Just abandoned PSLF for SoFi - how aggressively should I pay this off?

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ASpenderInRecovery
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Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by ASpenderInRecovery »

After getting some great advice here and running the numbers ourselves we decided to abandon PSLF and refinanced my wife's 84k in student loans from 5.875% at fed loans down to a 2.41% variable rate with SoFi. I'll be paying 40k off this month and attacking the remaining 44k throughout the remainder of the year.

Here is the original thread where I questioned leaving PSLF for everyone's context:
viewtopic.php?f=2&t=293500&p=5014509#p5014509

What are y'alls thoughts on how aggressively we should payoff the remaining 44k at 2.41%? Outside of our 30 yr fixed mortgage at 3.99% this is the only other debt we have. I could aggressively chunk 7-10k at it each month till it's paid in full but am unsure that's wise to pause dollar cost averaging into my brokerage when the rate is this low.

Thanks!
Uniballer
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by Uniballer »

I don't think I would put 40K towards a 2.41% loan if I had a 3.99% mortgage (unless your closing terms on the student loan refinance requires it).
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Tamarind
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by Tamarind »

At your income this amount is a bit of a blip. It's a very low rate, but I'd probably still finish it off in less than 2 years just to not have to think about it any more, if I were in your shoes. Presumably you will still be maxing out all tax deferred options and still able to contribute to taxable.

If you were in a different situation where you didn't have enough income to do everything at once, I would not pay extra on the lowest rate debt.
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ASpenderInRecovery
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by ASpenderInRecovery »

Uniballer wrote: Sun Feb 16, 2020 8:24 am I don't think I would put 40K towards a 2.41% loan if I had a 3.99% mortgage (unless your closing terms on the student loan refinance requires it).
Gotcha. The 40k was a big tax refund that largely came from switching from married filing separately to married filing jointly since we decided to abandon PSLF. Perhaps that shouldn’t affect where the money is going but I’ve earmarked it for paying down the loan. There are no closing terms requiring it on the refinance. We simply chose the fastest repayment option of 5 yrs but would like to cut it down and have it paid off in 1-2 years max.
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ASpenderInRecovery
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by ASpenderInRecovery »

Tamarind wrote: Sun Feb 16, 2020 8:26 am At your income this amount is a bit of a blip. It's a very low rate, but I'd probably still finish it off in less than 2 years just to not have to think about it any more, if I were in your shoes. Presumably you will still be maxing out all tax deferred options and still able to contribute to taxable.

If you were in a different situation where you didn't have enough income to do everything at once, I would not pay extra on the lowest rate debt.
Sounds good. Yea I’ve already maxed my 401k in Jan and we have my wife set to max both her 403b and 457 plans through the remainder of the year. So essentially I’m just deciding between paying down the loan aggressively or continuing to invest excess 7-10k monthly into a taxable brokerage. I suppose a third option as pointed out above would be paying more against my mortgage at 3.99%. I’m already paying an extra $500 towards principal each month so it could be worth upping that to an extra 1k per month.
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Tamarind
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by Tamarind »

ASpenderInRecovery wrote: Sun Feb 16, 2020 8:50 am
Tamarind wrote: Sun Feb 16, 2020 8:26 am At your income this amount is a bit of a blip. It's a very low rate, but I'd probably still finish it off in less than 2 years just to not have to think about it any more, if I were in your shoes. Presumably you will still be maxing out all tax deferred options and still able to contribute to taxable.

