I am scared of my student loan debt
February 20, 2020 9:57 AM Subscribe
I have $150K in federal student loan debt. I make $63K/year pre-tax with a possibly yearly bonus of 15% of my salary, so total possible pre-tax income of around $73K. I am single. I'm almost 40 and this is stressing me out. I need advice.
No, I'm not a doctor or lawyer, I just came from a working class background, parents terrible with money, made dumb decisions. Technically there are 2 loans, a subsidized one and an unsubsidized one. I consolidated all my student loan debt in 2011 but my finances were a mess and it was in forebearance until October 2015 when I started repayment until a Revised Pay as You Earn (REPAYE) plan.
Since I have grad school debt, this loan is supposed to be forgiven after 300 on-time monthly payments. I have not missed a payment since I started repaying, so I have made 53 payments out of the 300. I have 247 payments left to go, so about 20.5 years. I do not have any other debt.
My options, as I see them:
1) Continue paying under REPAYE until October 2040 (even typing that out is making me panic.) Hope that the federal government honors its agreement and forgives the balance of the loan. The loan payment is manageable and I am still able to save for retirement, etc. However, I am deathly afraid that the loan won't be forgiven (just look up Public Student Loan Forgiveness if you wonder why I have this fear.) Even if it is, currently the IRS considers forgiven student loan debt as taxable income, so at age 60 I would looking at an absolutely massive tax bill. If I am doing the math right, my loan balance would increase to about... $400K, assuming a 5.25% interest rate (which could change), because the monthly payment doesn't even cover the interest on the loan. This seems... bad.
2) Stay in my current city, cut expenses to the bone, get a part-time job, and throw as much money at the loan as I can. If I live like a college student (roommate, no eating out, no saving, I mean a truly radical budget, buying nothing, doing nothing that costs any money) I estimate that (assuming I could get a part-time job making $15/hour that would pull in about $1K a month) I could pay off $3200 a month or $38,400 a year, not factoring in the bonus. With the bonus I'm looking at probably $44K. This would have the loan paid off in about 3.5 years.
3) My mother has offered to let me live with her, for free, until I pay this loan off. She lives about 45 minutes away in another state. I figure under this plan I could take $3K of my take home plus another $1K from a part-time job plus yearly bonus for about $54K of debt payment a year. I could have the loan paid off in less than 3 years.
These are very tough decisions. Like I said, I'm almost 40, with no partner. I would like one, but I don't know how that would happen under options 2 or 3. I also have chronic medical conditions that I have be cognizant of--I can't just work like crazy (80+ hours a week) because I will tire myself out and probably flare my condition.
If I move in with my mother, I will likely be socially isolated. I moved to my current city about a year and a half ago and I've made some friends, started building a life here. Moving in with my mother would mean that would all be over as I could not afford to travel up here to do anything. So, I'm looking at being 43 (44 or 45 if I decide to continue living there to save for a house) and be in a position of being single at 45 and having to reestablish myself socially.
Finally, I have a condition which means that there is a 50/50 chance I will be on dialysis by age 70. I don't really even know how to begin to factor that in, but it seems relevant.
I just don't know what to do. I know I want to get rid of this debt, but the lifestyle I would have to live to do so, at this age, and with my medical conditions, I just don't know how long I could keep it up. But then thought of being 60 years old with a tax bill on (let's say) $500K of income, well, I have no idea how I'd ever pay that off. I guess I could save for it, but that's a lot of money to save, and I'd like to buy a house and save for retirement.
Maybe this will be all be moot in January 2021 when President Sanders signs an executive order instructing the Department of Education to write off all federally-guaranteed student loan debt. But planning for something like that is childish. This is my problem and I need to solve it. Option 1 is the easiest, but I don't know that I can keep this hanging over my head for the next 20 years. It's like a bomb that may or may not go off at age 60. But I also don't know what my health is going to be like, and going backwards in life for the next 5 years, being 45 with maybe 25 years of adequate health left to me, is also terrifying.
I am seeing my therapist tomorrow and this will be agenda item 1. They will help me sort through the emotions of this. Would a financial planner help? I don't think they are very knowledgeable about student loans. Is there someone out there I can talk to to help me sort through this? I just don't know what to do.
I want to remain anonymous, so I will not be answering any follow-up questions. I think I've given all relevant details so I hope I didn't miss anything.
