I plan to drop 160k on student loans next month, talk me out of it.

[goldsummer]

My understanding is interest will start accruing again September 2023 and first payment is due again October. I have kept a big chunk set aside for this moment and am planning on pulling the trigger within the next few weeks...unless...

Unless..... one of the financially savvy people here has a good reason why I should allocate it somewhere else?

Info:
203k left on loan
monthly payment set to be: $320
Interest rate: 6%
My employer reimburses 20k per year for 2 more years.

I have 205k sitting in a bank ready to nuke the loan
85k in a high yield savings account (5%)
130k in taxable brokerage account


My thoughts: Use 160k of savings to Knock the loan down to 43k. Let the interest accrue on that and let my employer reimburse me for the rest over the next 2 years.


What do you think, wise plan?

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[bravotwozero]

I like it. As long as your monthly cash flow isn’t impacted, should be fine.

 

[worthless]

I got rid of my student loans because I hated Sallie Mae. They were intentionally incompetent POSs.

However, financially it doesn’t make a lot of sense here. You are losing $160k liquid to avoid $134/mo interest. That’s nothing. I could easily find an investment where $160k would yield the full $320/mo and then be able to keep and grow the investment.

But there is peace in having student loans eliminated so to each their own.

 

[abolt18]

My understanding is interest will start accruing again September 2023 and first payment is due again October. I have kept a big chunk set aside for this moment and am planning on pulling the trigger within the next few weeks...unless...

Unless..... one of the financially savvy people here has a good reason why I should allocate it somewhere else?

Info:
203k left on loan
monthly payment set to be: $320
Interest rate: 6%
My employer reimburses 20k per year for 2 more years.

I have 205k sitting in a bank ready to nuke the loan
85k in a high yield savings account (5%)
130k in taxable brokerage account


My thoughts: Use 160k of savings to Knock the loan down to 43k. Let the interest accrue on that and let my employer reimburse me for the rest over the next 2 years.


What do you think, wise plan?

If your job does not qualify for PSLF, then I'd say do it. Freedom sounds awfully nice.

 

[goldsummer]

If your job does not qualify for PSLF, then I'd say do it. Freedom sounds awfully nice.

My job qualifies for PSLF. Residency did too. I paid 3 years in residency but have not been paying as an attending (3 years) due to the whole covid deferment. Does that change anything for you in this case?

 

[goldsummer]

I got rid of my student loans because I hated Sallie Mae. They were intentionally incompetent POSs.

However, financially it doesn’t make a lot of sense here. You are losing $160k liquid to avoid $134/mo interest. That’s nothing. I could easily find an investment where $160k would yield the full $320/mo and then be able to keep and grow the investment.

But there is peace in having student loans eliminated so to each their own.

That's what I keep hearing. But what are these investments you could easily find? What moves would you make in my situation?

 

[goldsummer]

I like it. As long as your monthly cash flow isn’t impacted, should be fine.

It won't impact cash flow, though my investment earning potential may be a bit limited of course. Thanks for you input!

 

[gutonc]

My job qualifies for PSLF. Residency did too. I paid 3 years in residency but have not been paying as an attending (3 years) due to the whole covid deferment. Does that change anything for you in this case?

If you're reasonably certain you'll still be in a PSLF qualifying job in 7 years (recognizing that nothing is absolutely knowable), I'd put that 160K to work for you on the investment side (hell...even an HYSA can come close to your student loan rate right now), especially since you've got 40K of free loan payments coming from work in the next 2 years.

At that point, you'll be at the 5y payment mark and maybe you look at the remaining balance, say F*** it and just pay it off. But I don't think it makes financial sense at this point. It might make emotional sense for you, but given the circumstances, it's not a great financial move. It probably won't harm you significantly in the long run from a financial perspective, but I wouldn't personally do it.

If it makes you feel better, throw $40K (or something in the 10-40% range of your original plan) in there to lop a big chunk off the top and keep the rest of it working for you.

 

[FutureInternist]

My understanding is interest will start accruing again September 2023 and first payment is due again October. I have kept a big chunk set aside for this moment and am planning on pulling the trigger within the next few weeks...unless...

Unless..... one of the financially savvy people here has a good reason why I should allocate it somewhere else?

Info:
203k left on loan
monthly payment set to be: $320
Interest rate: 6%
My employer reimburses 20k per year for 2 more years.

