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This seems to be a popular "reason" for never paying them off. Along with "it's so low interest there is no point."
What other excuses have you heard?
What other excuses have you heard?
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Ability to lower payments if something ever happened (maybe get DI instead?) -
A lot of people don't realize Social Security payments are garnished to pay student loansHelping those who wear the white coat get a fair shake on Wall Street since 2011Comment
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A lot of people don’t realize Social Security payments are garnished to pay student loans
Huh, I did not know that!Comment
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Random morbid thought.....Are they forgiven if death is a suicide?Comment
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Random morbid thought…..Are they forgiven if death is a suicide?
You mean are they assessed against the estate? No.
For those who are actually considering this tactic, I recommend this post:
http://thecollegeinvestor.com/18219/suicide-student-loan-debt/Helping those who wear the white coat get a fair shake on Wall Street since 2011Comment
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This seems to be a popular “reason” for never paying them off. Along with “it’s so low interest there is no point.”
What other excuses have you heard?
I don't feel like being in a rush to pay off my $15,000 from undergrad at 2.1% non-compounding interest in favor of investing in equities using a buy-and-hold strategy is an "excuse." I think it's more a "reason."Comment
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A lot of people don’t realize Social Security payments are garnished to pay student loans
Even wages I've heard.
However, theres a huge chasm between never paying off your loans and paying them off in two years, the whole spectrum between exists.
I know that in the personal finance realm its all about debt destruction all the time...to the point it doesnt make much sense at times. This is a perfectly valid strategy for those who have serious behavioral issues or just cant wrap their head around things to make good decisions. For most on these boards there is a better use of their money.
Im currently paying my loans as agreed with a tiny nominal extra amount, so tiny it wont materially impact anything term wise. I invest the rest, it just doesnt make any sense to me to do anything else. In fact, I almost view it as a "pay down" type fund, but when it reaches the loan values I have little faith I'll be just throwing away all that current/future compounding to just say a loan is not there. After all, it comes out in the net worth calculation anyway.Comment
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My favorite is when folks say that paying down your student debt is the dumbest thing you could possibly do because you can make so many higher yielding investments as a business minded physician. Leverage is how to get rich so the more leverage the better.
I ask them if they know how to calculate the pre-tax equivalent yield on a 7.9% grad plus loan at a 45% combined federal state and local income tax rate and that the resulting yield beats every stock index fund's long term performance record known to man.Comment
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Random morbid thought…..Are they forgiven if death is a suicide?
Not all student loans are forgiven at death! Some absolutely can come after any assets in your estate.
This seems to be a popular “reason” for never paying them off. Along with “it’s so low interest there is no point.”
What other excuses have you heard?
I don’t feel like being in a rush to pay off my $15,000 from undergrad at 2.1% non-compounding interest in favor of investing in equities using a buy-and-hold strategy is an “excuse.” I think it’s more a “reason.”
Get the ************************ outta here you old timer.
My favorite is when folks say that paying down your student debt is the dumbest thing you could possibly do because you can make so many higher yielding investments as a business minded physician. Leverage is how to get rich so the more leverage the better.
I ask them if they know how to calculate the pre-tax equivalent yield on a 7.9% grad plus loan at a 45% combined federal state and local income tax rate and that the resulting yield beats every stock index fund’s long term performance record known to man.
That's the thing. Most of these dummies assume that you've got some super-low rate and that you can deduct all the interest (let alone completely underestimating how much loans you're even talking about). Not only are the loans typically 6.8%, 7.9%, etc., but you're capped at $2k which is virtually nothing, and even that phases out once you make attending money. And exactly, how you plan to make some big extra return over and beyond that 7 or 8% when you're in the top brackets is nuts.
Absolutely if you're one of those people who had federal loans at 2% (and coincidentally your education probably cost half what it cost today), there's a good point to keeping those forever, it's basically free money. But when you're getting slammed at 6.8% in a 3% and 4% environment, the math doesn't really work out.Comment
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Even the folks sitting at 1.9% rates from the consecutive payment discounts that existed briefly in the mid and early 2000s aren't sitting on free money. As you point out the deduction phases out at the higher AGI.
