Is it bad to look at debt (student loans) like this?

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YoungBogle
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Is it bad to look at debt (student loans) like this?

Post by YoungBogle » Mon Jun 10, 2019 3:38 am

Scenario A:
Salary: 130k
Student loan minimum payment: 30k/year pre tax

Scenario B:
Salary 100k (130k-30k)
Debt free

Assuming continuous employment, is it bad to have the scenario B mindset when scenario A is reality?

Playing devils advocate, I believe many BH’s would react more favorably to a portfolio review post of scenario B than scenario A even though they are quantitatively net equal IMO.

Edited: red
Last edited by YoungBogle on Mon Jun 10, 2019 3:33 pm, edited 1 time in total.

traveler901
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Re: Is it bad to look at debt (student loans) like this?

Post by traveler901 » Mon Jun 10, 2019 4:18 am

It's just a bit of mental gymnastics but sure, if you prefer to think of it this way.

Although I hope the numbers are just made up, because 30k per year is a ton for student loans.

And also, Scenario A is much better in the long run. Eventually those loans will be paid off and this person has the higher salary.

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Re: Is it bad to look at debt (student loans) like this?

Post by JonnyDVM » Mon Jun 10, 2019 6:11 am

Student loans are paid post tax so you’d have to have a higher salary in A to equate to B. Not net equal. A bank would also see these two differently if you were trying to get a loan for a home. It is not unfair to favor one over the other.
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Re: Is it bad to look at debt (student loans) like this?

Post by Grt2bOutdoors » Mon Jun 10, 2019 6:14 am

If you have minimum loan payments of $30k per year, your income had better be rising quickly. That level of payment is not sustainable on $100k income over a long period of time.
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Re: Is it bad to look at debt (student loans) like this?

Post by blackholescion » Mon Jun 10, 2019 6:36 am

I would say it is bad to look at it that way. If you lose your job, you still have the loans and therefore aren’t debt free. This is also a slippery slope. Is your mortgage then the next 30k so it’s really 70k debt free? Car loan? It’s a quick way to get to living above your means because you don’t consider the debt.

If you are going to downsize the rest of your life to account for the debt, then it *may* be ok but that’s not usually how it works when presented with shiny new things (oh that house payment is only an additional 300/month and I make 130k so it’s fine!). When downsizing (hypothetical), let’s say you want to keep your housing expenses at 25% of your after tax. Is that on your 100k and whatever you end up having post tax from that? How do you calculate this? Is it on 130k post tax total-post tax student loan payments? Are you going to calculate taxes on 100k using calculators and just base it on that? It gets complicated.

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Re: Is it bad to look at debt (student loans) like this?

Post by JoeRetire » Mon Jun 10, 2019 6:46 am

YoungBogle wrote:
Mon Jun 10, 2019 3:38 am
Scenario A:
Salary: 130k
Student loan minimum payment: 30k/year

Scenario B:
Salary 100k (130k-30k)
Debt free

Assuming continuous employment, is it bad to have the scenario B mindset when scenario A is reality?
I wouldn't call it "bad", just fooling yourself that it's fundamentally different.
Playing devils advocate, I believe many BH’s would react more favorably to a portfolio review post of scenario B than scenario A even though they are quantitatively net equal IMO.
I agree. Many BHers do love magic terms like "debt free".

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YoungBogle
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Re: Is it bad to look at debt (student loans) like this?

Post by YoungBogle » Mon Jun 10, 2019 3:01 pm

JoeRetire wrote:
Mon Jun 10, 2019 6:46 am
Playing devils advocate, I believe many BH’s would react more favorably to a portfolio review post of scenario B than scenario A even though they are quantitatively net equal IMO.
I agree. Many BHers do love magic terms like "debt free".
This is exactly my point. The numbers are arbitrary, but many would prefer B to A, even though they are net equal. Not too mention depending on the numbers used, A can be superior to B (assuming continuous employment). IE, interest may be deductible, 401k company match would be superior to A, debt would ultimately get paid off.