I have 205k sitting in a bank ready to nuke the loan
85k in a high yield savings account (5%)
130k in taxable brokerage account


My thoughts: Use 160k of savings to Knock the loan down to 43k. Let the interest accrue on that and let my employer reimburse me for the rest over the next 2 years.


What do you think, wise plan?

Are all your other accounts funded?
401, NQDC, HSA, Roth IRA, 529?

The interest rate is high enough that paying a big chunk would be beneficial… but be mindful to keep 3-6 months of emergency funding on hand so perhaps half paid off now & then double payments till its paid off?

 

[mvenus929]

My job qualifies for PSLF. Residency did too. I paid 3 years in residency but have not been paying as an attending (3 years) due to the whole covid deferment. Does that change anything for you in this case?

If you've been working for a qualifying employer for the past three years, those years count as well, even though you didn't pay anything. So, you presumably have 5.5-6 years into PSLF--if you think you'll stay at your current employer (or another non-profit), it may be worth going through PSLF. Or you can aggressively pay off your loans and not worry about having to make sure your employer qualifies.

Personally, I'd use the savings to pay down, but would keep the investments where they are, presuming you have all your other financial ducks in a row.

 

[worthless]

That's what I keep hearing. But what are these investments you could easily find? What moves would you make in my situation?

Where do you live?

 

[abolt18]

My job qualifies for PSLF. Residency did too. I paid 3 years in residency but have not been paying as an attending (3 years) due to the whole covid deferment. Does that change anything for you in this case?

Then you're in the same situation as me, except I just came out of training and haven't saved anything yet for loans. I'm 6 years into PSLF and I am investing in a brokerage account the money I'd be using to pay off loans. If I stick it out with this job and get forgiveness in 4 years, I'll use that money to pay off/down the mortgage. If I move jobs, I'll just pay off the loans. I've got $405K in loans.

As was said above, you should still qualify. Just submit the paperwork and get a full "count" of your payments, which should be around 72/120 at this point. No harm just leaving the money on the side and riding the PSLF train IMO. It's what I hope to do.

 

[dpmd]

My understanding is interest will start accruing again September 2023 and first payment is due again October. I have kept a big chunk set aside for this moment and am planning on pulling the trigger within the next few weeks...unless...

Unless..... one of the financially savvy people here has a good reason why I should allocate it somewhere else?

Info:
203k left on loan
monthly payment set to be: $320
Interest rate: 6%
My employer reimburses 20k per year for 2 more years.

I have 205k sitting in a bank ready to nuke the loan
85k in a high yield savings account (5%)
130k in taxable brokerage account


My thoughts: Use 160k of savings to Knock the loan down to 43k. Let the interest accrue on that and let my employer reimburse me for the rest over the next 2 years.


What do you think, wise plan?

You have to remember the interest on student loans is simple while the interest on savings accounts is compound. So that 5% you earn on 85k this year is 4250 but next year you get 4462.50 and the year after 4685 and each year after that the amount increases (though the rate won't necessarily stay that high). Meanwhile the most you would save by paying off the loan early is the interest it would have accumulated before it is paid off or forgiven. If you are at a pslf eligible job then that is only 4 years left so I would continue to let your investments and high yield savings account increase your wealth. If you aren't I still think you would come out ahead long term by continuing to invest and let compound earnings do their magic but I would understand if the uncertainty makes you decide to pay the loan off early (I cringe at how much investment growth i missed out on because I though paying down debt was the financially better thing to do when I was younger)

 

[emergentmd]

If someone wanted to borrow 205K from you at 6% interest, would you lend it to them? Likely not in this environment, so technically should answer your question.

From a strictly financial standpoint, there are better ways to deploy your money than to pay off the loans quickly. BUT if it makes you sleep better at night not carrying the debt, then pay it off and move on.

I rarely pay off loans early.

 

[goldsummer]

If you're reasonably certain you'll still be in a PSLF qualifying job in 7 years (recognizing that nothing is absolutely knowable), I'd put that 160K to work for you on the investment side (hell...even an HYSA can come close to your student loan rate right now), especially since you've got 40K of free loan payments coming from work in the next 2 years.

At that point, you'll be at the 5y payment mark and maybe you look at the remaining balance, say F*** it and just pay it off. But I don't think it makes financial sense at this point. It might make emotional sense for you, but given the circumstances, it's not a great financial move. It probably won't harm you significantly in the long run from a financial perspective, but I wouldn't personally do it.

