BIG ($180k) student debt!! Strategy needed.

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Topic Author
fiddlehead
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BIG ($180k) student debt!! Strategy needed.

Post by fiddlehead »

Hello Bogleheads,

I was recommended to this forum by a friend, who says folks here are quite knowledgeable on investment and willing to provide input to other investors. Thank you in advance for your input on our situation.

I have been saving aggressively for the last handful of years and try to maintain a humble lifestyle, keeping my expenses reasonable. I am newly married and am trying to re calibrate my wife's and my new collective portfolio, as well as, develop a strategy for paying down my wife's student debt. She is a veterinarian, and just began working professionally just a year ago. She came out of school with a large student debt of $180k.


Questions:
1. Re: Asset Allocation - Is the current asset allocation across our portfolio appropriate, given our age? We are currently targeting an overall 60/40 split. Our approach to investing is 'hands off', 'set and forget'. We don't tend to monitor fluctuations and sell. We take the long view.

2. Re: Large Student Debt - The elephant in the room is the huge $180k student debt hanging over our heads. At 6.55%, it's a big drain on our saving ability. My question is: what should our strategy be in paying it down? How should we balance paying it aggressively, while still doing long-term saving? Should we pay it down ASAP and do less investing? If a split, how so?

____________________________________________________________
Portfolio Details

Emergency funds: Yes. 6+ months living expenses in place.

Tax Filing Status
Married-filing separately (for now... looks like filing jointly may be an advantage.)

Income
His salary: $120k
Her salary: $45k

Tax Rate:
Him: 28% Federal, 0% State
Her: 15% Federal, 0% State

State of Residence: Washington

Age:
Him: 43
Her: 32

Debt
Her Student loans:
These loans were in deferment while my wife was in school. She just began working professionally last year, so the loans are now in active repayment.

Loan: Stafford Federal
Amount: $180,000 (Principle balance)
Rate: 6.55%

Loan: UC-Davis
Amount: $8800 (Principle balance)
Rate: 5%

His car loan: $4900
Rate: 0.9%

Desired Asset allocation:
60% stocks / 40% bonds

Desired International allocation:
We currently have 36% equities in International. It was recommended by a friend to go with 50% international, but I am uncertain what the target should be. Open to suggestions here.

Portfolio size
Low 6-figure

Current retirement assets

Taxable
0% cash (for investing)
6% ISHARES CORE S&P 500 ETF (IVV) (0.07)

His 401k at Fidelity
Company match: 3%

17% RUSSELL INTL VALUE (no symbol) (0.58)
10% PIMCO TOTAL RETURN (PTTRX) (0.27)
10% Vanguard VALUE INDEX INST (VIVIX) (0.08)
10% Vanguard Short-Term Bond Index (VBIPX) (0.05)
6% Vanguard Small-Cap Growth Index (VSGIX) (0.08)
3% Vanguard INST INDEX PLUS (VIIIX) (0.02)

His Roth IRA at Vanguard
15% Vanguard Star Fund (VGSTX) (0.34)

His Rollover IRA at Vanguard
5% Vanguard Target Retirement 2040 Fund (VFORX) (0.18)

His Brokerage Account at Fidelity
6% ISHARES CORE S&P 500 ETF (IVV) (0.07)

Her Roth IRA at Vanguard
0.5% Vanguard Target Retirement 2045 Fund (VTIVX) (0.18)

Her Rollover IRA at Fidelity
1.6% ISHARES CORE S&P 500 ETF (IVV) (0.07)

His HSA at Fidelity
0.8% VANGUARD EXTENDED MARKET IDX (VEXMX) (0.24)
0.8% VANGUARD GROWTH INDEX INV (VIGRX) (0.24)
0.8% VANGUARD EQUITY INCOME FUND (VEIPX) (0.3)
0.8% MFS INTERNATIONAL VALUE A (MGIAX) (1.14)

Contributions
New annual Contributions
$17,500 his 401k (+3% employer match)
$5500 his Roth IRA
$5500 her Roth IRA

Taxable
$12,000 to Employee Stock Purchase program, which I sell immediately and purchase ISHARES CORE S&P 500 ETF (IVV) (0.07)
MoneyIsntEverything
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Re: BIG ($180k) student debt!! Strategy needed.

Post by MoneyIsntEverything »

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Last edited by MoneyIsntEverything on Wed May 17, 2017 4:59 pm, edited 1 time in total.
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letsgobobby
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Re: BIG ($180k) student debt!! Strategy needed.

Post by letsgobobby »

Can't your wife earn more than $45k as a vet? I mean I know vets don't make doctor salaries but I think they make more than the median wage, don't they? What was her strategy for paying off almost $200k in debt before she took the loans?

For psychological reasons I would pay off all your small loans asap. Even the low interest rate loans. You should not have any taxable investments at all with that kind of debt, just 6 months of cash in an emergency fund. your asset allocation is fine. Spending restraint will be key and will be your most important tool to ultimately become debt free and build wealth.
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market timer
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Re: BIG ($180k) student debt!! Strategy needed.

Post by market timer »

Are you filing MFS to take advantage of income based repayment? Is she working for a nonprofit that could qualify for Public Service Loan Forgiveness?
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BL
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Re: BIG ($180k) student debt!! Strategy needed.