To be clear, I am not justifying or rationalizing taking out debt or “leveraging”. Just wanted to hear other’s thoughts.

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Re: Is it bad to look at debt (student loans) like this?

Post by YoungBogle » Mon Jun 10, 2019 3:07 pm

Grt2bOutdoors wrote:
Mon Jun 10, 2019 6:14 am
If you have minimum loan payments of $30k per year, your income had better be rising quickly. That level of payment is not sustainable on $100k income over a long period of time.
Numbers are arbitrary but in the example was 30k pre tax payments on a 130k salary. Or 100k salary debt free. Not 30k payments on 100k salary

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Re: Is it bad to look at debt (student loans) like this?

Post by MotoTrojan » Mon Jun 10, 2019 3:17 pm

Sure these are equivalent but what happens after the loan or salary goes away? Then they are not even close to equivalent. Future liabilities and potential increases in spending power are just as important as the current annual bottom line.

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Re: Is it bad to look at debt (student loans) like this?

Post by blackholescion » Mon Jun 10, 2019 3:21 pm

YoungBogle wrote:
Mon Jun 10, 2019 3:01 pm
JoeRetire wrote:
Mon Jun 10, 2019 6:46 am
Playing devils advocate, I believe many BH’s would react more favorably to a portfolio review post of scenario B than scenario A even though they are quantitatively net equal IMO.
I agree. Many BHers do love magic terms like "debt free".
This is exactly my point. The numbers are arbitrary, but many would prefer B to A, even though they are net equal. Not too mention depending on the numbers used, A can be superior to B (assuming continuous employment). IE, interest may be deductible, 401k company match would be superior to A, debt would ultimately get paid off.

To be clear, I am not justifying or rationalizing taking out debt or “leveraging”. Just wanted to hear other’s thoughts.
Student loan phaseout for single is 80k at the top end. You would definitely get a higher 401k match if offered. On the other hand, you may not be able to max out your 401k or IRAs because your money is going toward the loans. Let's take a hypothetical.

130k income, 5% state tax, single.
Contribute 19k to 401k.
=111k AGI.
=78k after tax
=48k after student loan payment
=42k after maxing (r)IRA

Is 48k enough for your other annual expenses? Are you going to contribute to an IRA? 42k enough? If not, then you have to make cuts which means cuts to retirement savings. If you're trying to retire early, 25k in tax advantaged represents 20% of your gross income. Most recommended is 30%+ so if you're all of a sudden cutting that down to 15%, then you have to work longer or cut your lifestyle.

Here's 100k with no loans:

100k income, 5% state tax, single.
Contribute 19k to 401k.
=81k AGI.
=60k after tax
=60k after student loan payment
=54k after maxing (r)IRA

We can assume the 100k and the 130k will continue rising but without the job descriptions we don't know how much. Maybe 100k is a developer and 130k is manager. Dev moves into management, then what? If 30k is minimum student loans, then how long does it take to pay them off?
Last edited by blackholescion on Mon Jun 10, 2019 3:28 pm, edited 4 times in total.

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YoungBogle
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Re: Is it bad to look at debt (student loans) like this?

Post by YoungBogle » Mon Jun 10, 2019 3:25 pm

traveler901 wrote:
Mon Jun 10, 2019 4:18 am
Although I hope the numbers are just made up
I understand and 100% agree with your post. I’m mostly posing this question to play devils advocate and have a discussion.

You concede A is probably superior cause one day the debt will be paid off in X years, effectively giving one a 30k pre tax raise once paid off.

However you say “I hope the numbers are made up” to person A, but would you say that to person B? Someone making 100k with no debt?

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Re: Is it bad to look at debt (student loans) like this?

Post by MotoTrojan » Mon Jun 10, 2019 3:33 pm

YoungBogle wrote:
Mon Jun 10, 2019 3:25 pm
traveler901 wrote:
Mon Jun 10, 2019 4:18 am
Although I hope the numbers are just made up
I understand and 100% agree with your post. I’m mostly posing this question to play devils advocate and have a discussion.

