Home     Forum     401k     401k Rollovers
    Register   Login   Members   Search   FAQs     Recent Posts    




Student loan debt advice...

Reply to topic
Money Talk > Credit & Loans

Author Thread
x3Harvey
Member


Cash: $ 2.05

Posts: 10
Joined: 28 Jan 2015
Location: Pennsylvania
Student loan debt advice...  Reply with quote  

My husband and I have been married for 2 years. We both work full time, have bachelor's degrees and are not underemployed. My husband is a Chemist and had $82,000 of student loan debt when we got married. We consolidated what we could, and even with consolidation, our minimum monthly payments were close to $800/month (now down to around $600 as we've paid off two loans). We normally overpay for a total of about $1000/month. There are four loans remaining, ranging from just a few thousand in principal to more than $20,000. Some of the loans are in his parents' names, not ours, but we pay all of them.

We downsized to a cheaper apartment (the cheapest we could find with two parking spaces and on-site laundry), started shopping at discount grocery outlets. I had been boarding two horses. We moved them to a family farm and now work off their cost. We cancelled cable, and our land line phone. We pared our grocery list down to dried and bulk foods and generally eat for less than $1 per meal. We drink only tap water. We avoid shopping. If we absolutely need something, we try to find it second hand. We don't eat out, go to movies, or anything else unnecessary that costs money. I sold my Jeep Grand Cherokee and replaced it with a used Hyundai Elantra that gets much better gas mileage and is cheaper to maintain. We did not take out a loan for the car.

Unfortunately, our income has remained stagnant. I am currently seeking a new job with better growth potential, and a shorter commute, but it's a slow and difficult process. My husband's job, despite the low starting salary, does give him plenty of opportunity for advancement and raises, so he's going to be patient, work hard, and hope for the best.

Despite our hardships, we've been steadily chipping away at our debt. We put the loans in order from highest interest rate to lowest and started to throw any extra income at the one with the highest interest rate. Our debt now totals around $58,000. If we keep going like this, we should be debt-free in 5 years.

Unfortunately, we're not really building a savings. We maintain an emergency fund, but with all of our extra money going towards the loans, we can't increase our savings. It would take us more than 7 years to actually save for a reasonable down payment on a house, and get rid of all the student debt. That would put us in our mid-30's.

We agree we want 1 or 2 kids, and would like to not have to wait until I'm pushing 35 to even think about having kids. Ideally, we would like to start a family within the next 2-3 years but that would set our financial goals back even further. I'm not sure we could afford daycare even just paying minimums on the student loans. We also wouldn't be able to afford to live on one income while I'm on unpaid maternity leave. I'm also not sure how having a kid would work in this apartment either. It's okay for two people but would be crowded for 3 or 4.

Basically, I'm looking for advice on how to approach this. The obvious approach is to keep attacking the student debt until it's gone, then buy a house, then have kids, which is what we have been doing so far, but I fear I'll be too old to easily have children when that time comes.

Is there any way we could buy a house sooner, without a down payment? Is there any way we can refinance student loans that can't be consolidated with each other in order to lower minimum monthly payments? Would there be a way to roll the loans into a mortgage? Do we have any other options?
Post Wed Jan 28, 2015 1:24 am
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 719.80

Posts: 3501
Joined: 21 May 2006
Location: arizona
 Reply with quote  

quote:
The obvious approach is to keep attacking the student debt until it's gone


I have to ask - obvious to whom? But, looking back, I guess the main reason that I'm wealthy is that I seldom follow conventional wisdom.

What are the interest rates on your $58k of loans?

In my world, it's way more important to put your income to it's 'highest and best' use - and use it build wealth. And the answer is seldom the 'latte factor' - cancelled cable, and our land line phone. We pared our grocery list down to dried and bulk foods and generally eat for less than $1 per meal. We drink only tap water.

Eg. Several times I refi a rental house and borrow an extra $25k or $50k. I place that lump sum in the SP500 Index @ 11%/yr. A $50k loan, 5%, 30 yrs, costs $270/m ($96,600 total). The $50k lump @ 11%/yr grows to $1,100,000. (And I'm happy to pay the $46k of interest for the use of that $50k). I would never allocate our income stream toward prepaying the $50k, any extra income stream would go into our SP500 fund (highest and best use).

