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Student Loans
Posted on 4/21/24 at 1:02 pm
Posted on 4/21/24 at 1:02 pm
My daughter is graduating in May 2024 should I take money from my 401k to pay off her student loans ~ 50k? We have been paying on it but the interest rate on her loan is about 8%. Im no financial guy but my wife and I have worked hard the past 30 years and we don’t won’t to keep paying these monthly loan notes because basically we’re just paying the interest not the principal.
Any guidance or recommendations would be greatly appreciated.
Any guidance or recommendations would be greatly appreciated.
22
Posted on 4/21/24 at 1:04 pm to Abundy007
If you aren’t 59.5, you’ll pay 10% penalty (worse than your interest rate) and your highest marginal rate to get the money. Almost never a good idea.
Posted on 4/21/24 at 1:44 pm to Abundy007
Would suck for you to take out a loan on your 401k to pay it off and then student loans get forgiven but you are stuck with your 401k loan….
Posted on 4/21/24 at 2:47 pm to Abundy007
There are lots of details that go with your question. How well is your 401k funded? Was it your arrangement to pay the loans for your daughter? What kind of a loan is it (who’s it with, does it qualify for anything, etc)?
IMO I would not do a withdrawal.
A 401k loan would get you a lower % and you would be paying yourself that interest but you would have to pay loan back in a shorter period of time (IIRC 5 years).
We did it for my GF after her divorce bc interest payments for her personal debt were $1500 month. I can’t say borrowing from 401k is the best but it worked for us.
IMO I would not do a withdrawal.
A 401k loan would get you a lower % and you would be paying yourself that interest but you would have to pay loan back in a shorter period of time (IIRC 5 years).
We did it for my GF after her divorce bc interest payments for her personal debt were $1500 month. I can’t say borrowing from 401k is the best but it worked for us.
This post was edited on 4/21/24 at 2:51 pm
Posted on 4/21/24 at 3:28 pm to Abundy007
quote:
Im no financial guy
That part is clear, keep your money. She can do the SAVE program and have low payments, will go to 5% of her income in July. .. and be forgiven if she pays long enough
quote:
One of the greatest benefits for borrowers on the SAVE Plan is the government interest subsidy. On the SAVE Plan, if you pay what you owe each month, your loans won’t grow due to unpaid interest. This is because any accrued interest not covered by your monthly payment won’t be added to your principal balance.
Under other IDR plans, you may see your loan balance grow due to unpaid interest. With the SAVE Plan, any remaining accrued interest will be covered by the government, so your principal balance won’t increase.
This post was edited on 4/21/24 at 11:09 pm
Posted on 4/21/24 at 3:49 pm to Abundy007
Do not take early withdrawal. A 401k loan is a better sub optimal solution.
Is it a federal ot private loan? Is it her loan or in your name (parent plus?)
Is your retirement well funded? If not, concentrate on that. Of anything, wait until you retire and pay it off without penalties perhaps spread out the wothdrwal over couple or more years to optimize tax brackets.
If you leave your employer you can take 401k withdrawal with no penalty using Rule of 55 no need to wait until 59.5 FYI.
Is it a federal ot private loan? Is it her loan or in your name (parent plus?)
Is your retirement well funded? If not, concentrate on that. Of anything, wait until you retire and pay it off without penalties perhaps spread out the wothdrwal over couple or more years to optimize tax brackets.
If you leave your employer you can take 401k withdrawal with no penalty using Rule of 55 no need to wait until 59.5 FYI.
This post was edited on 4/21/24 at 3:52 pm
Posted on 4/21/24 at 4:32 pm to Abundy007
50k is nothing. She can handle it for a bit and you can give her a late graduation present when you turn 60 if you want.
This post was edited on 4/21/24 at 4:32 pm
Posted on 4/21/24 at 4:36 pm to Abundy007
I paid 8% and 9% for my student loans 40 years ago. I had a little more than a fourth as much debt as your daughter does. I am about the same age as you. I got mine paid off in about seven years. I also kept them as three separate loans, so I paid off the smallest one first then concentrated on the next one.