You concede A is probably superior cause one day the debt will be paid off in X years, effectively giving one a 30k pre tax raise once paid off.

However you say “I hope the numbers are made up” to person A, but would you say that to person B? Someone making 100k with no debt?
Person A is going to go broke much sooner if they are both out of work. These are far from equivalent situations.

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Re: Is it bad to look at debt (student loans) like this?

Post by YoungBogle » Mon Jun 10, 2019 3:40 pm

blackholescion wrote:
Mon Jun 10, 2019 3:21 pm
130k income, 5% state tax, single.
Contribute 19k to 401k.
=111k AGI.
=78k after tax
=56.7k after student loan payment (-21,300)
=50.7k after maxing (r)IRA

Here's 100k with no loans:

100k income, 5% state tax, single.
Contribute 19k to 401k.
=81k AGI.
=60k after tax
=60k after student loan payment
=54k after maxing (r)IRA
Thank you for the insightful comment. My apologies I should have clarified 30k of min payment is already on pre tax basis. Please verify my revised calculations in red. Also not to mention employers portion of 401k would be higher in first scenario IF employer matched X%.

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Re: Is it bad to look at debt (student loans) like this?

Post by YoungBogle » Mon Jun 10, 2019 3:47 pm

MotoTrojan wrote:
Mon Jun 10, 2019 3:33 pm
Person A is going to go broke much sooner if they are both out of work. These are far from equivalent situations.
I’m under no assumption that you are incorrect, which is why continuous employment was a stated assumption and emphasized quantitatively net equal, not qualitatively.

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Re: Is it bad to look at debt (student loans) like this?

Post by coachd50 » Mon Jun 10, 2019 3:48 pm

YoungBogle wrote:
Mon Jun 10, 2019 3:38 am
Scenario A:
Salary: 130k
Student loan minimum payment: 30k/year pre tax

Scenario B:
Salary 100k (130k-30k)
Debt free

Assuming continuous employment, is it bad to have the scenario B mindset when scenario A is reality?

Playing devils advocate, I believe many BH’s would react more favorably to a portfolio review post of scenario B than scenario A even though they are quantitatively net equal IMO.

Edited: red
You are only examining cashflow for a certain time period here in you hypothetical as opposed to ones complete financial situation. Also, throwing in the phrase "assuming continuous employment" makes the thought exercise kind of irrelevant for similar reasons.

I think it is a tough comparison because the two items are not related so to speak. It is different than say this situation :
Scenario A- take job in City A, with 160k in salary and $60,000 in estimated living expenses
Scenario B- take job in City B, with 130k in salary and $30,000 in estimated living expenses

In that situation, the scenarios are quantitatively net equal because the changes in living expenses are associated with the job choice. In in comparing those situations though, other factors would be considered in the real world.
Last edited by coachd50 on Mon Jun 10, 2019 4:11 pm, edited 1 time in total.

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Re: Is it bad to look at debt (student loans) like this?

Post by Dantes » Mon Jun 10, 2019 3:57 pm

Scenario A is a lot of debt for only a 30K annual boost. How long to pay off? 20 years? GIven the way the world changes, I think it would be a bad choice to borrow 600K to make an extra 30K, flat, per year - unless that was what it took to get that one perfect job. Then its another story, but one has to hope that job isn't the equivalent of making buggy whips.

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Re: Is it bad to look at debt (student loans) like this?

Post by MotoTrojan » Mon Jun 10, 2019 4:03 pm

YoungBogle wrote:
Mon Jun 10, 2019 3:47 pm
MotoTrojan wrote:
Mon Jun 10, 2019 3:33 pm
Person A is going to go broke much sooner if they are both out of work. These are far from equivalent situations.
I’m under no assumption that you are incorrect, which is why continuous employment was a stated assumption and emphasized quantitatively net equal, not qualitatively.
Well if we are just talking in fairy land, then if these conditions persist perpetually then there is no difference of course, but why ask?