The goal is not to be debt-free, it is to build net worth. Plus you and DH need to enjoy each other and your family - that includes cable, movies (w/ popcorn), date nite, yada.

In our Plan, we felt safe in the knowledge that we were going to be millionaires - so we were able to enjoy spending all of our other money. (Very few money arguments).
Post Wed Jan 28, 2015 2:42 am
 View user's profile Send private message
x3Harvey
Member


Cash: $ 2.05

Posts: 10
Joined: 28 Jan 2015
Location: Pennsylvania
 Reply with quote  

quote:
Originally posted by oldguy
quote:
The obvious approach is to keep attacking the student debt until it's gone


I have to ask - obvious to whom? But, looking back, I guess the main reason that I'm wealthy is that I seldom follow conventional wisdom.

What are the interest rates on your $58k of loans?

In my world, it's way more important to put your income to it's 'highest and best' use - and use it build wealth. And the answer is seldom the 'latte factor' - cancelled cable, and our land line phone. We pared our grocery list down to dried and bulk foods and generally eat for less than $1 per meal. We drink only tap water.

Eg. Several times I refi a rental house and borrow an extra $25k or $50k. I place that lump sum in the SP500 Index @ 11%/yr. A $50k loan, 5%, 30 yrs, costs $270/m ($96,600 total). The $50k lump @ 11%/yr grows to $1,100,000. (And I'm happy to pay the $46k of interest for the use of that $50k). I would never allocate our income stream toward prepaying the $50k, any extra income stream would go into our SP500 fund (highest and best use).

The goal is not to be debt-free, it is to build net worth. Plus you and DH need to enjoy each other and your family - that includes cable, movies (w/ popcorn), date nite, yada.

In our Plan, we felt safe in the knowledge that we were going to be millionaires - so we were able to enjoy spending all of our other money. (Very few money arguments).


Thanks for the input! The interest rates on the remaining loans range from 2-9%. The two we already paid off were as high as 12%.

The reason we are trying to get rid of them (or at least most of them) is that they cannot all be consolidated. Even if we just pay minimum payments, we have very little disposable income at the end of the month. The more debt we can get rid of, the more money we'll have to work with for building a savings, investing, and enjoying life. Believe me, I have thought about quitting the path we're on and just paying the minimums for the next few years, but that only frees up a few hundred per month, not enough to get very far. Thus far, it has been more useful to us to put what little money we had towards paying off the next loan to free up more of our monthly income.

Also keep in mind that we are somewhat recent college grads. We have barely had time to get on our feet, and already are faced with this massive debt, and our combined household income is only a hair over $60,000/year (before taxes).

I have acknowledged now, that if we want to take a step back and actually live our lives, we need to do something about this debt, and the astronomically high monthly payments, but I just don't know how. (Hence why I'm seeking advice here.)

And we own absolutely nothing of value. We rent a crappy, little apartment furnished by Goodwill purchases. We have nothing to refinance, because we really don't have anything. Somehow, we would like to change that!

TBH I am clueless on how to invest or play the stock market. Any tips on that would be welcomed!

The good thing about all of this is that it has made our marriage stronger, not weaker. It has given us a common cause, and we've worked very hard together to pay off nearly 1/3 of the debt in just over two years. That's a huge chunk of change! We don't fight about money, we just commiserate together. Wink
Post Wed Jan 28, 2015 3:25 am
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 719.80

Posts: 3501
Joined: 21 May 2006
Location: arizona
 Reply with quote  

quote:
The more debt we can get rid of, the more money we'll have to work with for building a savings, investing, and enjoying life. Believe me, I have thought about quitting the path we're on and just paying the minimums


Well, there are millions of wage earners that live paycheck-to-paycheck - they claim that they can never get ahead - they always want to make a bigger DP on a house, pay-off the car, pay-off the boat, pay-off the kid's braces, redo the kitchen, roof the house, yada - the list never ends - and so they never start building wealth.

Conversely, building a million dollars is fairly straight fwd - put $5000/yr into an 11%/yr fund for 30 yrs and you have $1.1M. I'm surprised that so few do it - for 401k owners, the $5000/yr costs only about $4000/yr out-of-pocket. The concept is to borrow money for your needs so that you never interrupt the power of compounding of your $5000/yr 30-yr plan.