Post by BL »

market timer wrote:Are you filing MFS to take advantage of income based repayment? Is she working for a nonprofit that could qualify for Public Service Loan Forgiveness?
That is the only possible reason I can think of. Be sure to do it both ways if you are considering this. You can amend last year's if you were married in 2013.
JimmyD
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Re: BIG ($180k) student debt!! Strategy needed.

Post by JimmyD »

I'm in a very similar situation. My wife and I earn about the same, however her loan balance tops yours at an astonishing $235K. I nearly fell out of my chair the first year I did her taxes and saw that number.

The way we're able to cope with it is a multi-pronged approach. Not sure if you'd be able to take advantage of these options given her line of work, but at least it's some food for thought.

1. She utilizes the Income Based Repayment method that lowers her monthly payment, based on her AGI
2. We file taxes as married filing separately, so my income is not calculated in her loan payment, essentially cutting it in half of what it would have been
3. We max out her 403b thereby drastically lowering her AGI, in turn, further lowering her monthly payment
4. We have her enrolled in the Public Service Loan forgiveness (PSLF) program which is * supposed * to forgive any remaining balance after ten years of payments

By using the steps above, she'll only repay a small fraction of that $235K balance. There is real risk involved with PSLF however (e.g. the federal government reneges on the program), so even if your wife is eligible, really spend some time reading up on that program and the eligibility details.
newbie001
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Re: BIG ($180k) student debt!! Strategy needed.

Post by newbie001 »

As others have said, your wife should look into Income-Based Repayment re: the 180K in federal loans. She might even qualify for the Pay as You Earn program, which is even better than IBR. IBR caps your annual payments at 15% of your discretionary income, whereas PAYE caps it at 10%. Also, loans under PAYE are forgiven after 20 years rather than IBR's 25 years. The government is going to expand the PAYE program by 12/15 to include people who are currently limited to IBR.

To qualify for PAYE or IBR at your current salaries, you and your spouse would have to file separately, which as mentioned upthread will very likely cost you on taxes.

Deciding between higher student loan payments but lower taxes or the reverse is tough because you have to estimate future salaries to determine how beneficial PAYE or IBR is. 45K strikes me as low pay for a vet- does your spouse anticipate earning considerably more in the future?
mw1739
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Re: BIG ($180k) student debt!! Strategy needed.

Post by mw1739 »

I would throw the money in taxable and anything you get from your ESPP on the debt immediately.

Do you have a budget? I would think on a $165,000 per year income you could throw maybe $40k per year on the debt after maxing your 401k and Roths. Take any raises and allocate them to debt. You can't get a better risk free return than 7% by paying off debt. You can be out of this mess in 4-5 years.
technovelist
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Re: BIG ($180k) student debt!! Strategy needed.

Post by technovelist »

I would pay it off ahead of anything else. In my opinion, student loan debt is about like owing money to the IRS, i.e., something to get out of the way ASAP!
In theory, theory and practice are identical. In practice, they often differ.
anonforthis
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Re: BIG ($180k) student debt!! Strategy needed.

Post by anonforthis »

I would rent a room for less than $500 a month, eat beans and rice, take public transportation to work or walk, both get second full time jobs. You guys can really pay it all off less than 1 year.
flyingbison
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Re: BIG ($180k) student debt!! Strategy needed.

Post by flyingbison »

jimday1982 wrote:I'm in a very similar situation. My wife and I earn about the same, however her loan balance tops yours at an astonishing $235K. I nearly fell out of my chair the first year I did her taxes and saw that number.

The way we're able to cope with it is a multi-pronged approach. Not sure if you'd be able to take advantage of these options given her line of work, but at least it's some food for thought.

1. She utilizes the Income Based Repayment method that lowers her monthly payment, based on her AGI
2. We file taxes as married filing separately, so my income is not calculated in her loan payment, essentially cutting it in half of what it would have been
3. We max out her 403b thereby drastically lowering her AGI, in turn, further lowering her monthly payment
4. We have her enrolled in the Public Service Loan forgiveness (PSLF) program which is * supposed * to forgive any remaining balance after ten years of payments

By using the steps above, she'll only repay a small fraction of that $235K balance. There is real risk involved with PSLF however (e.g. the federal government reneges on the program), so even if your wife is eligible, really spend some time reading up on that program and the eligibility details.
Another strategy would be to pay back the money she borrowed.
Topic Author
fiddlehead
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Re: BIG ($180k) student debt!! Strategy needed.

Post by fiddlehead »

Thank you all for the great input. A lot of good food for thought here. Responding to a few points.
MoneyIsntEverything wrote:
I would want to pay off the student debt ASAP. Contribute whatever is needed to employer retirement plans to get the full match, then throw everything else at the loans until they're gone. Maintaining a "student budget" lifestyle a while longer should accelerate this. I'd consider using the proceeds from ESPP stock sales toward the student loans.
This seems like a sound approach. Using ESPP proceeds is an interesting way to offset interest. Thanks 'MoneyisntEverything.
letsgobobby wrote: Can't your wife earn more than $45k as a vet?
Yes. She can definitely earn more than $45k. This is year 1 in her career and she has to build a clientele. Also, she is a large-animal vet (horses, llamas, goats, etc. Mostly horses) they don't make as high of salaries as small-animal vets.
jimday1982 wrote:
She utilizes the Income Based Repayment method that lowers her monthly payment, based on her AGI
2. We file taxes as married filing separately, so my income is not calculated in her loan payment, essentially cutting it in half of what it would have been
3. We max out her 403b thereby drastically lowering her AGI, in turn, further lowering her monthly payment
4. We have her enrolled in the Public Service Loan forgiveness (PSLF) program which is * supposed * to forgive any remaining balance after ten years of payments
Jim, our situations DO sound very similar. My wife is currently enrolled in the Income-based Repayment Plan. She does not qualify for the Public Service Loan Forgiveness program, as far as I understand, due to the field she is in.
newbie001 wrote: your wife should look into Income-Based Repayment re: the 180K in federal loans. She might even qualify for the Pay as You Earn program, which is even better than IBR. IBR caps your annual payments at 15% of your discretionary income, whereas PAYE caps it at 10%. Also, loans under PAYE are forgiven after 20 years rather than IBR's 25 years. The government is going to expand the PAYE program by 12/15 to include people who are currently limited to IBR.
In these two posts, I'm hearing a potential strategy around:
- filing Taxes separately to avoid my income being considered
- paying minimum payments on the loan (through IBR or PAYE programs)