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Re: Is it bad to look at debt (student loans) like this?

Post by Vanguard Fan 1367 » Mon Jun 10, 2019 4:05 pm

I am one of those who doesn't like debt. I am amongst a group of people many of which agree with me. It certainly isn't "bad" to look at student loans like that, it just isn't the way I would look at it. I sleep better at night with paid for cars, house, no credit card debt, no loan sharks, furniture payment, etc. I am grateful for my parents letting me graduate debt free from my post high school education.

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Re: Is it bad to look at debt (student loans) like this?

Post by YoungBogle » Mon Jun 10, 2019 4:17 pm

coachd50 wrote:
Mon Jun 10, 2019 3:48 pm
Also, throwing in the phrase "assuming continuous employment" makes the thought exercise kind of irrelevant for similar reasons.
Thanks for the comment. I don’t argue continuous employment is a lofty assumption. However would disagree that lofty assumptions automatically deems a debate or discussion as irrelevant.

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Re: Is it bad to look at debt (student loans) like this?

Post by blackholescion » Mon Jun 10, 2019 4:19 pm

YoungBogle wrote:
Mon Jun 10, 2019 3:40 pm
blackholescion wrote:
Mon Jun 10, 2019 3:21 pm
130k income, 5% state tax, single.
Contribute 19k to 401k.
=111k AGI.
=78k after tax
=56.7k after student loan payment (-21,300)
=50.7k after maxing (r)IRA

Here's 100k with no loans:

100k income, 5% state tax, single.
Contribute 19k to 401k.
=81k AGI.
=60k after tax
=60k after student loan payment
=54k after maxing (r)IRA
Thank you for the insightful comment. My apologies I should have clarified 30k of min payment is already on pre tax basis. Please verify my revised calculations in red. Also not to mention employers portion of 401k would be higher in first scenario IF employer matched X%.
Your calculation is correct assuming an effective tax rate of 29% in this scenario. The 401k match difference at 6% is $1800 a year. So you're better by $1,500 in the short term having no student loans. In the long term, we are unsure because of varied salary growth opportunities. Assuming shortest term, let's say you pay all that off in 12 years. You're down 18k across those 12 years. But after year 12, you will catch up due to higher salary assuming all things being equal (each job gets the same raises and maintains that 30k gap). I would call this difference (the $1500) insignificant and a rounding error. You can make up $1500 by eating out 1 time less a month.

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Re: Is it bad to look at debt (student loans) like this?

Post by coachd50 » Mon Jun 10, 2019 4:32 pm

YoungBogle wrote:
Mon Jun 10, 2019 4:17 pm
coachd50 wrote:
Mon Jun 10, 2019 3:48 pm
Also, throwing in the phrase "assuming continuous employment" makes the thought exercise kind of irrelevant for similar reasons.
Thanks for the comment. I don’t argue continuous employment is a lofty assumption. However would disagree that lofty assumptions automatically deems a debate or discussion as irrelevant.
My point is that in doing so you made the comparison a simple calculation as opposed to something that happens in the real world. You essentially said "If I make an assumption that creates an equivalency, is it bad to call these things equal"

It would be like saying
"Assuming my taxable investments make 5% a year and my mortgage rate is 5% a year and I take the standard deduction, is it better to pay down the mortgage or invest my extra cashflow"

The assumption takes many real world discussion points out of the picture.

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Re: Is it bad to look at debt (student loans) like this?

Post by jbranx » Mon Jun 10, 2019 4:43 pm

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Re: Is it bad to look at debt (student loans) like this?

