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. )

[DaFace]

Originally Posted by 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.

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.

[Ming the Merciless]

Wait 5 years

[CrazyPhuD]

Originally Posted by DaFace

And I'd REALLY hate to have planned on it, then have it not work out.

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.

[trndobrd]

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.

[Jenson71]

Originally Posted by Dave

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

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

[Jenson71]

Originally Posted by trndobrd

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

Yes. And use rep as leverage in negotiations.

[CrazyPhuD]

Originally Posted by Jenson71

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

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

[Rain Man]

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.

[cabletech94]

wow? you're married? huh. interesting.

[Rain Man]

Originally Posted by cabletech94

wow? you're married? huh. interesting.

Pretty amazing, isn't it?

[cabletech94]

Originally Posted by Rain Man

Pretty amazing, isn't it?

made myself lol!

[DaFace]

Originally Posted by CrazyPhuD

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.

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.

[DaFace]

Originally Posted by cabletech94

wow? you're married? huh. interesting.

She only likes me for my money.

[cabletech94]

Originally Posted by DaFace

She only likes me for my money.

i figured it was for the tags.

[digger]

Originally Posted by 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.

This, option 4....