No, I'm not a doctor or lawyer, I just came from a working class background, parents terrible with money, made dumb decisions. Technically there are 2 loans, a subsidized one and an unsubsidized one. I consolidated all my student loan debt in 2011 but my finances were a mess and it was in forebearance until October 2015 when I started repayment until a Revised Pay as You Earn (REPAYE) plan.
Since I have grad school debt, this loan is supposed to be forgiven after 300 on-time monthly payments. I have not missed a payment since I started repaying, so I have made 53 payments out of the 300. I have 247 payments left to go, so about 20.5 years. I do not have any other debt.
My options, as I see them:
1) Continue paying under REPAYE until October 2040 (even typing that out is making me panic.) Hope that the federal government honors its agreement and forgives the balance of the loan. The loan payment is manageable and I am still able to save for retirement, etc. However, I am deathly afraid that the loan won't be forgiven (just look up Public Student Loan Forgiveness if you wonder why I have this fear.) Even if it is, currently the IRS considers forgiven student loan debt as taxable income, so at age 60 I would looking at an absolutely massive tax bill. If I am doing the math right, my loan balance would increase to about... $400K, assuming a 5.25% interest rate (which could change), because the monthly payment doesn't even cover the interest on the loan. This seems... bad.
2) Stay in my current city, cut expenses to the bone, get a part-time job, and throw as much money at the loan as I can. If I live like a college student (roommate, no eating out, no saving, I mean a truly radical budget, buying nothing, doing nothing that costs any money) I estimate that (assuming I could get a part-time job making $15/hour that would pull in about $1K a month) I could pay off $3200 a month or $38,400 a year, not factoring in the bonus. With the bonus I'm looking at probably $44K. This would have the loan paid off in about 3.5 years.
3) My mother has offered to let me live with her, for free, until I pay this loan off. She lives about 45 minutes away in another state. I figure under this plan I could take $3K of my take home plus another $1K from a part-time job plus yearly bonus for about $54K of debt payment a year. I could have the loan paid off in less than 3 years.
These are very tough decisions. Like I said, I'm almost 40, with no partner. I would like one, but I don't know how that would happen under options 2 or 3. I also have chronic medical conditions that I have be cognizant of--I can't just work like crazy (80+ hours a week) because I will tire myself out and probably flare my condition.
If I move in with my mother, I will likely be socially isolated. I moved to my current city about a year and a half ago and I've made some friends, started building a life here. Moving in with my mother would mean that would all be over as I could not afford to travel up here to do anything. So, I'm looking at being 43 (44 or 45 if I decide to continue living there to save for a house) and be in a position of being single at 45 and having to reestablish myself socially.
Finally, I have a condition which means that there is a 50/50 chance I will be on dialysis by age 70. I don't really even know how to begin to factor that in, but it seems relevant.
I just don't know what to do. I know I want to get rid of this debt, but the lifestyle I would have to live to do so, at this age, and with my medical conditions, I just don't know how long I could keep it up. But then thought of being 60 years old with a tax bill on (let's say) $500K of income, well, I have no idea how I'd ever pay that off. I guess I could save for it, but that's a lot of money to save, and I'd like to buy a house and save for retirement.
Maybe this will be all be moot in January 2021 when President Sanders signs an executive order instructing the Department of Education to write off all federally-guaranteed student loan debt. But planning for something like that is childish. This is my problem and I need to solve it. Option 1 is the easiest, but I don't know that I can keep this hanging over my head for the next 20 years. It's like a bomb that may or may not go off at age 60. But I also don't know what my health is going to be like, and going backwards in life for the next 5 years, being 45 with maybe 25 years of adequate health left to me, is also terrifying.
I am seeing my therapist tomorrow and this will be agenda item 1. They will help me sort through the emotions of this. Would a financial planner help? I don't think they are very knowledgeable about student loans. Is there someone out there I can talk to to help me sort through this? I just don't know what to do.
I want to remain anonymous, so I will not be answering any follow-up questions. I think I've given all relevant details so I hope I didn't miss anything.
Try perhaps to think of this less as a debt and more as a monthly payment like electricity.
Awesome advice and what I came here to say. My loans may be paid off in 20 years when I am almost 60. I am treating them like an expensive monthly payment, and I don't even think about it otherwise unless something dramatic changes in my life that would mean I might miss a payment.
posted by Young Kullervo at 10:18 AM on February 20, 2020 [18 favorites]
Awesome advice and what I came here to say. My loans may be paid off in 20 years when I am almost 60. I am treating them like an expensive monthly payment, and I don't even think about it otherwise unless something dramatic changes in my life that would mean I might miss a payment.
posted by Young Kullervo at 10:18 AM on February 20, 2020 [18 favorites]
I believe you may have a fourth option: aggressively pursue higher pay work.