My concerns with this approach:
- we'll pay more for the loan in the long-term, due to interest.
- we'll pay more in taxes, due to filing separately.
- The debt on the books could become a big liability for buying a home/property in the future.

Do these concerns seem justified? My feeling has been that our best strategy is to pay the debt down ASAP and remove it from the picture, rather than dragging it out to avoid paying some portion of it.

Additional thoughts?
Thanks again.
Topic Author
fiddlehead
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Re: BIG ($180k) student debt!! Strategy needed.

Post by fiddlehead »

mw1739 wrote:I would throw the money in taxable and anything you get from your ESPP on the debt immediately.

Do you have a budget? I would think on a $165,000 per year income you could throw maybe $40k per year on the debt after maxing your 401k and Roths. Take any raises and allocate them to debt. You can't get a better risk free return than 7% by paying off debt. You can be out of this mess in 4-5 years.
mw1739, I agree with you 100%! We JUST got married in July, so this debt has JUST officially become both our responsibility. We definitely have the income and low-expense lifestyle, by which to pay the debt aggressively. I'm just taking input to create a solid strategy.

I like your idea to "throw the money in taxable and anything you get from your ESPP on the debt immediately". I'll consider that.

Thanks.
Fiddlehead
ww340
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Re: BIG ($180k) student debt!! Strategy needed.

Post by ww340 »

My husband and I lived solely off his income until my student debt was paid off. Everything I made went to pay the student loans.

We were so glad we did that, because it gave us all kinds of life options that we would not have had if I still had a ton of debt over my head.

I was able to go to part time work, and I was able to be very picky about where I worked, and flexible about moving for his work requirements.

Being out of debt is truly financial freedom.
zanian
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Re: BIG ($180k) student debt!! Strategy needed.

Post by zanian »

I was at about 145K like 15 years ago. My interest rates were pretty high since many of them were private loans. It was an extra incentive to knock them out. 8 percent is crazy!

I simply lived as if I were still a student. Small apartment with cheap rent and I was lucky that I worked a lot of overtime, so my income was pretty decent to pay a lot towards the loans. It took me 8 years. It was a huge weight off my shoulders when that was over!

good luck!
newbie001
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Re: BIG ($180k) student debt!! Strategy needed.

Post by newbie001 »

Fiddlehead,

If you guys file separately and your wife utilizes IBR or PAYE, her loans would definitely have negative amortization, at least in the early years. If she pays the loan off in full within 20 years, then the initially low payments would indeed result in higher payments over the course of the loan. But the potential forgiveness of the loan complicates the calculation. Assume your wife’s salary over the years increases only marginally beyond 45K, and she utilizes PAYE or IBR. Years down the road, the balance will be (much) higher than the initial balance of 180K due to negative amortization. But she would not bear the cost of the negative amortization if the loan is forgiven after 20 years.

From her perspective, the worst thing (speaking in strictly financial terms) would be to utilize IBR or PAYE for a number of years, watch her 180K balance grow, receive a much larger salary in subsequent years, and then pay off the loan in full around Year 19. That could result in paying more money than if you guys just knocked out the loan in, say, in the first 5 years. It’s very hard to crunch the numbers because, among other things, you don’t know her salary will be in future years, and her salary determines the payments under PAYE/IBR. Plus, you have to factor in the increased taxes you will pay as a result of filing separately, and that can’t be done with precision because you don’t know what future tax rates, exemptions, deductions, etc. will be.

As jimday noted upthread, if you pursued the IBR/PAYE route, you might want your wife to max out her retirement savings to reduce her adjusted gross income, which would in turn lower her required student loan payments. For instance, her annual payment filing separately and making 45K would be about $4200. But if she contributes the max of $17,5000 to her 401(k), her AGI would be roughly 28K and her annual payment would be only $1650 or so.

NOTE: I realize that many people view utilization of IBR/PAYE like this as unethical or even reprehensible. Similar views are often expressed with respect to irrevocable Medicaid trusts, walking away on upside-down mortgages, etc. I am not advocating one view or the other- everything I’ve said is just looking at things in a strictly financial light, with no ethical considerations.

Re: the debt being a potential drag for something like a mortgage application, that is a legitimate concern. That said, I have enormous student loans and just under an 800 credit score and have never had problems getting approved. When I shopped around for a mortgage, the lenders just looked at my required monthly debt payments and compared it to my prospective mortgage payments.

Hope that helps. Best of luck to you and your wife.
JimmyD
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Re: BIG ($180k) student debt!! Strategy needed.

