What would you do?
 

My wife just finished up her master's degree, and now we're figuring out our strategy for retirement planning and getting rid of student loans. We've got a kind of weird decision to make, so I'm curious how the Planet's financial minds would tackle it.

The crux of the issue is that she will most likely be able to get up to $17,500 of her $25,000 in student loans forgiven in five years since she's 1) a special ed teacher and 2) in a low-income school. However, we'd more than likely be able to pay it off well before then if we really wanted to. So, in a nutshell, here's the decision (over-simplified to make the discussion simpler):

Option 1: Pay off $17,500 in loans over the course of about two years. Zero chance of anything happening with the government that would compromise this option. We'd pay about $1,200 in interest during that time, for a total "payout" of $18,700 or so.

Option 2: Let it sit there for five years, then apply for loan forgiveness. We'd have to cover all of the interest above the $17,500 during that time, which is worth somewhere around $7,500 over five years, but that would be the total payout - a "benefit" of around $11,200 to our bottom line. However, 1) you never know what the government will do with these programs with all the spending cuts that are coming and 2) it sucks to carry debt when you don't have to. Technically, it also requires that she keep teaching for five years, but I don't see that being an issue.

I know the way I'm leaning, but am just curious to know what the financial advisors of ChiefsPlanet (heh) have to say.

(And too bad R8ers isn't here. ;))

Paying it off in Option 1 wouldn't be a burden on you financially?

My advice to you:

Send ME the payments and a few pics of your wife's titties.

BTW, i charge for my advice so if you could please add another 100K to my casino cash account, that'd be great, k? Thx. Bye

Don't worry DaFace......I took care of Detoxing's advice cost.

I have the pics, what's your email? How much they worth to ya?

Na, not really. My wife more than doubled her income, and we're not really changing our lifestyle. If we went with Option 2, we'd just be socking away more into retirement for the most part.

Would teaching on the planet count as being a special Ed teacher?

if it's financially possible, i would pay it off. i'm a different kinda cat, though.
put me down on that tittay list also, please.
sec

As mentioned, this is definitely over simplified. We've got a few other priorities to take care of as well, but this one is the highest interest rate by a long shot, so the logic applies with this simplified version.

What happened to R8ers, anyway?

Not that I care. He became quite the attention whore there for a bit, then disappeared.

You SOB.

How 'bout a trade? I'll send you pics of Lumpy in exchange?

He got mad at me for taking away his thread creation privs, took his ball, and went home. He's to be commended about doing it quietly, though.

I heard he got shot at a 9ers/raiders game.

I would pay it off now while you can. You never know what's going to happen with the government.

Everyone has those pics man, you're gonna have to make the pot sweeter than that.

Ghost Kush?

Option 2.

My 2 cents: The government doesn't pay its debts, why should we?


;)

Option 1. Don't make others pay your debt, scumbag.

Don't sit and wait.

And there's no reason to wait. Apply now.

Frankly, sounds like you could get your loan amount adjusted based on income and THEN see what you can get forgiven.

Monthly payments drop and you might get that forgiveness on top. Hell, where I was at
(Missouri) if you signed a 4 year contract they paid your loans...

For what it's worth, this is what my gut says to do, but my mathematical brain says Option 2 is the way to go. It's a pretty simple equation, really. If we pay it off, the expected value is $18,700 (100% chance of that happening - again oversimplified). If we don't, I'd calculate the expected value as being $11,875 (25% chance of getting screwed and paying $25k total + 75% chance of not getting screwed and paying $7500 total).

If I were voting for the program, I'd probably vote against it. But I have no moral issues with taking advantage of it since it's there.

just pay it off if it's not a big problem, no telling what could wrong before the loan forgiveness

I'd retake my finance classes. :hmmm:

To unsimplify it, I think you would take the expected value of option 2 and add whatever you can make off the money saved, but it's still probably not enough to offset the risk.