Post by YoungBogle » Mon Jun 10, 2019 4:57 pm

coachd50 wrote:
Mon Jun 10, 2019 4:32 pm
YoungBogle wrote:
Mon Jun 10, 2019 4:17 pm
coachd50 wrote:
Mon Jun 10, 2019 3:48 pm
Also, throwing in the phrase "assuming continuous employment" makes the thought exercise kind of irrelevant for similar reasons.
Thanks for the comment. I don’t argue continuous employment is a lofty assumption. However would disagree that lofty assumptions automatically deems a debate or discussion as irrelevant.
My point is that in doing so you made the comparison a simple calculation as opposed to something that happens in the real world. You essentially said "If I make an assumption that creates an equivalency, is it bad to call these things equal"

It would be like saying
"Assuming my taxable investments make 5% a year and my mortgage rate is 5% a year and I take the standard deduction, is it better to pay down the mortgage or invest my extra cashflow"

The assumption takes many real world discussion points out of the picture.
In that scenario I would allocate the excess cash flow to your mortgage. You’ll eventually be taxed 15% of your interest earned in taxable.

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Re: Is it bad to look at debt (student loans) like this?

Post by yeahman » Mon Jun 10, 2019 5:12 pm

YoungBogle wrote:
Mon Jun 10, 2019 3:38 am
Assuming continuous employment
Agree with other comments that that assumption's doing all the work. Assuming I don't die, isn't having life insurance the same as not having life insurance? Why do people treat them differently?

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Re: Is it bad to look at debt (student loans) like this?

Post by MotoTrojan » Mon Jun 10, 2019 5:15 pm

YoungBogle wrote:
Mon Jun 10, 2019 4:57 pm
coachd50 wrote:
Mon Jun 10, 2019 4:32 pm
YoungBogle wrote:
Mon Jun 10, 2019 4:17 pm
coachd50 wrote:
Mon Jun 10, 2019 3:48 pm
Also, throwing in the phrase "assuming continuous employment" makes the thought exercise kind of irrelevant for similar reasons.
Thanks for the comment. I don’t argue continuous employment is a lofty assumption. However would disagree that lofty assumptions automatically deems a debate or discussion as irrelevant.
My point is that in doing so you made the comparison a simple calculation as opposed to something that happens in the real world. You essentially said "If I make an assumption that creates an equivalency, is it bad to call these things equal"

It would be like saying
"Assuming my taxable investments make 5% a year and my mortgage rate is 5% a year and I take the standard deduction, is it better to pay down the mortgage or invest my extra cashflow"

The assumption takes many real world discussion points out of the picture.
In that scenario I would allocate the excess cash flow to your mortgage. You’ll eventually be taxed 15% of your interest earned in taxable.
Their point is that it isn’t a debate or discussion for what you’re describing because you’ve forced equivalency.

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Re: Is it bad to look at debt (student loans) like this?

Post by dknightd » Mon Jun 10, 2019 5:32 pm

I look at student loans as an investment. An investment in myself.

I took out student loans (and have paid them back) to help fund my education.
Both my kids took out student loans to help them fund their education.

There is more to this than just money. There is job satisfaction and doing what you want.
For the time, and money, I spent in school I probably could have come out ahead financially doing something different. I might be biased, but I think borrowing money to go to school to study something that interests you, is a good investment of both time and money. YMMV

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Re: Is it bad to look at debt (student loans) like this?

Post by traveler901 » Tue Jun 11, 2019 2:44 am

YoungBogle wrote:
Mon Jun 10, 2019 3:25 pm
traveler901 wrote:
Mon Jun 10, 2019 4:18 am
Although I hope the numbers are just made up
I understand and 100% agree with your post. I’m mostly posing this question to play devils advocate and have a discussion.

You concede A is probably superior cause one day the debt will be paid off in X years, effectively giving one a 30k pre tax raise once paid off.

However you say “I hope the numbers are made up” to person A, but would you say that to person B? Someone making 100k with no debt?
What I meant by "I hope the numbers are made up" is that 30k per year is an absolutely ton in student loan payments. I was just referring to the student loan payment figure. What would that be - like $400k in total loan debt? Would be way way too much student loans for someone making that salary.

