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School Loan - To Payoff Or Not To Payoff

By BayArea following x   2017 Dec 29, 9:43pm 3,870 views   44 comments   watch   sfw   quote     share    


#misc

Hi guys,

I've been asked to advise on the following situation:

Husband and wife are both in their early to mid 30s. Wife finished up a medical program in 2013 that left her in school debt of $173K:

Starting Principle: $173K
Federal Interest Rate: 8.5%
Loan Term: 10yrs
Min payment: $2,147
First Payment: 1/1/2013

They've been paying down the loan and today owe $95K. They have about $200K in savings and a combined income of about $200K/yr so the interest is not tax deductible since their salaries are too high. They don't currently need the money, have no plans to start any business, etc. However, they would like to purchase a home in the next 2-4yrs.

Question: Should they pay off the loan in full now? By doing so, they save about $400/mo in interest (or $24K over the next 5yrs or so).

My initial impression is that they should probably go ahead and pay off and close the loan. With all the changes in the current tax system, I just wanted to check with the savvy folks on patnet to make sure I'm not missing anything before I advise them to pay off the loan now.

Since they don't have a need for the money in the near future and since $400/mo savings is substantial and it wouldn't stress them significantly to do so, my impression is that they should close the loan.

What do you guys think?

« First    « Previous    Comments 5 - 44 of 44    Last »

5   BayArea   ignore (0)   2017 Dec 29, 10:01pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

FP says
Heraclitusstudent says
Do they know a risk free investment that will earn more than 8.5%?


Some believe RE to be such :)


Ha, not with today’s date as the entry point.
6   RC2006   ignore (0)   2017 Dec 30, 9:10am   ↑ like (3)   ↓ dislike (0)   quote   flag        

Pay it off 8.5% is a lot.
7   anonymous   ignore (null)   2017 Dec 30, 9:22am   ↑ like (2)   ↓ dislike (3)   quote   flag        

Tell that guy to drop that anchor of a broad. Ugh all that debt and ‘ambition’ to slave her life away in the medical field for long hours sounds like a recipe for misery. Cut his losses and seek happiness ftw
8   HEYYOU   ignore (18)   2017 Dec 30, 9:54am   ↑ like (1)   ↓ dislike (0)   quote   flag        

Debt's not a problem.
Ask anyone.
9   anonymous   ignore (null)   2017 Dec 30, 10:07am   ↑ like (1)   ↓ dislike (0)   quote   flag        

Instead of paying off the loan, use the money and her medical credential to buy up as much OxyContin at wholesale pricing as possible. Start holding Tupperware and treats parties, and use profits from sales to pay down the loan.
10   anonymous   ignore (null)   2017 Dec 30, 10:15am   ↑ like (0)   ↓ dislike (0)   quote   flag        

errc says
Tell that guy to drop that anchor of a broad. Ugh all that debt and ‘ambition’ to slave her life away in the medical field for long hours sounds like a recipe for misery. Cut his losses and seek happiness ftw
Meal ticket. The guy can perpetually work on breaking into the golf pro field, any year now.
11   Patrick   ignore (0)   2017 Dec 30, 10:21am   ↑ like (1)   ↓ dislike (0)   quote   flag        

Heraclitusstudent says
Why would they keep the loan? They like paying 8.5%?

Do they know a risk free investment that will earn more than 8.5%?


I agree. They should pay off the loan, because there is no reliable way to get more than 8.5%, especially after tax. (factual argument)

Also, I just hate debt. (emotional argument)
12   BayArea   ignore (0)   2017 Dec 31, 6:36pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

Heraclitusstudent says
Do they know a risk free investment that will earn more than 8.5%?


I think that’s what it really comes down to. And the answer for them is no.
13   Booger   ignore (1)   2017 Dec 31, 7:02pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

Another vote for paying it off
14   FortWayne   ignore (2)   2017 Dec 31, 9:31pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Heraclitusstudent says
Why would they keep the loan? They like paying 8.5%?

Do they know a risk free investment that will earn more than 8.5%?
15   anonymous   ignore (null)   2017 Dec 31, 9:36pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

I agree. No brainer.

But perhaps set up some payments into investments in it place - so that it doesn't reduce their savings rate too much. That is, if the resulting higher discretionary income goes towards frivolous items, then it could be losing decision. That's the tricky part of the decision. It's taking savings and essentially putting them towards increasing your discretionary income. If that increase doesn't go back to savings or investments, then that impacts on the results.

I know this seems obvious, but it depends on how one is with budgets etc. I'm speaking as someone that could do MUCH better in this area.
16   Quigley   ignore (0)   2017 Dec 31, 9:43pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

They’re doing good to have halved it so far. I think the wife’s income should go up from here as she gains experience in the medical field. At some point, paying off the balance may be trivial. Depending on where they live and how much houses are there, renting vs buying will be a different calculation. It might make sense to buy now and get a little appreciation. But only if it’s not going to result in a financially crippling mortgage/tax burden.

