WatchSo, the wife has about $200K in loans. Oh my!
They are mostly at 6.8% and one at 7.8%, which is $15K / yr in interest. We have some equity on the house, and could refinance with fha to take another $40K and pay off the higher interest student loan with a lower interest house loan, but eat the mortgage insurance.
We could also pay it down with some safety money & count on each others salary for a safety net.
We could also get some family members to buy 'bonds,' to pay off a portion of the loans, and pay the family member 4 or 5%, which would benefit both parties assuming that all goes well.
Obviously student loans have some benefits. They go with the wife in case of divorce. They can be put off if she loses her job. There may be some other benefits.
The student loan interest deduction seems to max at $2500 & we will probably earn more than the $150k limit, so we will not be able to take the deduction anyway. So, if we do the family loan under the table, then they will get their interest payments tax free, and so we can pay a bit of a lower rate (overall lower taxes for family).
If all goes well, we can aggressively pay this down over the next 5 to 10 yrs.
Does anyone have any experience with this type of thing that they feel like sharing?
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dont pay em off with cash! duh
Buy as much RE as you can finance with as low down payment as possible.
wait a while until you can HELOC all the RE
Take this $ and pay off student loans.
Sell homes and - you are free. (note if you cant get full price+heloc just short sell them and/or walk away and declare BK.... after skimming 3 years of rent of course).
In this way you dont pay the system to go to school, the system pays YOU to go to school. As if you were a special minority with free ride +spending $! nice!
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We could probably take out $100 or $200K on the credit cards between the two of us, and pay off the loans. Then quit our jobs, declare bankruptcy, travel in Greece for a few months, then come back and work :o.
I am however looking for above board options. It is somewhat irritating that the gov't is actively handing out loans at 3.8% to buy a box. Meanwhile, we are stuck with a 7% gov't loan.
With her going into this school, I knew that this was coming. My big mistake was not knowing that student loans cannot be refinanced at the going current rates. If I had known that, I maybe could have hedged against these low interest rates that are killing us.
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Thanks for the advice SF.
I thought that since new student loans are going out at 3.8%, that we could refinance into something better than 6.8. But I am repeatedly getting told that is not possible.
My problem is that with her making $75 K, after taxes, she will net about $49K. After paying for commuting $4K & child care $30K, we are down to 15K + health care benefits.
Refinancing a house or doing a heloc is obvious. If there are really options to refinance a student loan as a student loan (no asset to back it up), that would be great.
The one gov't program that I know of that has seemed enticing is an income based repayment program. Once enrolled, you calculate your payments as 15% of the difference between your salary & 1.5*poverty level:
Monthly payment = (Income - 1.5 * poverty level) * 0.15 / 12 months.
After 23 yrs, the gov't is supposed to forgive the remaining principal. They are supposed to do it after 10 yrs if in a service job. If you are married and file jointly, they use the family income. If filing separately or divorced, they use a single income.
So one option is to game the system. Maybe even get a divorce on paper to lower taxes & remove my income from the equation. Let her work part time & take care of the kids. Then, she can get board certified (another 3 yrs with low pay), etc. After that, maybe buy a practice, pay herself a really low salary, and invest the rest of the money in building the practice. That way her 'income' would be delayed. I think that you can invest in housing in this way by taking a deduction on depreciation & basically claiming a loss each year while deferring income until a later point in time.
The problem is that you are essentially in debt jail for 23 yrs, and you are not guaranteed that the gov't won't pull the forgiveness loan out from under you.
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Move into an ultra dirt cheap rental for 4-600 month and pay it off! Do it fast, guilt free and be at peace.
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dude why did you get married to start with?
You should have gotten married only 'in eyes of god' but not with the feds.
then she crap outta kid, could stay home with them, get s-8 welfare free housing+food stamps+notpay childcare+you live there with her in the free housing+they have NO WAY to get that$ for student loans since she isnt working but ward of state(even though your life is the same with her - you are way better off).
take advantage of the system (legally) or it will take advantage of you.
I think if you divorce on paper they cant come after you for her student loans? depends on when you got married i guess.
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That's pretty funny PockyClipse. When we were in the outer exurbs of LA (Pomona), that seemed like a common enough strategy.
They can't come after me for the student loans if we got a divorce. I don't think that is really on the table for emotional reasons, though.
We can file separately as married people, but the tax penalty is pretty high. It would have been a $5K penalty for us last year. This year, who knows.
