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My Spouse's Massive Student Loan Debt

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lyssamae01
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My Spouse's Massive Student Loan Debt  Reply with quote  

I was married last year, and unfortunately was not aware of the massive student loan debt my husband is carrying from undergrad and graduate school. His loan balance is currently $253,000 something and he is on the Income Based Repayment Plan (IBR) with a gross of around $90,000. The monthly payment is not even covering the loan interest, so the balance is just ballooning. I am debt free (besides a mortgage) and gross around $50,000. Because he is on the IBR plan, we are having to file our taxes separately, so that is where all of this came to light, and we are taking another hit in doing that. I never carried student loans in order to get my education, so am having a hard time wrapping my head around all of the options here. Hoping to find someone with some knowledge about student loan debt and how to tackle it.

What is the best option as far as tackling these loans? The graduate loans (which make up about $111,000 of the total debt) are sitting at 8.5% while most of the others are 6.5%. The only options that make sense to me are.

a: Pay extra on the monthly payment so that you are at least keeping up with the amount. And just save and invest any extra money until that 25 year forgiveness comes. These is a possibility of having a substantial tax bill with this option though, as any forgiven amount is taxed as income the way that it stands in congress right now.

b. Possibly take the graduate loans and refinance them privately to get a better rate and start chipping away at those while the rest sit in the IBR plan.

Any other suggestions would be greatly appreciated as well. I am just feeling so hopeless with this situation.
Post Tue Mar 28, 2017 10:42 pm
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oldguy
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What is his degree in?

The good news in this is that your combined income is $140,000, that's pretty solid for a young couple. The bad news is the communication issue - dh needs to work on his intellectual honesty, spouses don't just spring quarter-million dollar debts on each other.

One way would be get out of the IBR program, they are designed to help low-income students. He makes $90,000, it would be in his best interest to pay the loan - (we see people purposely taking low income jobs so that they qualify for IBR - but the years of income that they miss out on costs more than the IBR payoff. Plus the penalty of separate income taxes , etc. Plus the incentive to build on his $90k salary will be there - eg, if he earns $125k 5 yrs from now, the pay-downs will be faster.

One plan would be to pay as much as possible on the 8.5% portion - eg, $1000/m for 15 yrs would pay it off. Meanwhile, pay the minimums on the 6.5% loans - and let the reverse amortization occur. And whenever your house appreciates enough, refinance it and use the cash to pay off the student loans. You will effectively be converting the 6.5% loans to a single 4%, 30 year fixed rate mortgage - and consolidating your loans into that one loan (the mortgage).
Post Tue Mar 28, 2017 11:21 pm
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lyssamae01
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quote:
Originally posted by oldguy
What is his degree in?

The good news in this is that your combined income is $140,000, that's pretty solid for a young couple. The bad news is the communication issue - dh needs to work on his intellectual honesty, spouses don't just spring quarter-million dollar debts on each other.

One way would be get out of the IBR program, they are designed to help low-income students. He makes $90,000, it would be in his best interest to pay the loan - (we see people purposely taking low income jobs so that they qualify for IBR - but the years of income that they miss out on costs more than the IBR payoff. Plus the penalty of separate income taxes , etc. Plus the incentive to build on his $90k salary will be there - eg, if he earns $125k 5 yrs from now, the pay-downs will be faster.

One plan would be to pay as much as possible on the 8.5% portion - eg, $1000/m for 15 yrs would pay it off. Meanwhile, pay the minimums on the 6.5% loans - and let the reverse amortization occur. And whenever your house appreciates enough, refinance it and use the cash to pay off the student loans. You will effectively be converting the 6.5% loans to a single 4%, 30 year fixed rate mortgage - and consolidating your loans into that one loan (the mortgage).


His degree is in Physical Therapy, and the salary just doesn't match the cost of schooling here. The $90,000 I quoted is a 40+ hour job PLUS a side job working as a PRN PT for home health. Yes, I agree, we would be in a great financial situation if there wasn't debt. I am now questioning whether kids, and a bigger house are ever going to be possible. I am 34, so am not getting younger!

As far as the IBR, he also has a child from a previous marriage, so he can claim a family size of 3, and just his income and have pretty low payments.

Thank you for your suggestion. That's what I was thinking. The house we moved into is mine, and is could be paid off if I wanted it to be, so we are in a favorable situation there.
Post Tue Mar 28, 2017 11:27 pm
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littleroc02us
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[quote="lyssamae01"

His degree is in Physical Therapy, and the salary just doesn't match the cost of schooling here. The $90,000 I quoted is a 40+ hour job PLUS a side job working as a PRN PT for home health. Yes, I agree, we would be in a great financial situation if there wasn't debt. I am now questioning whether kids, and a bigger house are ever going to be possible. I am 34, so am not getting younger!

.[/quote]

Two things I must comment on from this discussion.

First, it's good for people to notice that taking out 250k for a job that pays 90k isn't a good ROI. What do you do now? Because this debt is astronomical, but you make 140k, I'd find as much employment as possible and widdle away at this debt. If your plan is to wait 25 years to have it forgiven, I don't think that is a wise choice, because that means you don't succeed financially if you ever plan on becoming wealthy.

Second, as for not being able to have kids because of the debt. First off, I believe that children come first and that should be your top priority. But that doesn't mean you can't work long hours before the first child is born. This 250k will hinder your future if you don't get to work on it.

As for a big house, well that is just going to have to wait. It isn't going to be possible until this debt is gone. And if that are Federal loans they aren't bankruptable in the courts. Good luck!

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Wed Mar 29, 2017 4:07 pm
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oldguy
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quote:
The house we moved into is mine, and is could be paid off if I wanted it to be


Yes, major house equity makes things much easier - put an 80% mortgage on the house, 30 years, fixed rate, ~4%, and apply the money to the 8.5% loans plus whatever else it will cover.

Note: US mortgages provide some of the cheapest capital in the world, few other nations allow people to borrow for 30 yrs, fixed rate, <5%.

So you need not pay 8.5% for the use of money, you can easily convert it to 4%. But the 'trust' issue is not trivial, you would be going from zero-debt to huge-debt for someone who wasn't entirely upfront with you a year ago.

quote:
I am now questioning whether kids, and a bigger house are ever going to be possible. I am 34, so am not getting younger!


Long term thinking. In about 10 years your $140k income is likely to be closer to $250k, PT is an excellent field in a growing medical sector. But a key factor in your far-future is your investing - not your debt. Make a plan to set aside $5000/year into an 11%/yr fund, at age 64 it will be $1,150,000. That will be way more important to you, your DH, and your children than whether or not you have a mortgage.
After your current house is mortgaged and the toxic 8.5% debt is under control, a bigger house & kids should be do-able, just transfer the home equity from the old house to new house (the payments will go up).
Post Wed Mar 29, 2017 4:16 pm
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