I’d pay off the loan otherwise. That one is 4% higher than it should be and it’s kind of brutal. Might be able to restructure that debt into a different loan. Pay it off as soon as possible.
17   BayArea   ignore (0)   2018 Jan 1, 7:32am   ↑ like (0)   ↓ dislike (0)   quote   flag        

They have a 2yr old child and the wife works part time. They live on the Peninsula and the home price in their city has reached $1.8M (median).
18   APOCALYPSEFUCKisShostikovitch   ignore (34)   2018 Jan 1, 7:51am   ↑ like (3)   ↓ dislike (0)   quote   flag        

Rob a bank and pay off the loan.
19   joshuatrio   ignore (0)   2018 Jan 1, 10:22am   ↑ like (1)   ↓ dislike (0)   quote   flag        

Patrick says
Heraclitusstudent says
Why would they keep the loan? They like paying 8.5%?

Do they know a risk free investment that will earn more than 8.5%?


I agree. They should pay off the loan, because there is no reliable way to get more than 8.5%, especially after tax. (factual argument)

Also, I just hate debt. (emotional argument)


Same here. Good answer.

Pay off the loan, live debt free. Enjoy life.
20   BayArea   ignore (0)   2018 Jan 1, 11:10am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Thanks for all the input ya'll.

I've advised and it sounds like they plan to make the payoff this month.
21   missing   ignore (1)   2018 Jan 1, 11:27am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Pay half of the loan. Or 1/3 of it. Or 2/3 of it. Or x% of it. Why does have to be all or nothing?
22   BayArea   ignore (0)   2018 Jan 1, 11:56am   ↑ like (1)   ↓ dislike (0)   quote   flag        

FP says
Pay half of the loan. Or 1/3 of it. Or 2/3 of it. Or x% of it. Why does have to be all or nothing?


It doesn’t. But why?
23   missing   ignore (1)   2018 Jan 1, 1:53pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

BayArea says
But why?


Why not? Why exclude some of the options from the consideration?
24   BayArea   ignore (0)   2018 Jan 1, 2:28pm   ↑ like (1)   ↓ dislike (0)   quote   flag        

It’s not excluded, I just don’t see the benefit if they can pay all of it now without stress.
25   missing   ignore (1)   2018 Jan 1, 2:46pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Well, you were wondering if the benefit is larger if they pay off the loan (entirely) or not at all. If you are not certain about that, it looks strange to me that you are certain that the benefit is a monotonic function between 0 and 1.
26   anonymous   ignore (null)   2018 Jan 1, 4:19pm   ↑ like (2)   ↓ dislike (0)   quote   flag        

FP says
Well, you were wondering if the benefit is larger if they pay off the loan (entirely) or not at all. If you are not certain about that, it looks strange to me that you are certain that the benefit is a monotonic function between 0 and 1.


The 8.5% interest rate makes it certain that it is that way.
27   missing   ignore (1)   2018 Jan 1, 5:45pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

anon_69258 says
The 8.5% interest rate makes it certain that it is that way.


He can be uncertain about the former but certain about the latter? If certain about about former, why ask the question in the fist place?
28   RC2006   ignore (0)   2018 Jan 1, 5:50pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

What is up with all of these student loans with high interest, they can't be discharged in bankruptcy so the interest should never go higher than 2-3%? When I took out my student loans they were 2.8% for 18k.
29   BayArea   ignore (0)   2018 Jan 26, 6:44am   ↑ like (3)   ↓ dislike (0)   quote   flag        

Update: well they did it and paid off the loan 👍
30   FortWayne   ignore (2)   2018 Jan 26, 8:45am   ↑ like (0)   ↓ dislike (0)   quote   flag        

BayArea says
Update: well they did it and paid off the loan 👍


Congrats! They did the right thing, now that yoke is off their neck, and they are no longer paying 8.5% interest. Great job!
31   anonymous   ignore (null)   2018 Jan 26, 9:03am   ↑ like (0)   ↓ dislike (0)   quote   flag        

BayArea says
Update: well they did it and paid off the loan 👍


They missed the boat, they should have put the 200K in Bitcoin, they'd be RICH!!!
32   Goran_K   ignore (1)   2018 Jan 26, 9:09am   ↑ like (0)   ↓ dislike (2)   quote   flag        

BayArea says
Starting Principle: $173K
Federal Interest Rate: 8.5%
Loan Term: 10yrs
Min payment: $2,147
First Payment: 1/1/2013


wtf, that's an enormous amount of debt.