So not sure why that would apply to the person with no debt at all.

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Re: Is it bad to look at debt (student loans) like this?

Post by ncbill » Tue Jun 11, 2019 12:07 pm

blackholescion wrote:
Mon Jun 10, 2019 6:36 am
I would say it is bad to look at it that way. If you lose your job, you still have the loans and therefore aren’t debt free. This is also a slippery slope. Is your mortgage then the next 30k so it’s really 70k debt free? Car loan? It’s a quick way to get to living above your means because you don’t consider the debt.

If you are going to downsize the rest of your life to account for the debt, then it *may* be ok but that’s not usually how it works when presented with shiny new things (oh that house payment is only an additional 300/month and I make 130k so it’s fine!). When downsizing (hypothetical), let’s say you want to keep your housing expenses at 25% of your after tax. Is that on your 100k and whatever you end up having post tax from that? How do you calculate this? Is it on 130k post tax total-post tax student loan payments? Are you going to calculate taxes on 100k using calculators and just base it on that? It gets complicated.

KISS
If your income drops low enough aren't you eligible for deferral?

I had a relative who decided to got back to school after being laid-off around age 60.

Borrowed around $20k (all federal, no private) in student loans.

Not surprisingly, given their age, they never were able to secure employment again & so ended up living on nothing more than SS retirement, which resulted in low enough income to allow them to stop making payments altogether.

And when they died earlier this year I sent a certified copy of their death certificate to the servicer & requested discharge.

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Re: Is it bad to look at debt (student loans) like this?

Post by ThrustVectoring » Tue Jun 11, 2019 12:28 pm

The two scenarios are quantitatively different. While they're the same now, they have differing personal financial risks.

For example, suppose you want to take FMLA leave to care for a newborn. This is twelve weeks unpaid, or roughly a quarter of your annual salary in missed income. The person with a student loan and higher wage will need to have more cash savings in order to be able to afford to do this.

On the other hand, suppose you're looking for a new job. It's significantly easier to find a better-paying job when you don't make as much money, simply due to how many jobs there are at each pay level.

In short, earning a salary comes with a bundle of risks, and your financial situation cannot be entirely captured by the paycheck from it. The math is significantly different if you're working at a startup versus holding down a government job, even at the same total compensation.
Current portfolio: 60% VTI / 40% VXUS

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Re: Is it bad to look at debt (student loans) like this?

Post by blackholescion » Tue Jun 11, 2019 1:45 pm

ncbill wrote:
Tue Jun 11, 2019 12:07 pm
blackholescion wrote:
Mon Jun 10, 2019 6:36 am
I would say it is bad to look at it that way. If you lose your job, you still have the loans and therefore aren’t debt free. This is also a slippery slope. Is your mortgage then the next 30k so it’s really 70k debt free? Car loan? It’s a quick way to get to living above your means because you don’t consider the debt.

If you are going to downsize the rest of your life to account for the debt, then it *may* be ok but that’s not usually how it works when presented with shiny new things (oh that house payment is only an additional 300/month and I make 130k so it’s fine!). When downsizing (hypothetical), let’s say you want to keep your housing expenses at 25% of your after tax. Is that on your 100k and whatever you end up having post tax from that? How do you calculate this? Is it on 130k post tax total-post tax student loan payments? Are you going to calculate taxes on 100k using calculators and just base it on that? It gets complicated.

KISS
If your income drops low enough aren't you eligible for deferral?

I had a relative who decided to got back to school after being laid-off around age 60.

Borrowed around $20k (all federal, no private) in student loans.

Not surprisingly, given their age, they never were able to secure employment again & so ended up living on nothing more than SS retirement, which resulted in low enough income to allow them to stop making payments altogether.