It's a good idea to go thru the math yourselves - you need to convince yourselves so that you'll have the confidence to stay the course. (Kinda funny, we got married before the handheld scientific calculator was invented - we sat on the floor with yellow pads, a slide rule, and a log book.)

quote:
TBH I am clueless on how to invest or play the stock market. Any tips on that would be welcomed!


LOL - don't even say "play the market", that's gambling. (Altho I've done it - corn futures, options, etc). But 'Investing" is slow and boring. The market is a dichotomy - market theory involves complex equations, statistics, there are 1000's of books. But when the theory is reduced to practice it is deceptively simple. Ie, buy the total market average, never sell, accumulate incrementally (monthly), and wait 30 years.

Check this site, look at the most recent 30-yr-block - I think it was about 11.25%/yr. Take look at several 30-yr blocks going back 25 or 50 yrs. Usually about 11%/yr.
http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html#.VMhbiC7meUl
Post Wed Jan 28, 2015 4:20 am
 View user's profile Send private message
x3Harvey
Member


Cash: $ 2.05

Posts: 10
Joined: 28 Jan 2015
Location: Pennsylvania
 Reply with quote  

quote:
put $5000/yr into an 11%/yr fund for 30 yrs


Your advice is great for someone looking to grow their retirement, and build a better distant future. (Which we are, and this is still great advice for looking into) But it's also for someone who has an extra $4-5k lying around, which we just don't have right now. We can scrape together $4800/year if we continue to live like absolute poor people, don't buy a house, don't have kids, and don't overpay on the loans, but it sounds like it will be many years until we see any significant return on that investment. What we need is a way to get off the ground now, just enough to get us going so we can start a family before we're too old to make that happen.

Do you have any advice on how to manage or refinance these student loans so that we can begin to make the proper investments for our future?
Post Wed Jan 28, 2015 12:01 pm
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 719.80

Posts: 3501
Joined: 21 May 2006
Location: arizona
 Reply with quote  

quote:
What we need is a way to get off the ground now, just enough to get us going so we can start a family before we're too old to make that happen.


What are the details on the $58k, 2% to 9% loans - durations, rates, payments?

Value of the cars? And the horses? And the horse trailer?

And the price of houses where you are?
Post Wed Jan 28, 2015 1:37 pm
 View user's profile Send private message
x3Harvey
Member


Cash: $ 2.05

Posts: 10
Joined: 28 Jan 2015
Location: Pennsylvania
 Reply with quote  

Well, the horses aren't worth much. One horse is nearly 30 years old. He was my 4H project when I was a kid. He's retired, wouldn't be useful for anything other than a pasture pet. I'd have a tough time rehoming him for free, much less selling him for a price. The other is a rescued cross-breed, with some behavioral issues. She may be worth about $2000 if marketed well. She's worth a lot more to me than she would be to anyone else.

My husband and I both drive 2010 Hyundai Elantras. My husband's has 90,000 miles on it. Mine has 68,000. Mine is probably worth around $10,000. His is probably worth around $6000. (Just estimates.) My husband still owes some money on his car.

We do not own a truck or trailer. If we need to haul the horses, we borrow my dad's.

The most valuable thing we own is probably my car.

The realestate we would like to purchase would be around 1800-2000 square feet, 3 bedroom, at least 1.5 bathrooms, on less than 1 acre. It doesn't have to be newly updated but it at least needs to be safe and liveable. Houses like that, around here, are usually listed at $230-250k.

Unfortunately, I'm on my lunch break at work right now, and don't have access to all the loan info. I will dig that up as soon as I get home.
Post Wed Jan 28, 2015 5:55 pm
 View user's profile Send private message
x3Harvey
Member


Cash: $ 2.05

Posts: 10
Joined: 28 Jan 2015
Location: Pennsylvania
 Reply with quote  

Sorry, double posted. Mods, feel free to delete this one.
Post Wed Jan 28, 2015 5:56 pm
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 719.80

Posts: 3501
Joined: 21 May 2006
Location: arizona
 Reply with quote  

quote:
Your advice is great for someone looking to grow their retirement, and build a better distant future.