If you were in a different situation where you didn't have enough income to do everything at once, I would not pay extra on the lowest rate debt.
Sounds good. Yea I’ve already maxed my 401k in Jan and we have my wife set to max both her 403b and 457 plans through the remainder of the year. So essentially I’m just deciding between paying down the loan aggressively or continuing to invest excess 7-10k monthly into a taxable brokerage. I suppose a third option as pointed out above would be paying more against my mortgage at 3.99%. I’m already paying an extra $500 towards principal each month so it could be worth upping that to an extra 1k per month.
You really can do some of all of the above, ie 5k to taxable, $1k to mortgage, 1-4k to student loans. But if you have any additional tax-advantaged options (backdoor Roth? HSA?) I'd do those first before paying extra on any debts at these rates.
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by petulant »

The right answer depends on your emergency fund, budget, loan repayment term, and other factors. However, making some assumptions, I would venture a guess that the best action to take by the numbers would be to make the scheduled payments on both the refinanced student loan and mortgage, make sure you've got a very comfortable emergency fund, and then invest the rest in whatever available account(s) you have. I say "by the numbers" because the expected return on pretty much any account involving equity is going to beat the interest cost of that debt, but you do have the question of risk from stocks not performing, job loss, etc. Given your income from the original thread, though, I would strongly consider keeping the debt, not even putting the tax return in there, and just making scheduled payments.
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ASpenderInRecovery
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by ASpenderInRecovery »

Tamarind wrote: Sun Feb 16, 2020 9:02 am
ASpenderInRecovery wrote: Sun Feb 16, 2020 8:50 am
Tamarind wrote: Sun Feb 16, 2020 8:26 am At your income this amount is a bit of a blip. It's a very low rate, but I'd probably still finish it off in less than 2 years just to not have to think about it any more, if I were in your shoes. Presumably you will still be maxing out all tax deferred options and still able to contribute to taxable.

If you were in a different situation where you didn't have enough income to do everything at once, I would not pay extra on the lowest rate debt.
Sounds good. Yea I’ve already maxed my 401k in Jan and we have my wife set to max both her 403b and 457 plans through the remainder of the year. So essentially I’m just deciding between paying down the loan aggressively or continuing to invest excess 7-10k monthly into a taxable brokerage. I suppose a third option as pointed out above would be paying more against my mortgage at 3.99%. I’m already paying an extra $500 towards principal each month so it could be worth upping that to an extra 1k per month.
You really can do some of all of the above, ie 5k to taxable, $1k to mortgage, 1-4k to student loans. But if you have any additional tax-advantaged options (backdoor Roth? HSA?) I'd do those first before paying extra on any debts at these rates.
Thanks. Spreading the monthly excess into taxable, mortgage principal, loan payoff makes sense. Doesn’t need to be one or the other. Unfortunately I don’t currently have access to an HSA and have some work to do to get access to a backdoor roth.
ScaledWheel
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by ScaledWheel »

Wife and I are in a similar situation to you. We just refinanced through Sofi and now have around ~100k in student loans at a similar rate. The differences are that we have a gross income around 3/4 yours and are currently saving for a down payment in a HCOL area. We are waiting until the house is figured out before making additional payments.

If I were in your situation, I would pick a date where you want to have the loan paid off by and just make equal payments to pay it off at that date. Send the rest mostly towards brokerage. I would want to pay off the student loans just to have the only debt be mortgage, even if it isn't the most optimal way to allocate your savings.
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ASpenderInRecovery
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by ASpenderInRecovery »

petulant wrote: Sun Feb 16, 2020 9:07 am The right answer depends on your emergency fund, budget, loan repayment term, and other factors. However, making some assumptions, I would venture a guess that the best action to take by the numbers would be to make the scheduled payments on both the refinanced student loan and mortgage, make sure you've got a very comfortable emergency fund, and then invest the rest in whatever available account(s) you have. I say "by the numbers" because the expected return on pretty much any account involving equity is going to beat the interest cost of that debt, but you do have the question of risk from stocks not performing, job loss, etc. Given your income from the original thread, though, I would strongly consider keeping the debt, not even putting the tax return in there, and just making scheduled payments.
Good points. Without considering the 40k earmarked for loan repayment, we’ve got 11 months expenses in an emergency fund. Do you think that is comfortable or would you shoot for more?
Flora
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by Flora »

Have you considered amending any remaining open tax years to change from MFS to MFJ if that would generate additional substantial income tax refunds?
mega317
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by mega317 »

You're basically asking if it's wise to stop buying stocks in taxable for ~6 months. Since no one knows how prices in the next 6 months will compare to prices in the following 6 months when you'd be making up the difference, it is unanswerable.