And when they died earlier this year I sent a certified copy of their death certificate to the servicer & requested discharge.
Yeah you can defer them but interest still builds so if you ever get to the point you have to repay, you may be in trouble if your balance is high. As you may have alluded to, it's tougher to do so with private loans. For someone making 21k in student loan payments as in OP's scenario, they aren't going to all be federal; though, I suppose some of them could be Parent PLUS loans which is it's own headache as to who the servicer will go after should the payments stop.

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Re: Is it bad to look at debt (student loans) like this?

Post by Vanguard Fan 1367 » Tue Jun 11, 2019 4:03 pm

ncbill wrote:
Tue Jun 11, 2019 12:07 pm
blackholescion wrote:
Mon Jun 10, 2019 6:36 am
I would say it is bad to look at it that way. If you lose your job, you still have the loans and therefore aren’t debt free. This is also a slippery slope. Is your mortgage then the next 30k so it’s really 70k debt free? Car loan? It’s a quick way to get to living above your means because you don’t consider the debt.

If you are going to downsize the rest of your life to account for the debt, then it *may* be ok but that’s not usually how it works when presented with shiny new things (oh that house payment is only an additional 300/month and I make 130k so it’s fine!). When downsizing (hypothetical), let’s say you want to keep your housing expenses at 25% of your after tax. Is that on your 100k and whatever you end up having post tax from that? How do you calculate this? Is it on 130k post tax total-post tax student loan payments? Are you going to calculate taxes on 100k using calculators and just base it on that? It gets complicated.

KISS
If your income drops low enough aren't you eligible for deferral?

I had a relative who decided to got back to school after being laid-off around age 60.

Borrowed around $20k (all federal, no private) in student loans.

Not surprisingly, given their age, they never were able to secure employment again & so ended up living on nothing more than SS retirement, which resulted in low enough income to allow them to stop making payments altogether.

And when they died earlier this year I sent a certified copy of their death certificate to the servicer & requested discharge.
So the feds will let death be a reason to not pay up? They aren't going after the estate?

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Re: Is it bad to look at debt (student loans) like this?

Post by ncbill » Tue Jun 11, 2019 4:29 pm

Vanguard Fan 1367 wrote:
Tue Jun 11, 2019 4:03 pm
ncbill wrote:
Tue Jun 11, 2019 12:07 pm
blackholescion wrote:
Mon Jun 10, 2019 6:36 am
I would say it is bad to look at it that way. If you lose your job, you still have the loans and therefore aren’t debt free. This is also a slippery slope. Is your mortgage then the next 30k so it’s really 70k debt free? Car loan? It’s a quick way to get to living above your means because you don’t consider the debt.

If you are going to downsize the rest of your life to account for the debt, then it *may* be ok but that’s not usually how it works when presented with shiny new things (oh that house payment is only an additional 300/month and I make 130k so it’s fine!). When downsizing (hypothetical), let’s say you want to keep your housing expenses at 25% of your after tax. Is that on your 100k and whatever you end up having post tax from that? How do you calculate this? Is it on 130k post tax total-post tax student loan payments? Are you going to calculate taxes on 100k using calculators and just base it on that? It gets complicated.

KISS
If your income drops low enough aren't you eligible for deferral?

I had a relative who decided to got back to school after being laid-off around age 60.

Borrowed around $20k (all federal, no private) in student loans.

Not surprisingly, given their age, they never were able to secure employment again & so ended up living on nothing more than SS retirement, which resulted in low enough income to allow them to stop making payments altogether.

And when they died earlier this year I sent a certified copy of their death certificate to the servicer & requested discharge.
So the feds will let death be a reason to not pay up? They aren't going after the estate?
Correct...federal student loans (but not federally guaranteed private student loans) are simply discharged at death, by law.

What's sort of weird is that the servicing company sent me a letter stating the loans were now in forbearance, but they never used the word "discharged."

retiredjg
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Re: Is it bad to look at debt (student loans) like this?

Post by retiredjg » Tue Jun 11, 2019 5:00 pm

YoungBogle wrote:
Mon Jun 10, 2019 3:38 am
Scenario B:
Salary 100k (130k-30k)
Debt free
I don't see how this accomplishes anything useful. No reason to do it so...maybe "bad"...

