Cash out 401k to pay off Sallie Mae??

[InNeedOfAdvice]

And how much is going into your 401k?

I contribute 10%

[jpg7n16]

graduate classes 700 (saving to start fall 2013)

This sticks out to me too. How long have you been saving $700/month? Where is that money at?

You are saving $700/month for something that's a year away, when you could be using it to get out of default today. $700/month will catch you up on your loans pretty quickly. Once you're out of default, start saving for grad school.

Other places to save -- rent, consider a roommate. You're within the financial guideline of 28% (you're at 26.5%), but an extra 300-500 could go a long way in your current situation. (Plus you'd share utilities, internet, etc.)

Food -- you're at $500/month for 1 person. You can find another $100-200 here pretty easily.

student loans 600 (this is for the one loan I pay on that's note in default; balance: $10k)

Why so much? That seems like a very high payment amount for a $10k balance. Are you paying extra?? If so, stop that, and divert the "extra" to get caught up on the other school loans.

$600 * 12 = $7,200 which is nearly the full balance of the loan.

Something's not adding up.

[InNeedOfAdvice]

This sticks out to me too. How long have you been saving $700/month? Where is that money at?

You are saving $700/month for something that's a year away, when you could be using it to get out of default today. $700/month will catch you up on your loans pretty quickly. Once you're out of default, start saving for grad school.

Other places to save -- rent, consider a roommate. You're within the financial guideline of 28% (you're at 26.5%), but an extra 300-500 could go a long way in your current situation. (Plus you'd share utilities, internet, etc.)

Food -- you're at $500/month for 1 person. You can find another $100-200 here pretty easily.


Why so much? That seems like a very high payment amount for a $10k balance. Are you paying extra?? If so, stop that, and divert the "extra" to get caught up on the other school loans.

$600 * 12 = $7,200 which is nearly the full balance of the loan.

Something's not adding up.

This month was my first month putting away the $700 towards school and the $600 towards student loan. I had been paying $275 (the minimum) towards student loans. But then I was thinking I could knock out the student loan#1 in less than a year if I pay more on it, then move on to loans 2 and 3.

Maybe I am confused, or didn't make myself clear, but the whole reason I was considering settling is because I thought I couldn't make payments on a defaulted, charged off loan held by a collector. In otherwords, I can't "get out of default" right? Whether I settle or make payments my score is going to be in the low 500s.

Is it really better to work on paying all the student loans at the same time?

[jpg7n16]

This month was my first month putting away the $700 towards school and the $600 towards student loan. I had been paying $275 (the minimum) towards student loans. But then I was thinking I could knock out the student loan#1 in less than a year if I pay more on it, then move on to loans 2 and 3.

Maybe I am confused, or didn't make myself clear, but the whole reason I was considering settling is because I thought I couldn't make payments on a defaulted, charged off loan held by a collector. In otherwords, I can't "get out of default" right? Whether I settle or make payments my score is going to be in the low 500s.

Sorry, I didn't see that sentiment posted anywhere in the thread.

You really should check out the site this quote is from. Lot of good info you would benefit from:

From: FinAid | Loans | Defaulting on Student Loans

Getting Out of Default

To get out of default, you need to make arrangements with your servicer or lender to repay the loan. Once you have made six consecutive full voluntary on-time payments, you will be eligible for additional Title IV aid. On-time is defined as within 15 days of the due date. Voluntary excludes payments made by garnishment or other offsets. After you have made 9 of 10 consecutive payments within 20 days of the due date and applied for and received "rehabilitation", you will no longer be considered in default. At this time record of the default will be removed from the reports to credit reporting bureaus.

For loan rehabilitation, the payments must be "reasonable and affordable". This is determined by the guarantee agency, and will consider the borrower's (and his/her spouse's) disposable income and financial circumstances. It can be below the required minimum payment of $50 or the interest that accrues, whichever is greater, if the guarantee agency determines that a smaller amount is reasonable and affordable based on the borrower's financial circumstances.

(continued...)

Is it really better to work on paying all the student loans at the same time?

The object is to improve your overall financial condition.