IMO you need to re-prioritize your income stream allocation, setting up your far-future is way more important than 'debt-free'. Waiting - a common mistake - and it leads to paycheck-to-paycheck living. Lots of Boomers waited until they were about 50, then started their 'retirement' planning. In their defense, 401k's became available in about 1982 & boomers were the first generation to encounter investing - and many of them failed badly.

The $5000/yr @ 11%/yr is $1.1M in 30 yrs. But if you wait 15 yrs to start, it will be only $145,000. Ie, it is not linear - "time" is the big factor. First, don't think of it as "retirement", that puts it way into the future, it becomes an abstract idea, easy to postpone - think of it as your family wealth. And do whatever it takes to invest that $5000/yr, borrow it, whatever, it is the priority.

quote:
both drive 2010 Hyundai Elantras. My husband's has 90,000 miles on it. Mine has 68,000. Mine is probably worth around $10,000.


Good job on the cars, they are known for 200,000 miles of trouble-free service.
I would go to a Credit Union and borrow the max on yours, maybe a low-interest 4 yr $8000 note.

Houses. When I buy rental houses, I look on subdivisions that are 1 to 8 years old, the first owner has planted the grass and hung the drapes, all I need is the key and a tenant. The 3bd2ba layout works best, about 1100 to 1300 feet, that's the rent range that appeals to young families, both as renters & buyers. I make the smallest down payment possible, I wait for zero DP deals.
The american mortgage is among the lowest cost capital in the world - all other nations require some resets, usually at 10 yrs. But in the US, Joe Public can go to a bank, ask for a 30-yr, fixed rate, loan, prolly at less than 5%, and walk away with the money.

Maybe 5 years later, when your $230k house has appreciated to $300k, refi it, take out $50k, use some to retire remaining 5% toxic loans, invest the rest, and settle in with only <5%, 30 yr, fixed rate 'keeper' capital.

Very Happy
Post Wed Jan 28, 2015 8:45 pm
 View user's profile Send private message
x3Harvey
Member


Cash: $ 2.05

Posts: 10
Joined: 28 Jan 2015
Location: Pennsylvania
 Reply with quote  

quote:
IMO you need to re-prioritize your income stream allocation, setting up your far-future is way more important than 'debt-free'.


I should let you know that my husband has a 401k that does invest in SP500. He contributes 6% of his pay and has a company match of 6%. He has almost $20k in that account already and he's only been contributing for 3-ish years. That's one of the reason's he's sticking with his job. It should set us up well for retirement.

Unfortunately, I have a crummy pension plan, that is running out of funding. I would love to find a job that supports a 401k with company match.

You are full of some good advice though. You have certainly opened my eyes to some new possibilities. Keep it coming! =]

Here's the loan info:
Our highest interest rate loan is currently a federal loan at 8.25%. It's in my husband's mother's name. We currently owe $9000. Minimum payment is $205.90. We have been paying $500/month.

The next is a set of two private loans in my husband's name. One is 7.25% with a principal of $12,580 and a min payment of $108.32. The other is 2.75% with a principal of $10,037 and a min payment of $64.70.

We have a federal loan in my husband's name at 5.875%, a principal of $20,413, and a min monthly payment of $164.22.

Then there is a federal loan in his dad's name at 3.15%, with a principal of $5,367, and a monthly payment of $105.23.

All are 20 year loans starting in 2010. Do not ask me how he and his parents made such a mess with this, because I have no idea!

So, our total minimum monthly payments amount to $648.37 and we owe a total of $57,397, which believe it or not, sounds pretty good compared to what we started with!
Post Thu Jan 29, 2015 1:48 am
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 719.80

Posts: 3501
Joined: 21 May 2006
Location: arizona
 Reply with quote  

Some of those loans are keepers, I would NEVER prepay 3.15% and 2.75% money, I'd keep it for the whole 20 yr term. Remember, if you prepaid those and then borrowed for a house in the next few years, you might find yourself re-borrowing those same dollars at 5% or 6%. Very Happy

And I would probably keep that 5.875% loan too. Eg, your DH is getting 10% or 12% on what he is putting into his 401k - so you would retain the use of the 5.875% money and put it into the 11% fund. BTW, that's a great 401k, 12% of his salary being invested each yr in an SP500 - there's your million dollars in 30 yrs right there!! Don't let anything derail that. Very Happy