I had $18,000 of graduate school debt, and paid it off 6 months into my FIRST job.
33   NuttBoxer   ignore (2)   2018 Jan 26, 9:12am   ↑ like (2)   ↓ dislike (0)   quote   flag        

Medical school, not cheap
34   BayArea   ignore (0)   2018 Jan 30, 11:34pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Goran_K says
BayArea says
Starting Principle: $173K
Federal Interest Rate: 8.5%
Loan Term: 10yrs
Min payment: $2,147
First Payment: 1/1/2013


wtf, that's an enormous amount of debt.

I had $18,000 of graduate school debt, and paid it off 6 months into my FIRST job.


Sounds like you might be out of touch with what medical school costs today.
35   WookieMan   ignore (0)   2018 Jan 31, 5:50am   ↑ like (0)   ↓ dislike (0)   quote   flag        

BayArea says
Goran_K says
BayArea says
Starting Principle: $173K
Federal Interest Rate: 8.5%
Loan Term: 10yrs
Min payment: $2,147
First Payment: 1/1/2013


wtf, that's an enormous amount of debt.

I had $18,000 of graduate school debt, and paid it off 6 months into my FIRST job.


Sounds like you might be out of touch with what medical school costs today.

I think it's a bit of an exaggeration on Goran's part or at least that's how I took it. We all know it's expensive, it just really is shocking when you see the number on paper. Or he may have went to college 20-30 years ago. Hell it's already been about 15 years for me. Now I'm feeling old..

The part that is ludicrous is the interest rate at 8.5%. The debt HAS to be paid. This is essentially one of the safest forms of debt for a lender, yet they can charge low credit card interest rates? That's kind of the biggest BS in all this. Knowing what I know now, I would never allow my kids to go to med school. My wife and I just have bachelor degrees. My wife makes around what a doctor does and me around what an engineer would make (I'm not one).

Doctors are regarding as smart by most I assume. At some point, they'll get smart and realize there are other fields that pay as much with waaayyyyy less loan debt to take on.
36   MrMagic   ignore (11)   2018 Jan 31, 7:51am   ↑ like (1)   ↓ dislike (1)   quote   flag        

WookieMan says
Doctors are regarding as smart by most I assume. At some point, they'll get smart and realize there are other fields that pay as much with waaayyyyy less loan debt to take on.


Being smart and having common sense are two completely different animals.

I use to work with a lot of doctors. Being book smart but not having common sense is par for the course. Expecting them to have the common sense not to take on HUGE loans is a real stretch.
37   WookieMan   ignore (0)   2018 Jan 31, 11:49am   ↑ like (0)   ↓ dislike (0)   quote   flag        

Sniper says

Being smart and having common sense are two completely different animals.


Correct. Hence this statement:

Sniper says
At some point, they'll get smart and realize there are other fields that pay as much with waaayyyyy less loan debt to take on.
38   WookieMan   ignore (0)   2018 Jan 31, 12:27pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

@Patrick - how did this happen? I quoted my own comment in the lower part, yet it says it's from Sniper? I didn't change that. Self quote glitch? I'll try to duplicate somewhere else.

39   WookieMan   ignore (0)   2018 Jan 31, 12:29pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Testing. I am a loser because

WookieMan says
My wife and I just have bachelor degrees.
40   WookieMan   ignore (0)   2018 Jan 31, 12:31pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

@ Patrick - God damn, I think I am a loser. Pretty sure it did that because I quoted Snipers quote of my original comment. I assume this is what did it now that I think about it. Forgive me for my error.
41   Patrick   ignore (0)   2018 Jan 31, 12:34pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

Lol, no forgiveness necessary. It's not obvious, but quotes of quotes will be attributed to the comment author who quoted the quote...
42   HEYYOU   ignore (18)   2018 Jan 31, 12:52pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

WookieMan says
Forgive me for my error.


Patnetters never apologize or even contemplate they could be wrong.
What are you trying to do? Destroy p-net? :-)
43   WookieMan   ignore (0)   2018 Jan 31, 1:39pm   ↑ like (0)   ↓ dislike (0)   quote   flag        

HEYYOU says
WookieMan says
Forgive me for my error.


Patnetters never apologize or even contemplate they could be wrong.
What are you trying to do? Destroy p-net? :-)

Come on, someone can call me an idiot on this thread and Pat would have zero option but to leave it up.

No one's doing the "nominated" BS anymore, but I think I just made a top 10 entry in that contest with my previous comments here. And that's saying a lot if you know what I'm saying.
44   Malcolm   ignore (1)   2018 Jan 31, 3:28pm   ↑ like (0)   ↓ dislike (1)   quote   flag        

Anyone carrying a loan at 8.5% nowadays is a fucking nut. Of course you would pay it off, especially if you can borrow at a lower rate to do so.

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