Let her pay them off. It's fine if you want to help, but make sure she feels a little discomfort, not pain, but discomfort from the debt, so that she will properly learn to avoid debt in the future. Help is paying a few payments for her each year. If you pay it all off she learns nothing. It's way better for her to learn how hard it can be to keep making those payments.
Let her pay them off. It's fine if you want to help, but make sure she feels a little discomfort, not pain, but discomfort from the debt, so that she will properly learn to avoid debt in the future. Help is paying a few payments for her each year. If you pay it all off she learns nothing. It's way better for her to learn how hard it can be to keep making those payments.
Posted on 4/21/24 at 4:46 pm to Abundy007
Believe I would wait until this WH and DofE finish their multi-never ending forgiveness programs.
That said, we paid the balance due on 2 of our 3 children many years ago....did not wish to retire with that debt - have something catastrophic and give the SSA reason to garnish a penny. Our amount was less than you have quoted and did not have to use retirement monies.
Our son attended a private-for profit - determined to be disreputable but we were not reimbursed as the loans were not deemed as 'direct federal education loans' - they were offed to a Servicer, Navient, and deemed different.
Still irritating but lessons learned and passed to the children.
That said, we paid the balance due on 2 of our 3 children many years ago....did not wish to retire with that debt - have something catastrophic and give the SSA reason to garnish a penny. Our amount was less than you have quoted and did not have to use retirement monies.
Our son attended a private-for profit - determined to be disreputable but we were not reimbursed as the loans were not deemed as 'direct federal education loans' - they were offed to a Servicer, Navient, and deemed different.
Still irritating but lessons learned and passed to the children.
Posted on 4/21/24 at 6:20 pm to Abundy007
If she goes into public service then she can get loan forgiveness after 10 years of payments.
Posted on 4/21/24 at 8:01 pm to Abundy007
quote:
should I take money from my 401k to pay off her student loans ~ 50k?
no
Posted on 4/22/24 at 12:50 am to Abundy007
It's her loan so she should be taking responsibility for it not you. If you want to help her pay it off that's fine but taking out of your retirement to pay her loan is completely insane
This post was edited on 4/22/24 at 12:52 am
Posted on 4/22/24 at 6:46 am to Abundy007
quote:
My daughter is graduating in May 2024 should I take money from my 401k to pay off her student loans ~ 50k? We have been paying on it but the interest rate on her loan is about 8%. Im no financial guy but my wife and I have worked hard the past 30 years and we don’t won’t to keep paying these monthly loan notes because basically we’re just paying the interest not the principal. Any guidance or recommendations would be greatly appreciated.
Do not pay off her loan. It’s her responsibility. Get a fee only financial advisor as it’s clear you need help preparing a financial plan.
Posted on 4/22/24 at 8:32 am to Abundy007
quote:
My daughter is graduating in May 2024 should I take money from my 401k to pay off her student loans ~ 50k? We have been paying on it but the interest rate on her loan is about 8%. Im no financial guy but my wife and I have worked hard the past 30 years and we don’t won’t to keep paying these monthly loan notes because basically we’re just paying the interest not the principal. Any guidance or recommendations would be greatly appreciated.
Your typical parent in American society these days
Posted on 4/22/24 at 9:23 am to Abundy007
Are these loans in her name, or are these Parent (PLUS) loans?
Also, are these government backed loans, or private loans?
If the funding would come via a 401(k), you probably are unable to take the money out unless you do it as a loan, and even then there may be limits - check with your plan.
If it is in an IRA, you will owe tax on what you take out, plus 10% penalty. Let's say you are in a 30% combined federal plus state tax rate, plus 10% penalty - 40% total. So you will need to take out $83K to net $50K. You also lose the growth of that money in your tax-deferred account.
If you borrow against your 401(k) you won't owe tax or penalty, but still lose the investment growth of that money (but you do get interest income... less a fee).
If it is her loans, and they are government loans, have her qualify for income based repayment. There's just too much up in the air right now about possible forgiveness that I would not be in any rush to pay those off.
