Way OT: Paying off student loans

[DozenRoses]

I value everyone's opinion on here so would love to hear thoughts from anyone who has any insight.

I currently owe $50k at 5.5% interest .

I was just hired at a public agency that qualifies myself for "Public Safety Loan Forgiveness." Essentially, the way I understand it, is I can make the minimum monthly payment (10% gross income) for 10 years on my loan, and the rest is forgiven.

It seems a bit risky trusting the government to follow through with this. My starting salary right now is right around $40k.

Should I risk it on this "loan forgiveness" plan for 10 years, or just try and pay this off ASAP? I have around 15k stashed away at the moment.

Does anyone know how to calculate how much money I could possibly save with this "loan forgiveness?"

[Fl_Flash]

I'm doing a lot of rounding and such... If you assume $300 per month payments (roughly 10% of your $40,000 annual income - gross) then it will take you about 26 to 27 years to pay off the loan at 5.5% interest. After 10 years you'll still owe about $35k - $40K on the principle (depending on what you're actually paying per month).

If the gov't program is legit, you'll have paid $36000 total and have, at a minimum $14,000 of debt forgiven - depends on how they're allocating payments. More than likely you'll have somewhere in the 35k to 40K forgiven. One thing to keep in mind, when debt is forgiven that is treated as income to you so in the year that you exercise this option, you might get a nice fat 1099 (or whatever form it is) attributing $40,000 additional income to you in that year and you'll be liable for the tax on that.

If you can afford to pay more monthly to this debt, it might be more advantageous to you. It really depends on what you can afford. I've told my kids with loans for cars, student debt or even housing - pay off the principle as fast as possible. If the loan will allow for overpayments to be applied 100% to principle and interest is calculated on outstanding principle - pay what you can as quickly as you can as it will drastically reduce the amount of interest you pay over the term of the note.

It all depends on where you're at now, what obligations you have and what you're comfortable spending.

[johnnyvann840]

Drag it out as long as you can. Make the min payment- especially at that rate and with forgiveness terms. You would be a fool to pay it off any faster than necessary.

[musiqsoulchild]

Yeah man, Flash is right.

It all depends on what your wants, needs and desires are.

Are you single? Do you have a family or plan to have one in the next 10 years?

Is the loan forgiveness program a 1-time thing? So, will it have any impact on your ability to get loans if you decide to go back to school?

Do you plan to rent? Or buy? Or stay with your parents?

Lots of questions... but your answer is somewhere in there.

[BullBearBidness]

Well, you're saving a little over 10k on the principal, this way. However, in order to calculate how much actual money you would save, one would need to know your alternative route to getting this paid off.

[PMONSTER]

Drag it out as long as you can. Make the min payment- especially at that rate and with forgiveness terms. You would be a fool to pay it off any faster than necessary.

I have been hearing this a lot. Can this concept be explained to me. I was always taught to repay debt ASAP. I don't have a credit card but does the same thinking apply to credit cards?

[johnnyvann840]

Drag it out as long as you can. Make the min payment- especially at that rate and with forgiveness terms. You would be a fool to pay it off any faster than necessary.

I have been hearing this a lot. Can this concept be explained to me. I was always taught to repay debt ASAP. I don't have a credit card but does the same thinking apply to credit cards?

Well, if he makes the minimum payment at that relatively low rate, he will be forgiven nearly one third of the entire debt in ten years. You aren't getting that deal from any bank or individual... only Uncle Sam. You take it and don't think about it. Why pay it off now? Save that money and invest it every month in something else, or buy more house (you can afford a larger mortgage payment if you make the min) , which is sure to be worth more in ten years.

If he is forgiven , say $14k.. he essentially got that $50k interest free over all that time.

[jumpmanjay]

You're welcome.

[johnnyvann840]

You're welcome.

yeah, and we, all the taxpayers, wind up paying the interest for financing your education instead of you paying it.

[mattyj912]

The loan forgiveness only works on your government loans. If you took out anything from private lenders (sallie mae, etc), there is no loan forgiveness. Also you have to stay in that job for ten years, which may be your plan now, but who knows. I was a teacher for the last three years and planning on using loan forgiveness, but I quit and am now interviewing for actuarial jobs thus I will not be able to use loan forgiveness.

[dice]

Drag it out as long as you can. Make the min payment- especially at that rate and with forgiveness terms. You would be a fool to pay it off any faster than necessary.

I have been hearing this a lot. Can this concept be explained to me. I was always taught to repay debt ASAP. I don't have a credit card but does the same thinking apply to credit cards?

Well, if he makes the minimum payment at that relatively low rate, he will be forgiven nearly one third of the entire debt in ten years. You aren't getting that deal from any bank or individual... only Uncle Sam. You take it and don't think about it. Why pay it off now? Save that money and invest it every month in something else, or buy more house (you can afford a larger mortgage payment if you make the min) , which is sure to be worth more in ten years.

If he is forgiven , say $14k.. he essentially got that $50k interest free over all that time.

isn't dragging it out better for credit rating also?