If you can keep up with all your payments plus another 7k or more towards the loan, you would probably benefit from refinancing the mortgage. 15 years around 3% will almost certainly save you 6 figures depending on your house.
https://www.bogleheads.org/forum/viewtopic.php?t=6212
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by petulant »

ASpenderInRecovery wrote: Sun Feb 16, 2020 9:48 am
petulant wrote: Sun Feb 16, 2020 9:07 am The right answer depends on your emergency fund, budget, loan repayment term, and other factors. However, making some assumptions, I would venture a guess that the best action to take by the numbers would be to make the scheduled payments on both the refinanced student loan and mortgage, make sure you've got a very comfortable emergency fund, and then invest the rest in whatever available account(s) you have. I say "by the numbers" because the expected return on pretty much any account involving equity is going to beat the interest cost of that debt, but you do have the question of risk from stocks not performing, job loss, etc. Given your income from the original thread, though, I would strongly consider keeping the debt, not even putting the tax return in there, and just making scheduled payments.
Good points. Without considering the 40k earmarked for loan repayment, we’ve got 11 months expenses in an emergency fund. Do you think that is comfortable or would you shoot for more?
It's hard to answer definitively since A) I don't really believe in a pure "N months expense" gauge for an emergency fund and B) I don't know what all you included in your expense estimate, e.g. the new loan payments. If what you're saying is that you could meet all monthly expenses, including mortgage and the planned, scheduled payments on the student loans, for 11 months, you're probably fine.

FWIW, I developed my emergency fund based on being able to make household expenses for 6 months in the event of job loss with consideration for being able to meet deductibles on insurance for house or car emergencies or making other large, unplanned capital expenditures.

But, again, congrats on your great success. I think you'll probably turn out fine paying off debt quickly or slowly.
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by White Coat Investor »

ASpenderInRecovery wrote: Sun Feb 16, 2020 8:10 am After getting some great advice here and running the numbers ourselves we decided to abandon PSLF and refinanced my wife's 84k in student loans from 5.875% at fed loans down to a 2.41% variable rate with SoFi. I'll be paying 40k off this month and attacking the remaining 44k throughout the remainder of the year.

Here is the original thread where I questioned leaving PSLF for everyone's context:
viewtopic.php?f=2&t=293500&p=5014509#p5014509

What are y'alls thoughts on how aggressively we should payoff the remaining 44k at 2.41%? Outside of our 30 yr fixed mortgage at 3.99% this is the only other debt we have. I could aggressively chunk 7-10k at it each month till it's paid in full but am unsure that's wise to pause dollar cost averaging into my brokerage when the rate is this low.

Thanks!
I would max out available retirement accounts and everything else goes at the debt. But there is no right answer to this question.

While I totally get the math on borrowing at low interest rates in order to invest, the truth is if you have debt of any kind and you are spending anything more than a very base level of spending (rice and beans), you are essentially borrowing at the rate of your debt in order to fund your lifestyle. Going on a vacation this year? You're borrowing at 2.41% to do it. Eating out? 2.41%. A couple new pairs of jeans? Yup, that's on credit. If that doesn't feel right to you, then pay off the debt and enjoy your newfound freedom. Psychological? Perhaps. But honestly, despite the fact that borrowing at 2% and earning at 10% is a winning formula, I run into very, very few wealthy people who used that method in any significant way to build their wealth. More likely, having no debt allowed them to invest more aggressively, take more risks with their career and small business etc.

