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Question about wife's student loans
Posted on 4/10/13 at 5:36 am
Posted on 4/10/13 at 5:36 am
My wife is a medical resident in year two of a four year program. In medical school she took out roughly $60,000 in student loans which are currently in forbearance (interest is rolling at 6.8%) but payments aren't due until she gets out of residency and starts making real money. We chose to go this route because her monthly payment was going to be around $700/month and we can't afford that.
I have been promoted and work this year and am now making decent money. I have whittled my student debt down to $5,000 which I pay on each month. We own a home with a first and second mortgage but both of our cars are paid off. We also have a good amount of savings in an emergency fund that would allow us to get by for six months if I lost my job (I'm in sales and could get another one easily). I also have a 401(K) through work that I contribute to each month and some money in the stock market that I never really fool with.
My question is, should I start chipping away at my wife's student loan debt right now, or wait until she is out of residency and actually making money? Or should I pay my own loans off first before starting this?
If I do go ahead and start paying them, how to approach the situation with Sallie Mae. Do I simply call them and tell them how much I want to pay each month? Realistically I don't want to cut a check for more than $500 a month.
Any help would be appreciated!
I have been promoted and work this year and am now making decent money. I have whittled my student debt down to $5,000 which I pay on each month. We own a home with a first and second mortgage but both of our cars are paid off. We also have a good amount of savings in an emergency fund that would allow us to get by for six months if I lost my job (I'm in sales and could get another one easily). I also have a 401(K) through work that I contribute to each month and some money in the stock market that I never really fool with.
My question is, should I start chipping away at my wife's student loan debt right now, or wait until she is out of residency and actually making money? Or should I pay my own loans off first before starting this?
If I do go ahead and start paying them, how to approach the situation with Sallie Mae. Do I simply call them and tell them how much I want to pay each month? Realistically I don't want to cut a check for more than $500 a month.
Any help would be appreciated!
This post was edited on 4/10/13 at 5:41 am
9
Posted on 4/10/13 at 7:40 am to FredSecunda
Pay off your own debt. When your wife finishes residency and drops you for someone else she can take her separate debt with her.
Posted on 4/10/13 at 7:46 am to FredSecunda
I would stop contributions into the 401k until I'm out of debt. This would probably boost your take home pay enough to make the $700/month payment.
Definately pay off your loan before doing anything with hers though. After your loan is paid, take that money that you would have paid to your loan and throw it at hers each month.
Im not familiar with forbearance of student loans, but from your statement it sounds like interest is accruing during her residency?
Definately pay off your loan before doing anything with hers though. After your loan is paid, take that money that you would have paid to your loan and throw it at hers each month.
Im not familiar with forbearance of student loans, but from your statement it sounds like interest is accruing during her residency?
Posted on 4/10/13 at 8:02 am to ljd4662
quote:
would stop contributions into the 401k until I'm out of debt
I'm not sure if I like this idea, especially if the OP gets a match from his employer.
Posted on 4/10/13 at 8:16 am to FredSecunda
I was faced with a similar decision a few months ago. Roughly $50K in grad school debt at 7.9%. I took a loan from my 401k and paid off the debt. I then had 5 years to repay the money to the IRA at 4.25%. In the end, I paid myself back the interest instead of the government and saved about $15K in total interest. On the flip side, you also give up a tax dection on student loan interest if you go this route.
Posted on 4/10/13 at 8:17 am to ZereauxSum
quote:
I'm not sure if I like this idea, especially if the OP gets a match from his employer
I guess that would be more motivation to get out of debt faster and start up retirement savings again.
Posted on 4/10/13 at 8:38 am to FredSecunda
6.8% and 7.9% - two rates that I have read in this thread. Is this the going rate for student loans now?
My private student loans (from school from 2002-2005) are variable and the rate right now is a little less than 3%. My federal loans are locked in at 2.5%.
Why are the rates so high now? I know that most interest rate benchmarks are lower than when I took my loans out / consolidated.
To the OP, I regret not paying the interest (at least) on my student loans while in school. It turned 120,000 of borrowing into 150,000 of debt when repayment started. I would try to make those interest payments, particularly with that high of an interest rate.
My private student loans (from school from 2002-2005) are variable and the rate right now is a little less than 3%. My federal loans are locked in at 2.5%.
Why are the rates so high now? I know that most interest rate benchmarks are lower than when I took my loans out / consolidated.
To the OP, I regret not paying the interest (at least) on my student loans while in school. It turned 120,000 of borrowing into 150,000 of debt when repayment started. I would try to make those interest payments, particularly with that high of an interest rate.
This post was edited on 4/10/13 at 8:39 am
Posted on 4/10/13 at 8:38 am to ljd4662
Your wife will not be able to deduct student loan interest. She will be making too much money.
Posted on 4/10/13 at 8:39 am to wiltznucs
quote:
I was faced with a similar decision a few months ago. Roughly $50K in grad school debt at 7.9%. I took a loan from my 401k and paid off the debt. I then had 5 years to repay the money to the IRA at 4.25%. In the end, I paid myself back the interest instead of the government and saved about $15K in total interest. On the flip side, you also give up a tax dection on student loan interest if you go this route.
