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$90000 In Student Debt. What Are My Options?

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    $90000 In Student Debt. What Are My Options?

    I am presently a graduate student and will most likely accumulate about $90,000 worth of debt (Stafford subsidized and unsubsidized loans). Is there a site or information on how best to work at paying these loans off, consolidating them, companies that will pay some of the amount if you guarantee to work for them for a period of time (I will have a MPH/MHA degree). Any information or resources you can give would be helpful. Thank you!

    #2
    I would strongly urge you to consider offers to pay back your student loan for you. Usually you'll have to commit to a certain length of service or risk a lump sum repayment for the amount they paid. That would severely limit your ability to change jobs, or to work your current job without pressure.

    Student loans are the best type of loans you'll get. They typically have lower interest, are easy to defer if you lose your job or go back to school, and the interest is tax deductible.

    I don't have a site you can check out, but my advice would be to drag out your student loans for as long as possible. If you have extra money left over, put it in your retirement account.

    As far as consolidation goes, you want to do that while you're still in the deferral period. You'll get more time to shop and usually better rate as well.

    Plus depending on how Congress sobers up, there's a slight chance that they may pass new laws to help student loan borrowers. There's currently a backlash against predatory student loan lenders.

    $90K isn't a huge sum, but it does become a burden if you're on a fixed budget. If you drag it out it'll help your cashflow and maybe you'll get a break from the government as well.

    Good luck.

    Comment


      #3
      First I want to say that I big on Dave Ramsey. If $90,000 in student loan is the only debt you have then I would make the payment each month and put any and all extra money on it. I would pay it off as fast as I could. That way you have money to save for retirement. On DaveRamsey.com he has a link to College loan Corporation (www.collegeloan.com). You could listen to InDebtInDC post and "drag out your student loans for as long as possible" or you can pay it off ASAP, it is your choice. I personally do not listen to any BROKE people for money advice. I have been debt free for almost 2 years.

      "Broke is normal. Why be normal?" - Dave Ramsey

      "Debt is so ingrained into our culture that most Americans can't even envision a car without a payment ... a house without a mortgage ... a student without a loan ... and credit without a card. We've been sold debt with such repetition and with such fervor that most folks can't conceive of what it would be like to have NO payments." - Dave Ramsey
      Last edited by puck36; 10-03-2007, 05:53 PM.

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        #4
        Interest rates for government loans are typically low enough that it is beneficial to stretch repayment. In fact, the first few years of my student loan I paid ONLY the interest. At 3% interest, my money can earn more by investing it. Private loans are completely different, however.

        Comment


          #5
          Originally posted by puck36 View Post
          First I want to say that I big on Dave Ramsey. If $90,000 in student loan is the only debt you have then I would make the payment each month and put any and all extra money on it. I would pay it off as fast as I could. That way you have money to save for retirement. On DaveRamsey.com he has a link to College loan Corporation (www.collegeloan.com). You could listen to InDebtInDC post and "drag out your student loans for as long as possible" or you can pay it off ASAP, it is your choice. I personally do not listen to any BROKE people for money advice. I have been debt free for almost 2 years.

          "Broke is normal. Why be normal?" - Dave Ramsey

          "Debt is so ingrained into our culture that most Americans can't even envision a car without a payment ... a house without a mortgage ... a student without a loan ... and credit without a card. We've been sold debt with such repetition and with such fervor that most folks can't conceive of what it would be like to have NO payments." - Dave Ramsey

          Federal subsidized student loans typically range from 2-5%. Plus by law the lender is required to offer you forebearance if you have financial hardship, or deferral if you return to school full-time. On top of that, student loan interest is tax deductible. Plus there's a chance that the law may change again in the borrower's interest.

          Please tell me what kind of loan offers you that kind of benefits.

          What if you become eligible for Social Security with a student loan balance? Will it most likely be forgiven? Maybe.

          In summary, the student loan is the least aggressive loan you can get barring friends and family loans.


          Does that mean he shouldn't pay it off? No, but most likely his income won't be sufficient to max out 401(k) and Roth/traditional IRA limits.

          Cost of student loan = 2-5% X 70% (after tax deductions) = 1.4-3.5% effective cost of capital.