I'd be done with it by summer and if you regret it, you can go take out a HELOC to invest or something. Frankly, I'd probably start going after that mortgage before investing much in taxable too so long as at least 20% of my gross was going toward retirement already.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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ASpenderInRecovery
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by ASpenderInRecovery »

mega317 wrote: Sun Feb 16, 2020 10:23 am You're basically asking if it's wise to stop buying stocks in taxable for ~6 months. Since no one knows how prices in the next 6 months will compare to prices in the following 6 months when you'd be making up the difference, it is unanswerable.

If you can keep up with all your payments plus another 7k or more towards the loan, you would probably benefit from refinancing the mortgage. 15 years around 3% will almost certainly save you 6 figures depending on your house.
Refi of the mortgage is a definite consideration for me since I’m already paying extra. I’ve looked at some refi calculators and the breakeven point was about 4-5 years. Rates are pretty attractive right now.
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by ASpenderInRecovery »

White Coat Investor wrote: Sun Feb 16, 2020 11:28 am
ASpenderInRecovery wrote: Sun Feb 16, 2020 8:10 am After getting some great advice here and running the numbers ourselves we decided to abandon PSLF and refinanced my wife's 84k in student loans from 5.875% at fed loans down to a 2.41% variable rate with SoFi. I'll be paying 40k off this month and attacking the remaining 44k throughout the remainder of the year.

Here is the original thread where I questioned leaving PSLF for everyone's context:
viewtopic.php?f=2&t=293500&p=5014509#p5014509

What are y'alls thoughts on how aggressively we should payoff the remaining 44k at 2.41%? Outside of our 30 yr fixed mortgage at 3.99% this is the only other debt we have. I could aggressively chunk 7-10k at it each month till it's paid in full but am unsure that's wise to pause dollar cost averaging into my brokerage when the rate is this low.

Thanks!
I would max out available retirement accounts and everything else goes at the debt. But there is no right answer to this question.

While I totally get the math on borrowing at low interest rates in order to invest, the truth is if you have debt of any kind and you are spending anything more than a very base level of spending (rice and beans), you are essentially borrowing at the rate of your debt in order to fund your lifestyle. Going on a vacation this year? You're borrowing at 2.41% to do it. Eating out? 2.41%. A couple new pairs of jeans? Yup, that's on credit. If that doesn't feel right to you, then pay off the debt and enjoy your newfound freedom. Psychological? Perhaps. But honestly, despite the fact that borrowing at 2% and earning at 10% is a winning formula, I run into very, very few wealthy people who used that method in any significant way to build their wealth. More likely, having no debt allowed them to invest more aggressively, take more risks with their career and small business etc.

I'd be done with it by summer and if you regret it, you can go take out a HELOC to invest or something. Frankly, I'd probably start going after that mortgage before investing much in taxable too so long as at least 20% of my gross was going toward retirement already.
I totally get what you’re saying just thought I was maximizing the money by capturing the superior investment returns and borrowing at a lower rate. One thought is to payoff the entire 84k loan by borrowing 44k from my emergency fund which is only paying 1.6% and pay it back to myself over time. I’d still have 4+ months emergency fund leftover and be netting positive there just losing liquidity.
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by mhalley »

I think the limit for amending previous tax returns is 3 years. That should give you a fair amount in additional funds if you filed MFS for those years.
https://turbotax.intuit.com/tax-tips/ir ... /L5yYux3qL
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by White Coat Investor »

ASpenderInRecovery wrote: Sun Feb 16, 2020 12:04 pm
White Coat Investor wrote: Sun Feb 16, 2020 11:28 am
ASpenderInRecovery wrote: Sun Feb 16, 2020 8:10 am After getting some great advice here and running the numbers ourselves we decided to abandon PSLF and refinanced my wife's 84k in student loans from 5.875% at fed loans down to a 2.41% variable rate with SoFi. I'll be paying 40k off this month and attacking the remaining 44k throughout the remainder of the year.

Here is the original thread where I questioned leaving PSLF for everyone's context:
viewtopic.php?f=2&t=293500&p=5014509#p5014509

What are y'alls thoughts on how aggressively we should payoff the remaining 44k at 2.41%? Outside of our 30 yr fixed mortgage at 3.99% this is the only other debt we have. I could aggressively chunk 7-10k at it each month till it's paid in full but am unsure that's wise to pause dollar cost averaging into my brokerage when the rate is this low.