Hence it's 1.9% after tax money, which means for an attending physician in NYC it's more like 4% in a retirement account. Since virtually anyone who uses a target retirement fund or invests in bonds in their 401k or IRA is earning less than that, the 1.9% is most decidedly not free money. These folks better have 100% stock allocations or they're practicing negative arbitrageComment
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Random morbid thought…..Are they forgiven if death is a suicide?
You mean are they assessed against the estate? No.
For those who are actually considering this tactic, I recommend this post:
http://thecollegeinvestor.com/18219/suicide-student-loan-debt/
Definitely a good post.
Exclusive of actually contemplating suicide, knowing that loans are forgiven and life insurance is payable even in the event of a suicide can be comforting since many forms of accidental death can look like a suicide.
I don't worry about this with student loans, but it was nice to see my term life policy pass that window where suicide was excluded. Of course it would be very unlikely (really death at a young age in general is pretty unlikely which is why term insurance is so cheap), but the absolute worst thing to happen to a surviving spouse after a husband's or wife's death would be for the insurance company to come in and argue that they don't have to pay because that fall, car wreck, poisoning, hunting accident, etc. etc. looked like a suicide and is excluded under the policy.Comment
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Even the folks sitting at 1.9% rates from the consecutive payment discounts that existed briefly in the mid and early 2000s aren’t sitting on free money. As you point out the deduction phases out at the higher AGI.
Hence it’s 1.9% after tax money, which means for an attending physician in NYC it’s more like 4% in a retirement account. Since virtually anyone who uses a target retirement fund or invests in bonds in their 401k or IRA is earning less than that, the 1.9% is most decidedly not free money. These folks better have 100% stock allocations or they’re practicing negative arbitrage
That's a very good point, there's no such thing as free money when it comes to lending. However if I could pay just $1,900 a year to keep $100k at bay indefinitely that would seem like a pretty nice deal to have the liquidity, and it's massively better than $7k or $8k. So as the concept of "free money" goes, I think you could make a sound financial argument that 1.9% is it.Comment
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A couple dozen million people are giving away free money to the US government and corporations through Vanguard's Total Bond Fund to play devil's advocate. Current SEC pre tax yield is 2.5%
I like to use an analogy in a consult (works better for higher interest rates) that goes like this: Imagine if a bank was offering a guaranteed risk free tax free return of 2% to 8%. There would be a line of elderly folks out the door waiting to sign up. That's what anyone has who has student loans.Comment
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My favorite is when folks say that paying down your student debt is the dumbest thing you could possibly do because you can make so many higher yielding investments as a business minded physician. Leverage is how to get rich so the more leverage the better.
I ask them if they know how to calculate the pre-tax equivalent yield on a 7.9% grad plus loan at a 45% combined federal state and local income tax rate and that the resulting yield beats every stock index fund’s long term performance record known to man.
Who on earth would do that without refinancing to the available 2-3% rates today. I dont have a single loan over 3%. Anyways, it doesnt matter, the rate is pretty much irrelevant. I'll pay 99% on a 5$ loan without caring. The cost of the loan is what really matters, thats the maximum extra over principal you would pay if you drew it out.
Loans are simple interest and investing is compound, given a long enough time no amount of difference in a simple rate will beat out a compound one, that is simple math. In our investing time frames, whats currently available can easily be arbitraged and beat. Your little argument which wouldnt even be realistic for 95% percent of people choosing investing fails to take that into account. An average stock return would crush your little quip in a short time period.
It is okay to be all for paying off your student loan or mortgage early, thats your prerogative. It wholly another thing to disparage others that choose to invest with the math as if we dont get it, especially since the math is on our side! It doesnt always make it the right thing to do, but it will always be true.
Do you know the difference between simple and compound interest? The time value of money? Its not like you get to go back in time and recoup the lost gains, theyre gone.Comment
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