It is likely that if you are capable of making $73k, that you can find similar work that pays 10-15% more; and that you could likely repeat that trick after a successful 2-3 years in that role, resulting in pre-tax compensation in the $90-100k range, within a few years.
I am not suggesting working 80 hours, or working a second job. I am suggesting a job hunt to replace your current job with one that is similar, but with more generous compensation. This could involve a slight shift in role, industry, or responsibilities; but pay bands are often quite wide, and it can be possible to get material improvements to comp just by getting the same job with a new employer.
posted by whisk(e)y neat at 10:18 AM on February 20, 2020 [45 favorites]
It is likely that if you are capable of making $73k, that you can find similar work that pays 10-15% more; and that you could likely repeat that trick after a successful 2-3 years in that role, resulting in pre-tax compensation in the $90-100k range, within a few years.
I am not suggesting working 80 hours, or working a second job. I am suggesting a job hunt to replace your current job with one that is similar, but with more generous compensation. This could involve a slight shift in role, industry, or responsibilities; but pay bands are often quite wide, and it can be possible to get material improvements to comp just by getting the same job with a new employer.
posted by whisk(e)y neat at 10:18 AM on February 20, 2020 [45 favorites]
You know about PSLF, so I'm wondering whether you considered finding a position that qualifies for it. Yes the program has major problems but you can be on REPAYE under PSLF and be no worse off than you are currently.
Another thing you might consider is finding a position with student loan repayment as an incentive offered with the position. More and more employers are doing this because the panic you're feeling is becoming pretty ubiquitous.
posted by crunchy potato at 10:39 AM on February 20, 2020 [6 favorites]
Another thing you might consider is finding a position with student loan repayment as an incentive offered with the position. More and more employers are doing this because the panic you're feeling is becoming pretty ubiquitous.
posted by crunchy potato at 10:39 AM on February 20, 2020 [6 favorites]
I am you except about 5 years younger. I treat mine like a recurring bill and try not to let others' debt anxiety pull me into a spiral. I can still save for both short term and for retirement, pay my regular bills, etc. but I'm not paying any more on my loan than I have to under REPAYE. My payments do not cover the interest; the balance is increasing, and I don't worry about it much.
I took a job that qualifies for PSLF, and am accruing payments toward forgiveness, assuming that program stays in place and that I remain qualified for it, but other than that I don't think about it overly. If PSLF goes away, I will deal with my tax bill under REPAYE when it happens--by then I will have savings that will help me cross that bridge.
I took out these loans to get the degree that got me my job; I could not work in my field without it and I think my work makes a difference and has value beyond what our society/economy are willing to pay me. This is what I tell myself when I get down about getting myself into this kind of academic bet. Maybe a mantra like this would help your anxiety a bit?
posted by assenav at 10:55 AM on February 20, 2020 [7 favorites]
I took a job that qualifies for PSLF, and am accruing payments toward forgiveness, assuming that program stays in place and that I remain qualified for it, but other than that I don't think about it overly. If PSLF goes away, I will deal with my tax bill under REPAYE when it happens--by then I will have savings that will help me cross that bridge.
I took out these loans to get the degree that got me my job; I could not work in my field without it and I think my work makes a difference and has value beyond what our society/economy are willing to pay me. This is what I tell myself when I get down about getting myself into this kind of academic bet. Maybe a mantra like this would help your anxiety a bit?
posted by assenav at 10:55 AM on February 20, 2020 [7 favorites]
I wonder if part of the reason that this feels so stressful for you is that you've internalized a lot of moral baggage about what your debt signifies. You use the phrase "dumb decisions" to describe your debt--does it help to realize that millions of Americans made those same "dumb decisions" and are continuing to do so? We are drowning in a culture that pushes college no matter what the costs and has rampant degree inflation, so of course taking out debt to chase the carrot of a high-paying job seemed reasonable. It doesn't say anything more about your intellect or your moral code than having an electricity bill does, to use an analogy from previous posters.
