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Message
re: Student Loans
Posted on 4/22/24 at 9:23 am to Abundy007
Posted on 4/22/24 at 9:23 am to Abundy007
Are these loans in her name, or are these Parent (PLUS) loans?
Also, are these government backed loans, or private loans?
If the funding would come via a 401(k), you probably are unable to take the money out unless you do it as a loan, and even then there may be limits - check with your plan.
If it is in an IRA, you will owe tax on what you take out, plus 10% penalty. Let's say you are in a 30% combined federal plus state tax rate, plus 10% penalty - 40% total. So you will need to take out $83K to net $50K. You also lose the growth of that money in your tax-deferred account.
If you borrow against your 401(k) you won't owe tax or penalty, but still lose the investment growth of that money (but you do get interest income... less a fee).
If it is her loans, and they are government loans, have her qualify for income based repayment. There's just too much up in the air right now about possible forgiveness that I would not be in any rush to pay those off.
You can refinance them, but I would not do that unless rates come down.
If they are private loans, they will not be forgiven, but I would still not take money out of an IRA to pay them off. She can pay them off, and you can help her with extra cash if you have it from time to time.
If they are PLUS loans and you are responsible for them... you may not qualify for much if any relief. I would probably still not take money out of an IRA to pay them off... but you may want to throw any extra cash you can at them.
Also, are these government backed loans, or private loans?
If the funding would come via a 401(k), you probably are unable to take the money out unless you do it as a loan, and even then there may be limits - check with your plan.
If it is in an IRA, you will owe tax on what you take out, plus 10% penalty. Let's say you are in a 30% combined federal plus state tax rate, plus 10% penalty - 40% total. So you will need to take out $83K to net $50K. You also lose the growth of that money in your tax-deferred account.
If you borrow against your 401(k) you won't owe tax or penalty, but still lose the investment growth of that money (but you do get interest income... less a fee).
If it is her loans, and they are government loans, have her qualify for income based repayment. There's just too much up in the air right now about possible forgiveness that I would not be in any rush to pay those off.
You can refinance them, but I would not do that unless rates come down.
If they are private loans, they will not be forgiven, but I would still not take money out of an IRA to pay them off. She can pay them off, and you can help her with extra cash if you have it from time to time.
If they are PLUS loans and you are responsible for them... you may not qualify for much if any relief. I would probably still not take money out of an IRA to pay them off... but you may want to throw any extra cash you can at them.
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Posted on 4/22/24 at 9:24 am to DaBeerz
quote:
Sad, OP should be ashamed for even thinking about this. Hopefully just a troll
I work with a client of clients who have similar thoughts as the OP. They want to see their kids start life with no student debt.
That's not a bad thing... if you can afford that.
Posted on 4/22/24 at 9:30 am to LSUFanHouston
quote:
That's not a bad thing... if you can afford that.
That’s different scenario…obviously if I have the money, not going to let my child drown in debt… but mortgaging your future/401k for child who should be capable of paying their loan is different
Posted on 4/22/24 at 9:31 am to LSUFanHouston
quote:
I work with a client of clients who have similar thoughts as the OP. They want to see their kids start life with no student debt.
That's not a bad thing... if you can afford that.
Wouldn't that be a forethought and not an afterthought?
I.e. take out the student loans, but when you graduate ... I have these funds set aside to pay it off.
Not... now that you have graduated, I wonder if I should pull from my 401k (retirement) to pay off the student loans.
I have zero problem with the sentiment of helping kids get a head start in life. But the thought process of the OP is not the way my brain works.
Either I have been saving for this day with specific funds for years.
Or I just came into a large sum of money which gives me the freedom to make a choice like this.
Personally, I'm trying to have my kids pay their way through school. They will value it more on their own dollar.
If I have an opportunity to invest in them to setup a self employed opportunity down the road, that is where I want to put my personal resources instead.
It is harder for a new business to get startup capital than for a college kid to figure out how to pay for college.
Be where the biggest need is (plus, this gives my funds more time in the market to grow and do more good).
Posted on 4/22/24 at 10:16 am to Abundy007
I'm a higher ed administrator and work with these loans all the time. Im also a finance nerd.
