403b/student loan question

[maruchen]

I owe 17,800 in student loans. I have a 403b account with 21000. I previously took out a loan of 10000 to payoff a credit card. Unfortunately I wasn't able to pay back the loan and only paid back almost 5k of it. Regardless I called today because I would love to pay off my student loans as well. I would love to be debt free. I am almost done with my chapter 13 bankruptcy and would truly love to have a fresh clean slate.

I know financially I am probably a bad joke to a lot of you but I am desperate for help?

I called today to see if I could get access to the money but was told no because of the default and that I'd need to prove hardship. I was thinking of switching to another 403b company and moving my money over and then requesting a loan from them?

Would this work? Yes I probably would lose out on any potential return on my stocks but nothing is a given and for the longest time my 403b account lost money? There is no guarantees with the stock market?

[cooliemae]

A couple things come to mind.

First, you plan may not even allow you move the money to another company until the original loan is paid off. Even if you do get the money moved that doesn't guarantee that the new company will allow you to take a loan out.

Second, is the loan you defaulted on still accruing interest? I know that some 403(b) plans will allow the company to continue to charge interest on the remaining balance of the loan even if you 'defaulted' on it.

Third, what are you going to do for retirement. The investment vehicles that most of us have access to work for the long term, not the short term. So by taking money out of your retirement fund now, you will have to work even harder to make that money up later.

Fourth, i don't think you're going to qualify for a hardship and even if you do, we still looking at Point Three.

While I understand the desire to become debt free as soon as possible, sometimes it doesn't make the best financial sense. I'll use myself as an example. My DW has 27k in student loans outstanding. I could shave a couple percentage points off of our retirement contributions and have the extra money goes towards paying down her loan. At our current rate, we'll have paid about 10k in interest on the students loans. So we could save some money, but at what cost. Shaving 3% points off of our retirement contributions (translates into about $175 bucks a pay period) would translate into a loss of approximately $200,000 in the value of our retirement fund in 27 years. Now that assumes we don't ever increase the percentage, but I think the point is clear.

The short term gain of being debt free may actually be more expensive than you think.

[JustBill]

Welcome to the boards.

Are you still with the same employer where you originally participated in the subject 403b? Sounds as though you are. If that's the case, then you will not be able to move your 403b to a new provider.

If you aren't with the original employer, then you could take a distribution from your 403b retirement irrespective of your past default. This of course would be subject to 10% penalty on amount distributed, plus federal and state income taxes. Should you, that's another issue.