Also, both options 2 and 3 sound miserable and like instant paths to wrecking your health. Dialysis will wipe you the fuck out and I do not recommend anything that hasten you down that path any more quickly than necessary.
posted by ActionPopulated at 11:11 AM on February 20, 2020 [21 favorites]
Also, both options 2 and 3 sound miserable and like instant paths to wrecking your health. Dialysis will wipe you the fuck out and I do not recommend anything that hasten you down that path any more quickly than necessary.
posted by ActionPopulated at 11:11 AM on February 20, 2020 [21 favorites]
I have a feeling that one day...I'll die. (Pretty sure about that.) And it won't surprise me at all if I haven't finished paying off my student loans. It doesn't bother me either. I see them as an annoying line item that I pay every month and I don't think about it. I live my life. Because there's no guarantees.
I agree you should see a financial advisor and have a conversation about all your financial plans and retirement savings and etc.. They know how to think about student loans because over 44 million Americans have student loan debt. It's a line item on many household balance sheets.
Tax bills also can be paid off in increments. And you could get your tax bill on a Monday, be bitten by a radioactive llama on a Tuesday and never have to worry about that bill by that Friday.
Breathe. You are a smart person who can and will make smart choices. A smart choice is not to contort your life around this debt, you absolutely will miss other opportunities to put your money to better ends if you do that. Please talk with a financial advisor and also reach out to your social network and see if you can find a money-buddy or two to help you keep from freaking out. The forums on Bogle would probably also be helpful.
posted by amanda at 11:27 AM on February 20, 2020 [14 favorites]
I agree you should see a financial advisor and have a conversation about all your financial plans and retirement savings and etc.. They know how to think about student loans because over 44 million Americans have student loan debt. It's a line item on many household balance sheets.
Tax bills also can be paid off in increments. And you could get your tax bill on a Monday, be bitten by a radioactive llama on a Tuesday and never have to worry about that bill by that Friday.
Breathe. You are a smart person who can and will make smart choices. A smart choice is not to contort your life around this debt, you absolutely will miss other opportunities to put your money to better ends if you do that. Please talk with a financial advisor and also reach out to your social network and see if you can find a money-buddy or two to help you keep from freaking out. The forums on Bogle would probably also be helpful.
posted by amanda at 11:27 AM on February 20, 2020 [14 favorites]
What's the amount of your monthly payment? Is it manageable? I agree with other folks: think about it as a monthly charge you're stuck with, rather than a total amount of debt. I'm really glad to hear you are going to therapy to talk about this, because this is clearly weighing on you profoundly. This amount of debt isn't great, and it sounds like you have a lot of shame and stress around it... I actually think those are the bigger issues to tackle. Lots of people have student loans, and it's not considered "bad" debt like credit card debt is in the same way.
If you had the ability to start working really hard and saving lots of money, it seems to me a better use of that money might be to save for retirement rather than paying off this debt so quickly, but a financial advisor could speak to that better than I could.
I think therapy will be really great. I want to encourage you to give yourself space for the choices you made. You have a good job with a high potential bonus after coming from a pretty different background. You're doing good!
posted by bluedaisy at 11:29 AM on February 20, 2020 [1 favorite]
If you had the ability to start working really hard and saving lots of money, it seems to me a better use of that money might be to save for retirement rather than paying off this debt so quickly, but a financial advisor could speak to that better than I could.
I think therapy will be really great. I want to encourage you to give yourself space for the choices you made. You have a good job with a high potential bonus after coming from a pretty different background. You're doing good!
posted by bluedaisy at 11:29 AM on February 20, 2020 [1 favorite]
Lots of excellent advice above. All of these options sound far too extreme as you have laid them out, as everyone else has noted.
If it were me, I would do option #1, treat it like a regular monthly bill, and look for ways to cut costs and throw extra money at payments where possible (and maybe not even that, but save a buffer and fund retirement instead). I would not take on a part-time job and would instead focus on advancing my career and driving up my longer-term salary by moving on and up every 2-3 years (I do this now). I have had part-time gigs before and while the extra money feels amazing in the moment, they tend to significantly undermine the energy and focus available to give to my "career" job, which is arguably the far more important one, to a point I feel has been harmful at times. I would think that goes double if you have a health condition. And if you do meet a partner at some point, that could change the forecast of your loan payment situation dramatically.