This is very dangerous. The note would have been called in the event that you lost your job (meaning you owe $50k now).
Posted on 4/10/13 at 8:44 am to ljd4662
quote:
This is very dangerous. The note would have been called in the event that you lost your job (meaning you owe $50k now).
Not really as I see it, I had the $50K available in fully vested funds and it made up a small percentage of my total portfolio value. Worst case scenario I default and pay the 10% penalty and income taxes on the $50K. Either way I'm not stuck paying credit card interest rates on Federal student loan debt...
Posted on 4/10/13 at 8:49 am to elposter
quote:
7.9%
This is the standard rate for Grad Plus loans as of 2011-2012...
Posted on 4/10/13 at 8:54 am to wiltznucs
quote:
Not really as I see it, I had the $50K available in fully vested funds and it made up a small percentage of my total portfolio value. Worst case scenario I default and pay the 10% penalty and income taxes on the $50K. Either way I'm not stuck paying credit card interest rates on Federal student loan debt...
So not only would you have lost your job, but you also would have had a tax bill of approx $20k. I see what you mean, thats not dangerous at all.
Posted on 4/10/13 at 9:07 am to ljd4662
Dont get me wrong, you can base your entire life's decisions on possible worse-case outcomes. I'm sure slipping on a condom and making sure a IUD is present plus having your mate chug a Plan B the following morning is in some peoples repetoire to avoid having children.
The problem is that your scenario breaks down on its first assumption which is that the IRA provider would come after you if you lose the job. This is simply not true. The IRA provider will happily allow you to transition employment if you maintain the repayments to the IRA and keep the account open(even without future contributions). In addition, lets not lose sight of the fact that they are getting maintenance fees and using your capital for their operations. They have every financial incentive to keep your account open! This is even more evident if you transition employers as from the IRA providers perspective they get to charge you fees and do no work as you arent even making contributions!
Bottom line, as always its all risk vs reward. Theres a darn good chance you can save yourself a considerable interest sum if you play the game correctly.
The problem is that your scenario breaks down on its first assumption which is that the IRA provider would come after you if you lose the job. This is simply not true. The IRA provider will happily allow you to transition employment if you maintain the repayments to the IRA and keep the account open(even without future contributions). In addition, lets not lose sight of the fact that they are getting maintenance fees and using your capital for their operations. They have every financial incentive to keep your account open! This is even more evident if you transition employers as from the IRA providers perspective they get to charge you fees and do no work as you arent even making contributions!
Bottom line, as always its all risk vs reward. Theres a darn good chance you can save yourself a considerable interest sum if you play the game correctly.
This post was edited on 4/10/13 at 9:15 am
Posted on 4/10/13 at 9:26 am to wiltznucs
quote:
The problem is that your scenario breaks down on its first assumption which is that the IRA provider would come after you if you lose the job
You dont have any income! Ofcourse theyre going to call the note on that loan. On a side note your wording is incorrect. You cannot borrow against an IRA like you can a 401k.
quote:
you can base your entire life's decisions on possible worse-case outcomes
its not about basing my life on worst case scenarios. Its about being smart with money and not putting myself in a position to fail.
Posted on 4/10/13 at 9:30 am to ljd4662
quote:
I guess that would be more motivation to get out of debt faster and start up retirement savings again.
Even if the OP pays off the debt as fast as humanly possible, he's still worse off if he doesn't get the matching contribution from his employer.
It doesn't make sense to give up a certain 50-100% return just to save 7% in interest.
Posted on 4/10/13 at 9:40 am to ljd4662
quote:
You dont have any income! Ofcourse theyre going to call the note on that loan.
I'll simply defer to personal experience and let you know that you are 100% and unequivocally wrong...
This post was edited on 4/10/13 at 9:42 am
Posted on 4/10/13 at 9:54 am to FredSecunda
Damn....your wife's loans are chump change next to what my wife will be in the hole for after med school.
Posted on 4/10/13 at 9:57 am to wiltznucs
quote:
you are 100% and unequivocally wrong.
Run a quick google search about losing a job and repaying a 401k loan and look at the numerous articles outlining what I wrote.
I really like this turbo tax website (LINK ). Outlines it well. But you must be the exception.
Posted on 4/10/13 at 10:02 am to ljd4662
quote:
But you must be the exception.
I must be, but so too are many others. I'm sure there are some providers and instances where it happens.
In our case, my wife quit her job prior to the birth of our first child. Months later we pulled money from the 401k to boost our down payment on a house 600 miles away when we moved to FL. 6+ years later, the loan repayment is complete and the account is still open. We havent made a contribution in nearly 7 years and the provider AIG/Valic has never blinked an eye.
The reason why? We continued to make payments and Valic likes gaining money in the form of fees..
To be clear, she quit the job and had no other employment. She hadnt made a contribution in months. They still issued the loan and we repaid it. Walk in the park honestly.
I think your overestimating the people on the other end of the transaction. In my experience, as long as money keeps coming in they really dont care what the source is..
This post was edited on 4/10/13 at 10:11 am
Posted on 4/10/13 at 10:23 am to wiltznucs
I really do not want to stop contributing to my 401(k) because my employer does match. I also do not want to borrow against it and take on anymore debt.
This post was edited on 4/10/13 at 10:23 am
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