Liquidate Stocks to Pay Off Student Loan?

[Chainplate]

My son asked me for advice on paying off his student loans and I don't feel qualified to answer him directly. I hope this forum can help. I searched on this topic and found some helpful information but nothing specific to his situation.

My son, I'll call him John, graduated with about US$90,000 in student loans with an interest rate of 6.75%. A trust fund, started by his great-grandparents, is mostly in large company equities, is valued at about US$100,000. He has about US$30,000 in savings (he just got married).

John will have a significant capital gains tax liability if he liquidates his stock to pay off his student loan. Furthermore, because of new jobs, I don't see him or his spouse making a particularly good income for at least four years.

If you were John, would you sell the stocks and take the tax hit or continue making the US$1,000 per month P&I payment on the student loan?

Thanks.

[Like2Plan]

Is there much expense associated with the trust? What was the purpose of the trust?
Can John dissolve the trust or are there additional restrictions he must follow?

Would it be possible to liquidate the assets over the 4 year when your DS and his spouse are not making a high income so as to limit the capital gains impact?

[bigdaddybus]

I suggest he
1. Contact the trustee of the trust to find out if there are any restrictions on using the funds and how he should go about attaining the funds if possible.
2. makes sure they keep a suitable emergency fund
3. talk about any large purchases in the next 1-3 years (car, furniture, moving expenses?)and make sure they have appropriate savings for those items
4. pay the highest interest student loans first

[snafu]

I was shocked to discover some stocks value has increased 34% in the past 12 months. Son need to evaluate his specific holdings and their potential. Paying 6.7% interest on SL doesn't seem so significant if the stock's share value increase is substantial. How much are the trustee fees? Are actual holdings appropriate to son's age and circumstances?

I hope son will run the figures on a couple of scenarios like what are the tax consequence of cashing out $ 20K per year paid directly to principal while he continues to make required payments. I suggest DS start a thread with his specific numbers here so that suggestions can be made that are relevant to his specific circumstances.

[corn18]

Maybe the fund can pay the student loan directly and avoid any tax implications? Depends on how it is set up.

[autoxer]

John will have a significant capital gains tax liability if he liquidates his stock to pay off his student loan. Furthermore, because of new jobs, I don't see him or his spouse making a particularly good income for at least four years.

The fact that their income will be low for a few years could really help them avoid the capital gains tax. The capital gains tax on the two lowest tax brackets is 0%. Talk to a tax planning professional to run the numbers and see what it will really cost.