So actually, 3 of those 5 loans are keepers. you've done well at cleaning up the toxic portions over the past 2 years, what's left is not a mess at all. And after you buy a house & let it appreciate for a few yrs, it might make sense to refi at <5.875% and change-out some of that $20k loan? That's an unknown, you call upon your management skills on the fly - if loans are at 4% grab it, if they are 6% be happy that you have 5.875%. (There have been occasions over the past 50 yrs when I was glad to have 8% loans, others were stuck w/ 13% mortgages).
Post Thu Jan 29, 2015 4:47 am
 View user's profile Send private message
x3Harvey
Member


Cash: $ 2.05

Posts: 10
Joined: 28 Jan 2015
Location: Pennsylvania
 Reply with quote  

Okay, you've definitely helped put some things into perspective...

I think our plan, at this point, is to continue as we are until that 8.25% loan is paid off. This will free up $500/month of disposable base income. Together with the $675 we currently pay in rent, we may actually be able to swing a mortgage payment. If we continue to be aggressive with it, and we get as much overtime as we can, we should be able to pay it off by August of this year. I say that because I doubt we'd be able to refinance it, as it's not in my husband's name. It's also the loan with the highest minimum monthly payment, and our minimum payments will seem so much smaller after that one's gone.

I'd really like to stop dumping money into the black hole that is a rental, and purchase property ASAP. Living somewhere that's been updated since 1910 and actually has some insulation might lower our electric bills too! =D
Post Thu Jan 29, 2015 11:59 am
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 719.80

Posts: 3501
Joined: 21 May 2006
Location: arizona
 Reply with quote  

Sounds like a good plan. The $1175m should cover the PITI on a $200k house. Keep the down payment as low as possible, zero if you can get it. (Don't BUY equity in a house, let the market GIVE you equity.) eg, if your $200k house appreciates to $250k in 7 or 8 yrs, and your loan principle pays down to $190k, your equity went from zero to $60,000 - totally due to 'market'.

And you might shop a credit union loan on a car to cut some of the $12,580 loan - if the rate is enough lower to help.
Question - the service on the $12,580 ($108/m) and the $5367 ($105/m) are almost the same - a typo? Or a difference in terms? (the $105 seems out of whack).

Be careful to avoid derailing the million dollar 401k, the temptation to lower that monthly investment and direct more to debt/house will be ever-present, resist it - it is far more important to your family to build the million than it is to pay-off small $10k loans. Very Happy [/b]
Post Thu Jan 29, 2015 3:37 pm
 View user's profile Send private message
x3Harvey
Member


Cash: $ 2.05

Posts: 10
Joined: 28 Jan 2015
Location: Pennsylvania
 Reply with quote  

For the essence of time as well, I think we will try to get a house for 0 down, and the housing market here is staring to turn up. I anticipate an upswing in home values within the next few years, which should help us out.

You're right, that number does seem off. The only explanation for that is that it's not a 20 year loan like the others. That is definitely the minimum amount due each month.

See, my husband is exremely disorganized. He would blindly pay bills after receiving them in the mail. He didn't keep track of any of the original paperwork from any of these loans. After we got married, I took over the household finances and forced him to start a spread sheet detailing the interest rates, payments and balances of all these loans, so we could come up with a plan. I make him update it each month. Because of this, our careful record keeping didn't begin until 2012. He took out these loans before he graduated college in 2010. I really don't know anything about the original terms of the loans. When I asked him yesterday, how long the duration was on these loans he said "Uhh, I think they're all 20 years..." Wouldn't surprise me if he were wrong!

He tells me all the time that I saved his arse financially, by making him get his act together. Smile

Don't worry, we won't touch the 401k contributions. That money has never been in the budget and if it stays out, we won't miss it.

Thanks again for all the advice! You really made our road ahead seem so much more manageable! Maybe we'll live it up and order pizza to celebrate. Wink
Post Thu Jan 29, 2015 6:00 pm
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 719.80

Posts: 3501
Joined: 21 May 2006
Location: arizona
 Reply with quote  

Very Happy
Post Thu Jan 29, 2015 7:17 pm
 View user's profile Send private message

Goto page 1, 2  Next
Reply to topic
Forum Jump:
Jump to:  
  Display posts from previous:      





Money Talk © 2003-2016