That said, I don't hate the idea of living with your mom if it could reduce your debt repayment down to just a handful of years. But you could not do that AND completely isolate yourself socially AND cut all pleasures out of your life AND still expect to emerge unscathed at the end. You would, without question, have to adjust the timeline to make this doable (e.g. only do it for 1-2 years to make a big dent in the total amount and then return to your current city and take up option #1, OR give yourself a longer timeline while allocating some of your funds for the necessity of enjoying life, and so on). And a 45-minute drive doesn't sound that insurmountable for staying in touch socially; would you be commuting back to your current city for work anyway? Could you spend weekends in your current city, stay with friends?
posted by anderjen at 11:30 AM on February 20, 2020 [2 favorites]
If it were me, I would do option #1, treat it like a regular monthly bill, and look for ways to cut costs and throw extra money at payments where possible (and maybe not even that, but save a buffer and fund retirement instead). I would not take on a part-time job and would instead focus on advancing my career and driving up my longer-term salary by moving on and up every 2-3 years (I do this now). I have had part-time gigs before and while the extra money feels amazing in the moment, they tend to significantly undermine the energy and focus available to give to my "career" job, which is arguably the far more important one, to a point I feel has been harmful at times. I would think that goes double if you have a health condition. And if you do meet a partner at some point, that could change the forecast of your loan payment situation dramatically.
That said, I don't hate the idea of living with your mom if it could reduce your debt repayment down to just a handful of years. But you could not do that AND completely isolate yourself socially AND cut all pleasures out of your life AND still expect to emerge unscathed at the end. You would, without question, have to adjust the timeline to make this doable (e.g. only do it for 1-2 years to make a big dent in the total amount and then return to your current city and take up option #1, OR give yourself a longer timeline while allocating some of your funds for the necessity of enjoying life, and so on). And a 45-minute drive doesn't sound that insurmountable for staying in touch socially; would you be commuting back to your current city for work anyway? Could you spend weekends in your current city, stay with friends?
posted by anderjen at 11:30 AM on February 20, 2020 [2 favorites]
Maybe it's not possible in your specific situation, but perhaps your graduate work qualifies you for some high end tutoring gigs (e.g. test prep, math, science, editing college essays). This may be a much more viable path to making extra money than a $15/hr part time job that would likely be much harder on your body.
I paid off a lot of debt while IN graduate school doing ~5 hours per week of tutoring.
posted by ktkt at 11:51 AM on February 20, 2020 [6 favorites]
I paid off a lot of debt while IN graduate school doing ~5 hours per week of tutoring.
posted by ktkt at 11:51 AM on February 20, 2020 [6 favorites]
My husband got his loan forgiven under PSLF (bad press notwithstanding), and our understanding is that this is not taxable. (We're talking to a CPA about this and other issues. But what we've learned so far suggests that it isn't.)
On another note, student loans were making me super stressed until I did other things that were important to my life. I would try to live your life despite the loans -- they were a huge psychic burden when I thought they were holding me back, but once I figured out how to go ahead and do various things I really wanted to do, I felt much better.
posted by slidell at 12:14 PM on February 20, 2020 [9 favorites]
On another note, student loans were making me super stressed until I did other things that were important to my life. I would try to live your life despite the loans -- they were a huge psychic burden when I thought they were holding me back, but once I figured out how to go ahead and do various things I really wanted to do, I felt much better.
posted by slidell at 12:14 PM on February 20, 2020 [9 favorites]
There are plenty of people, including me, who will be paying on their student loans until the end of time.
Don't worry about it, seriously. It is just a payment you will have to make room for, and it is what it is. You're already on REPAYE, and some back of the napkin math says that your payment should be around $350 a month. THAT SUCKS. But that is also the worst you are ever going to experience in relation to your student loans. If your expenses ratchet up, your payment is going to go down. And if you ever get in a real bind, you always have the option for occasional forbearance.
Let me reiterate: YOU ARE ALREADY EXPERIENCING THE WORST THIS IS EVER GOING TO GET. Your life has been affected as much as it is going to be by this. There is no looming monster! There is no dark event in your future that you should dread! There is no lion waiting outside your hut to get you. Worrying about these student loans is like losing a finger twenty years ago and worrying about losing it again.
posted by FakeFreyja at 12:34 PM on February 20, 2020 [23 favorites]
Don't worry about it, seriously. It is just a payment you will have to make room for, and it is what it is. You're already on REPAYE, and some back of the napkin math says that your payment should be around $350 a month. THAT SUCKS. But that is also the worst you are ever going to experience in relation to your student loans. If your expenses ratchet up, your payment is going to go down. And if you ever get in a real bind, you always have the option for occasional forbearance.
