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How to attack two high balance student loans properly

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  • How to attack two high balance student loans properly

    Getting married in August 2021, and both fiancee and I have student loans. Here's the situation:

    My loans: 170k, currently 78 months into PSLF payments, started my first big time attending job 6 months ago after doing fellowship. Going to try for PSLF as my current job is a public hospital. Awaiting employer certification verification after submitting 6 months worth a few weeks ago. As a contingency, I'm saving ~6k/month (2500 cash in Ally savings, 2300/month in vanguard 500, 900/month in Vanguard Tax Exempt Bond fund, 400/month in vanguard intl fund). I'm approaching this sort of like the WCI post on short term savings, knowing that my worst case scenario is I hold any losses and just refinance if PSLF doesn't exist, and pay it off with my cashflow.

    Her loans: 200k, works as a PA so her income is lower. She did not make any qualifying payments, so she is essentially starting fresh. Once we are married, her IBR would be the same as the 10 year standard, so I thought she should just enter 10 year standard now, and we would refinance when married. Now I'm considering whether we should just refinance now and let her attack the loans.

    General financial info to know:

    Retirement accounts: maxing out mine, will max out hers when married. Combined value is ~180k in tax advantaged, 60 US stock, 20 intl, 20 bonds

    Cash: 3-6 month emergency fund, 10k in ally for student loan contingnecy account, 22k in ally CDs that mature in March 2021 at 2-2.4%

    Option 1: have her refinance now, interest rate probably 2-3.5% vs. 6.25 she's paying now, and do 5 year payment plan ~3500/month (and I will put an extra 500/month to pay off faster)

    Option 2: She continues in 10 year standard plan (2200/month) @6.25%, this leaves IBR/PSLF available for her, but once we are married then refinance at whatever rates are then, and try to pay it off in 3-4 years. The overall amount paid is definitely ~10-15k higher with this option.

    Any input is appreciated!

  • #2
    For option 1 - That's a shockingly low of a rate for a PA refinancing, what is your secret? how much are PAs making? Maybe I'm missing something, but do banks take into account non-married household income? If that's just your estimate based on what you think it'll be, i'd suggest going through the steps to confirm that because it looks way too low given the provided information.

    Without creating an Excel to run the numbers, I would imagine that the best mathematical option would be for her to get on REPAYE from IBR so you can lower the effective interest rate. Then when you are married and you can include your income on her refinancing options, go for it and you'd get those sorts of rates.

    On your loans, it's up to you (I'm a fan of going for PSLF as you describe the situation), but have a few comments on the numbers. IDK your interest rate, but putting 6k in a side fund is likely significantly more than is necessary. At 6.8% with 42 months left, your payment should only be $4560-ish by my math - subtract what your actual official payment is and that's really the number you should be putting in a side fund, i suspect it's closer to 4000 this year and dramatically less next year when your payment number goes up with the income increase. No biggie, saving more is great and money is fungible, but just understand that you are doing a decent number more than necessary and you are likely too conservative with that portion if it is actually just saving for retirement.

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    • #3
      Regarding the rate: that was my guess based on the advertised rates on their websites. Earnest is as low as 2% right now. She makes about 130-140k per year, has very few expenses. If it's much higher than 4 percent I would be a bit surprised, but won't know unless we apply.

      For my loans: Yes, i'm saving well over what I would need, and likely would have enough to pay them off in about 2 years (especially when you consider my payments starting next summer will actually include some principal). What is left from that account will go towards a home down payment. Same caveat before, i'm taking some risk of loss knowing that in my worst case scenario, i will let the investments hold and instead do a doctor loan with 5% down rather than 20% down (HCOL area).

      Retirement: I'm maxing out my 457 contribution (public hospital employer) and starting in august they will do a 6% match (which will get me to 19k) and a 1% automatic contribution (another 3.8k). That automatic contribution will max at 4% in 6 years. I also max out a backdoor roth ira and an HSA, and my fiancee is just now maxing a 403b. She doesn't have a roth yet, but will max that out for her when we're married next year.

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      • #4
        Option 1.

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        • #5
          The refi sites have preliminary rate estimates. No hard credit pull. Earnings and credit score estimates.
          Low expense don’t count. Any debt besides the student loans might cause an increase.
          Option 1, but check the preliminaries before picking . Use the WCI links.

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          • #6
            Welcome to the board.

            #1
            "Oh look another bajillion point declin-Ooooh!!! A coupon for pizza!!!!" <--- This is what everyone's IPS should be. ✓✓✓

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            • #7
              You were right about PA rates being lower. She got offered 3.99, although her credit isn’t great. We already got 30k of high interest (11%+) student loans paid off last year but her credit still suffered. Might still be worth it to refi at 3.99.

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