refuse to acknowledge. The one time loan forgiveness doesn’t solve the issue long term but at least does something, and is better than the republican plan of do nothing.

 

[deleted875186]

I'll be happy to be wrong on it, as I think it's what's best for the country to resume the payments.

Having said that, the fiasco of free money and the votes it garners is never gonna end. I've been right on this every time for over 2 years, I'm not sure exactly what mechanism will be used to extend the pause, but there is no way in this world Democrats will go quietly on this one, as their election chances all but depend on it.

Just wait, the COVID emergency will be over, but soon it'll be "the inflation emergency" or "the recession emergency" or "the default emergency."

Pfff, best for our country? People with student loan balances are not spending tons of money contributing to inflation. Sure it doesn’t help, but let’s not just pretend that student loan repayments begins and it fixes our inflation problem. Feds needed to raise interest rates and waited way too long to do it.

 

[aneftp]

I disagree. It’s a purely political move, until there is a decision on one time loan forgiveness there will be no repayment restart. And since Biden has not announced any back up plan if the Supreme Court strikes down his one time forgiveness plan, I bet there will be another extension.

In reality, there is a huge student loan crisis looming that republicans refuse to acknowledge. The one time loan forgiveness doesn’t solve the issue long term but at least does something, and is better than the republican plan of do nothing.

The crisis is baloney. It’s just free money they are trying to give away for votes.

Look at historical data on student default rates.

For real 4 year university graduates. The default rate has always been low the past 50 years.

First it was the barber school/beauty schools which accounted for the vast majority of student loans. Never the 4 year colleges/universities. Even in 2019!! Beauty schools still accounted for the extremely high default rates

“Meanwhile, ten of the 15 schools on the list were cosmetology or barber schools. Our reporting in collaboration with The New York Times described how some for-profit cosmetology schools in Iowa and elsewhere often leave students tangled up in debt, by charging them steep prices – as much as $20,000 – for programs that lead to jobs that typically pay less than $25,000 annually.”

Will colleges with sky-high default rates face consequences?

The Department of Education’s new data on the student loan default rate reveals schools that have default rates higher than 30 – and even 50 – percent.

hechingerreport.org

People need to do real research on the types of defaults in student loans. The democrats do not want to bash barber and beauty schools as being the highest default rates. Lol. Yes. I’m laughing cause most of you younger generation don’t understand the political games the democrats play.

You really think democrats like Biden will win over more votes by saying “well, are are really forgiving beauty school default rates, who will vote for us anyways?” No. They need to appeal to the masses who do pay their student loans.

 

[patriot6]

So all the old guys I talk to say that once this student loan freeze is over, make sure you refinance and pay off in 5-10 years. Am I missing something?? Why not just take the longest, most dragged out approach -

-A 10 year loan (even private rates these days) has no better interest rate TODAY (maybe when interest rates plunge back to 2% it may be worth it)
-Why pay $5,000-6,0000 a month (the 10 year IBR monthly cost) to pay these down so quickly when I can coast with $1,500 a month for 25 years (the fixed 25 year monthly cost). $5,000 a month means a hell lot more to me now than $1,5000 will when I 55 years old (heck that will likely be the payment on a Mercedes E class a month in 25 years at the rate we are going...). My interest rate on my loans is in the upper 5's, and anything not going to these loans is going toward a house in a couple years, retirement, or an emergency fund. I stash and hoard money like no one's business.
-It's a difference of $125,000 in interest over the life of the repayment. However, if that allows us to get the house we want sooner / have an emergency fund set up, is that really a deal breaker?
-At the end of the day we could easily go live in a janky apartment for a year and I could pay off all my debt in one year with my salary, but why? Why not look at the whole picture - house, kids, emergency fund, stocks, vacations, enjoying life - and weigh it out accordingly.

Thank you ahead of time for your insight and Happy Easter!

I love when I come across a post about student loans and know it's not relevant at all to me. I paid off 160,000 in 18 months following residency. I wouldn't do anything differently. My ophtho buddy leverages his life away and will probably have student loans all the way until retirement. No thanks. Live small early on and get ahead before the lifestyle creep hits. It comes for us all, and it hits hard. You might as well clear some of your ledger before it gets rolling.

