Student Loans: Ask Us Anything

Student Loans: Ask Us Anything
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#1

Hi, NerdWallet members! We are the NerdWallet Student Loans team, and we write articles about how to pay for college and pay down college debt. Do you have questions about your loans? Ask them here, and we’ll answer them. Please include what type of loans you have (federal or private) if you know.

Here are some starter articles with tips that might help:
10+ Student Loan Forgiveness, Cancellation and Discharge Programs
How to Pay Off Student Loans Fast
5 Ways to Get Fast, Free Student Loan Help

We look forward to helping you on your debt payoff journey!

-Anna, Brianna and Teddy


#2

Hi, looking for advice on my student loans. I have $73k in federal student loans from graduate school, mostly at the subsidized interest rate of 6.5% (with a small portion of Grad Plus loans at 7.9%). I have been paying them back on the Pay As You Earn PAYE plan for 5 years now, with 15 years left to go (at which point any remaining balance will be forgiven and taxed). When I first started paying them back, my income was $47k and I couldn’t afford the standard monthly payment of $850/month. Now my income is $95k, credit score 740. I’m saving for retirement (401k, Roth IRA, company ESOP shares all total about $45k now) as well as saving for a future down payment (current savings about $20k). My current loan payment is about $420/month based on income, and I have emergency savings to cover 6-months of living expenses. I’m 30 years old and would like to both buy a house and have kids in the next 5 years. I got married this year and my husband has a similar amount of grad school loans, though he’s paying them off on an extended fixed payment plan and will also be done in 15 years. His salary and credit score are about the same as mine. I’m specifically wondering about the following questions:

  1. Does the PAYE plan still make sense for me considering my current income, and financial goals for the next few years?
  2. Is there any benefit to refinancing through SoFi or Earnest? Right now I’m basically trying to pay as little on my loans as possible so I can save for other things in the meantime, but I’m not certain if that’s the best approach.
  3. Tax filing: Do I need to do married filing separately in order to stick with the PAYE plan? Would married filing jointly affect my payments? I want to update my tax withholdings by the end of the year so it’s correct for 2019.

Thanks in advance for any info you can provide!


#3

Hey there, CWA,

Welcome to the NerdWallet Community! Thanks for stopping by, and for providing so many details about your situation.

First of all, wow. What you’ve acheived — good credit, retirement savings, six-month emergency fund, house down payment, etc. — is impressive and pretty much a textbook definition of what we typically recommend.

This is a complicated question with lots of tradeoffs to weigh. But you’re in a good place financially, and it sounds like you’re on track to meet your goals regardless of whether you stick with PAYE or refinance.

That being said, assuming you don’t stand to get forgiveness under PAYE, you can afford a slightly higher payment and you qualify for a lower interest rate, refinancing might be the better option.

To answer your questions specifically:

1.)The PAYE plan could still make sense for you if it helps you maintain the lower monthly payment you want — especially if you’re on track to receive a good chunk of forgiveness in 15 years and you’re prepared to pay the tax bill.

I strongly recommend using the government’s repayment estimator to estimate your projected forgiveness and your payments based on filing separately vs jointly.

I plugged in the information you provided and it shows that your current monthly payment would be $586 under PAYE if you’re married filing separately and $689/month if you file jointly. (I used $95k as both you and your husband’s adjusted gross incomes, but your actual AGIs may be different, which would change those results). Please use the tool for yourself to get the most accurate results.

Jumping to your third question, because it’s related: You can stick with PAYE either way, but how you choose to file will impact your payment under PAYE starting the next time you recertify your income for the plan:

  • If you file separately, your payments under PAYE will continue to be based on your income alone.

  • If you file jointly, your payments will be based on you and your husband’s combined incomes. Since your husband also has federal student loans, your payment will be proportional to your share of the combined debt.

However, there are other, non-student-loan-related benefits to filing jointly that you’ll want to consider. I’d recommend consulting a tax professional to help you weigh the pros and cons of each tax filing method.

Circling back to your first question, the repayment estimator also showed that you’re not on track to get forgiveness under PAYE regardless of whether you file separately or jointly. (Again, please do the calculation for yourself, being as precise as possible when entering loan balances, interest rates and adjusted gross incomes for both you and your husband).

If it’s the case that you will pay off your balance under PAYE before you qualify for forgiveness, there’s less of an incentive to remain on the plan — especially since your payments on the PAYE will continue increasing as your income increases.

2.)There’s a benefit to refinancing if you can qualify for a meaningful lower interest rate. With your excellent credit score, there’s a good chance you can. If you’re curious, I’d recommend using our prequalification tool to get personalized rate estimates from six different lenders, including the two you mentioned. (This won’t ding your credit). Once you have a rate estimate, our student loan refinance calculator can help you estimate your potential interest savings.

The tradeoff with refinancing is that once you refinance, you’ll no longer be eligible for PAYE.

I know it’s a lot, but I hope this is helpful - please let me know if you have more questions, and keep us posted on what you decide!

Best,
Teddy


#4

Hi Teddy,

Thanks for your help. Two quick follow-up questions:

  1. When I use the repayment estimator, it doesn’t seem to account for the fact that I’ve already been paying my loans for 5 years. Is that true? I used the calculator when I first switched to the PAYE plan 5 years ago, and it showed that I would be eligible for a large chunk of forgiveness at the end of the 20-year period. Now that I’m 5 years in, and my income has almost doubled, I can’t tell if that’s still true. Is there a student loan calculator somewhere that accounts for the payments already made?

  2. I want to take your advice and consult a professional to help us decide about married filing separately vs. married filing jointly. Is there a large organization you would recommend? The only ones I’ve really heard of are H&R Block or Fidelity - I’m not sure if either of those are the right type of company for this specific inquiry. Do you have any recommendations?

Thank you.


#5

Hi CWA,

1.) Unfortunately, it looks like the repayment estimator assumes that you just entered repayment and estimate payments assumes that you still have the full repayment period to repay your loans. You could try asking your loan servicer, or perhaps the professional you meet with could help you forecast it.

2.) There are a few student loan lawyers that specialize in providing guidance to people navigating student loan repayment. I’ve interviewed all of them multiple times for stories, but I’ve never used them personally so I can’t speak to the quality of their services, but they are: Adam Minsky, Jay Fleishman and Josh Cohen.

You can also try a fee-only financial advisor or an accountant that specializes in student loans. The links below can help you find reliable ones near you – then ask them some questions about their student loan experience before choosing one.

Please keep us posted on your situation, what you end up doing and what experts you find most helpful!

Best,
Teddy


#6

A post was split to a new topic: Student Loans and Applying for Credit Cards