Author Topic: Getting Rid of Student Loans  (Read 2633 times)

Offline AAAlexander

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Getting Rid of Student Loans
« on: June 24, 2011, 01:52:50 PM »
This is probably not the smartest way to do it, but mine are gone.

After college, I entered the meager workforce and made enough to pay the minimum every month, which doesn't really get you anywhere.  At the time I was still living with the parental units.  Then I got married which involved rent, utilities, food, etc.  This cut down on making student loan payments to about nothing.  That BA did not help me get a job anyways.  So, the notices start coming in and my credit score starts going down.  Five years later, I had two little kids under my wings, and expected a fairly nice sized interest-free loan repayment (Fed Tax Return).  During my filing and my receiving it, I got a letter saying that my student loans had defaulted and the tax return money IS GOING to be used to repay them.  They weren't messing around.  They took almost all of it.  In the end, I think they did me a favor by eliminating those outstanding loans.  My credit is crap, but I really do not think that matters anymore; and it definitely won't in te near future.

Tony

Offline mitko69

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Re: Getting Rid of Student Loans
« Reply #1 on: June 24, 2011, 02:21:48 PM »
If it is not a secret, approximately how much the loan was?

I myself still have about $37,000 to pay and plan to pay it one way or the other before the end of the year using, if necessary, a loan from my 401(K)

Offline AAAlexander

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Re: Getting Rid of Student Loans
« Reply #2 on: June 24, 2011, 08:44:46 PM »
I had just over 12000.00 to begin with.

Offline Think4Yourself

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Re: Getting Rid of Student Loans
« Reply #3 on: June 29, 2011, 08:35:19 PM »
If it is not a secret, approximately how much the loan was?

I myself still have about $37,000 to pay and plan to pay it one way or the other before the end of the year using, if necessary, a loan from my 401(K)

I would seriously reconsider taking a loan from your 401k.  for these reasons:

1)The longest term you can use on a 401k loan is 5 years ( unless for first time home purchase) so a 37k loan is going to end up having quite a hefty payment, much more than a student loan payment in most cases.
2)The interest rate on you student loan is most likely lower and it is also tax deductible.
3) On 401k loans, you usually have to set aside more than 100% of the loan value in a collateralized account, which means you miss out on any returns that money could have made in an investment ( insert losing your rear end in the market story here)
4) if you happen to come across hard times and default on your payments, the loan is then treated as a taxable withdrawal and you then owe the IRS any taxes and penalties, on top the fact that the balance gets added to your taxable income that year, pushing you into a potentially higher bracket.


You are going to do what you feel you need to do, but I used to work in the business and 401k loans are almost always a bad idea. anyway, I should also note that its possible some of the tax laws could have change in the last 3 years or so, but I have not heard about it if they have.

Offline stayfrosty

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Re: Getting Rid of Student Loans
« Reply #4 on: June 30, 2011, 12:45:44 AM »
I would only pay off your student loans faster if your interest rate (on your loan) is larger than your return on your own investments. I pay 1.9% interest on my student loans, but make 8-12% on my own investments. It would be silly to pay off my student loans early.

frosty

Offline mitko69

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Re: Getting Rid of Student Loans
« Reply #5 on: July 10, 2011, 09:43:29 PM »
Thanks for the free advice!

I came to the same conclusion. Better to have a student loan than a 401K loan.

But I have other ways to pay it faster.