 

[deleted875186]

It doesn't fix inflation, but I bet it lowers rents everywhere in these luxury apartments the millennials love so much, as landlords and real estate companies now know that their customers have 1000-2000 dollars less each month to spend due to loan payments resuming. Student loan payments cuts only pure fat from the disposable income that people have, and I think that, along with other measures, are very necessary to fighting inflation.

sure, because the extra monthly income millennials keep is what’s driving high rent prices. Absolutely delusional. Ignore the separate housing crisis and lack of available first time homes to buy, as well as the shortage of rental units. Like I said above, republican talking point that resuming student loan payments will fix everything.

 

[anaesthetic]

So all the old guys I talk to say that once this student loan freeze is over, make sure you refinance and pay off in 5-10 years. Am I missing something?? Why not just take the longest, most dragged out approach -

-A 10 year loan (even private rates these days) has no better interest rate TODAY (maybe when interest rates plunge back to 2% it may be worth it)
-Why pay $5,000-6,0000 a month (the 10 year IBR monthly cost) to pay these down so quickly when I can coast with $1,500 a month for 25 years (the fixed 25 year monthly cost). $5,000 a month means a hell lot more to me now than $1,5000 will when I 55 years old (heck that will likely be the payment on a Mercedes E class a month in 25 years at the rate we are going...). My interest rate on my loans is in the upper 5's, and anything not going to these loans is going toward a house in a couple years, retirement, or an emergency fund. I stash and hoard money like no one's business.
-It's a difference of $125,000 in interest over the life of the repayment. However, if that allows us to get the house we want sooner / have an emergency fund set up, is that really a deal breaker?
-At the end of the day we could easily go live in a janky apartment for a year and I could pay off all my debt in one year with my salary, but why? Why not look at the whole picture - house, kids, emergency fund, stocks, vacations, enjoying life - and weigh it out accordingly.

Thank you ahead of time for your insight and Happy Easter!

To answer your question: it depends. There’s nothing wrong with getting a 25-year fixed mortgage if your priorities are elsewhere financially.

It’ll all work out in the end, even if the most logistical or financially-savvy thing to do is to spend less and pay down all high interest debt. The cost, of course, is a decrease in lifestyle for you and your family.

For us, we decided to coast on our debt (mortgage, car, and loans <3% fixed) and live much more comfortably day-to-day. We will pay more in the long run, no doubt, but seeing some close friends and family die in their 30s/40s from COVID, cancer, and various accidents has reoriented and redirected us in a good way, IMO. Maybe it’s a generational thing, but nobody lives forever and none of us are guaranteed a “tomorrow.” We live our lives accordingly.

 

[ucladoc2b]

sure, because the extra monthly income millennials keep is what’s driving high rent prices. Absolutely delusional. Ignore the separate housing crisis and lack of available first time homes to buy, as well as the shortage of rental units. Like I said above, republican talking point that resuming student loan payments will fix everything.

Plus rental prices are actually falling. Even with the pause still going.

 

[pgg]

sure, because the extra monthly income millennials keep is what’s driving high rent prices.

What about the avocado toast?

Those damn millennials!

 

[pgg]

The solution to the student loan crisis is boneheadedly simple:

Resume payments, but make student loan debt dischargeable in bankruptcy.

The people who can afford payments like the doctors, lawyers, engineers, tech workers mentioned above pay them.

The really struggling and trapped people can go the unpleasant but second-chance-granting route of bankruptcy. They don't get off free with a forgiveness handout, but they won't be debt slaves the rest of their lives either. And, just as important, the LENDERS take a bit of a hit too, which will alter their future behavior. They might even be willing to negotiate with borrowers to reduce principal or interest rates, in order to avoid a bunch of defaults.

 

[BLADEMDA]

Let's leave the politics out of the business decision.

WHEN Student Loan repayments begin again then you need to do the math based on interest rates. Let's assume Loan re-payment begins again in October 2023. If your interest rates are 5% or higher then should you keep paying the loans off over 25 years or sooner?

1. Interest rates - I suspect that rates will fall to around a long term Fed rate of 3.5%. The smart money on Wall Street agrees. That means mortgage rates are likely to decrease from 6.5% to around 5% in the next 2 years. If you can refinance a home at 5% or less do you mind paying off your student loans at 5%?

2. 5%- I consider 5% to be a good rate of return for fixed income with no risk. When the fixed income starts dropping to around 3% or less I seek other alternatives. So, if you can refinance your loans at 3% or less I could see paying them off over 25 years.

3. IBR- Are you eligible for IBR or loan forgiveness based on the law/rules? Then, you shouldn't repay those loans.

4. New Grad problem- for the first 3 years post residency/fellowship, I can see not paying off those loans while you get your finances in order. You need to save money, buy stuff, pay off credit card debt, home loans, cars, furniture, babies?, etc. But, you must still examine that 5% student loan at some point.


