My Spouse's Massive Student Loan Debt

[lyssamae01]

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. There 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.

[disneysteve]

Welcome to the site.

What field is your husband in? With that much debt, I'm hoping he is a physician or other professional. How are his prospects for getting that income up over the next couple of years? Is there anything he can do now to boost income - work extra shifts or take on a side job? Assuming he is in good health, there's probably no reason why he can't be doing 60+ hours/week. $90,000 is a decent income but not with a graduate degree and more than a quarter million dollars in student loans.

You guys should be living super frugally and attacking the debt aggressively. Forget that you're grossing 140K and live like you are still just out of college. If you can put 20% toward the loans, you'd have them paid off in 9 years or so.

[lyssamae01]

Thank you for your quick reply! He is a Physical Therapist, and unfortunately, the salary in Nebraska doesn't match the cost of schooling at all. The main physical therapy job (as a director for 2 outpatient clinics) nets only about $73,000. He has picked up a PRN job on the side as a home health PT which is adding the rest of the income, so he is working probably 60-70 hours a week already. No, the degree was not worth it at all!!! But that's what he choose to do, so that is the predicament we are in.

I'm not sure under that IBR plan whether you can pay extra, and if you take out and refinance you lose all of the perks of having a federal loan. This is where I get lost.

[Petunia 100]

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.

If you intend to repay the loan principal no matter what, you may as well go ahead and file jointly, so long as you can swing the higher minimum payments on the loans. You'll pay less income taxes. The higher payments will just mean more going towards the debt.

I feel for you. I once married a dude without thoroughly looking into his finances. It was a rude awakening.

If you want to refi, look into Sofi. https://www.sofi.com/refinance-stude...nt-loan-rates/

[Petunia 100]

Thank you for your quick reply! He is a Physical Therapist, and unfortunately, the salary in Nebraska doesn't match the cost of schooling at all. The main physical therapy job (as a director for 2 outpatient clinics) nets only about $73,000. He has picked up a PRN job on the side as a home health PT which is adding the rest of the income, so he is working probably 60-70 hours a week already. No, the degree was not worth it at all!!! But that's what he choose to do, so that is the predicament we are in.

I'm not sure under that IBR plan whether you can pay extra, and if you take out and refinance you lose all of the perks of having a federal loan. This is where I get lost.

If you are hoping to have the balance forgiven, what is the point of paying extra? That extra money paid will not benefit you at all.

If you are thinking "Well, I'd like to have it forgiven, but what if it doesn't work out and my balance has ballooned?" I suggest you take a hybrid approach. Make the required payments only and funnel extra money into Roth IRAs and taxable investing accounts. When the time comes for forgiveness, if the balance is not forgiven, you will have some assets you can use to pay towards the debt. If it is forgiven, you will have some assets you can use to pay the taxes. (Your tax rate is less than 100%, so paying taxes on the forgiven debt is less expensive than paying the debt itself).

[lyssamae01]

If you intend to repay the loan principal no matter what, you may as well go ahead and file jointly, so long as you can swing the higher minimum payments on the loans. You'll pay less income taxes. The higher payments will just mean more going towards the debt.

I feel for you. I once married a dude without thoroughly looking into his finances. It was a rude awakening.

I'm not sure if it makes sense to pay the principal with a loan that has ballooned this large. Or just sit back and wait for the forgiveness and pay taxes on that income. The other tricky part is that all of the rules with the IBR plan can change along with presidencies. The initial thought about Trump is that he will change to 12.5% income payments (right now my husband is paying 15%), and decrease the forgiveness to 15 years (rather than 25). My husband is 6 years into the IBR payment plan already, so it would possibly be forgiven in 9 years.

It has definitely been a rude awakening to say the least!

[lyssamae01]

If you are hoping to have the balance forgiven, what is the point of paying extra? That extra money paid will not benefit you at all.

If you are thinking "Well, I'd like to have it forgiven, but what if it doesn't work out and my balance has ballooned?" I suggest you take a hybrid approach. Make the required payments only and funnel extra money into Roth IRAs and taxable investing accounts. When the time comes for forgiveness, if the balance is not forgiven, you will have some assets you can use to pay towards the debt. If it is forgiven, you will have some assets you can use to pay the taxes. (Your tax rate is less than 100%, so paying taxes on the forgiven debt is less expensive than paying the debt itself).

Was just thinking pay extra in order to actually cover the interest. Otherwise, the balance just keeps increasing.

[dczech09]

My advice won't be popular, but it needs to be heard.

Currently, your husband's monthly payment is probably about $826 dollars. Maybe it is different, but for illustration purposes we will use $826. Assuming that payment, I am calculating his final student loan debt to reach $918,962.84 after 25 years! Assuming forgiveness still happens, and assuming a 25% tax bracket, his tax bill would be $229,740.71.

* Side note: His tax bracket may be higher, which would increase the tax bill.

Effectively, his debt would be reduced by $23,259.29 ($253,000 - $229,740.71) after 25 years. He/you would pay a grand total of $488,340.71 ($229,740.71 tax bill + $826 per month for 300 months), and $229,740.71 of that would be due to the most powerful collection agency on the planet!