Do NOT take from your 401k and payoff her student loans. What you should do depends on the following:
1. Are these loans Title IV (normal student loans)?
2. If not, are they private student loans (from a bank, you may have been a cosigner).
3. If not, are they Parent PLUS loans, the worst student loan product?
If the answer is 1, you need to have her consolidate them into a Direct Consolidation Loan at student aid.gov. This will give her several repayment options, tied to her income. She should be able to manage the payments on her own and knock them out. And if the government "forgives student loans," this will be the type of loan forgiven.
If the answer is 2, it's a normal loan. You aren't able to make income contingent payments and if student loans are forgiven, you will not be eligible. You can shop around for a better rate and consolidate them.
If the answer is 3, this is your loan, not your daughter's. She has zero obligation to pay them back. They are also not eligible for. any forgiveness programs.
Do NOT take from your 401k and payoff her student loans. What you should do depends on the following:
1. Are these loans Title IV (normal student loans)?
2. If not, are they private student loans (from a bank, you may have been a cosigner).
3. If not, are they Parent PLUS loans, the worst student loan product?
If the answer is 1, you need to have her consolidate them into a Direct Consolidation Loan at student aid.gov. This will give her several repayment options, tied to her income. She should be able to manage the payments on her own and knock them out. And if the government "forgives student loans," this will be the type of loan forgiven.
If the answer is 2, it's a normal loan. You aren't able to make income contingent payments and if student loans are forgiven, you will not be eligible. You can shop around for a better rate and consolidate them.
If the answer is 3, this is your loan, not your daughter's. She has zero obligation to pay them back. They are also not eligible for. any forgiveness programs.
Posted on 4/22/24 at 10:27 am to Abundy007
No. Not under any circumstances.
Posted on 4/22/24 at 12:37 pm to meansonny
quote:
Wouldn't that be a forethought and not an afterthought?
I.e. take out the student loans, but when you graduate ... I have these funds set aside to pay it off.
Not... now that you have graduated, I wonder if I should pull from my 401k (retirement) to pay off the student loans.
I have zero problem with the sentiment of helping kids get a head start in life. But the thought process of the OP is not the way my brain works.
Either I have been saving for this day with specific funds for years.
Or I just came into a large sum of money which gives me the freedom to make a choice like this.
I agree with you. We recently have had this conversation with my oldest as she is in the very beginnings of the process of deciding about college.
1) If she goes to a public school in LA, she will get TOPS, she will also likely get some additional scholarship money.
2) She will take a student loan for any extra needed school money. As long as she stays in school and progresses toward graduation we will pay the interest as it accrues. When she graduates, we will make the loan payments for her. If she does not graduate, it's on her to pay off.
3) We will give her a car that should easily last her time in school. She will pay to insure, maintain, and fuel it. We will give some sort of monthly allotment as long as she stays in school.
4) If she goes to school out of state, same deal applies, except we will only pay off the same amount we would have paid off if she went to a state school.
Posted on 4/22/24 at 1:01 pm to TorchtheFlyingTiger
The loans are in my name and are Federal loans (NELNET). My 401k is well funded. I’m just trying to be a good parent and pay off her student loan. She is graduating with a 4.0 for all four years of school. I’m 56 years old about to be 57 so I’m trying to reduce my debt so I can retire and me and my wife can enjoy life. If that’s being a bad parent then I don’t need your silly arse comments.
Posted on 4/22/24 at 1:53 pm to Abundy007
So it sounds like what you have is a PLUS loan, it's one of the shadiest financial products on the market.
Colleges push these on unsuspecting parents who make too much to qualify for grants or traditional student loans. "It's just another type of student loan."
That's fine but if this is the case, understand the following are true statements :
1. Your daughter is debt free. She has $0 student loan debt.
2. You took out $50k in your name to pay for her college. It is your responsibility to pay the debt. She has no legal responsibility.
Colleges push these on unsuspecting parents who make too much to qualify for grants or traditional student loans. "It's just another type of student loan."
That's fine but if this is the case, understand the following are true statements :
1. Your daughter is debt free. She has $0 student loan debt.
2. You took out $50k in your name to pay for her college. It is your responsibility to pay the debt. She has no legal responsibility.
Posted on 4/22/24 at 2:10 pm to anc
quote:
That's fine but if this is the case, understand the following are true statements : 1. Your daughter is debt free. She has $0 student loan debt. 2. You took out $50k in your name to pay for her college. It is your responsibility to pay the debt. She has no legal responsibility.