Thanks!
I would max out available retirement accounts and everything else goes at the debt. But there is no right answer to this question.

While I totally get the math on borrowing at low interest rates in order to invest, the truth is if you have debt of any kind and you are spending anything more than a very base level of spending (rice and beans), you are essentially borrowing at the rate of your debt in order to fund your lifestyle. Going on a vacation this year? You're borrowing at 2.41% to do it. Eating out? 2.41%. A couple new pairs of jeans? Yup, that's on credit. If that doesn't feel right to you, then pay off the debt and enjoy your newfound freedom. Psychological? Perhaps. But honestly, despite the fact that borrowing at 2% and earning at 10% is a winning formula, I run into very, very few wealthy people who used that method in any significant way to build their wealth. More likely, having no debt allowed them to invest more aggressively, take more risks with their career and small business etc.

I'd be done with it by summer and if you regret it, you can go take out a HELOC to invest or something. Frankly, I'd probably start going after that mortgage before investing much in taxable too so long as at least 20% of my gross was going toward retirement already.
I totally get what you’re saying just thought I was maximizing the money by capturing the superior investment returns and borrowing at a lower rate. One thought is to payoff the entire 84k loan by borrowing 44k from my emergency fund which is only paying 1.6% and pay it back to myself over time. I’d still have 4+ months emergency fund leftover and be netting positive there just losing liquidity.
Uhhhh....why do you have student loans still? Here you are arguing for borrowing at a low rate and investing at a high rate when in reality you are borrowing at a high rate and investing at a low rate. Take your cash, pay off your loans, and quit thinking about this. Remove it from your financial life. Simplify, simplify, simplify.

As far as the mortgage, find a "no-cost" 15 year fixed or even an ARM if you think you can pay it off in 5-7 years. It won't cost you a thing and it will probably lower your rate.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
mega317
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by mega317 »

White Coat Investor wrote: Sun Feb 16, 2020 11:28 am ...the truth is if you have debt of any kind and you are spending anything more than a very base level of spending (rice and beans), you are essentially borrowing at the rate of your debt in order to fund your lifestyle....
This is so obvious but I haven't read it in those terms before. Brilliant.
I must not read the blog enough.
https://www.bogleheads.org/forum/viewtopic.php?t=6212
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ASpenderInRecovery
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by ASpenderInRecovery »

White Coat Investor wrote: Sun Feb 16, 2020 12:12 pm
ASpenderInRecovery wrote: Sun Feb 16, 2020 12:04 pm
White Coat Investor wrote: Sun Feb 16, 2020 11:28 am
ASpenderInRecovery wrote: Sun Feb 16, 2020 8:10 am After getting some great advice here and running the numbers ourselves we decided to abandon PSLF and refinanced my wife's 84k in student loans from 5.875% at fed loans down to a 2.41% variable rate with SoFi. I'll be paying 40k off this month and attacking the remaining 44k throughout the remainder of the year.

Here is the original thread where I questioned leaving PSLF for everyone's context:
viewtopic.php?f=2&t=293500&p=5014509#p5014509

What are y'alls thoughts on how aggressively we should payoff the remaining 44k at 2.41%? Outside of our 30 yr fixed mortgage at 3.99% this is the only other debt we have. I could aggressively chunk 7-10k at it each month till it's paid in full but am unsure that's wise to pause dollar cost averaging into my brokerage when the rate is this low.

Thanks!
I would max out available retirement accounts and everything else goes at the debt. But there is no right answer to this question.

