Moving on from SAVE, what to do next?
Hello, I'm looking for some ideas on how to think through my student loans. Trying to balance my feelings about my debt load, vs my investment goals and trying to reach FI.
I'm a 35 year old pharmacist in Wisconsin. I graduated in 2015 with about $205,000 in student loans and not a dollar to my name. My wife (currently stay at home) and I have 3 children (8, 6, and 4). I found ChooseFI and Financial Independence in early 2021 and have been on the path since then, following concepts from "The Simple Path to Wealth", etc.
I had been on the PAYE plan from graduation until the SAVE plan became available. I consulted with **StudentLoanPlanner.com** (Travis had been on the ChooseFI Podcast), and had planned to stay on SAVE, while maximizing my investing and planning for the eventual "Tax Bomb" after non-PSLF Loan forgiveness were to occur in 2041. The SAVE plan and PAYE had loan payments that were very reasonable for me and my family.
So, now my problem is that my plan will no longer likely go as planned. I have looked into "Old IBR" and the new "RAP" plans, and my monthly payments are definitely increasing, although I don't know how accurate many of the calculators are at this time. I can still afford these payments, however it will cut into my investments, and likely extend my timeline to FI.
I have been maxing out my available 401k contributions each year (~$23,500/year, $1950/month), maxing out my ROTH IRA ($500/month), and putting the rest of my available investable income into a taxable brokerage account (about $850/month). On top of these investments I have been putting into a separate "Tax Bomb" brokerage account $200/month to invest for the tax bomb at the end of 2041 (goal ~$100,000). We also have been maxing out our HSA contributions, but unfortunately we've been using those to pay for medical bills from a really bad health season in 2022.
My wife and I are contemplating liquidating our brokerage accounts, and a large portion of our ROTH contributions to pay down about half of my loans ($100,000), and then aggressively attack the remaining $105,000. The way we figure it, we could adjust some of our monthly expenses, reduce/stop non-401k investments, and reduce my 401k contribution to just achieve the maximum company match (they match 3.5% if I contribute 6%). These moves would reduce our monthly expenses to right about $4000, and we would have about $4000-$4400/month to throw at loans. Conservative calculation puts us finishing paying off the student loans in about 2.5 years (beginning of 2028).
My concerns are deciding between just being "done" with dealing with student loans, as I don't feel confident that the next administration will do anything meaningful with student loans (or at least I don't know if I want to wait 4-8 years to find out), however I'm having a hard time deciding to take all of the money that we've worked hard to build up in our investment accounts and throwing them into my student loans, especially since that's a "one way street".
I'm hoping some level-headed members of this community could help me parse through this conundrum and then I can make a decent decision for our family.
Extra details you will probably want:
Gross Income: $150,000/yr
Monthly Take-home pay: $8200/month (before making 401k adjustment down to 6%, estimated to be about $9000 after adjusting 401k contributions)
Family Size: 5
Spouse Income: Currently $0, however she can get a part-time/ 20-30hr/week job in September 2026 when our youngest is in school full time. Estimated income between $30k-40k at that time.
Monthly Expenses: typical~$4500 (this includes mortgage, and one car payment).
Current Student loan debt: Federal $205,000 with an average interest rate of about 7%.
Other Debt:
- Mortgage: owe $120k on a $375k value home, interest rate 2.5% (monthly payment including taxes $900).
- Car loan: owe $2,000 at 1.9% on a 2017 acadia. (monthly payment $260)
- Medical debt: $4500 with no interest ($400/month).
Investments:
- Combined Taxable brokerage accounts: ~$70,000
- Available ROTH contributions: ~$40,000
- Current 401k balance: $340,000
Thank you in advance for your thoughts.
Hello, I'm looking for some ideas on how to think through my student loans. Trying to balance my feelings about my debt load, vs my investment goals and trying to reach FI.
I'm a 35 year old pharmacist in Wisconsin. I graduated in 2015 with about $205,000 in student loans and not a dollar to my name. My wife (currently stay at home) and I have 3 children (8, 6, and 4). I found ChooseFI and Financial Independence in early 2021 and have been on the path since then, following concepts from "The Simple Path to Wealth", etc.
I had been on the PAYE plan from graduation until the SAVE plan became available. I consulted with **StudentLoanPlanner.com** (Travis had been on the ChooseFI Podcast), and had planned to stay on SAVE, while maximizing my investing and planning for the eventual "Tax Bomb" after non-PSLF Loan forgiveness were to occur in 2041. The SAVE plan and PAYE had loan payments that were very reasonable for me and my family.