Post by JimmyD »

newbie001 wrote:Fiddlehead,
Re: the debt being a potential drag for something like a mortgage application, that is a legitimate concern. That said, I have enormous student loans and just under an 800 credit score and have never had problems getting approved. When I shopped around for a mortgage, the lenders just looked at my required monthly debt payments and compared it to my prospective mortgage payments.
I concur. Despite our monstrous student loan and a paltry down payment, we were approved for a home loan without issue. Granted, we also have very strong credit scores and they did ASK about the loan, but once explained and supporting documentation was sent, it became a non-issue.

Good luck!
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FelixTheCat
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Re: BIG ($180k) student debt!! Strategy needed.

Post by FelixTheCat »

Is there a reason why your wife is making 45K?
The BLS reports that veterinarians earned a median salary of $84,460 in 2012. The best-paid veterinarians earned $144,100, while the lowest-paid earned $51,530. Veterinarians working in scientific research development services, pharmaceutical and medicine manufacturing and wholesale electronic markets tend to be among the highest paid. Top-paying metropolitan areas include Cape Coral, Fla., Visalia, Calif., and Palm Coast, Fla.
Source: http://money.usnews.com/careers/best-jo ... ian/salary

To answer your questions
1) Asset Allocation is personal. Boglehead theory is Age in Bonds. I am risk adverse so I do more in bonds. Others like risk so they have more in stocks. If you think 60/40 is right for you then your asset allocation is fine.
2) I personally can't stand debt. It will keep me awake at night. I would focus on debt payments.
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huskerdoc2035
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Re: BIG ($180k) student debt!! Strategy needed.

Post by huskerdoc2035 »

Just checking this quickly over lunch so not sure if it has been talked about but consider refinancing the student loans. Sofi.com is one option to get a lower rate, I used drbank (though not super happy with the service it works) but on quick check I did not see it available to Vets but it is for MBAs, advanced nursing etc so maybe you could give them a call. I was at the standard 6.8% with my loans and refinanced to a variable 15 year rate at 2.74% with a 9% cap. I am making good enough money now that if rates got up in the 7-9% range I could throw quite a bit of money at them if I needed. But now that I have this it provides me a little more flexibility to save for a down payment and build up my retirement accounts. They do offer fixed rates that are a little better than what you are getting but not as good as the variable if you don't like the uncertainty. You would likely have to co-sign with her since her debt to income ratio isn't the best. Whitecoatinvestor.com has some big discussions on this topic and looks at some of the options out there if you go to that site and search for student loan refinancing. The owner of the site is a poster on here as well I believe. Any questions reply to this and I'll try my best to answer them. Good luck!
retire2044
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Re: BIG ($180k) student debt!! Strategy needed.

Post by retire2044 »

My wife and I had a combined $220k student loan debt when I finished school in 2010, it is now down to $92k. I know that Dave Ramsey has mixed reviews on this site, but we used his technique of paying off the smallest student loans first and "snowballing" that payment into the larger loans. We paid off the loans very heavily the first few years (before our first child 2 years ago) and have since scaled back to making only the minimum payments on the 10-year payoff plan we are on. One warning would be to make sure you save enough cash for an emergency fund. We were so motivated to pay off the debt that we neglected to build-up our cash reserves at first. The year our son was born we paid off $75k in principal and didn't build-up our emergency fund any to account for the new addition in our family. Our emergency fund was fine for the 2 of us, but the following year we worked to build that up to match our increased spending on our child. It is all about balance. Just try not to add stress to your life by spreading yourself too thin.
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Re: BIG ($180k) student debt!! Strategy needed.

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) (debt reduction strategy).
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avenger
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Re: BIG ($180k) student debt!! Strategy needed.

Post by avenger »

Just do it. I had $300k, have paid off $120k in the last year. Just keep throwing money at it.

Good luck.
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brajalle
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Re: BIG ($180k) student debt!! Strategy needed.

Post by brajalle »

A few things, based on what is strictly financially most beneficial -

- IBR/PSLF is a valid option, the gov will cover something like 36 months of interest that is not covered by your IBR payments. So your negative amortization will not start yet.
- You can obviously reduce your IBR payment by filing separately, and by (now) being able to claim 2 in the household instead of 1 (since you were married)
- Don't forget to look at a HSA/Flex/insurance costs reducing IBR even further if you go that route coming from her income
- When you file separately you cannot contribute to IRA's pretty much (super low contribution phaseouts) or claim any educational credits/deductions (in this case, only likely to be the $3k student loan interest one for you guys)
- There is a way around this - amend later to file jointly. I believe for Feds you can amend up to either 2 or 3 years later, I know my state limits it to 2 years. You can extend this by 6 months by filing an extension.

Potential strategy then becomes -
- Continue to file separately. Get an extension every year. Continue to contribute to IRA's - get a CPA/Lawyer to file your taxes, because you'll owe penalties and such for these contributions initially.
- File your amended joint return within the proper window. IBR can look at your taxes back at least 1 year. I always figured back 2 years is safe since there is some wording in the authorization that allows them to look back 2 years in certain circumstances. The authorization to look at your taxes is good for 120 days if I recall. Time all of this with your new IBR year (you can un-enroll and re-enroll). As best as I, and my lawyer can tell, there is no provision for the IBR program to amend your IBR amount ex-post-facto based on amended returns. Additionally, after reading a ton of guidance pdf's for the program for servicers, I find no mention of this either, and in fact, they're incredibly strict about not allowing investigatory things by servicers.
- The amended return will allow you to claim the student loan interest & refund the penalties paid on IRA contributions.
- Profit from low IBR payments & from filing jointly benefits. Profit from the PSLF in 120 payments and the tax-forgiveness.
- Oh, I'd pay off the private loan asap.