She wants to / needs to keep working. Working part time when the kids are young is a possibility. If it saves us money & gives the kids superior care, it would be hard not to do. But she needs to keep working to keep her career moving.
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KILLERJANE says
Not a bad idea in general. This seems like the submissive approach, though. Live like a pauper and pay it off as fast as you can.
However, 500 around here would maybe get you a bedroom in a shared living situation, and that would not do for two people, possibly kids, two dogs, a cat, and a home office. With our mortgage, though, if we took on a border, we could probably get payments down to about 500. That might be a fun way to go.
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Do it, sacrifice a bit.
On another note, try not to buy 'stuff'. It just gets in the way financially. I rent to a nice gal who wants to buy a house in two years after she saves some money. I was at the rental and she has so much 'stuff'. I thought if she just sells all the stuff she could be at least halfway to a down payment. Mixers tools motorbike extra everything, lots of money in the stuff.
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Thanks for sharing your story KillerJane. My wife and I are pretty cheap dates. Our cars are paid off, we have no CC debt, & actively save for retirement, and so on.
What seems to be chapping my ass here is the favoritism in subsidies paid to house debtors over people paying for an education that will (should) improve their earning potential and therefore improve the gov't tax coffers.
This issue has come up a bit over the last two years, and is up for debate in the house at the moment. I am planning on sending the following. Any suggestions are welcome & anyone in a similar boat, please feel free to send a copy or something similar yourself.
Dear Senator xxx :
I am writing to ask you to support legislation aimed at helping constituents manage student loan debt. Bills such as the proposed house bill “Student Loan Forgiveness Act 2012” would be a great help to the economy by setting student loan payments at a level that encourage people to work. In particular, it seems fair to me that students should be allowed to refinance their student loans at rates that are at least competitive with housing loans.
My wife and I recently moved to Maryland and bought a house. We love the area and want to be productive long term residents. My wife currently has $200,000 in student loans, which she took out to cover tuition at a veterinary school. With current student loan and tax rules, her salary of $75,000 does not justify her working. We would be better off financially if she stays at home to take care of kids than to work. Clearly, Maryland, the Federal government, and the Federal Department of Education, and we would all be better off if she works, pays taxes, pays back her loan, and pays for child care.
It seems unfair to me that government subsidizes loans to buy houses with 3.8% tax deductable interest, when we have to pay 7% after tax interest (equal to 10% before taxes) on student loans that were actually used generate income. Even such a small change as bringing student loan interest to parity with house loans would make a huge difference to us.
My wife and I will be watching this issue carefully over the next few years. Every public official who actively supports a bill helping student loan holders will get our support both at the voting booth and as advocates. Any Senator or Representative who introduces legislation on this issue will get our financial support.
Thank you for your support.
XXX
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That's good to do. Good luck with your goal, just wanting and recognizing to be more proactive will help you get there.
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Hi YesYNot - Is there any possibility that she can work on an Indian reservation and have the loans forgiven? I know a couple people with teaching and nursing degrees who are doing that. Good luck.
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YesYNot says
You can borrow money from your 401k at a much lower rate to pay down your interest. If your borrow 401k at around 3% to pay down the 7% student loans you'll save yourself money.
Pay it off as fast as you can and never get into debt again. 200k student loans... that's a big number there.
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Thanks for the idea russell. I have noticed that teachers get loan forgiveness for working under-served areas. There is a similar program for veterinarians. They forgive $25K / yr in loans if you work in an under-served area. Generally, that means working on the farm on cows, swine, small ruminents. So, if she wanted to stick her hand up a cows ass 300 times a day, that would be an option. However, that really isn't even the same job as small animal work, and is not what she trained for or is interested in.
It is probably time to see a CPA with experience in these things and see what our options really are. Depending on how much I make, it may end up costing us $10K /yr for her to work :o.
FortWayneI looked into the 401K loan thing. It's really not a good deal at all when you see the details. It is not the same thing as a loan for 3%.
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its cool your wife wants to keep working - in that field it makes sense you have to build up a practice I suppose.
I know a guy who is 'shacking up for 10 years+' with a lady who gets s-8,welfare,food stamps, gov medicare (she doesnt work and is 'single' on paper and has kids). Anyway they got it to where he is the s-8 landlord on the forms (he owns house they live in) so he 'is supposed to get the rent money' from the feds but in reality she just keeps the checks for herself for drugs and he gets nothing. he gives her the checks or money from them. Your tax dollars at work!
Next time have kids with a welfare queen and you wont be so broke! (avoid marriage at all costs!) hahaha.