So, now my problem is that my plan will no longer likely go as planned. I have looked into "Old IBR" and the new "RAP" plans, and my monthly payments are definitely increasing, although I don't know how accurate many of the calculators are at this time. I can still afford these payments, however it will cut into my investments, and likely extend my timeline to FI.
I have been maxing out my available 401k contributions each year (~$23,500/year, $1950/month), maxing out my ROTH IRA ($500/month), and putting the rest of my available investable income into a taxable brokerage account (about $850/month). On top of these investments I have been putting into a separate "Tax Bomb" brokerage account $200/month to invest for the tax bomb at the end of 2041 (goal ~$100,000). We also have been maxing out our HSA contributions, but unfortunately we've been using those to pay for medical bills from a really bad health season in 2022.
My wife and I are contemplating liquidating our brokerage accounts, and a large portion of our ROTH contributions to pay down about half of my loans ($100,000), and then aggressively attack the remaining $105,000. The way we figure it, we could adjust some of our monthly expenses, reduce/stop non-401k investments, and reduce my 401k contribution to just achieve the maximum company match (they match 3.5% if I contribute 6%). These moves would reduce our monthly expenses to right about $4000, and we would have about $4000-$4400/month to throw at loans. Conservative calculation puts us finishing paying off the student loans in about 2.5 years (beginning of 2028).
My concerns are deciding between just being "done" with dealing with student loans, as I don't feel confident that the next administration will do anything meaningful with student loans (or at least I don't know if I want to wait 4-8 years to find out), however I'm having a hard time deciding to take all of the money that we've worked hard to build up in our investment accounts and throwing them into my student loans, especially since that's a "one way street".
I'm hoping some level-headed members of this community could help me parse through this conundrum and then I can make a decent decision for our family.
Extra details you will probably want:
Gross Income: $150,000/yr
Monthly Take-home pay: $8200/month (before making 401k adjustment down to 6%, estimated to be about $9000 after adjusting 401k contributions)
Family Size: 5
Spouse Income: Currently $0, however she can get a part-time/ 20-30hr/week job in September 2026 when our youngest is in school full time. Estimated income between $30k-40k at that time.
Monthly Expenses: typical~$4500 (this includes mortgage, and one car payment).
Current Student loan debt: Federal $205,000 with an average interest rate of about 7%.
Other Debt:
- Mortgage: owe $120k on a $375k value home, interest rate 2.5% (monthly payment including taxes $900).
- Car loan: owe $2,000 at 1.9% on a 2017 acadia. (monthly payment $260)
- Medical debt: $4500 with no interest ($400/month).
Investments:
- Combined Taxable brokerage accounts: ~$70,000
- Available ROTH contributions: ~$40,000
- Current 401k balance: $340,000
Thank you in advance for your thoughts.
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Comments
Others may feel different but unless you expect loan forgiveness, I would max out your 401K Match but then pay off the loan before pouring more into the 401K.
If you do pay the loan down with your taxable account, at least you can feel good about having grown your investment up to now which means it is paying more down today than it would have the day you earned it.
You should never feel bad about getting rid of debt. It's an easy thing to get more of.
That's really great perspective. Ultimately this is exactly what my wife and I have chosen.
I'm liquidating only "long term" shares to reduce tax burden. I reduced my 401k contribution to maximize the match, but no more.
Once I pay down a lump sum, I'm planning on refinancing, then paying down aggressively for a couple of years.
Thank you.
I see this was posted a month ago so you may have already decided. If so, please let us know! I was also in the SAVE limbo and decided to go back into repayment to pay them off earlier than I had to. By the math it could have gone either way but ultimately it came down to what Brad calls the “sleep well at night” test. I am definitely sleeping better at night without student loans. :)
Yes, after thinking through many possible scenarios I've decided to sell off some of my investments (only long term cap gains, etc), and pay off a lump sum of the loans. I'm currently in the PAYE plan, but will likely have to decide between changing to old IBR or refinancing privately and paying them down aggressively.
I 100% agree the "Sleep well at night" test is really going to be the deciding factor.
Thank you for your comment.
I am in a very similar situation but about a decade further along. I only have 40 payments remaining per the prior report which has now disappeared from all of our dashboards so who know what they are actually counting now. Assuming that doesn't change, I chose to stick with it and hope for the best. If I had longer like you I may have made a different choice. Are you sure that you would be in old IBR and not new IBR though? I seem to recall the cutoff being 2014. Were your first loans prior to that? If not the new IBR is a lower amount for a shorter time so something to consider.
Another thing to consider is the forgiveness on death or disability. As the primary breadwinner in my family I focused on the mortgage instead as my spouse would be on the hook for that if something happened, but not my loans. However, this was a much easier decision for me as my home interest rate was also higher than my student loans.