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    Advice on aggressive student loan repayment plan

    My husband and I have come up with a very aggressive repayment plan for my student loans. It almost feels too simple, which makes me wonder if we are missing something big that will affect our ability to pull this off.

    Background: We have two small kids. We have lived on an extremely tight budget for several years - about $40k/year. We have two cars that are both paid off, no credit card debt, no mortgage, and no other debt.

    Loans: I am about to graduate from law school, and between my student loan debt and my husband's student loan debt we will have about $170,000 to pay off. Painful, I know, but we were both first generation college students and had zero parental support.

    Income: I am very, very fortunate to be one of the few law grads who already has a job lined up after graduation. I will be making $70,000/year starting salary. My husband will be working part time (so he can be responsible for kid drop-off, pick-up, sick days, etc) and will probably bring home ~$25,000 per year.

    Plan: We live in an area with a very low cost of living, and can easily continue living on $40,000 per year. At some point we may need to buy a new car (not brand new, but new), but I have built the monthly cost of that into our estimated budget.

    So in my mind that leaves us almost $55,000/year to put towards student loans, and by my calculations we should be able to have all of it paid off in 4-5 years. (Maybe sooner depending on bonuses, raises, etc). To me this is a very simple, straightforward plan and it should work.

    Any thoughts on this plan? Are we completely off our rockers to think this will work?

    #2
    Don't forget to figure in taxes. You won't have $55,000 because a lot of that will be paid in taxes! I would leave a little extra for things like new work clothes.

    I think your idea of not growing into your salary is terrific & definitely do-able. We have lived with that theory for 20 years, and we have been able to save a lot and live debt free. Good luck with your plan!

    Comment


      #3
      either tackle the largest interest rate first or start with the smallest loan, after it's paid off, then apply the extra money to your future payments, rinse repeat.

      I would consider building an emergency savings fund at first, at least until you're out of the probation period at your job. New jobs don't always work out, as much as the employer and employee would like them to...

      Comment


        #4
        Thank you. I should have mentioned that we have taken taxes into consideration, which actually means we would be paying more like $42,000/year towards the student loans.

        I guess we sometimes go back and forth thinking that we could go the "10 year payoff" route and have a somewhat higher quality of life right away, but thinking about paying all of that extra interest is kind of painful. Additionally, I think I will feel like a burden on our shoulders until it is paid off. I am not sure I will be able to enjoy much knowing that I paid for it with money that could be eliminating our debt.

        I just can't help but imagine that day in 4 years when we send that last payment to the lender. It will be an amazing feeling.

        Comment


          #5
          If you can be that aggressive then do it. Make sure you have an emergency fund of 6 months expenses as well.

          You may also want to build in some rewards when you hit certain milestones. That may prevent you from burning out overall.

          good luck!

          Comment


            #6
            I am a huge fan of aggressive payment plans! I think the reason it seems so simple, maybe *too* simple, is because it IS simple. Debt can be such a daunting subject but when you really break it down, as you have, it's not so bad. You've got your budget solidified and your expenses minimized and when this is all said and done in a handful of years you'll have that 3 or 4 thousand dollars per month to do with what you will. THAT is pretty awesome!
            I also like what someone said about building in rewards for achieving milestones along the way. I say go for it!

            Comment


              #7
              How much are your loans charging you? What's the interest rate?

              Do you have a retirement plan at work? Does your employer match?

              I think a question you need to ask yourself is, even if you can pay them off that fast, should you? Or is there a better opportunity for those funds to benefit you even more?

              Comment


                #8
                Along the same lines of jpg you have to consider:

                Emergency Fund?
                What are your financial goals for the next 10 years?
                Do you want to buy a house?
                Are you going to buy cars?
                What happens when kids get 10 years older and get their own cars?
                Retirement planning?
                Job Security situation over 10 years?
                <Insert any other financial known/unknown>

                Paying SL off aggressively is great, only if you have all of your other ducks in a row.

                P.S. I am myself paying off SL's very aggressively for peace of mind.

                Comment


                  #9
                  Originally posted by creditboosting
                  It is painful to hear this but first question is what type of loans did you accept? Did you take out private loans or did you receive some sort of government loan (this are lower in interest). If you have a hard time paying off the loans, you should ask for a term of forgiveness which will allow you to push back the debt for some time. If you are really in a bad situation, ask you husband to look for a job that offers a loan forgiveness program. Most employment places will offer that if you commit with them for a few years. Try asking at your work, your employment place may offer it too!
                  I am not sure I understand what you are trying to say here. I know loans can be deferred if we have trouble paying them and that there are forgiveness programs. We are not trying to push the loans back or to wait to start paying on them. We are prepared to pay on them NOW.

                  My employer will match what I contribute to retirement.

                  Most of the loans are government. We would pay off the few private ones first and then send the extra money towards the government ones based on interest rates.

                  We will need to buy a new car, but I calculated that into our budget.