On the whole morality question, this is how I view it - it's pretty much a tax subsidy (IBR/PSLF/etc). There are tax subsidies all over the place. They exist for various reasons, but it all comes down to the government deciding it wants to encourage certain activities or behavior. In this case it's both going to college...and not being afraid to enter either public service or non-profit service. The government encourages children through tax refunds - what's so hard to understand about this tax subsidy? They exist, the morality of them is a political question. I'm guessing most of the morality people up above claim all available tax deductions and credits that they're aware of - this is really no different than tax planing.

PS - I'm not a lawyer or tax professional, seek advice from one before doing anything.

PSS - Dave Ramsey comments aside, there is another good reason to pay off smaller debts first aside from mental ones, and that's one that revolves around removing any cash flow restrictions you may face now or in the future.
Last edited by brajalle on Thu Sep 25, 2014 8:18 pm, edited 1 time in total.
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Toons
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Re: BIG ($180k) student debt!! Strategy needed.

Post by Toons »

LBYM(Live Beneath Your Means)
Stick to a budget,,,
Beans ,Rice,Pasta
Stop Investing,
Don't Charge Anything.
Laser like focus on car and student loan debt
"Throw every available dollar at it" :happy
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jmc2010
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Re: BIG ($180k) student debt!! Strategy needed.

Post by jmc2010 »

As someone who is working on paying down an initial $260K in medical school loans, I feel your pain. One thing that hasn't been mentioned above is refinancing those loans. I used SOFI (not affiliated) but there are many other companies that will refinance these loans. Essentially I refinanced all of my loans to a variable rate 3% loan. This saves me a significant amount of money each year. I was willing to do the variable rate loan because i am paying off loans as aggressively as I can, however they also have fixed rate loans which sit around 5%...you can shave another 0.25% off if you do automatic payments. That could save you nearly 2% on the interest.

Granted, refinancing means you can't do the IBR or PAYE programs. I fall into the camp that believes paying off loans as quickly as possible is best and I am not convinced that loan forgiveness will happen...especially for high earners.

My two cents.
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White Coat Investor
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Re: BIG ($180k) student debt!! Strategy needed.

Post by White Coat Investor »

Regarding the student debt:

1) If the debtor is interested in working for a 501(c)3, go for Public Service Loan Forgiveness.

2) If not, refinance that debt as low as 3% variable and 4-5% fixed with one of several companies, then pay it off aggressively.

http://whitecoatinvestor.com/new-option ... financing/

Lots of physicians and dentists would love to only owe $180K. Average for doctors currently graduating is about $200K. Many owe $450K+.
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letsgobobby
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Re: BIG ($180k) student debt!! Strategy needed.

Post by letsgobobby »

EmergDoc wrote:Regarding the student debt:

1) If the debtor is interested in working for a 501(c)3, go for Public Service Loan Forgiveness.

2) If not, refinance that debt as low as 3% variable and 4-5% fixed with one of several companies, then pay it off aggressively.

http://whitecoatinvestor.com/new-option ... financing/

Lots of physicians and dentists would love to only owe $180K. Average for doctors currently graduating is about $200K. Many owe $450K+.
but they make at least $200k if they work full time and some will make multiples of that. She makes $45k, so she owes 400% of her gross annual income - it's totally out of proportion. Fortunately, OP is a good man and hopefully she'll be making more down the road.
sailfish2
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Re: BIG ($180k) student debt!! Strategy needed.

Post by sailfish2 »

Equine vets, especially those in equestrian-oriented areas (ie Kentucky, Wellington and Ocala in Florida), seem to do pretty well. I have known a few. I realize that your wife is just starting her practice, but I would look into whether your locale is limiting her income.

As an attorney who graduated with over 100K in debt about 10 years ago, I would recommend paying the minimum on the federally guaranteed loans while focusing on paying off those higher interest private loans via the "snowball" method - laser-like focus on the private loands with highest interest rates regardless of the loan balance of each. This is a departure from Dave Ramsey's strategy, because we all know the private student loans are more dangerous (given that one cannot discharge them in BK and their interest rates are much higher, ability to get a forebearance can be more limited etc).

My federally guaranteed loans are consolidated permanently at 3% (I graduated in 2003, when rates were lower). I amonly slightly irritated at myself for not having them all paid off ten years later. For me, retirement planning balanced out the need to pay them off (given the low interest rate).
newbie001
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Re: BIG ($180k) student debt!! Strategy needed.

Post by newbie001 »

sailfish2 wrote:Equine vets, especially those in equestrian-oriented areas (ie Kentucky, Wellington and Ocala in Florida), seem to do pretty well. I have known a few. I realize that your wife is just starting her practice, but I would look into whether your locale is limiting her income.

As an attorney who graduated with over 100K in debt about 10 years ago, I would recommend paying the minimum on the federally guaranteed loans while focusing on paying off those higher interest private loans via the "snowball" method - laser-like focus on the private loands with highest interest rates regardless of the loan balance of each. This is a departure from Dave Ramsey's strategy, because we all know the private student loans are more dangerous (given that one cannot discharge them in BK and their interest rates are much higher, ability to get a forebearance can be more limited etc).