While I totally get the math on borrowing at low interest rates in order to invest, the truth is if you have debt of any kind and you are spending anything more than a very base level of spending (rice and beans), you are essentially borrowing at the rate of your debt in order to fund your lifestyle. Going on a vacation this year? You're borrowing at 2.41% to do it. Eating out? 2.41%. A couple new pairs of jeans? Yup, that's on credit. If that doesn't feel right to you, then pay off the debt and enjoy your newfound freedom. Psychological? Perhaps. But honestly, despite the fact that borrowing at 2% and earning at 10% is a winning formula, I run into very, very few wealthy people who used that method in any significant way to build their wealth. More likely, having no debt allowed them to invest more aggressively, take more risks with their career and small business etc.

I'd be done with it by summer and if you regret it, you can go take out a HELOC to invest or something. Frankly, I'd probably start going after that mortgage before investing much in taxable too so long as at least 20% of my gross was going toward retirement already.
I totally get what you’re saying just thought I was maximizing the money by capturing the superior investment returns and borrowing at a lower rate. One thought is to payoff the entire 84k loan by borrowing 44k from my emergency fund which is only paying 1.6% and pay it back to myself over time. I’d still have 4+ months emergency fund leftover and be netting positive there just losing liquidity.
Uhhhh....why do you have student loans still? Here you are arguing for borrowing at a low rate and investing at a high rate when in reality you are borrowing at a high rate and investing at a low rate. Take your cash, pay off your loans, and quit thinking about this. Remove it from your financial life. Simplify, simplify, simplify.

As far as the mortgage, find a "no-cost" 15 year fixed or even an ARM if you think you can pay it off in 5-7 years. It won't cost you a thing and it will probably lower your rate.
Thank you. This is why I come here. To have some sense slapped in to me.
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ASpenderInRecovery
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by ASpenderInRecovery »

mhalley wrote: Sun Feb 16, 2020 12:09 pm I think the limit for amending previous tax returns is 3 years. That should give you a fair amount in additional funds if you filed MFS for those years.
https://turbotax.intuit.com/tax-tips/ir ... /L5yYux3qL
This is very interesting and something I had not considered. Thank you!
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by TropikThunder »

Flora wrote: Sun Feb 16, 2020 10:11 am Have you considered amending any remaining open tax years to change from MFS to MFJ if that would generate additional substantial income tax refunds?
I would absolutely look at this (three year limit to go back and get a refund). To me it’s morally/ethically distasteful to have a lower loan payment based on MFS, go back and claiming the higher refund on an amended MFJ return, and then ask for PSLF. But in this scenario PSLF is not the goal anymore, so it’s a good idea. That, and I’m not aware of any legal opinions saying this tactic is actually prohibited (I don’t know if anyone who did this was far enough into the 10 year term to be asking for forgiveness now).
petulant
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by petulant »

White Coat Investor wrote: Sun Feb 16, 2020 12:12 pm
ASpenderInRecovery wrote: Sun Feb 16, 2020 12:04 pm
White Coat Investor wrote: Sun Feb 16, 2020 11:28 am
ASpenderInRecovery wrote: Sun Feb 16, 2020 8:10 am After getting some great advice here and running the numbers ourselves we decided to abandon PSLF and refinanced my wife's 84k in student loans from 5.875% at fed loans down to a 2.41% variable rate with SoFi. I'll be paying 40k off this month and attacking the remaining 44k throughout the remainder of the year.

Here is the original thread where I questioned leaving PSLF for everyone's context:
viewtopic.php?f=2&t=293500&p=5014509#p5014509

What are y'alls thoughts on how aggressively we should payoff the remaining 44k at 2.41%? Outside of our 30 yr fixed mortgage at 3.99% this is the only other debt we have. I could aggressively chunk 7-10k at it each month till it's paid in full but am unsure that's wise to pause dollar cost averaging into my brokerage when the rate is this low.

Thanks!
I would max out available retirement accounts and everything else goes at the debt. But there is no right answer to this question.