I think if you get out of default you can work over time to rebuild your credit. So the first goal I would have for the debt is to get current. That will start the 'healing' process as far as your credit is concerned.

Once you are out of default, you can work on fixing the overall budget to balance debt elimination and saving for your MBA, while continuing to pay yourself first.


Though until you are out of default, I would consider reducing your 401k contribution back to the company match only. Then once out of default, bump it right back up.

[InNeedOfAdvice]

Sorry, I didn't see that sentiment posted anywhere in the thread.

You really should check out the site this quote is from. Lot of good info you would benefit from:




The object is to improve your overall financial condition.

I think if you get out of default you can work over time to rebuild your credit. So the first goal I would have for the debt is to get current. That will start the 'healing' process as far as your credit is concerned.

Once you are out of default, you can work on fixing the overall budget to balance debt elimination and saving for your MBA, while continuing to pay yourself first.


Though until you are out of default, I would consider reducing your 401k contribution back to the company match only. Then once out of default, bump it right back up.

I apologize as I should have worded the title of this posting different. The loan is charged off so Sallie Mae no longer holds it. Its held by a creditor. I should have been using the term charged off instead of defaulted. Once charged off, you're no longer in just default status. I did research the Title IV info some years ago, and they are only for Federal loans, not private. So even if it was still held by Sallie Mae, it would not be eligible for rehab.

[InNeedOfAdvice]

I feel guilty because there were times when I could have just paid the collectors, but I didn't. I did not because the loan was in charge off and after doing some research for over a year, I lost hope that the best way out of this would be to settle on the 2 charged off loans somehow. I feel like I have 2 options:

(1) get on a monthly payment plan with the collectors. Which means I will be paying the student loans off until I'm in my 40s, and the likelihood of me going back to school after they're paid off will be much lower years down the line.
(2) pay them on a lump sum now and be done with it

Either way I have fear, because the loans are constantly being switched from collector to collector. Any time a new collector gets the loans, I google them and find people who have either made monthly payments or settled by paying a large sum, and then the collector claims years later they still owe the original amount and put it back on their credit report and people not being able to fix it. Obviously I have a lot of anxiety about this.

So its been established that using my 401k is the worst idea right now. But I hope this next bit of info helps people understand why I was considering using it, although it 'is' a horrible decision:

If I pay them in a lump sum, the settlement is 'done' and the bad charge off starts to 'age off' from that day forward. Of course it will be a long process, but perhaps if I pay now, I'll have a score above 600 in another 2 years by the time I'm done with grad school...perhaps.

If I make monthly payments now, I 're age' the negative on my credit report. Meaning, the charged off loan stays on my report in charge off status, but the date of a payment made on the charge off is now 'newer' and remains a current date until monthly payments are done. In other words, the aging off process for this won't start until the last payment is made years later. Making payments on a charged off account does not change/improve a credit score

[InNeedOfAdvice]

I never thought when I first went off to school and started signing off on these loans that I would ever be in this situation.

When my loans defaulted, I did research for months and months on how to bring out of default and the problem was with the sallie mae ones I could not, I have other federal loans and was able to do this; the sallie mae ones however make up the bulk of the amount of my student loans. And I found out I couldn't rehab them to get out of default. So they stayed in default because i realized paying on a defaulted private loan would not improve my score.

So i did more research. Continued contributing to my 401k with the thought I may have to turn it all over to sallie mae one day to get out of this. it was coming close to time for the loans to go from default to charge off status. I let them charge off. This was my fault. But I did it knowingly. Why? Because I found out there is no help to imnprove my score by paying on either a defaulted -or- charged off private student loan. So I let them charge off hoping one day I figure out a way to pay them a lump sum to settle.

I know this is hard to follow, I hope what I am saying makes sense. I think besides the bad money management problems that led to me defaulting in the first place, I see part of the problem being with the banking system. Why can't Sallie Mae have a rehab program? If they did I would have used it years ago.

[bjl584]

I think that you are focusing too much on your credit score. Don't worry about your score. It will improve on its own as you pay back the money that you owe.