Under the 10 year repayment plan, his payment would be $2,988.62 per month. That is about 40% of his income (26% of the household income). Either way, that is pretty crazy.

However, I am willing to bet he does not have one loan that amounts to $90,000 (unless he refinanced). Chances are he has several smaller loans that total $90,000. That means that his $2,988.62 monthly payment under the standard 10 year plan is made up of several smaller monthly payments (one for each individual loan).

So what I would do is this...

Stay on income-based repayment for now. Do not refinance as that will not really provide much benefit. He does not have a payment or interest rate problem; he has a debt problem and no amount of refinancing will change that. You cannot refinance your way out of debt.

Stay on income-based repayment. If you have not already done so, build up an emergency fund of $5,000 or so. Enough money so that if an emergency strikes, you can handle it.

Get on a balanced budget and trim your lifestyle to bear essentials. Live like a college kid! Live on a budget and use the freed-up cash-flow to make larger payments on the student loans. I am talking like $3,000 per month or more (10 year repayment payment is $2,988.62 so try to make it larger than that). Pay as much as possible and make sure that any extra dollars are going to the student loan with the smallest balance (remember, his student loan debt is likely made up of several smaller loans). Once one loan is paid off, move to the next smallest loan. And so on. Just like Dave Ramsey's debt snowball.

You could base this off of interest rate and focus on the higher interest rate debts first, however with the rates being so similar there may not be that much more benefit.

Do not worry about penalties. Income-based repayment does not stop you from paying extra and there are no penalties for doing so.

It is not going to be easy. This will be hard and your husband will not get to take advantage of student loan forgiveness. However, the student loans will be paid off in 10 years or less. At most, he/you will pay a grand total of $358,634.40 ($2,988.62 per month for 120 months). This would result in a savings of $129,706.31 and 15 years of bondage, in comparison to the going the income-based repayment/forgiveness path.

You two make $140,000 per year combined. You should be able to formulate a plan to pay $2,988.62 or more per month. Stay on income-based repayment while you can, but make payments as if you are on the standard 10 year repayment plan. Make large payments! Pay off the loans as fast as possible!

Forget about forgiveness. I know that sounds weird, but forget about it. Chasing after student loan forgiveness paradoxically costs more money in the long-run. There is also a risk that student loan forgiveness goes away, or he/you make a small misstep in the next two decades that negates the forgiveness. It is not worth chasing.

I hope this make sense, and I hope it helps. This may not be popular. It may not be sexy. In fact, it may seem counter-intuitive. However, the math does not lie.

[creditcardfree]

My advice won't be popular, but it needs to be heard.

You two make $140,000 per year combined. You should be able to formulate a plan to pay $2,988.62 or more per month. Stay on income-based repayment while you can, but make payments as if you are on the standard 10 year repayment plan. Make large payments! Pay off the loans as fast as possible!

However, the math does not lie.

Agree! This can be done. It sounds awful, but it will be far more rewarding to pay it off. And it may end up taking less time, if you find other ways to throw more money at it. It will force you to be come very focused and desperate to pay it off early...so you might be willing to take on higher paying jobs, do side hustles, and other ways to find extra funds in your budget.

[Singuy]

Is there a reason why your husband can't work for a non-for profit organization?

This will reduce the forgiveness down to 10 years and the forgiveness will not be considered as taxable income.

Also depending how solvent you are at the time of loan forgiveness, the scenario of the tax bill being $229,740.71 is very unlikely unless you guys are rolling in massive positive net assets at the time of forgiveness.

https://studentloanhero.com/featured/student-loan-forgiveness-taxable-income/

[Gailete]

Live like a college kid!

I would really hesitate with this small piece of advice. Assuming 4 years of college and 2 for a masters, with the amount owing at this point he was spending approximately $45-50,000/year! That is double what my husband and I lived on this past year. I realize that it also should have covered books, tuition, etc. but that is still a huge amount yearly while in college. Sounds like he didn't earn a bit of money towards college or he ate way too much pizza.

Definitely though it does mean that you have to live on a bare to the bones budget. If you got married about a year ago and this is only coming out now, that is, I'm sorry to say, a very bad sign about your communication with each other. Has he been careful and frugal this past year, or assuming that he has money for what you two want. Does he have credit card debt or is that also a deep dark secret? Have you two sat down and laid out all the debt and assets so you are both clear as to what is going on in your life financially? I feel bad as you are going to be eating a lot of oatmeal and boxes of mac & cheese, etc. to make ends meet for almost a decade if you go full force into paying off these loans. Any baby plans are going to most likely screw up financial plans as well. Multiple baby plans are going to be even worse.

To get out of this debt may mean some really tough decisions like moving to an area where PTs are in demand and making much better dollars - of course the cost of living in the area has to be looked at as well. One thing I would caution for your personal stake. If at all possible if your employer has it, contribute as much as possible into YOUR retirement fund 'just in case'. You don't want to find that you did the hard work of helping him pay off his loans for a decade only to be overthrown for a new model at the end of it all and all your money has gone into his bills and you have nothing for yourself. I know what it is like to walk up in the morning and find that you are suddenly in tens of thousands in debt. It isn't fun! Sorry this isn't real upbeat, just an old woman's thoughts from seeing way too much over the years.