Like R8rs, I'm a big fan of Dave Ramsey. I just don't get militant about it. This is one of the few times when I've broken his advice. My wife is a teacher as well and is in that same loan repayment program.

I just set aside the $17,500 into an interest bearing account in case something goes wrong (government welches, she gets laid off, stops teaching, etc.) and the $17,500 doesn't get paid.

The interest rate is so low on her loans that it's negligible. It's the only debt we have besides our house, and I don't really consider it to be debt given the circumstances.

So I'll give an honest response. The no 1 question is what does your wife want to do? If she equally enjoys the jobs that would allow her to forgive her loans then you go to step two. But if there's a risk that she wouldn't like those jobs screw it and choose option 1. Happiness is way more important than 10k.

However if she would like to do the jobs that as much as her other options, then the questions comes, what are the odds she'll get the loan forgiveness. I see two major risk factors. First, government pulls funding for the program. Personally given the need for qualified teachers and the number of retirements expected this one is probably less. BUT it is always a risk now. The question is when are you likely to know if the funding is going to get cut. If you find out right before year 5 then that would suck because you paid the most. But if you find out in say 6 months, then the opportunity cost would be less since you'd only have 6 months of 'extra' interest offset by the money you earned saving it. So the question is when do you think you'd find out if the program is cut. Personally I think the risk is greatest in the next 6 months and likely tails off after that(unless our economy is really ****ed at which point all bets are off).

Second point, are there any other factors that would prevent her from completing the 5 year requirement? Given you list your age as 29, do you have kids now? DO you think your wife wants to have kids in the next 5 years? If so do you think she would go back to work after(it is by no means assured).

Really we could spend a lot of time going over the economics, but the answer is likely simplest. As your wife which combination of job/savings makes her happiest, extra job stress to save 10K probably isn't worth it.

Yeah, I know it's way oversimplified, but I didn't really feel like getting into time value of money and risk calculations on the Planet. :)

I don't really see that as being a big issue. She was a para in the same school for two years before this, so she knew exactly what she was getting into. As for kids, it's not in the plans (though I'll never say never).

For what it's worth, the current plan is to prioritize this lower than a couple other student loans, but eventually probably pay it off. I hate leaving money on the table, but I also hate paying interest. And I'd REALLY hate to have planned on it, then have it not work out.

I pay my own way.
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Cool - glad to hear someone else has thought about this same situation. And your point about setting it aside somewhere we can get to it is a good one. I suppose that, rather than socking it into an IRA or similar, we could put it into something a little more liquid just in case we needed to dump it in a hurry somewhere down the line.

Wait 5 years

So I'll state an important bit here(or it is to me). Everything in life is a risk and you can't control the possibilities. All you can do is do your homework with the best possible information at the time and make a decision based upon that. If you do that then no matter how it turns out, you should be ok with that because that's the best you can do.

If you always play it safe and take the conservative approach you will miss out on quite a few opportunities in life. The important point is to do your homework, and if you do that, most times it'll turn out right. I think of many things in life like poker, I make the best decision with the information I have at the time. Cards will fall as they may and I may have won when I wasn't supposed to or lost when I was supposed to win but that's life, you don't regret because you made the right choice at the time and that's all you can do.

You should get angry if a bad outcome happens because you didn't do your homework. You should never feel upset if you get unlucky and something happens that you couldn't control or predict. That's just life. Or the football analogy...even the best CBs get beat from time to time, the point is to put it behind you and play the next down to your fullest.

You can start paying down the first $7500 while you figure it out. You don't want you wife stuck in a job she decides she doesn't like, or pass up on something better just because you are locked into the forgiveness plan which will 'probably' still be around in five years.

You should also have a stern talk with your employer about a student loan repayment benefit.

Because our student loans stay with us, even after bankruptcy. :/

Yes. And use rep as leverage in negotiations.