[TheStig]

I highly suggest you visit some financial forums. A basketball forum isn't the place to get financial advise. As with most major financial decisions there are costs, variables and tax implications to consider. You have the right thought but you will get more reliable advice elsewhere.

[Chicago-Bull-E]

I highly suggest you visit some financial forums. A basketball forum isn't the place to get financial advise. As with most major financial decisions there are costs, variables and tax implications to consider. You have the right thought but you will get more reliable advice elsewhere.

Yup.

http://www.reddit.com/r/personalfinance/

2.5 million subscribers. Will help quite a bit.

[nitetrain8603]

I highly suggest you visit some financial forums. A basketball forum isn't the place to get financial advise. As with most major financial decisions there are costs, variables and tax implications to consider. You have the right thought but you will get more reliable advice elsewhere.

Eh, yes and no. You have some very smart people here. Honestly, a financial forum would give you advice as good as here. The thing is, no one will really be able to give you the best decision without knowing your personal financial status (debt, income, single/married, etc.).

I think Johnny is right, but matt is right as well. This won't work for Sallie Mae or private lenders, unless you can somehow consolidate them into your government loans.

[WIN]

The loan forgiveness only works on your government loans. If you took out anything from private lenders (sallie mae, etc), there is no loan forgiveness. Also you have to stay in that job for ten years, which may be your plan now, but who knows. I was a teacher for the last three years and planning on using loan forgiveness, but I quit and am now interviewing for actuarial jobs thus I will not be able to use loan forgiveness.

Exactly, 10 years is a long time, you don't know where you'll be in that time.

In 10 years, you'll probably end up saving close to $15-20K net present value if you're paying your full monthly installments. If you know you plan on working public service for the next 10 years, than sure, this is fine (pay off minimum if you can for 10 years), but if you have different aspirations, then it might not be worth it. Just keep in mind that holding onto that debt for 10 years and paying minimum payments might make it harder to borrow in the future, which might or might not matter much, but it's good to think of all the consequences.

[TheStig]

I highly suggest you visit some financial forums. A basketball forum isn't the place to get financial advise. As with most major financial decisions there are costs, variables and tax implications to consider. You have the right thought but you will get more reliable advice elsewhere.

Eh, yes and no. You have some very smart people here. Honestly, a financial forum would give you advice as good as here. The thing is, no one will really be able to give you the best decision without knowing your personal financial status (debt, income, single/married, etc.).

I think Johnny is right, but matt is right as well. This won't work for Sallie Mae or private lenders, unless you can somehow consolidate them into your government loans.

I never called anyone here stupid. But a specialized forum is a better avenue to pursue this. I certainly wouldn't go to a financial forum to talk Bulls basketball.

And as I said, As with most major financial decisions there are costs, variables and tax implications to consider.

[Nikola]

If it is indeed 10% for 10 years it is a no brainer. The income based plans are usually longer than 10 years though (up to 25), and not much money is forgiven, you usually pay more it's just extended out longer than 10 years.

[Flopper]

Coming from someone who doesn't have a financial background, I think it really depends on how much you think you'll be earning in the next couple years and what your ability is to pay the loan off rapidly.

Assuming it's a 10 year loan, you're paying 15k interest at the most and substantially less if you pay off early. If you think you'll be making (on average) substantially more than 65k gross annually over the next 10 years, you might want to consider paying it off sooner.

Not sure what your situation is, but the ideal scenario is if you can live with your parents for a couple years and work on paying off the bulk of the loan in that span. That will save you thousands on interest and protect your potentially higher future earnings from a 10% hit.

Also, be sure to look into the tax implications of paying of a traditional student loan versus this forgiveness program. It's very possible that money paid to a forgiveness program isn't tax deductible like interest on a student loan is.

[dougthonus]

I was just hired at a public agency that qualifies myself for "Public Safety Loan Forgiveness." Essentially, the way I understand it, is I can make the minimum monthly payment (10% gross income) for 10 years on my loan, and the rest is forgiven.

It seems a bit risky trusting the government to follow through with this. My starting salary right now is right around $40k.

Should I risk it on this "loan forgiveness" plan for 10 years, or just try and pay this off ASAP? I have around 15k stashed away at the moment.

I would only pay the minimum if you can ensure you get the forgiveness no matter what. If you quit this job, do you still get forgiveness? If this is a perk of your job then it seems like that likely is not be the case.

If the answer is no, then I will say the odds of you being there for 10 years seem very small, and you should treat this like normal debt and just pay it off sooner.

Also when doing the math, you have to factor in expected salary growth. I don't know what your estimated salary growth would be, but if you are at a position that gets standardized raises or a position you could have significant salary growth in then the 10% value could change considerably.

If you can't grow your salary considerably at this position then you are likely better off working somewhere else with more salary growth even if you have to pay back the full loan.

[TimRobbins]

I would definitely go with the minimum. I think there is going to be a major push towards forgiveness over the next few years and terms would only get easier. Don't pay off the loans now.

Having these loans is a great hedge against an economic downturn and losing your job.