I don't think we will be going back to 1% interest rates anytime soon but current interest rates are likely higher than longer term rates in 2025. I would not want to pay 5% interest over 25 years; but, I certainly could see long term debt at 3% being a reasonable decision. I am using the past 30-35 years of the US dollar, Interest rates, market returns and bond fund returns to make decisions. There is no guarantee the next 25 years will resemble the previous 25 years.

Good Luck.

 

[aneftp]

The solution to the student loan crisis is boneheadedly simple:

Resume payments, but make student loan debt dischargeable in bankruptcy.

The people who can afford payments like the doctors, lawyers, engineers, tech workers mentioned above pay them.

The really struggling and trapped people can go the unpleasant but second-chance-granting route of bankruptcy. They don't get off free with a forgiveness handout, but they won't be debt slaves the rest of their lives either. And, just as important, the LENDERS take a bit of a hit too, which will alter their future behavior. They might even be willing to negotiate with borrowers to reduce principal or interest rates, in order to avoid a bunch of defaults.

Too many people would game the system even doctors and lawyers.

Remember the mortgage and forgiveness act for housing crash. I knew plenty of people who got their underwater mortgages forgiven even “rich” self employed people. While people like me lost 250k real cash (since I didn’t make any profit on any previous homes) since it was my first two homes. I brought in 2005 and again in 2009 (market still declining when I moved)

Tons of people make 100-300k profit selling homes in 2005/6. Brought bigger homes in 2006. Market tanked. Suddenly by 2009-2010. They were “under water by the same 100-300k”. But they didn’t use the profit from the sale of then 2006 sale. Instead of a 100-300k down payment. They used the cash to fund lifestyle.

That’s what’s gonna to happen if u let people get student loan discharged. Any “doctor” like my pain buddy can claim divorce/bankruptcy over leverage. Stay low for one year working off jobs to keep income low. Take the 600k mortgage forgiven and reliefs waiver on the beach condo and primary home. Ramp up income the next year and be Scott free.

That’s the game student loan forgiveness will be played with higher earners

 

[narcusprince]

The solution to the student loan crisis is boneheadedly simple:

Resume payments, but make student loan debt dischargeable in bankruptcy.

The people who can afford payments like the doctors, lawyers, engineers, tech workers mentioned above pay them.

The really struggling and trapped people can go the unpleasant but second-chance-granting route of bankruptcy. They don't get off free with a forgiveness handout, but they won't be debt slaves the rest of their lives either. And, just as important, the LENDERS take a bit of a hit too, which will alter their future behavior. They might even be willing to negotiate with borrowers to reduce principal or interest rates, in order to avoid a bunch of defaults.

Just to add my 2 cents. I just had my student loans forgiven to the tune of 200k. I served 10 years active duty and under those provisions my loans were forgiven. The difference payments in forbearance or deferred count towards good payments. This program is gone but it makes the burn of serving 10 years far less. Its nice to be paid in full. I feel all service members should not have to pay student loans.

 

[deleted875186]

Delusion is thinking that 5 billion every month in pure disposable income for people who spend their income the most causes no change in local prices for goods that weren't inflating at this rate before the pause. I'd love to know how 100+ billion over 3 years in disposable income is NOT causing inflation in either goods, services, or assets.

The thought process is so simple even you can follow it: "Look honey, student loans are paused, now we've got 500 bucks a month extra! Oh wow dear, now we can afford that more expensive apartment/school for the kids/mortgage/car/groceries/clothes/401k we've always wanted!"

Do that a couple hundred thousand times, and guess what, if you have a scarce product, then you have inflation. Or you get inflation in assets like equities which people can now shift more income to instead of throwing it away on loans.

I think PPP loans were also an inflationary driver, and ought to be clawed back from almost everyone who got them.

We won't agree on it, but pretending it's just a republican talking point is just closing your ears and screaming "La la la, it's not happening and I don't notice, it's just capitalism!"

It won't fix everything, but it will damn sure help. We need to do a lot of things to fix it completely, and in my view it will never be fixed going forward due to other factors beyond pandemic spending waste.

Sure, I’ll grant you that any type of government aid is going to increase inflation, the question is wether it’s a significant driver. Republicans could make the same argument you just made about eliminating unemployment benefits, eliminating food stamps, etc. “people will have to work and contribute to the economy, and inflation will go down”. But of course that sounds much worse. Ragging on the student loan borrowing population is much easier because of the absurd picture that gets painted about every millennial, as if luxury apartments and spending money like there is no tokorrow is the actual reality of the millennial generation.

