What would you do?

[DaFace]

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. )

[ToxSocks]

Originally Posted by Gonzo

you're gonna have to make the POT sweeter than that.

Ghost Kush?

[Saulbadguy]

Option 2.

[BigMeatballDave]

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

[Donger]

Originally Posted by DaFace

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. )

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

[Rausch]

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...

[DaFace]

Originally Posted by seclark

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

Originally Posted by Pestilence

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

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).

[DaFace]

Originally Posted by Donger

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

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.

[Mr. Laz]

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

[Bearcat]

I'd retake my finance classes.

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.

[Saul Good]

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.

[CrazyPhuD]

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.

[DaFace]

Originally Posted by Bearcat

I'd retake my finance classes.

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.

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.

[DaFace]

Originally Posted by CrazyPhuD

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.

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).

[DaFace]

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.

[SAUTO]

I pay my own way.
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