Let me reiterate: YOU ARE ALREADY EXPERIENCING THE WORST THIS IS EVER GOING TO GET. Your life has been affected as much as it is going to be by this. There is no looming monster! There is no dark event in your future that you should dread! There is no lion waiting outside your hut to get you. Worrying about these student loans is like losing a finger twenty years ago and worrying about losing it again.
posted by FakeFreyja at 12:34 PM on February 20, 2020 [23 favorites]
I think you are trying to decide between two extremes: pay it off in 3.5 years or pay for 40 years. There are many numbers in the middle. What would it take to pay it off in ten years? I'll bet you can make that happen without sacrificing all enjoyment. It is not shameful to have debt and it is not shameful to live with your parents as an adult, but I think you could handle it without living with your mom.
Making huge sacrifices can make it harder to stick with something long term. Smaller changes can be easier to maintain over long periods of time. First you could try to start paying a bit more each month until you get to the point where you are keeping up with the interest. Then after that you could think about fundraising in other ways to knock out chunks of it here and there.
posted by soelo at 12:52 PM on February 20, 2020 [1 favorite]
Making huge sacrifices can make it harder to stick with something long term. Smaller changes can be easier to maintain over long periods of time. First you could try to start paying a bit more each month until you get to the point where you are keeping up with the interest. Then after that you could think about fundraising in other ways to knock out chunks of it here and there.
posted by soelo at 12:52 PM on February 20, 2020 [1 favorite]
PSLF forgiveness is not taxable. IDR plan forgiveness may be. However, even under the present system, it is unlikely that the entire amount would be taxable. It's a complicated enough calculation that I don't want to make pronouncements without going back to check my work, but you are liable to be insolvent or partially insolvent from the point of view of the IRS in the year of your loan forgiveness and thus not liable for taxes on the forgiven amount, partially or wholly. Also, the deductible part of the interest accrued in your final total may not be taxable, either.
posted by praemunire at 1:10 PM on February 20, 2020 [1 favorite]
posted by praemunire at 1:10 PM on February 20, 2020 [1 favorite]
you always have the option for occasional forbearance
P.S. Don't take forbearance if at all possible to avoid it; it makes the outstanding interest capitalize, which, if you've been on an IDR plan for a while, can add significantly to the costs of your loan.
posted by praemunire at 3:05 PM on February 20, 2020 [1 favorite]
P.S. Don't take forbearance if at all possible to avoid it; it makes the outstanding interest capitalize, which, if you've been on an IDR plan for a while, can add significantly to the costs of your loan.
posted by praemunire at 3:05 PM on February 20, 2020 [1 favorite]
Inducing debt anxiety through fiscal moralizing is a tool of the people who hold debts like yours to put people like you into situations like #2-3 so they can line their pockets. Don't give them the satisfaction. Debt is not immoral, or a character flaw, nor is not throwing every spare dime at it. Pay the minimum until you no longer can.
posted by supercres at 4:06 PM on February 20, 2020 [12 favorites]
posted by supercres at 4:06 PM on February 20, 2020 [12 favorites]
I'm not american, but I heard this podcast awhile ago, and from memory it was a fairly nuanced discussion about US student loans and options.
posted by kjs4 at 5:30 PM on February 20, 2020
posted by kjs4 at 5:30 PM on February 20, 2020
I would pay the minimum for a bit. We don’t know what will happen in the election or if Sanders or Warren would make good, but there’s no sense in going all in on trying to pay 38k of something which does have a non-zero chance of being wiped out. It’s not childish imho to at least wait and see.
I don’t think you should take a part time job and/or move in with your mother. Having those additional time commitments is just going to add to your stress and a 45 minute commute will get old quick.
If I’m doing the math correctly, you could pay 3200 a month and pay it off in 4.3 years (paying a total of 165k or something). You could pay 1000 a month and pay it off just in time for it to be forgiven (243k total), but it would keep that extra money in your pocket in the meantime. There’s a lot of middle ground there too.
Just to put things in a bit of perspective, right now I’m looking to buy a house. Houses in my area are ~400k and interest rates are a little lower than 4%. We only have a 5% down payment saved but we’re not really blanching at the idea of taking on 2.5x your debt over 30 years. People do it all the time.
Talking about mortgages, someone told me if the interest rate is low enough, and if the market is doing well, that rather than pay extra on the mortgage, you could be better off just investing that extra money and trying to earn 8% or whatever. Personally, I think that’s nuts, but the reason I’m mentioning this is that someone could be in your debt situation and say that they’re deliberately not going to pay more than the minimum because that money could do more for them elsewhere. I know it looks really daunting right now but again it’s not the end of the world.