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Nate79
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Re: Is it bad to look at debt (student loans) like this?

Post by Nate79 » Tue Jun 11, 2019 6:07 pm

There is no reason to play false mind games like the financially illiterate.

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market timer
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Re: Is it bad to look at debt (student loans) like this?

Post by market timer » Tue Jun 11, 2019 7:31 pm

Due to the various Income Based Repayment options, I view loans as a tax on my income. I consider it unlikely that I'll ever pay off the entire balance, and have managed to avoid making a principal payment on most of my loans, in some cases for over 20 years.

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Re: Is it bad to look at debt (student loans) like this?

Post by Lee_WSP » Wed Jun 12, 2019 5:38 pm

YoungBogle wrote:
Mon Jun 10, 2019 3:38 am
Playing devils advocate, I believe many BH’s would react more favorably to a portfolio review post of scenario B than scenario A even though they are quantitatively net equal IMO.
As you can surmise from the responses, you are correct. All debt is evil to a lot of commentators here if you read enough of these threads.

Another thing they don't "get" is that government issued student loans is not the same as other debt. The payments are not actually due if one loses one's job. They become deferred (paperwork involved) and interest accrues, but they aren't going to drive someone to bankruptcy or anything crazy other than delaying final repayment.

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Re: Is it bad to look at debt (student loans) like this?

Post by Lee_WSP » Wed Jun 12, 2019 5:41 pm

market timer wrote:
Tue Jun 11, 2019 7:31 pm
Due to the various Income Based Repayment options, I view loans as a tax on my income. I consider it unlikely that I'll ever pay off the entire balance, and have managed to avoid making a principal payment on most of my loans, in some cases for over 20 years.
College is no longer a guarantee of moving up the ladder. It’s more of a gamble and this way of thinking about them is more inline with the younger generations thinking.

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Re: Is it bad to look at debt (student loans) like this?

Post by retiredjg » Wed Jun 12, 2019 5:56 pm

YoungBogle wrote:
Mon Jun 10, 2019 3:38 am
Playing devils advocate, I believe many BH’s would react more favorably to a portfolio review post of scenario B than scenario A even though they are quantitatively net equal IMO.
Whether people would see this as more favorable is not relevant. If you report your income as ____and it is really ____, any answers you get will be unreliable because they are based on inaccurate/false information.

For people looking for help, tell us your real situation. Changing it in what seems like "harmless ways" can/will change the answers you get. Would you rather get accurate answers or look good to strangers on the internet?

If you are in a position to be embarrassed about your appearance on the internet, you are in a position that really needs help, not unreliable answers.

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Re: Is it bad to look at debt (student loans) like this?

Post by Horton » Fri Jun 14, 2019 4:17 pm

market timer wrote:
Tue Jun 11, 2019 7:31 pm
Due to the various Income Based Repayment options, I view loans as a tax on my income. I consider it unlikely that I'll ever pay off the entire balance, and have managed to avoid making a principal payment on most of my loans, in some cases for over 20 years.
Based on your other posts, it sounds like you have the means so why not pay them off?
"You must know that there is nothing higher and stronger and more wholesome and good for life in the future than some good memory, especially a memory of childhood, of home." - Dostoyevsky

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Re: Is it bad to look at debt (student loans) like this?

Post by market timer » Fri Jun 14, 2019 11:11 pm

Horton wrote:
Fri Jun 14, 2019 4:17 pm
market timer wrote:
Tue Jun 11, 2019 7:31 pm
Due to the various Income Based Repayment options, I view loans as a tax on my income. I consider it unlikely that I'll ever pay off the entire balance, and have managed to avoid making a principal payment on most of my loans, in some cases for over 20 years.
Based on your other posts, it sounds like you have the means so why not pay them off?
The interest rates are low and I expect most of the loans will be forgiven. Decent chance I retire in the next couple years.

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