 

[anaesthetic]

The thought process is so simple even you can follow it: "Look honey, student loans are paused, now we've got 500 bucks a month extra! Oh wow dear, now we can afford that more expensive apartment/school for the kids/mortgage/car/groceries/clothes/401k we've always wanted eggs."

It may be too complicated for me to understand your logic, but somehow, I don't buy that an extra $500/month for your average household (most assuredly NOT comprised of doctors, lawyers, engineers, or tech people, btw) is the primary driver for inflation in the setting of 4-5 trillion dollars of stimulus money, increasing labor costs, supply-side costs, and poor monetary/fiscal policies (e.g., quantitative easing).

What evidence do we have that that "extra" money is being used on luxury goods instead of increasing costs of daily living? Way to blame the people and not... literally everything else, I guess.

 

[pgg]

Too many people would game the system even doctors and lawyers.

Remember the mortgage and forgiveness act for housing crash. I knew plenty of people who got their underwater mortgages forgiven even “rich” self employed people. While people like me lost 250k real cash (since I didn’t make any profit on any previous homes) since it was my first two homes. I brought in 2005 and again in 2009 (market still declining when I moved)

Tons of people make 100-300k profit selling homes in 2005/6. Brought bigger homes in 2006. Market tanked. Suddenly by 2009-2010. They were “under water by the same 100-300k”. But they didn’t use the profit from the sale of then 2006 sale. Instead of a 100-300k down payment. They used the cash to fund lifestyle.

That’s what’s gonna to happen if u let people get student loan discharged. Any “doctor” like my pain buddy can claim divorce/bankruptcy over leverage. Stay low for one year working off jobs to keep income low. Take the 600k mortgage forgiven and reliefs waiver on the beach condo and primary home. Ramp up income the next year and be Scott free.

That’s the game student loan forgiveness will be played with higher earners

Bankruptcy isn't an easy path for anyone. There's the credit hit that follows you for years if not forever, and under some circumstances "forgiven" debts often generate a 1099 from the lender, which results in a lesser debt to the IRS.

I suspect there are vanishingly few doctors who'd game the system the way your buddy does. And not to rehash old tax-related disagreements between us, but you've already established that you and your friends play some very loose (and probably illegal IMO) tax games. I think you overestimate the number of people willing to do that sort of thing.

But anyway, is the hypothetical you describe really a worse outcome than what we're doing now?

Also, as I mentioned in my earlier post - a whole bunch of defaults and bankruptcies would have the very positive effect of hurting lenders and therefore altering their future behavior. One of the things that's lost in all of these student loan discussions is that we wouldn't have this crisis without the lenders making risky loans with the artificial no-discharge-in-bankruptcy guarantee.

 

[pgg]

Just to add my 2 cents. I just had my student loans forgiven to the tune of 200k. I served 10 years active duty and under those provisions my loans were forgiven. The difference payments in forbearance or deferred count towards good payments. This program is gone but it makes the burn of serving 10 years far less. Its nice to be paid in full. I feel all service members should not have to pay student loans.

IBR and "forgiveness" via various forms of public service aren't handouts. You fulfilled the terms of a contract to repay your loans with service. Nobody gave you a freebie. You earned the payoff.

I didn't have student loans because I chose military service to avoid them. I didn't get a "free" education. HPSP and USUHS aren't "scholarships" ... we all paid for our tuition with time.

This is also at the core of the reason why I am not and never will be OK with straight up loan forgiveness. Those people could've borrowed less; done work study; taken time off to work and save; joined the military for the GI bill. Many people had their tuition paid because their parents sacrificed to pay for them, by funding 529s instead of 401(k)s, by living frugally, by not taking vacations.

I am sympathetic to the people who are hopelessly buried under student loan debt they agreed to when they were teenagers. I think they should be able to declare bankruptcy, accept the consequences of doing so, and then start over. I'm not sympathetic enough to want to hand them cash when so many other people, including you and me, had the same options they did, but chose differently.

I have spent 100s of thousands of post-tax dollars over the last 8 years to put my 3 kids through college. If I hadn't been able to transfer my GI Bill benefits to one of them, I'd have paid even more. What forgiveness advocates are telling me is that I should've cut off my kids and had them take out loans, so they could beg helplessness and seek a handout. **** that.