While I totally get the math on borrowing at low interest rates in order to invest, the truth is if you have debt of any kind and you are spending anything more than a very base level of spending (rice and beans), you are essentially borrowing at the rate of your debt in order to fund your lifestyle. Going on a vacation this year? You're borrowing at 2.41% to do it. Eating out? 2.41%. A couple new pairs of jeans? Yup, that's on credit. If that doesn't feel right to you, then pay off the debt and enjoy your newfound freedom. Psychological? Perhaps. But honestly, despite the fact that borrowing at 2% and earning at 10% is a winning formula, I run into very, very few wealthy people who used that method in any significant way to build their wealth. More likely, having no debt allowed them to invest more aggressively, take more risks with their career and small business etc.

I'd be done with it by summer and if you regret it, you can go take out a HELOC to invest or something. Frankly, I'd probably start going after that mortgage before investing much in taxable too so long as at least 20% of my gross was going toward retirement already.
I totally get what you’re saying just thought I was maximizing the money by capturing the superior investment returns and borrowing at a lower rate. One thought is to payoff the entire 84k loan by borrowing 44k from my emergency fund which is only paying 1.6% and pay it back to myself over time. I’d still have 4+ months emergency fund leftover and be netting positive there just losing liquidity.
Uhhhh....why do you have student loans still? Here you are arguing for borrowing at a low rate and investing at a high rate when in reality you are borrowing at a high rate and investing at a low rate. Take your cash, pay off your loans, and quit thinking about this. Remove it from your financial life. Simplify, simplify, simplify.

As far as the mortgage, find a "no-cost" 15 year fixed or even an ARM if you think you can pay it off in 5-7 years. It won't cost you a thing and it will probably lower your rate.
This first paragraph is literally not the case if he's borrowing at 2.5% and investing for 5% or more. I don't see how you can miss this.
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ASpenderInRecovery
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by ASpenderInRecovery »

Flora wrote: Sun Feb 16, 2020 10:11 am Have you considered amending any remaining open tax years to change from MFS to MFJ if that would generate additional substantial income tax refunds?
Good call on this. Looked into this and we are eligible to amend back to 2016 as long as we submit by April 15th. Thanks for pointing this out!
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by stoptothink »

petulant wrote: Sun Feb 16, 2020 2:22 pm
White Coat Investor wrote: Sun Feb 16, 2020 12:12 pm
ASpenderInRecovery wrote: Sun Feb 16, 2020 12:04 pm
White Coat Investor wrote: Sun Feb 16, 2020 11:28 am
ASpenderInRecovery wrote: Sun Feb 16, 2020 8:10 am After getting some great advice here and running the numbers ourselves we decided to abandon PSLF and refinanced my wife's 84k in student loans from 5.875% at fed loans down to a 2.41% variable rate with SoFi. I'll be paying 40k off this month and attacking the remaining 44k throughout the remainder of the year.

Here is the original thread where I questioned leaving PSLF for everyone's context:
viewtopic.php?f=2&t=293500&p=5014509#p5014509

What are y'alls thoughts on how aggressively we should payoff the remaining 44k at 2.41%? Outside of our 30 yr fixed mortgage at 3.99% this is the only other debt we have. I could aggressively chunk 7-10k at it each month till it's paid in full but am unsure that's wise to pause dollar cost averaging into my brokerage when the rate is this low.

Thanks!
I would max out available retirement accounts and everything else goes at the debt. But there is no right answer to this question.

While I totally get the math on borrowing at low interest rates in order to invest, the truth is if you have debt of any kind and you are spending anything more than a very base level of spending (rice and beans), you are essentially borrowing at the rate of your debt in order to fund your lifestyle. Going on a vacation this year? You're borrowing at 2.41% to do it. Eating out? 2.41%. A couple new pairs of jeans? Yup, that's on credit. If that doesn't feel right to you, then pay off the debt and enjoy your newfound freedom. Psychological? Perhaps. But honestly, despite the fact that borrowing at 2% and earning at 10% is a winning formula, I run into very, very few wealthy people who used that method in any significant way to build their wealth. More likely, having no debt allowed them to invest more aggressively, take more risks with their career and small business etc.

