How to approach student loans

**GoodThyming** · 03-22-2011, 06:42 AM

Yes, it is a simplified example. It obviobviously does not account for inflation or the effect of paying more in interest now, but less in interest on the principal as the principal goes down.

I am not sure if you are suggesting there is an overall loss because of inflation. I would be interested in those calculations if that is the case.

The example also does not take into account any value from retention of employees over time.

**GoodThyming** · 03-22-2011, 07:39 AM

It also doesn't account for what is paid out to guarantee private lenders suffer no loss as a result of default and to guarantee they receive a certain return on investment.

**scottp999** · 03-22-2011, 01:01 PM

I think you laid out a great plan in your original post. Just make the regular payments on the student loans and save the difference. If you have a disqualifying event for PSLF then change plans to accelerate the student loan payoff.

I'm all for staying liquid as much as possible in this economy, so building up savings whether it eventually goes toward a house or a lump sum payment to your student loans would just be based off whether your employment classification changes. Of course, there is always a trade off, and that's the opportunity cost of holding those additional $ in a safe savings account at a low interest rate, but it could be worth it for the liquidity/flexibility to see how your qualification for PSLF goes.

Many people have bias around here toward certain types of debt, different risk/reward analysis, all based on their individual risk appetite. I don't want to judge what's already been done in terms of debt that you took on, for what reason, and whether it was a good risk or not. That is all water under the bridge and I wish you good luck.

I don't like student loans because they are the worst type of debt to have if you run into a bumpy road where for unforeseen reasons you have to default. The balances can easily double with fees if they are ever referred out to collections. They can get wages garnished, assets seized without having to go to a judge. They can take your tax returns in full, they can garnish your social security if there is still a balance at retirement time. They cannot be discharged in bankruptcy unless you are completely disabled. There are many stories on people who have been unable to find the employment they were expecting after attending college and some of them are resorting to leaving the country to get away from the student loan claw backs. It is a horrible process to go through that most never saw coming, and the most harsh form of debt based on the terms that I can think of in the U.S.

**a.nonymous** · 03-23-2011, 06:32 PM

Originally Posted by GoodThyming

I am trying to figure out what the best strategy is here.

I am thinking I should first pay off all my debts but the student loan (I have no mortgage). Then, I should start saving 15% of income toward retirement, but also start putting some percentage into an account that I could use to pay off the student loan if, for some reason, PSLF does not work out. If PSLF does work out, I could then use that savings toward the purchase of a home.

Would this be a good plan? Anyone have a different suggestion?

If it is a good plan, how should I calculate what percentage I should put toward the "if PSLF doesn't work" savings account?

This sounds pretty good to me.
Meh, if people want to call you leech or not is something different, but I believe the government isn't that stupid to not realize that many people may choose to go this direction. So, I think that is accounted for although they may not have told the tax payers yet.

I'd put as much into the "if PSLF doesn't work" savings account to cover the current balance of it. Meaning in the early stages, effectively treat it as a mortgage. Once the balance is up to par, split off any surplus savings into the account for your house down payment. If you do get to serve the government/non-profits for the full 10 years, and no major legal changes show up to take your fund, you'll probably be able to buy a home outright.
So, all in all, not a bad plan at all.

**Hurricane0884** · 03-24-2011, 01:42 AM

Combining what Greebo said and the others it is best to stick to your plan. It is well thought out for yourself. I know many people here believe in the all or nothing for a DR plan but some cases are different and yours seems to be one of those. It is good though that you are planning on getting debt free and working towards that. I would just count the student loan debt as your mortgage and put it off until you finished all of the other steps. For the fifteen percent in retirement or if you want Baby Step 3b you should start puting away for the house or the loan. Either way you will be in a much better financial situation once the debt is forgiven or paid off.

**Natalia** · 03-28-2011, 02:27 PM

I think I would also go to bs3 and then just add more to savings as a "just in case" measure after your Ffef is complete.

When dh went back to school at community college, we asked for the full amount of student loan funding, even though we could have made do on less than half. After I paid his tuition with the sl money I promptly put the rest in a savings account. By "requiring" the maximum and having a disabled wife and two kids made it so that some of the sl money was reassessed and given in the form of a nonrepyable grant. Then, the minute he got out of school, I wrote sl a cheque for $7600. We ended up saving. $1575 by doing this. Point is, sometimes it's beneficial to think outside the box. If you are meeting the criteria and not fudging facts I see nothing wrong with it. that's what these plans are there for!