 

[ASA6]

Im going to agree with blade on this one. Too much talk about whats causing inflation here, when this is a purely financial decision. Its a question when payments resume can you beat your interest rate with your cash. If your interest rate on your student loans is 6%, then every dollar you pay is equivalent to a 6% ROI. At that point I think im paying off the loans. If my rate is 3%? Well then I think Im better off paying the minimum and parking my cash elsewhere, because I think I can beat 3%.

In terms of buying a house I would do that before paying off loans. Physicians are in a good position. You can get a doctors loan that will let you put basically 0% down and they ignore your student loan debt. I think now through the end of the year is a great time to buy a house, and you might be able to cash in on appreciation in a few years and use that to pay your loans off anyways if you have a high interest rate. Or if rates go down refinance both loans into lower rates and keep your cash for something else.

 

[BLADEMDA]

IBR and "forgiveness" via various forms of public service aren't handouts. You fulfilled the terms of a contract to repay your loans with service. Nobody gave you a freebie. You earned the payoff.

I didn't have student loans because I chose military service to avoid them. I didn't get a "free" education. HPSP and USUHS aren't "scholarships" ... we all paid for our tuition with time.

This is also at the core of the reason why I am not and never will be OK with straight up loan forgiveness. Those people could've borrowed less; done work study; taken time off to work and save; joined the military for the GI bill. Many people had their tuition paid because their parents sacrificed to pay for them, by funding 529s instead of 401(k)s, by living frugally, by not taking vacations.

I am sympathetic to the people who are hopelessly buried under student loan debt they agreed to when they were teenagers. I think they should be able to declare bankruptcy, accept the consequences of doing so, and then start over. I'm not sympathetic enough to want to hand them cash when so many other people, including you and me, had the same options they did, but chose differently.

I have spent 100s of thousands of post-tax dollars over the last 8 years to put my 3 kids through college. If I hadn't been able to transfer my GI Bill benefits to one of them, I'd have paid even more. What forgiveness advocates are telling me is that I should've cut off my kids and had them take out loans, so they could beg helplessness and seek a handout. **** that.

That's why we need responsible government and neither party has shown fiscal restraint but the Dems are far worse in terms of "free money." Most of their supporters equate "lower taxes" with "free Money" but the former is earned while the latter is a gift from Uncle Sam. We need taxes and we need Uncle Sam but both need restraint.

The OP needs advice not political commentary so he/she can decide what to do next. My advice is to live with the 5.5-5.8% interest rate for 12 -24 months then develop a long term plan for debt reduction. Maybe, he/she can refinance that debt at 4% in a few years which is much more reasonable rate.

I thought Biden reduced IBR payments to lower % of free cash flow for households but I assume that won't help the OP.

 

[BLADEMDA]

Estimated effects of the proposed IDR Plan​

The proposed regulatory changes would substantially reduce monthly debt burdens and lifetime payments, especially for low and middle-income borrowers, community college students, and borrowers who work in public service. Overall, the Department estimates that the plan would have the following effects compared to the existing REPAYE plan:

• Future cohorts of borrowers would see their total payments per dollar borrowed decrease by 40%. Borrowers with the lowest projected lifetime earnings would see payments that are 83% less, while those in the top would only see a 5% reduction.
• A typical graduate of a four-year public university would save nearly $2,000 a year relative to the current REPAYE plan.
• A first-year teacher with a bachelor's degree would save more than $17,000 in total payments while pursuing Public Service Loan Forgiveness—a two-thirds reduction in what they would pay in total under REPAYE.
• 85% of community college borrowers would be debt-free within 10 years
• On average, Black, Hispanic, American Indian and Alaska Native borrowers would see their lifetime payments per dollar borrowed cut in half.

 

[Hoya11]

So all the old guys I talk to say that once this student loan freeze is over, make sure you refinance and pay off in 5-10 years. Am I missing something?? Why not just take the longest, most dragged out approach -

-A 10 year loan (even private rates these days) has no better interest rate TODAY (maybe when interest rates plunge back to 2% it may be worth it)
-Why pay $5,000-6,0000 a month (the 10 year IBR monthly cost) to pay these down so quickly when I can coast with $1,500 a month for 25 years (the fixed 25 year monthly cost). $5,000 a month means a hell lot more to me now than $1,5000 will when I 55 years old (heck that will likely be the payment on a Mercedes E class a month in 25 years at the rate we are going...). My interest rate on my loans is in the upper 5's, and anything not going to these loans is going toward a house in a couple years, retirement, or an emergency fund. I stash and hoard money like no one's business.
-It's a difference of $125,000 in interest over the life of the repayment. However, if that allows us to get the house we want sooner / have an emergency fund set up, is that really a deal breaker?
-At the end of the day we could easily go live in a janky apartment for a year and I could pay off all my debt in one year with my salary, but why? Why not look at the whole picture - house, kids, emergency fund, stocks, vacations, enjoying life - and weigh it out accordingly.