Your 401K is for retirement, period.

You are stuck paying this money back, so you need a course of action to do so. It will take time, but there is nothing wrong with that. I see no reason why you can not pay back this money in 10 years or less, maybe 5 years, if you have an agressive dedicated plan to do so. You need to cut expenses where ever possible, pick up a part time job to boost income, and sell anything that you don't need to raise money.

I would advise to not blame Sallie Mae or the banking system for this situation. Take ownership of this and get started on working your way out of it.

[InNeedOfAdvice]

I think that you are focusing too much on your credit score. Don't worry about your score. It will improve on its own as you pay back the money that you owe.

Your 401K is for retirement, period.

You are stuck paying this money back, so you need a course of action to do so. It will take time, but there is nothing wrong with that. I see no reason why you can not pay back this money in 10 years or less, maybe 5 years, if you have an agressive dedicated plan to do so. You need to cut expenses where ever possible, pick up a part time job to boost income, and sell anything that you don't need to raise money.

I would advise to not blame Sallie Mae or the banking system for this situation. Take ownership of this and get started on working your way out of it.

All very good advice that I'm very appreciative of your sharing. Time to stop feeling sorry for myself of the mess I got myself in and just suck it up and pay. If I can afford to have kids one day before it's not too late I will do everything in my power to make sure they never make the same mistakes I did.

[BuckyBadger]

You are definitely too focused on your credit score, whereas you SHOULD be focused on getting out of debt.

This is the part that I'm having trouble understanding:

So i did more research. Continued contributing to my 401k with the thought I may have to turn it all over to sallie mae one day to get out of this.

So someone said to you -- "please pay me back the money that you owe me"

and you decided that rather than give them the money that you owed them you would instead put that money into another separate account with the thought of maybe giving it to them later? I'm just super confused about how you got into this situation.

With $40k in your 401k you're actually way ahead of most people your age. Stop contributing extra. I'll even say that you can contribute up to the match, but no more than that.

Stop "saving" $700 a month for other schooling. Stop putting 10% into your 401k. Stop trying to take care of this in one fell (damaging) swoop. Am I right that you have $45k in student loans, $35 of which is in default?

Take your $500 that you're now putting in your 401k, add to that the $600 you're paying on one loan, the $700 you're saving, and the $300 you're putting into your emergency fund (you have $1,000, that's enough right now) and put it ALL toward those loans. That would be $2,100 a month at LEAST toward your debt. You could pay them off in two years. Why on earth would you drag them out into your 40s??

It's not Sallie Mae's fault that you have $40k in your 401k and owe $45k in student loans. That's all on you.

[InNeedOfAdvice]

You are definitely too focused on your credit score, whereas you SHOULD be focused on getting out of debt.

This is the part that I'm having trouble understanding:



So someone said to you -- "please pay me back the money that you owe me"

and you decided that rather than give them the money that you owed them you would instead put that money into another separate account with the thought of maybe giving it to them later? I'm just super confused about how you got into this situation.

With $40k in your 401k you're actually way ahead of most people your age. Stop contributing extra. I'll even say that you can contribute up to the match, but no more than that.

Stop "saving" $700 a month for other schooling. Stop putting 10% into your 401k. Stop trying to take care of this in one fell (damaging) swoop. Am I right that you have $45k in student loans, $35 of which is in default?

Take your $500 that you're now putting in your 401k, add to that the $600 you're paying on one loan, the $700 you're saving, and the $300 you're putting into your emergency fund (you have $1,000, that's enough right now) and put it ALL toward those loans. That would be $2,100 a month at LEAST toward your debt. You could pay them off in two years. Why on earth would you drag them out into your 40s??

It's not Sallie Mae's fault that you have $40k in your 401k and owe $45k in student loans. That's all on you.

You're right. Point taken.

[InNeedOfAdvice]

Should I stop contributing to the 401k altogether? Even if I don't put anything in, my employer will contribute 6%.

[BuckyBadger]

Should I stop contributing to the 401k altogether? Even if I don't put anything in, my employer will contribute 6%.

Yes you should.