If it makes you feel better, throw $40K (or something in the 10-40% range of your original plan) in there to lop a big chunk off the top and keep the rest of it working for you.

I very well may still be at my current position and therefore would qualify for PSLF...question is though, would i actually get awarded forgiveness??

Thanks for your advice !

 

[goldsummer]

Are all your other accounts funded?
401, NQDC, HSA, Roth IRA, 529?

The interest rate is high enough that paying a big chunk would be beneficial… but be mindful to keep 3-6 months of emergency funding on hand so perhaps half paid off now & then double payments till its paid off?

401k - yes, maxed with 4% match
NQDC - didnt know what this was, googled, i am not currently doing this.
HSA - contributing but not maxed
Roth IRA - yes, maxed
529- no kids

Thanks!

 

[goldsummer]

Then you're in the same situation as me, except I just came out of training and haven't saved anything yet for loans. I'm 6 years into PSLF and I am investing in a brokerage account the money I'd be using to pay off loans. If I stick it out with this job and get forgiveness in 4 years, I'll use that money to pay off/down the mortgage. If I move jobs, I'll just pay off the loans. I've got $405K in loans.

As was said above, you should still qualify. Just submit the paperwork and get a full "count" of your payments, which should be around 72/120 at this point. No harm just leaving the money on the side and riding the PSLF train IMO. It's what I hope to do.

i keep hearing that few actually get their loans forgiven. Not sure if this is just a rumor or if most people are not doing PSLF correctly and thats why or what, but the thought of banking on the loan getting forgiven then it isnt and all the extra interest accrued turns me off from it. idk .

 

[dpmd]

i keep hearing that few actually get their loans forgiven. Not sure if this is just a rumor or if most people are not doing PSLF correctly and thats why or what, but the thought of banking on the loan getting forgiven then it isnt and all the extra interest accrued turns me off from it. idk .

That was early on when people didn't understand the rules well or had non qualifying loans or non qualifying payment plans and before some changes were made to the program. Plenty of people getting it now. You should be able to get credit for "payments" of 0 per month during the pause so you are only 4 yrs away if you truly qualify. If you invest the money for the next 4 years and then don't get forgiveness you could always take some of the money out to pay it off then and you would still have those 4 yrs worth of compound interest.

 

[FutureInternist]

401k - yes, maxed with 4% match
NQDC - didnt know what this was, googled, i am not currently doing this.
HSA - contributing but not maxed
Roth IRA - yes, maxed
529- no kids

Thanks!

If you plan on having kids you can open one up now under your own name, and then transfer to kid’s name…. Who can in turn transfer to their kids (if they don’t use all of it etc)

 

[gutonc]

i keep hearing that few actually get their loans forgiven. Not sure if this is just a rumor or if most people are not doing PSLF correctly and thats why or what, but the thought of banking on the loan getting forgiven then it isnt and all the extra interest accrued turns me off from it. idk .

This was true before the program was adjusted in the pandemic. The rules are much more reasonable now. If you're not already registered for it, do it yesterday.

 

[goldsummer]

Update...Just checked my loan details...

Loan interest accrued in the first 13 days of the month - $417. (As of 9-13). $32 dollars a day... Almost 1K a month in interest.

If I did PSLF my monthly payment 320 for about 4 more years if all goes well. But then the surplus interest would drop on my principle and accrue even more interest...

I'm feeling sick.

 

[dpmd]

Update...Just checked my loan details...

Loan interest accrued in the first 13 days of the month - $417. (As of 9-13). $32 dollars a day... Almost 1K a month in interest.

If I did PSLF my monthly payment 320 for about 4 more years if all goes well. But then the surplus interest would drop on my principle and accrue even more interest...

I'm feeling sick.

Interest only capitalizes when you change payment plans

 

[goldsummer]

Interest only capitalizes when you change payment plans

Is that so?

I was on REPAYE, now SAVE... so if I dont change it, it won't capitalize? I had no idea. Thanks so much for your info, it is appreciated

 

[dpmd]

Is that so?

I was on REPAYE, now SAVE... so if I dont change it, it won't capitalize? I had no idea. Thanks so much for your info, it is appreciated

Yeah. Lots of people aren't aware of this. Student loan interest is simple interest aside from the specific times interest capitalizes.