Thank you ahead of time for your insight and Happy Easter!

I would take the 25 year plan for the flexibility, and then aggressively pay it down as early as you can. You will see in time - you'll need a place to put extra money besides the market especially now that the market is sideways and you will already have mandatory market exposure in your 401k. You will probably pay it down in less than 10 years.. and keep in mind you also pay taxes on any market income when comparing APR

 

[rowsdower88]

by funding 529s

This is the only thing I'll quibble with. 529 plans are horrendously regressive insofar as their tax benefits go. The vast majority of people who contribute to 529s are wealthy people, with a subset of those being the VERY wealthy who contribute a large percentage of total 529 contributions. I'm sure there are people who exist who chose to contribute to a 529 over a 401k as you suggest, I just think it would be misleading to suggest that those are anywhere close to the majority of contributors. Poorer people, regardless of 401k contributions, generally don't take advantage of 529s.

 

[aneftp]

Let’s assume 400k annual salary

Take home pretax before taxes is around 33k a month

Say you put 22k Roth into 401k (those under age 50)

Federal taxes (and state) should still leave u with 20k post tax month after health insurance

Mortgage plus insurance plus electricity hoa etc 6k-7k max

Car payment 2k (assume 2 cars)
Kids? That’s 2-4k

So you still have 10k post tax play money.

That money you can control.

Pay down debt , invest etc. and 400k is the low end of income these days for new grads before call incentives.

The only real advice is try to live lower standard. But since you are considering a home. I’m sure you are married. And often times it’s the spouses (aka wives) who demand certain lifestyle and that costs money.

If you were single. I’d say just pay it all down. But being married is a different equation. Women (not trying to be sexist) but women simply spend more than men. I have a colleague at work who says 95% of doctors cannot over earn what a stay at home mom can spend.

 

[sevo00]

Women (not trying to be sexist) but women simply spend more than men.

💯

 

[anaesthetic]

Let’s assume 400k annual salary

Take home pretax before taxes is around 33k a month

Say you put 22k Roth into 401k (those under age 50)

Federal taxes (and state) should still leave u with 20k post tax month after health insurance

Mortgage plus insurance plus electricity hoa etc 6k-7k max

Car payment 2k (assume 2 cars)
Kids? That’s 2-4k

So you still have 10k post tax play money.

That money you can control.

Pay down debt , invest etc. and 400k is the low end of income these days for new grads before call incentives.

The only real advice is try to live lower standard. But since you are considering a home. I’m sure you are married. And often times it’s the spouses (aka wives) who demand certain lifestyle and that costs money.

If you were single. I’d say just pay it all down. But being married is a different equation. Women (not trying to be sexist) but women simply spend more than men. I have a colleague at work who says 95% of doctors cannot over earn what a stay at home mom can spend.

💯

First of all, I’m going to say that I love my wife very much (if she ever reads this). Anyway, she is very reasonable when it comes to hunkering down in times of need (e.g., residency, fellowship, job change, etc.), and I love her for that. When we’re in times of excess… boy, “we” can spend some money. I really have no problem with it. It’s just… impressive.

 

[lymphocyte]

So all the old guys I talk to say that once this student loan freeze is over, make sure you refinance and pay off in 5-10 years. Am I missing something?? Why not just take the longest, most dragged out approach -

-A 10 year loan (even private rates these days) has no better interest rate TODAY (maybe when interest rates plunge back to 2% it may be worth it)
-Why pay $5,000-6,0000 a month (the 10 year IBR monthly cost) to pay these down so quickly when I can coast with $1,500 a month for 25 years (the fixed 25 year monthly cost). $5,000 a month means a hell lot more to me now than $1,5000 will when I 55 years old (heck that will likely be the payment on a Mercedes E class a month in 25 years at the rate we are going...). My interest rate on my loans is in the upper 5's, and anything not going to these loans is going toward a house in a couple years, retirement, or an emergency fund. I stash and hoard money like no one's business.
-It's a difference of $125,000 in interest over the life of the repayment. However, if that allows us to get the house we want sooner / have an emergency fund set up, is that really a deal breaker?
-At the end of the day we could easily go live in a janky apartment for a year and I could pay off all my debt in one year with my salary, but why? Why not look at the whole picture - house, kids, emergency fund, stocks, vacations, enjoying life - and weigh it out accordingly.