My federally guaranteed loans are consolidated permanently at 3% (I graduated in 2003, when rates were lower). I amonly slightly irritated at myself for not having them all paid off ten years later. For me, retirement planning balanced out the need to pay them off (given the low interest rate).
Sadly, the consolidation rules were changed around 2005 such that grads can no longer consolidate and lock in low current interest rates for their exising federal loans. The interest rate is determined at disbursement and is fixed for the life of the loan. Thus, some grads are paying rates as high as 8.25% for the life of their federal loans, although of course these grads may also have the luxury of income-based repayment. I refi'd my private loans with Darien Rowayton Bank, which has fantastic rates (although as mentioned by someone else their customer service is a bit rough) and they are less than half the rate on my federal loans. I

f I were a doctor and had that kind of job security, I would refi 180K in federal loans with DRB or SoFi. But if you lack the job security/salary of a doctor, you have to consider that taking out a private loan to pay off a higher-rate federal loan eliminates the possibility of using income-based repayment and, in some cases, forbearance.
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Re: BIG ($180k) student debt!! Strategy needed.

Post by sailfish2 »

Thanks Newbie.

That is unfortunate, an example of how one's financial life can be so affected by timing and circumstance. I was on the short end of the stick as far as my real estate purchase in 2007, but at least I consolidated before this rule changed. :| People need to lobby hard for Congress to change that. Student loans are suppressing the economy and Washington is all talk and no action on this crucial issue.
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Re: BIG ($180k) student debt!! Strategy needed.

Post by JGoneRiding »

I too am a dvm in WA state. The good news is that her income should steadily rise to about 100k over about 10 years. This debt is like a house and might be best viewed the same way. There will NOT ever be a ‘’quick’’ way to get it paid. And the two of you need to have a life kids?? Or your wife will burn out and be worse off.

The advice I didn’t get and wish I has: wait to buy the ‘’car’’ chances are she has been driving clunkers for 10 years and wants something nice. Dedicate pay raises in thirds. I actually use fourths cause taxes takes a fourth ! Debt, retirement, life enjoyment.

I find these to be a balanced approach and avoids burnout. So I got a 400 a mos raise in July and took my S-IRA from 7.5% to 8 and raised my SL payment by 50 and after taxes plan to spend the rest. I would plan on having that much loan around for 20 plus years. Anything else will kill you both. It will help if you can accept that. Since basically you are looking at 2 mortgage payments.

I would buy a house when you are ready and otherwise live life with a goal and a plan but don’t let the existence of this debt consume you. I would personally be more aggressive in stock allocation and consider the loan part of a reverse bond fund. But there are many more experts on that then me.

Please please don’t let life be about this loan. You can’t afford that it will destroy you both. Live, invest, save, plan, and pay it back. I promise her salary will go up yearly in leaps n bounds. She will get bonuses and emergency pay it doesn’t look like you are accounting for. You will still qualify for a mortgage. You MUST invest for retirement while paying the loan back otherwise you run out of time and space. She will need vacations and sunshine. Some haven’t been there others of us have yes you need a plan. Yes be aggressive but find balance!!!
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Re: BIG ($180k) student debt!! Strategy needed.

Post by Pizzasteve510 »

Toons wrote:LBYM(Live Beneath Your Means)
Stick to a budget,,,
Beans ,Rice,Pasta
Stop Investing,
Don't Charge Anything.
Laser like focus on car and student loan debt
"Throw every available dollar at it" :happy
+1. Or if you prefer humor

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fiddlehead
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Re: BIG ($180k) student debt!! Strategy needed.

Post by fiddlehead »

huskerdoc2035 wrote: consider refinancing the student loans. Sofi.com is one option to get a lower rate, I used drbank
Thanks for this suggestion. I have been considering refinancing. It's a weird loan to get because there's no collateral! I'll check the sources you mention. Thanks again.
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Re: BIG ($180k) student debt!! Strategy needed.

Post by Herekittykitty »

EmergDoc wrote:Regarding the student debt:

1) If the debtor is interested in working for a 501(c)3, go for Public Service Loan Forgiveness.

2) If not, refinance that debt as low as 3% variable and 4-5% fixed with one of several companies, then pay it off aggressively.

http://whitecoatinvestor.com/new-option ... financing/

Lots of physicians and dentists would love to only owe $180K. Average for doctors currently graduating is about $200K. Many owe $450K+.
Excellent advice. May I also suggest the OP get a copy of The White Coat Investor (available on Amazon - click on the Amazon link above and this board will get a small referral fee from Amazon) - which is written by EmergDoc. No, I haven't met him. Yes, I have read the book and am impressed.

Your income together is about the same as many starting off physicians, and will hopefully increase significantly as she progresses in her career. Your debt certainly is in that range - actually somewhat lower. So many if not all the same principals apply.

As far as any comments that the debt is going to be around a long time - I don't necessarily agree. (And yes, I know from experience.) How long it hangs around is up to you and your wife. As is your financial future. Which can end up being good.
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Re: BIG ($180k) student debt!! Strategy needed.

Post by LadyGeek »

Herekittykitty wrote:...Excellent advice. May I also suggest the OP get a copy of The White Coat Investor (available on Amazon - click on the Amazon link above and this board will get a small referral fee from Amazon) - which is written by EmergDoc. No, I haven't met him. Yes, I have read the book and am impressed.
His book is in the wiki: The White Coat Investor - the referral tag is already in the URL.