          Earnings of pretax retirement = 4-30% X 130% (remember that you're paying off student loan with taxed dollars) = 5.2%-40% effective return on investment before employer matching

          Earnings of Roth IRA = 4-30% effective return on investment

          Earnings of taxable capital accounts = 4-30% X 90% (capital gains) = 3.6%-27%

          Assuming you have no other debt, the financial choice would be to make the minimum payment on the student loan, max out 401(k)/501(a) contributions, anything lefterover you put into Roth IRA up to the IRS limit. Anything leftover you put in moderate to aggresive growth funds.

          When the balance eligible for withdrawal in your investment accounts equals your student loan balance, you may withdraw and pay off the loan, or let it go. Your choice, but at least you have a choice. If you do the above, your breakeven point will be about 5 years with a pretax investment of $1500 monthly. If you choose to pay the loan only, you will only be able to apply roughly $1000 after tax to the balance each month. After 5 years of doing this you'll still owe roughly half the current balance.

          If you have more disposable income, we'll adjust, but judging from your degree and average industry salary it'll be tough to make more.


          With all due respect, a homeless person has neither asset nor debt, but I wouldn't necessarily take advice from one. Additionally, a good coach doesn't necessarily have to be a successful athlete to be a good coach.

          Therefore, I respectfully submit that your reasoning is fallacious. The approach I've given above will pay off the student loan more quickly than applying all after-tax disposable income to the debt.

          Comment


            #6
            What is your degree in? Are there any programs such as the Peace Corp, National Health Services, Armed forces, etc which you could join which would payback your loans or offer loan forgiveness?

            Comment


              #7
              The person asking the question appears not to have taken out his/her loans yet. The current rates for students loans is not as low as assumed in calculations above. Current student loans run from about 6.8 to 8.75%. This increase went into effect in June 2006, I think. One cannot count on making investment returns equal to the higher range of this rate, a rate which the questioner is apt to encounter with private loans not backed by the federal government. Especially with people getting student loans currently, it may be advisable in the future to pay off the loans more aggressively than previous graduates needed to do.
              "There is some ontological doubt as to whether it may even be possible in principle to nail down these things in the universe we're given to study." --text msg from my kid

              "It is easier to build strong children than to repair broken men." --Frederick Douglass

              Comment


                #8
                Wait a second, I just re-read your message. Are you saying that you are probably going to have $90,000 worth of school loan debt just from getting your MPH/MHA degree?!? Or is that including your undergraduate debt as well?

                Are you currently working, do you have any extra money each month, do you have any other debt?

                Comment


                  #9
                  Originally posted by Joan.of.the.Arch View Post
                  The person asking the question appears not to have taken out his/her loans yet. The current rates for students loans is not as low as assumed in calculations above. Current student loans run from about 6.8 to 8.75%. This increase went into effect in June 2006, I think. One cannot count on making investment returns equal to the higher range of this rate, a rate which the questioner is apt to encounter with private loans not backed by the federal government. Especially with people getting student loans currently, it may be advisable in the future to pay off the loans more aggressively than previous graduates needed to do.
                  You are correct. When adjusted for the higher interest rate of the loan, the breakeven period will be slightly longer. I also didn't mention that early 401(k) withdrawal are subject to ordinary income tax and the 10% penalty.

                  Nonetheless, I still maintain that you are still better off investing in moderate to aggressive growth funds than paying off the loan early; however, if you're a cautious person I would contribute up to the employer matching and apply the rest to the loan.

                  The cautious person would have less debt but would also have less assets, which is what one of the posters above suggested. The only problem I have with this situation is should you become sick, disabled, relocate, return to school, or anything else that will affect your income, the cautious person would have little to no cash reserve and the opportunity cost would have been the ability to defer student loan payments to preserve cashflow.

                  Comment


                    #10
                    Originally posted by questions View Post
                    I am presently a graduate student and will most likely accumulate about $90,000 worth of debt (Stafford subsidized and unsubsidized loans). Is there a site or information on how best to work at paying these loans off, consolidating them, companies that will pay some of the amount if you guarantee to work for them for a period of time (I will have a MPH/MHA degree). Any information or resources you can give would be helpful. Thank you!
                    You shouldn't panic about the situation just yet, you say part of the loan is subsadized, therefore no need to seek consolidation.
                    Finding an employee that would pay part of it off for you means you'd have to waive some freedoms somewhere, e.g. your ability to switch jobs within a certain time period, or your chances of getting a payrise.

                    when you graduate you should be able to get a good job and pay it down gradually. good luck!

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