You can refinance them, but I would not do that unless rates come down.
If they are private loans, they will not be forgiven, but I would still not take money out of an IRA to pay them off. She can pay them off, and you can help her with extra cash if you have it from time to time.
If they are PLUS loans and you are responsible for them... you may not qualify for much if any relief. I would probably still not take money out of an IRA to pay them off... but you may want to throw any extra cash you can at them.
Also, are these government backed loans, or private loans?
If the funding would come via a 401(k), you probably are unable to take the money out unless you do it as a loan, and even then there may be limits - check with your plan.
If it is in an IRA, you will owe tax on what you take out, plus 10% penalty. Let's say you are in a 30% combined federal plus state tax rate, plus 10% penalty - 40% total. So you will need to take out $83K to net $50K. You also lose the growth of that money in your tax-deferred account.
If you borrow against your 401(k) you won't owe tax or penalty, but still lose the investment growth of that money (but you do get interest income... less a fee).
If it is her loans, and they are government loans, have her qualify for income based repayment. There's just too much up in the air right now about possible forgiveness that I would not be in any rush to pay those off.
You can refinance them, but I would not do that unless rates come down.
If they are private loans, they will not be forgiven, but I would still not take money out of an IRA to pay them off. She can pay them off, and you can help her with extra cash if you have it from time to time.
If they are PLUS loans and you are responsible for them... you may not qualify for much if any relief. I would probably still not take money out of an IRA to pay them off... but you may want to throw any extra cash you can at them.
Posted on 4/22/24 at 10:16 am to Abundy007
I'm a higher ed administrator and work with these loans all the time. Im also a finance nerd.
Do NOT take from your 401k and payoff her student loans. What you should do depends on the following:
1. Are these loans Title IV (normal student loans)?
2. If not, are they private student loans (from a bank, you may have been a cosigner).
3. If not, are they Parent PLUS loans, the worst student loan product?
If the answer is 1, you need to have her consolidate them into a Direct Consolidation Loan at student aid.gov. This will give her several repayment options, tied to her income. She should be able to manage the payments on her own and knock them out. And if the government "forgives student loans," this will be the type of loan forgiven.
If the answer is 2, it's a normal loan. You aren't able to make income contingent payments and if student loans are forgiven, you will not be eligible. You can shop around for a better rate and consolidate them.
If the answer is 3, this is your loan, not your daughter's. She has zero obligation to pay them back. They are also not eligible for. any forgiveness programs.
Do NOT take from your 401k and payoff her student loans. What you should do depends on the following:
1. Are these loans Title IV (normal student loans)?
2. If not, are they private student loans (from a bank, you may have been a cosigner).
3. If not, are they Parent PLUS loans, the worst student loan product?
If the answer is 1, you need to have her consolidate them into a Direct Consolidation Loan at student aid.gov. This will give her several repayment options, tied to her income. She should be able to manage the payments on her own and knock them out. And if the government "forgives student loans," this will be the type of loan forgiven.
If the answer is 2, it's a normal loan. You aren't able to make income contingent payments and if student loans are forgiven, you will not be eligible. You can shop around for a better rate and consolidate them.
If the answer is 3, this is your loan, not your daughter's. She has zero obligation to pay them back. They are also not eligible for. any forgiveness programs.
Posted on 4/22/24 at 10:27 am to Abundy007
No. Not under any circumstances.
Posted on 4/22/24 at 8:23 pm to Abundy007
I just noticed something.
"Abundy" has a daughter in college. Her name must not be Kelly.
"Abundy" has a daughter in college. Her name must not be Kelly.
Posted on 4/23/24 at 7:44 am to Abundy007
quote:
Abundy007
Member since Apr 2024
5 posts
Posted on 4/23/24 at 4:28 pm to Abundy007
quote:
should I take money from my 401k to pay off her student loans
This is the mindset of today’s parents. Why don’t you let your children mature and learn to stand on their own 2 feet?
You’re not doing either of you any favors.
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