I've met him at the Bogleheads Convention.
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fiddlehead
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Re: BIG ($180k) student debt!! Strategy needed.

Post by fiddlehead »

JGoneRiding wrote:I too am a dvm in WA state. The good news is that her income should steadily rise to about 100k over about 10 years.
Thanks for your thoughts, JGoneRiding. My wife will appreciate the DVM perspective on here. Thanks for the message of balance. Yes, we're already seeing her income and practice expand. She works hard and does a great job.
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Re: BIG ($180k) student debt!! Strategy needed.

Post by Herekittykitty »

LadyGeek wrote:
Herekittykitty wrote:...Excellent advice. May I also suggest the OP get a copy of The White Coat Investor (available on Amazon - click on the Amazon link above and this board will get a small referral fee from Amazon) - which is written by EmergDoc. No, I haven't met him. Yes, I have read the book and am impressed.
His book is in the wiki: The White Coat Investor - the referral tag is already in the URL.

I've met him at the Bogleheads Convention.
Thanks for the info, Lady Geek - I will try to remember and incorporate it when I recommend The White Coat Investor in the future - as I surely will.
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fiddlehead
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Re: BIG ($180k) student debt!! Strategy needed.

Post by fiddlehead »

I want to thank you ALL for your time, thoughts and ideas. We have some great ideas to consider.

We will likely:
  • Investigate refinancing options. Sounds like this may NOT be a option due to legislation. :-/
    Pay down the debt aggressively.
    Maintain a humble lifestyle
    Continue to save for emergency and retirement
Thanks for your well wishes.
crg11
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Re: BIG ($180k) student debt!! Strategy needed.

Post by crg11 »

You may also want to try something like You Need A Budget (YNAB) to help you get an excellent view of your spending and what areas you can/should cut back on. It's done wonders for my wife and I.
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Re: BIG ($180k) student debt!! Strategy needed.

Post by Herekittykitty »

fiddlehead wrote:I want to thank you ALL for your time, thoughts and ideas. We have some great ideas to consider.

We will likely:
  • Investigate refinancing options. Sounds like this may NOT be a option due to legislation. :-/
    Pay down the debt aggressively.
    Maintain a humble lifestyle
    Continue to save for emergency and retirement
Thanks for your well wishes.
If you do the above, your future self will appreciate it very much.

Best wishes.
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Re: BIG ($180k) student debt!! Strategy needed.

Post by JonnyDVM »

fiddlehead wrote:
huskerdoc2035 wrote: consider refinancing the student loans. Sofi.com is one option to get a lower rate, I used drbank
Thanks for this suggestion. I have been considering refinancing. It's a weird loan to get because there's no collateral! I'll check the sources you mention. Thanks again.
SOFI is not going to refinace 180k for someone that makes 45k. They are in the business of trying to make some kind of profit.
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Re: BIG ($180k) student debt!! Strategy needed.

Post by White Coat Investor »

JonnyDVM wrote:
fiddlehead wrote:
huskerdoc2035 wrote: consider refinancing the student loans. Sofi.com is one option to get a lower rate, I used drbank
Thanks for this suggestion. I have been considering refinancing. It's a weird loan to get because there's no collateral! I'll check the sources you mention. Thanks again.
SOFI is not going to refinace 180k for someone that makes 45k. They are in the business of trying to make some kind of profit.
I agree the OP is unlikely to get approved. I'd still check, but none of the banks doing refinancing is the government, willing to loan astronomical amounts to students with no hope of ever getting repaid. 4 times expected annual income is a massive loan. That's like an average physician owning $800K-$1 Million. I haven't seen that (but I've seen $950K for two docs and $450K for one.) I think this is one of those cases where income has to go up to ever get rid of this thing. As my BIL told my PT sister, you have to work until your student loans are gone before you can even think about being a stay at home mom.

Are there no 501(c)3 DVM jobs? What about for a shelter or something? What about an academic job? Those should all be PSLF eligible.
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Re: BIG ($180k) student debt!! Strategy needed.

Post by altadoc »

one thing not to forget about PAYE/IBR etc, is that any debt that is forgiven at the end of the payment period is considered earned income. there can be a big and surprising tax bill for many people taking this route.

one of the biggest benefits of PSLF is that forgiven debt is not taxed
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Re: BIG ($180k) student debt!! Strategy needed.

Post by Herekittykitty »

Looking at the situation as

"Her" $180,000 + $8,800 = $188,800 debt, "her" $45,000 income, and "her" potential of increasing income to around $100,000 over the next 10 years

and

"His" $4,900 debt, and "his" $120,000 income

You see a 32 year old woman with high debt, low income in relation to the debt, and good earning potential over time. And a 43 year old man with high income, low debt, and we don't know what earning potential over time.

However looking at it as

"Their" $193,700 debt, "their" $195,000 income, and "their" ability to increase income over time: The debt is approximately equal to the annual income. Ouch - but not unmanageable over a few years, even while maxing out the retirement accounts, assuming frugal but healthy living.

In their position, assuming the marriage is solid, I would look at it as "our" income and "our" debt, I would live frugally, I would knock out the car loan and the UC Davis loan first just to get them out of the way, and I would then tackle that Stafford loan as though it were my worst enemy and get it gone within a few years. I would continue maxing out retirement accounts as I went.