I think someone else’s idea of trying to raise your salary is good, also what about finding a partner to eventually live with? Better than a roommate and you can pool your resources towards common goals of debt relief and housing. Don’t think you can’t be in a relationship until you’ve cleared this debt.
posted by cali59 at 8:45 PM on February 20, 2020 [3 favorites]
I don’t think you should take a part time job and/or move in with your mother. Having those additional time commitments is just going to add to your stress and a 45 minute commute will get old quick.
If I’m doing the math correctly, you could pay 3200 a month and pay it off in 4.3 years (paying a total of 165k or something). You could pay 1000 a month and pay it off just in time for it to be forgiven (243k total), but it would keep that extra money in your pocket in the meantime. There’s a lot of middle ground there too.
Just to put things in a bit of perspective, right now I’m looking to buy a house. Houses in my area are ~400k and interest rates are a little lower than 4%. We only have a 5% down payment saved but we’re not really blanching at the idea of taking on 2.5x your debt over 30 years. People do it all the time.
Talking about mortgages, someone told me if the interest rate is low enough, and if the market is doing well, that rather than pay extra on the mortgage, you could be better off just investing that extra money and trying to earn 8% or whatever. Personally, I think that’s nuts, but the reason I’m mentioning this is that someone could be in your debt situation and say that they’re deliberately not going to pay more than the minimum because that money could do more for them elsewhere. I know it looks really daunting right now but again it’s not the end of the world.
I think someone else’s idea of trying to raise your salary is good, also what about finding a partner to eventually live with? Better than a roommate and you can pool your resources towards common goals of debt relief and housing. Don’t think you can’t be in a relationship until you’ve cleared this debt.
posted by cali59 at 8:45 PM on February 20, 2020 [3 favorites]
It's interesting to me that you frame the options as either continuing to let the loan balloon to eventually be forgiven, OR to cut everything to the bone to pay it off quickly.
Is there an option 1.5 where you try to raise your student loan payment enough to pay it down at least a little every month, maybe by making some less dramatic cuts to your budget and life? Where you take raises and income jumps and apply them to the loan? Even if some part of it ends up being forgiven at that point, it won't be the whole shebang.
I see the appeal of trying to get it over with in 3 years, but what if you said okay, I am going to treat this like a mortgage and my aim is to get it paid off during my working life?
You could also try to get some portion of it refinanced to a lower interest rate, which would let you pay less interest (although at the cost of some of the protections for federal loans, so you would want to be careful about doing this).
I would agree with trying not to let yourself feel guilty or trapped by this. You are unfortunately caught up in a generational trend, like our grandparents who lived through the Depression or my neighbors in 1980s Texas whose lives were blown to pieces by the oil bust. Hopefully there will be some structural solutions to this issue eventually but in the meantime, just figuring out how to pay it off
posted by The Elusive Architeuthis at 9:25 PM on February 20, 2020 [2 favorites]
Is there an option 1.5 where you try to raise your student loan payment enough to pay it down at least a little every month, maybe by making some less dramatic cuts to your budget and life? Where you take raises and income jumps and apply them to the loan? Even if some part of it ends up being forgiven at that point, it won't be the whole shebang.
I see the appeal of trying to get it over with in 3 years, but what if you said okay, I am going to treat this like a mortgage and my aim is to get it paid off during my working life?
You could also try to get some portion of it refinanced to a lower interest rate, which would let you pay less interest (although at the cost of some of the protections for federal loans, so you would want to be careful about doing this).
I would agree with trying not to let yourself feel guilty or trapped by this. You are unfortunately caught up in a generational trend, like our grandparents who lived through the Depression or my neighbors in 1980s Texas whose lives were blown to pieces by the oil bust. Hopefully there will be some structural solutions to this issue eventually but in the meantime, just figuring out how to pay it off
posted by The Elusive Architeuthis at 9:25 PM on February 20, 2020 [2 favorites]
Because you don't know with certainty if the debt will be forgiven after 300 payments, it might make the most sense to continue to make small payments on the loan and save as much as you can. If the debt is forgiven, you've got the savings (yay!) and if the debt is not forgiven you can apply your savings towards the debt. The only downside to this is that interest is accumulating the large loan balance whereas you'll only be earning interest on what will be initially a small amount of savings.
Is there a possibility of inheriting some money down the line? You mention a mother with a house (rented? owned?)
The strategy you choose right now doesn't have to be the strategy you use in the future. If the economy and the political winds are blowing in the direction which makes it seem that the debt forgiveness deal will be honored, you can proceed accordingly. If it looks like it won't be honored, you can switch to making more aggressive payments on the loan.