Posted on 4/22/24 at 2:16 pm to Abundy007
quote:
The loans are in my name...
I’m just trying to be a good parent and pay off her student loan.
Appreciate what you're trying to do here but these are two very different statements. If the loans are in your name, she doesn't have a student loan, you do. That changes the factors to consider quite a bit.
Posted on 4/22/24 at 2:54 pm to Abundy007
quote:
The loans are in my name and are Federal loans (NELNET). My 401k is well funded. I’m just trying to be a good parent and pay off her student loan. She is graduating with a 4.0 for all four years of school. I’m 56 years old about to be 57 so I’m trying to reduce my debt so I can retire and me and my wife can enjoy life. If that’s being a bad parent then I don’t need your silly arse comments.
OK this clears up a lot.
These are your loans, not your daugher's loans. You are on the hook for them. Not her. They are your debt, not hers.
Having said that... now we need to figure out the best way to service the debt.
What is the current interest rate on these? I believe (anc, step in here, please) these loans are at a variable rate?
At that point, it becomes a somewhat "simple" question.
How much money do you have, each month, to service the debt, once she graduates, without having to take any money out of a retirement account?
I would try to aggressively pay down the loan, but not take money out of retirement accounts (and pay tax and 10% penalty) to do so.
By the way, you being the "good parent" was taking out the loans. Now that's over, and the only thing that matters is how you will pay them off.
Posted on 4/22/24 at 4:51 pm to Abundy007
quote:
The loans are in my name and are Federal loans (NELNET). My 401k is well funded. I’m just trying to be a good parent and pay off her student loan. She is graduating with a 4.0 for all four years of school. I’m 56 years old about to be 57 so I’m trying to reduce my debt so I can retire and me and my wife can enjoy life. If that’s being a bad parent then I don’t need your silly arse comments.
It’s not her student loan, it’s yours. You borrowed 50k to pay for your daughter’s college education and your plan to pay it off is to use money from your 401k. You deserve all the comments you’re getting and none of them are silly
Posted on 4/22/24 at 5:43 pm to kc8876
Yeah it’s your loans not hers. I would still make monthly payments than use retirement accounts since your be losing money
Posted on 4/22/24 at 7:38 pm to lynxcat
Thank you. I have a financial advisor and he recommends not to take any money from my 401k.
I have a financial planner and he manages my money I was just asking other people for their opinions. During Covid (what a joke) the was a law that you could take money from your 401k and not be penalized but I think that law expired back 2022. I will be good either way and for the smart arse who made the comment about being a typical parent, who judge me when you don’t know anything about me and my parenting skills.
I have a financial planner and he manages my money I was just asking other people for their opinions. During Covid (what a joke) the was a law that you could take money from your 401k and not be penalized but I think that law expired back 2022. I will be good either way and for the smart arse who made the comment about being a typical parent, who judge me when you don’t know anything about me and my parenting skills.
Posted on 4/22/24 at 8:23 pm to Abundy007
I just noticed something.
"Abundy" has a daughter in college. Her name must not be Kelly.
"Abundy" has a daughter in college. Her name must not be Kelly.
Posted on 4/22/24 at 8:45 pm to Abundy007
You dug your own grave with the responses, coming out that the loan is in your name at 8% and you don’t want to make payments on it because it is all going to interest…. As if you were somehow held hostage signing this loan and having no idea how it works or how you’ll pay it back with out cashing in your retirement. How did your planners and advisers not tell you how terrible of an idea this loan was? If it was in child name she could do income based repayment and had it made under the dem plan
This post was edited on 4/22/24 at 8:48 pm
Posted on 4/22/24 at 11:21 pm to DaBeerz
Thanking my lucky stars that I have a college fund going for my kids.
Posted on 4/22/24 at 11:42 pm to Billy Blanks
Posted on 4/23/24 at 12:23 am to Abundy007
It seems like you working with her to both pay it off together would be the most reasonable thing to do here. It could be done pretty quick with both of your incomes
Anything is better than drawing from retirement early to pay it though
Anything is better than drawing from retirement early to pay it though
This post was edited on 4/23/24 at 12:26 am
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