Now for some miscellaneous observations: How the age difference affects any decision making I don't know, but 11 years isn't nothing. Also, regardless of her younger age, if they want children her clock will be ticking before long. It can't be predicted how her pregnancies will go and the impact if any they may have on her income producing ability as they progress. Finally - there are plenty of people who have put their spouse through professional school or paid off their spouse's professional school loans only to find themselves traded in for another model. Whether that risk should be considered, I don't know.
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fiddlehead
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Re: BIG ($180k) student debt!! Strategy needed.

Post by fiddlehead »

@herekittykitty - I appreciate your perspective. My wife and I will likely be handling as you suggest. And yes, we'll be looking at both the debt and the combined income as 'ours'.

Regarding your miscellaneous comments... These are definitely good things to consider. However, I don't believe in not participating fully in a marriage, and trying to insulate ones self from the other person. That feels divisive. I believe in being 'all in' in a marriage or NOT being married at all. There is risk of course... in money and love.

I will partner with my wife to remove the debt, which I now consider both of ours.

Thanks again for your thoughts!
Fiddlehead
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Re: BIG ($180k) student debt!! Strategy needed.

Post by ginyah »

Live on your income, put all she earns into paying off her debt. The good thing about this is you both will feel that she paid her student debts and you will learn to live below your means. When the debt is paid, you can put her income into retirement savings or towards a down payment on a house. Learning to live on one income while earning two offers many options in the future.
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Re: BIG ($180k) student debt!! Strategy needed.

Post by BL »

ginyah wrote:Live on your income, put all she earns into paying off her debt. The good thing about this is you both will feel that she paid her student debts and you will learn to live below your means. When the debt is paid, you can put her income into retirement savings or towards a down payment on a house. Learning to live on one income while earning two offers many options in the future.
+1
I would even pay her taxes, fund her Roth, maybe subsidize the 401k at least up to the match, while she pays everything possible toward the loan. If I were her, I would "own" that loan, and feel good as I knock it out, all while appreciating a spouse who makes it possible to do that.
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Re: BIG ($180k) student debt!! Strategy needed.

Post by Herekittykitty »

I can see the point of the posters who suggest the wife "own" her loan and have the satisfaction of paying it off.

On the other hand - I would also see the point of a spouse who was expected to "own" their professional school loan and paid it off "themselves" if once they had paid it off, while presumably their income was rising, if they thought it was only fair that they "own" the income they generated.

It could well be that when looking at the couple's income, expenses, and debt as "our" income, expenses, and debt that the appropriate budgeted amount for debt reduction would be the amount the lower income/higher debt spouse was bringing in. On the other hand, it might not. However in a marriage, I don't see the point in "your" income, expenses, and debt versus "my" income, expenses, and debt.

In this particular case, it is entirely possible that the wife's income will exceed that of her husband's at some point while they are both working, and it is certainly possible she will be able to work longer than he will given the 11 year age difference. Strategically it seems like a bad idea for the husband to be formulating the debt as "her" debt and the majority of the current income as "my" income - because she could reasonably continue that formulation at a point she is debt free, her income is solid and rising, and he is no longer able to bring in a good income.

But really, financial strategy in a marriage needs to be "our" financial strategy, not "yours" and "mine" - for better or for worse, and all that.
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Re: BIG ($180k) student debt!! Strategy needed.

Post by simonsayz »

brajalle wrote: Thu Sep 25, 2014 8:11 pm A few things, based on what is strictly financially most beneficial -

- IBR/PSLF is a valid option, the gov will cover something like 36 months of interest that is not covered by your IBR payments. So your negative amortization will not start yet.
- You can obviously reduce your IBR payment by filing separately, and by (now) being able to claim 2 in the household instead of 1 (since you were married)
- Don't forget to look at a HSA/Flex/insurance costs reducing IBR even further if you go that route coming from her income
- When you file separately you cannot contribute to IRA's pretty much (super low contribution phaseouts) or claim any educational credits/deductions (in this case, only likely to be the $3k student loan interest one for you guys)
- There is a way around this - amend later to file jointly. I believe for Feds you can amend up to either 2 or 3 years later, I know my state limits it to 2 years. You can extend this by 6 months by filing an extension.

Potential strategy then becomes -
- Continue to file separately. Get an extension every year. Continue to contribute to IRA's - get a CPA/Lawyer to file your taxes, because you'll owe penalties and such for these contributions initially.
- File your amended joint return within the proper window. IBR can look at your taxes back at least 1 year. I always figured back 2 years is safe since there is some wording in the authorization that allows them to look back 2 years in certain circumstances. The authorization to look at your taxes is good for 120 days if I recall. Time all of this with your new IBR year (you can un-enroll and re-enroll). As best as I, and my lawyer can tell, there is no provision for the IBR program to amend your IBR amount ex-post-facto based on amended returns. Additionally, after reading a ton of guidance pdf's for the program for servicers, I find no mention of this either, and in fact, they're incredibly strict about not allowing investigatory things by servicers.
- The amended return will allow you to claim the student loan interest & refund the penalties paid on IRA contributions.
- Profit from low IBR payments & from filing jointly benefits. Profit from the PSLF in 120 payments and the tax-forgiveness.
I was trying to search for more in the forums to know if this strategy works but couldn't. Does anyone see a flaw in the logic/steps stated by brajalle as I was thinking the same thing.

Thanks!
Simon
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Re: BIG ($180k) student debt!! Strategy needed.

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