Thank you ahead of time for your insight and Happy Easter!

Don't forgot the tax on that forgiven loan, the sum of which will have compounded over 25 years at whatever interest rate.

Topic no. 431, Canceled debt – Is it taxable or not? | Internal Revenue Service

Topic No. 431 ,Canceled Debt – Is It Taxable or Not?

www.irs.gov

Can Debt Forgiveness Cause a Student Loan Tax Bomb?

People who benefit from student loan forgiveness may be wondering about the tax consequences of this debt relief option, including a potential "student loan tax bomb." Your student loan repayment choice can prevent or cause this situation.

turbotax.intuit.com

 

[pgg]

Women (not trying to be sexist) but women simply spend more than men

Well ...

I can't say I've ever known a woman who's bought a plane or boat (or other powered watercraft) ... or sports cars ...




Edit - I take that back, partly. I do know one woman who owned a plane. Former Navy pilot turned doctor.

 

[finalpsychyear]

Let’s assume 400k annual salary

Take home pretax before taxes is around 33k a month

Say you put 22k Roth into 401k (those under age 50)

Federal taxes (and state) should still leave u with 20k post tax month after health insurance

Mortgage plus insurance plus electricity hoa etc 6k-7k max

Car payment 2k (assume 2 cars)
Kids? That’s 2-4k

So you still have 10k post tax play money.

That money you can control.

Pay down debt , invest etc. and 400k is the low end of income these days for new grads before call incentives.

The only real advice is try to live lower standard. But since you are considering a home. I’m sure you are married. And often times it’s the spouses (aka wives) who demand certain lifestyle and that costs money.

If you were single. I’d say just pay it all down. But being married is a different equation. Women (not trying to be sexist) but women simply spend more than men. I have a colleague at work who says 95% of doctors cannot over earn what a stay at home mom can spend.

I used to think my tax bracket was so high since I was single for my first 5 full years as an attending. Then I got married and I have spent more in the first 2 years of marriage then the previous 5 years single. Saving like the world may end those first 5 years has helped me immensely. Thank you WCI.

 

[Thepassageofgas]

I’m about to ask a stupid-sort-of-related-question but here goes:

why can’t student loan payments be tax deductible?

I’m not saying I want to deduct to the point of a refund, but as a 1099, I could probably bolus my student loans and knock them out in a couple of years…if I wasn’t getting hammered with taxes. It would incentivize people to pay them back faster (I think) and would give a little relief to young docs with fams/houses/expenses etc.

Is there some economic reason why this is super wrong/unfair/not possible?


😊 thanks!

 

[NITRAS]

I’m about to ask a stupid-sort-of-related-question but here goes:

why can’t student loan payments be tax deductible?

I’m not saying I want to deduct to the point of a refund, but as a 1099, I could probably bolus my student loans and knock them out in a couple of years…if I wasn’t getting hammered with taxes. It would incentivize people to pay them back faster (I think) and would give a little relief to young docs with fams/houses/expenses etc.

Is there some economic reason why this is super wrong/unfair/not possible?


😊 thanks!

We need fewer encouragements for people to go into debt, not more.

 

[Dr. Rude]

This is the only thing I'll quibble with. 529 plans are horrendously regressive insofar as their tax benefits go. The vast majority of people who contribute to 529s are wealthy people, with a subset of those being the VERY wealthy who contribute a large percentage of total 529 contributions. I'm sure there are people who exist who chose to contribute to a 529 over a 401k as you suggest, I just think it would be misleading to suggest that those are anywhere close to the majority of contributors. Poorer people, regardless of 401k contributions, generally don't take advantage of 529s.

529 plans: The real users and what they sock away

College 529 accounts aren't just for the super-rich, it turns out. And the average amount saved will barely cover a year's tuition.

www.cnbc.com

Without question, families with 529 or Coverdell accounts tend to be at least middle class, with median incomes of $142,400, compared with a median income of $45,100 for other families, according to the GAO. These account holders also have more money saved for retirement, on average, and more assets in general.

These families are not exactly Rockefellers, however. The Colleen wealthy. ge Savings Foundation, in a statement opposing the president’s plan, pointed out that Strategic Insight, a mutual fund research organization, calculates that close to 10 percent of 529 accounts are held by households with incomes under $50,000, and 70 percent of the accounts belong to households with less than $150,000 in income. Nearly 95 percent of the households have incomes under $250,000.