Good luck- I understand how stressful this is for you.
posted by Larry David Syndrome at 6:52 AM on February 21, 2020 [1 favorite]
Is there a possibility of inheriting some money down the line? You mention a mother with a house (rented? owned?)
The strategy you choose right now doesn't have to be the strategy you use in the future. If the economy and the political winds are blowing in the direction which makes it seem that the debt forgiveness deal will be honored, you can proceed accordingly. If it looks like it won't be honored, you can switch to making more aggressive payments on the loan.
Good luck- I understand how stressful this is for you.
posted by Larry David Syndrome at 6:52 AM on February 21, 2020 [1 favorite]
I've heard very good things about studentloanplanner.com - it might be worth talking to them to help you figure out a plan.
posted by k8t at 7:36 AM on February 21, 2020
posted by k8t at 7:36 AM on February 21, 2020
Maybe I missed it, but I didn't see where you mention having savings. I agree with some of the posters mentioning a 1.5 option. First priority is to make sure you have an emergency cushion preferably ~ 3-6 months' worth of living expenses. I think trying to wipe it out as soon as possible may work for some people, but considering your health, I would suggest that you pay the minimum and focus on work-life balance so as not to exaggerate or worsen your condition. I do not mean to be presumptious about your particular condition, but that's just my opinion. Also, it would be great if the next president forgives the debt. One will forgive all of it and the other I think max forgiven would be 50k. Either way, it would be a great help, but is not a certainty. However, I did see legislation proposed that may address this. I will try to find the link.
posted by VyanSelei at 12:53 PM on February 21, 2020
posted by VyanSelei at 12:53 PM on February 21, 2020
Found it: S. 1947 To amend the Higher Education Act of 1965 to ensure college for all. "College for All Act of 2019."
Relevant info on page 45:
"(2) PAYMENTS MADE AFTER ENACTMENT
The Secretary shall refund to each borrower who receives forgiveness under this section the amount of any payments the borrower makes on an eligible Federal student loan during the period beginning on the date of the enactment of this title and ending on the date on which the Secretary forgives the outstanding balance of such eligible Federal student loan. "
The forgiveness would be excluded from taxable income. I am not sure if it will pass as it is referred to the Finance Committee last I checked, but at least it's a start. If it doesn't pass, I think at least two candidates said they would do so by executive order if elected IIRC.
posted by VyanSelei at 1:09 PM on February 21, 2020
Relevant info on page 45:
"(2) PAYMENTS MADE AFTER ENACTMENT
The Secretary shall refund to each borrower who receives forgiveness under this section the amount of any payments the borrower makes on an eligible Federal student loan during the period beginning on the date of the enactment of this title and ending on the date on which the Secretary forgives the outstanding balance of such eligible Federal student loan. "
The forgiveness would be excluded from taxable income. I am not sure if it will pass as it is referred to the Finance Committee last I checked, but at least it's a start. If it doesn't pass, I think at least two candidates said they would do so by executive order if elected IIRC.
posted by VyanSelei at 1:09 PM on February 21, 2020
Before paying more than the required payments, consider whether your medical condition may cause you to become disabled before the last payment is due. If so, the entire remaining amount of your loan would be dischargeable with no tax liability. It seems high risk to use more of your current income to pay off a debt that will go away if you become disabled. You should be able to google disability discharge of student loans to find out more.
Also, as someone said above, the IRS does not consider discharge of debt “income “ if you are insolvent at the time the debt is discharged. If you google the IRS publication on this topic, you can see what they mean by “insolvent”. You are likely to meet the test and thus escape tax liability. This might ease your worry.
posted by KayQuestions at 1:15 PM on February 21, 2020 [1 favorite]
Also, as someone said above, the IRS does not consider discharge of debt “income “ if you are insolvent at the time the debt is discharged. If you google the IRS publication on this topic, you can see what they mean by “insolvent”. You are likely to meet the test and thus escape tax liability. This might ease your worry.
posted by KayQuestions at 1:15 PM on February 21, 2020 [1 favorite]
If you want to me DM I can share my experience with this based on advice from someone with many years experience working in fed loan servicing. I was (am) in a very similar situation to you.
posted by affectionateborg at 7:05 PM on February 21, 2020
posted by affectionateborg at 7:05 PM on February 21, 2020
This thread is closed to new comments.
posted by fiercecupcake at 10:12 AM on February 20, 2020 [47 favorites]