                  We have a 6-month emergency fund. Also, our loan payments would be much higher than the minimum each month. I think this leaves a good cushion, because approx. $900-1100 each month that is going towards loan payments could technically be held back on the rare occasion that an emergency pops up and we need the money immediately.

                  We plan to finish paying off the loans and then after they are gone we will contribute that same amount of money each month towards saving for a down payment on a house.

                  When the kids want cars they can get jobs and buy them for themselves just like we did as teenagers. We definitely want to provide for our kids wherever we can, and we would like to save to pay a good portion of their college tuition for them, but we also want them to learn pretty early that they will have to *work* for things in life

                  Comment


                    #10
                    Originally posted by hopeangel292713 View Post
                    My employer will match what I contribute to retirement.
                    Then you should be taking any employer match before paying extra on your debts. As much as they'll give you. That's an instant 100% return.

                    We would pay off the few private ones first and then send the extra money towards the government ones based on interest rates.
                    Okay, what are the interest rates?

                    Comment


                      #11
                      Hi Hopeangel,

                      First let me say congratulations! What sacrifice and hard work you have been through to get where you are. Congratulations too on finding a job, especially as difficult as I have heard law careers are to get into. My wife and I are in the e x a c t same boat as you guys are (1st gen, no help, 2 kids). Only difference is I did pharmacy school and we have just a bit more debt. It is really intimidating.



                      I have a question that applies to both of us:
                      Can you use a mortgage calculator (i.e. bankrate.com) set for 10 years (standard sallie mae repayment schedule) to get an idea of payments and effect of increasing payments/month? Or are student loans entirely different from a mortgage? I have done this to gauge how long it would take to repay, but I'm not sure if it is accurate or not.


                      I can't offer much advice over what has already been said. I just wanted to congratulate you and say good luck paying back those monster loans. You are not alone

                      Comment


                        #12
                        The OP definitely needs to start thinking about retirement seriously. If her employer offers a matching on whatever company plan is offered, then it is 100% prudent to contribute enough for that match. 100% return on investment outweighs whatever interest rate their school loans are at. Anything after that can go towards accelerating student loan payments, as I'd recommend that before opening an IRA, contributing to personal savings goals, and even savings for buying a house. $55k is a crushing amount of debt to even think about buying a house with first of all....

                        Comment


                          #13
                          Originally posted by ForMyGirls View Post
                          Hi Hopeangel,

                          First let me say congratulations! What sacrifice and hard work you have been through to get where you are. Congratulations too on finding a job, especially as difficult as I have heard law careers are to get into. My wife and I are in the e x a c t same boat as you guys are (1st gen, no help, 2 kids). Only difference is I did pharmacy school and we have just a bit more debt. It is really intimidating.



                          I have a question that applies to both of us:
                          Can you use a mortgage calculator (i.e. bankrate.com) set for 10 years (standard sallie mae repayment schedule) to get an idea of payments and effect of increasing payments/month? Or are student loans entirely different from a mortgage? I have done this to gauge how long it would take to repay, but I'm not sure if it is accurate or not.


                          I can't offer much advice over what has already been said. I just wanted to congratulate you and say good luck paying back those monster loans. You are not alone
                          I am not sure. I use various student loan calculators. Some of them tell you what your minimum payments will be based on your debt, interest rates, and how long you want to be in repayment for. Others allow you to put in your debt, interest rate, and estimated monthly payments and it will tell you how long it will take to pay them off at that rate. It can be a little tricky since most grad students will have several loans with different rates, but I have gotten some pretty good estimates by grouping all loans with the same rates and calculating each of those on its own and then adding them together.

                          Originally posted by cascade11 View Post
                          The OP definitely needs to start thinking about retirement seriously. If her employer offers a matching on whatever company plan is offered, then it is 100% prudent to contribute enough for that match. 100% return on investment outweighs whatever interest rate their school loans are at. Anything after that can go towards accelerating student loan payments, as I'd recommend that before opening an IRA, contributing to personal savings goals, and even savings for buying a house. $55k is a crushing amount of debt to even think about buying a house with first of all....
                          I am not sure I understand what you are saying in the last sentence. ?? We don't plan to buy a home until all of the debt is paid off and we have saved a significant down payment.

                          Comment


                            #14
                            I would take that home downpayment, however much it is, and immediately put it against your highest interest-rate Student Loan first. There is no reason to have money sitting in an account earning paltry interest rates while your Loans accumulate debt at higher rates. Your losing money.

                            Comment


                              #15
                              Originally posted by cascade11 View Post
                              I would take that home downpayment, however much it is, and immediately put it against your highest interest-rate Student Loan first. There is no reason to have money sitting in an account earning paltry interest rates while your Loans accumulate debt at higher rates. Your losing money.
                              I don't have a home down payment sitting in an account. I don't know where you got that. We plan to start saving for a home down payment AFTER the student loans are paid off.

                              Comment

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