---------

 

[BLADEMDA]

I’m about to ask a stupid-sort-of-related-question but here goes:

why can’t student loan payments be tax deductible?

I’m not saying I want to deduct to the point of a refund, but as a 1099, I could probably bolus my student loans and knock them out in a couple of years…if I wasn’t getting hammered with taxes. It would incentivize people to pay them back faster (I think) and would give a little relief to young docs with fams/houses/expenses etc.

Is there some economic reason why this is super wrong/unfair/not possible?


😊 thanks!

I know 1099 providers who deduct their student loans. I do not believe this is an allowable expense but those providers are gambling they won't get caught or audited.

• Education – Are student loans a business expense? Educational expenses related to your business can be deductible, but you must show that the education helps maintain or improve skills related to your business or that the education is required by law.

Writing Off The Student Loans

There are thousands of potential business expenses that a sole proprietor can write off to help lower their tax burden, but the principal of their student loans is not one of them. Each student loan payment you make consists of principal, interest and fees. While sole proprietors would like to think that their education should be considered a business expense, the federal government disagrees and does not allow principal on student loans to be tax deductible.

 

[rowsdower88]

Without question, families with 529 or Coverdell accounts tend to be at least middle class, with median incomes of $142,400, compared with a median income of $45,100 for other families, according to the GAO.

If you're citing that to me, then you recognize the problem and we're probably close to being on the same page.

 

[deleted875186]

I’m about to ask a stupid-sort-of-related-question but here goes:

why can’t student loan payments be tax deductible?

I’m not saying I want to deduct to the point of a refund, but as a 1099, I could probably bolus my student loans and knock them out in a couple of years…if I wasn’t getting hammered with taxes. It would incentivize people to pay them back faster (I think) and would give a little relief to young docs with fams/houses/expenses etc.

Is there some economic reason why this is super wrong/unfair/not possible?


😊 thanks!

Because it’s too expensive. Same reason they will never just reduce the federal student loan interest rate to a low flat number. The government makes boatloads of money off student loan interest.

 

[GassYous]

Can't you deduct 5k a year from the trump Covid legislation

 

[nimbus]

Because it’s too expensive. Same reason they will never just reduce the federal student loan interest rate to a low flat number. The government makes boatloads of money off student loan interest.

True it’s too expensive but the program is a net money loser. The government would lose even more if they offered low fixed interest rates.

Student Loans: Education Has Increased Federal Cost Estimates of Direct Loans by Billions Due to Programmatic and Other Changes

The federal Direct Loan program helps students and their parents pay for higher education. The Department of Education's estimates of the program's...

www.gao.gov

 

[periopdoc]

Only the government could lose money on issuing out non-dischargeable debt.

 

[nimbus]

Only the government could lose money on issuing out non-dischargeable debt.

One of the problems is that the government is discharging some of the “non-dischargeable” debt…eg loan forgiveness. WCI types are all over it. Even “hardworking” doctors and the richest man in the world love a good government handout.

 

[Radar26]

Can't you deduct 5k a year from the trump Covid legislation

Yes, $ 5,250 per year to be exact. Part of the CARES act. Currently ends in 2025.

 

[deleted875186]

Yes, $ 5,250 per year to be exact. Part of the CARES act. Currently ends in 2025.

What is this deduction?

 

[thinkorswim]

What is this deduction?

It’s a deduction for businesses, not individuals. In short, employers can pay $5,250 on behalf of an employee toward their student loans, and this is done with pre-tax dollars.

The only physicians who can take advantage of this would be the folks who are 1099 or are in practices where they can deduct business expenses through a corporation as a W2 employee.

 

[MirrorTodd]

It’s a deduction for businesses, not individuals. In short, employers can pay $5,250 on behalf of an employee toward their student loans, and this is done with pre-tax dollars.

The only physicians who can take advantage of this would be the folks who are 1099 or are in practices where they can deduct business expenses through a corporation as a W2 employee.

I need to look into that. Is there a specific name for that type of deduction?

 

[thinkorswim]

I need to look into that. Is there a specific name for that type of deduction?

Not sure there’s a name for it. It’s a temporary change made to the existing education assistance plan guidelines, basically allowing employers to reimburse for student loan payments.

Google is your friend.

2020 CARES Act: Repay employee student loans up to $5,250 tax-free, extended through December 31, 2025 |

Many employers want to assist employees in the COVID-19 pandemic. Now, the CARES Act provides a temporary opportunity to help repay employee student loans.

www.coredocuments.com