Yea but the real question is, if the government goes bankrupt would the students loans go with it?:D

Not even a question in my mind, as long as she's sure she wants to teach. Sitting on the debt is worth roughly $200 per month over the next five years. I wouldn't worry about the feds canceling the program.

wow? you're married? huh. interesting.

Pretty amazing, isn't it?

made myself lol!

Yeah, no arguments there. I just keep going back and forth on the issue. As I've mentioned, the numbers pretty clearly say that I should just wait. But the time will come here pretty shortly where I am $17,500 away from being able to say I'm debt free (aside from the mortgage), and I know it's gonna grate at my nerves to have it sitting out there.

Still, I'm kind of liking the Saul Good idea mentioned above. Let it sit, but make "payments" into another liquid account just in case something falls through. At least that way, I'll be able to say that I'm practically done with our student loans, even if I'm not in actuality.

She only likes me for my money.

i figured it was for the tags.

This, option 4....

My fiance just graduated from KU with her Masters ( and a 4.0) She is working for the state in a low income area , and in return her student loans are being partially paid off from the government. Its a good deal because her services are greatly needed in the neighborhood she and I grew up in.

Just pay it and be done with it. There's so much value to just being "done" with all that garbage. Get there as fast as you can and enjoy it once you get there.

Wow.



































That had nothing to do with anything.

There's even more value in knowing that you've got the $17,500 sitting in an account in case you need it and then not needing it.

The answer is option two, and it's not even close.

She got the 4.0. Not him.

It's a slow build to $11,200. Oh, and he gets to deal with creditors for the next five years harassing him. And a destroyed credit rating. (Note: this may not be important unless there are job opportunities that require a credit/background check.) And at the end of it all he would be counting on nobody changing the "forgiveness" rules.

No thanks. If you can shed that monkey, then do it.

They 1099 you for the forgiveness part in 5 years? That's another cost to consider into the issue.

My nerves could take a lot of grating for $11K.

My wife owes about $20K. She's 2 years into the 5 year deal that will pay back $17,500 of it. I've got that sitting in an account drawing a little interest while we make the payments on time.

If she decides to change careers or stop working, the money is there to pay it all off. Otherwise, she gets $17,500 in 3 years, and we pay off the loan.

There's no harassment. My credit is 800+, and hers is in the upper 700s. The only possible reason to pay it off would be if you were worried about the government reneging on the deal, and you wanted to avoid 5 years of interest on the debt by paying it off early.

I'm not worried about that, and the interest is 2.25% on my wife's loans. (It sounds like it's higher for Phobia's, but I don't know that for certain.) Either way, it sounds like he's working on other debts as well.

At the very least, he should move this one to the bottom of the stack and focus on the other debts first.

I haven't looked into it, but I would assume so.

Okay, stand corrected on that part, then. I have heard of companies making a business out of collecting on student loans just like they would credit cards. Maybe some of that has changed with the recent overhaul to credit rules. Surprised it doesn't affect credit rating, though.

Not sure where the creditors stuff came in here. I'm not talking about passing on required payments. In fact, to de-simplify it a bit, it's currently sitting at $25k with a $200 minimum monthly payment. By my calculations, if we just pay that minimum for 5 years, it'll be sitting at around $17.5k.

Like Saul Good, my credit's at around 800, and the wife is at around 785. We're not in trouble of screwing up here. It's purely a matter of what the best approach is for the situation.

I wouldn't think so, but I'm not sure of that. Good point, though.

Nothing is changed. You keep paying the monthly payment during those 5 years, so there is no reason for collectors to call. The question isn't whether or not he should stop paying. The question is whether he should just pay the whole thing off and be done with it.

It's almost certainly either debt forgiveness or straight income. Both of those are taxable.

Yeah, you could be right. Still, it seems odd that a tax-supported program would be taxable. For example, we took advantage of the $8k tax credit for our house a few years back, and the $8k was NOT taxable.

If the program is loan forgiveness, then you should take option #1. You borrowed the money and you owe it. You should pay it back.

If the program is contracted benefit to attract a qualified employee, then go modified option 2 with payoff cash in an account ready to go. Debilitating injury/illness in year 4 would really stink. If this is from a locality watch out for severence right before they have to pay out.

I am big fan of free market. If they need that incentive to attract good people then go for it. If that is part of her compensation package, then she deserves every penny.

That's essentially a write-off. A tax deduction isn't taxable, but income (eg; SS benefits) is.

According to this link, it probably would not be taxable:

http://www.finaid.org/loans/forgivenesstaxability.phtml

This isn't a handout. It's a way to attract qualified people to areas of need. You should absolutely take advantage of that. It's like the GI bill for teachers in low-income and/or high-need areas.

You wouldn't go through the military and then go "I really shouldn't let them pay for my college". That would be insane. It's part of the deal you signed onto.

The program is designed to get people to go into high-need areas, such as special education, math, and science, and it's especially targeted at high need schools as well. So yes, it's an incentive program. However, it didn't make any difference in her choice of school for the most part. She gets a kick out of helping the kids who need it most.

Still, I couldn't care less whether she "deserves" it or not. As I mentioned earlier in the thread, I'm not a huge fan of stuff like this, but I pay for it in my own taxes, so I'm sure as hell not going to say no if it's to my financial advantage.

Why wouldn't you be a fan of it? It's simple supply and demand. There is more demand for certain positions than there is supply, so the price has to go up. Because of unions, the salaries can't go up directly, so they have to go about it a different way.

Working for 5 years in order to get $17,500 in extra compensation isn't like taking welfare. There's a reason that they can't fill these positions.

Cool. Good to know.

Woo Hoo

Eh, her district is one of the highest-paying districts in the state already - partially due to the fact that they have such high demand. I'm just generally not a huge fan of subsidy programs in general. Nothing against this one in particular.

This is what I would do. You can't have enough cash laying around. If you want to remodel you kitchen or your basement leaks or something stupid, you don't want all your money in an IRA.

Got it. I want to change my vote now.

What would I do if I was you?

Get off Chiefsplanet and **** my hot wife.

I would try to figure out what the talking heads and financial gurus would do if this was put in the context of a national debt. Then I would do the opposite.

I voted pay it off because I wouldn't be that surprised if the forgiveness program was ended and because it would free your wife to work somewhere else (or not work) if she wants. If she's confident that she wants to stay in her current job for at least 5 years, it might be worth the gamble to let it ride and go for forgiveness.

The bottom line as far as I'm concerned is that a few thousand dollars over several years isn't worth it if your wife will feel trapped by it.

Current specific job? Maybe, maybe not. Current district (were almost all of the schools qualify)? Highly likely. In a surrounding district where they have schools that qualify? Almost a given.

Five years later, loan forgiveness of $17,500 came through without a hitch. Glad we didn't pay it off earlier.

Nice!

I'm pretty sure the wheels would fall off if you tried that in Kansas. Glad she got it done.

Sweet!

We're in a little bit of the same conundrum ourselves right now. My wife is a prosecuting attorney. She paid off her private loans about 6 years ago, but still has about $60k in federal loans left over. She's 5 years into a 10 year public service student loan forgiveness program. Currently doing income base repayment and if nothing changed, she'd probably have about 40 of the 60k forgiven in another 5 years.

Problem is, we're married now, and starting in two months my income is going to count towards her income based repayment as well if we file out taxes jointly. So her monthly payment staying in the same program are gonna go from about $450 to $1100. She's not very happy.

It's a basic math equation, but some of the rules of each program are so ****ing confusing. Still trying to figure out our best option. Might end up doing married filing separately so her repayment stays based off her income only. But then we'll be giving up quite a few other tax breaks.

Bottom line...student loans are a bitch. Glad your plan worked out for you!