I'd be done with it by summer and if you regret it, you can go take out a HELOC to invest or something. Frankly, I'd probably start going after that mortgage before investing much in taxable too so long as at least 20% of my gross was going toward retirement already.
I totally get what you’re saying just thought I was maximizing the money by capturing the superior investment returns and borrowing at a lower rate. One thought is to payoff the entire 84k loan by borrowing 44k from my emergency fund which is only paying 1.6% and pay it back to myself over time. I’d still have 4+ months emergency fund leftover and be netting positive there just losing liquidity.
Uhhhh....why do you have student loans still? Here you are arguing for borrowing at a low rate and investing at a high rate when in reality you are borrowing at a high rate and investing at a low rate. Take your cash, pay off your loans, and quit thinking about this. Remove it from your financial life. Simplify, simplify, simplify.

As far as the mortgage, find a "no-cost" 15 year fixed or even an ARM if you think you can pay it off in 5-7 years. It won't cost you a thing and it will probably lower your rate.
This first paragraph is literally not the case if he's borrowing at 2.5% and investing for 5% or more. I don't see how you can miss this.
OP has (at least) $44k sitting in a HYS account earning 1.6%. Furthermore, there is definitely some risk in that assumption (5% or more).
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by petulant »

stoptothink wrote: Sun Feb 16, 2020 7:08 pm
petulant wrote: Sun Feb 16, 2020 2:22 pm
White Coat Investor wrote: Sun Feb 16, 2020 12:12 pm
ASpenderInRecovery wrote: Sun Feb 16, 2020 12:04 pm
White Coat Investor wrote: Sun Feb 16, 2020 11:28 am

I would max out available retirement accounts and everything else goes at the debt. But there is no right answer to this question.

While I totally get the math on borrowing at low interest rates in order to invest, the truth is if you have debt of any kind and you are spending anything more than a very base level of spending (rice and beans), you are essentially borrowing at the rate of your debt in order to fund your lifestyle. Going on a vacation this year? You're borrowing at 2.41% to do it. Eating out? 2.41%. A couple new pairs of jeans? Yup, that's on credit. If that doesn't feel right to you, then pay off the debt and enjoy your newfound freedom. Psychological? Perhaps. But honestly, despite the fact that borrowing at 2% and earning at 10% is a winning formula, I run into very, very few wealthy people who used that method in any significant way to build their wealth. More likely, having no debt allowed them to invest more aggressively, take more risks with their career and small business etc.

I'd be done with it by summer and if you regret it, you can go take out a HELOC to invest or something. Frankly, I'd probably start going after that mortgage before investing much in taxable too so long as at least 20% of my gross was going toward retirement already.
I totally get what you’re saying just thought I was maximizing the money by capturing the superior investment returns and borrowing at a lower rate. One thought is to payoff the entire 84k loan by borrowing 44k from my emergency fund which is only paying 1.6% and pay it back to myself over time. I’d still have 4+ months emergency fund leftover and be netting positive there just losing liquidity.
Uhhhh....why do you have student loans still? Here you are arguing for borrowing at a low rate and investing at a high rate when in reality you are borrowing at a high rate and investing at a low rate. Take your cash, pay off your loans, and quit thinking about this. Remove it from your financial life. Simplify, simplify, simplify.

As far as the mortgage, find a "no-cost" 15 year fixed or even an ARM if you think you can pay it off in 5-7 years. It won't cost you a thing and it will probably lower your rate.
This first paragraph is literally not the case if he's borrowing at 2.5% and investing for 5% or more. I don't see how you can miss this.
OP has (at least) $44k sitting in a HYS account earning 1.6%. Furthermore, there is definitely some risk in that assumption (5% or more).
It is exactly not okay to recommend paying down a debt, especially if that debt will not be paid off, with emergency money. The emergency money is there in case of a problem, like job loss. If OP lost his job and had spent the entire emergency fund to pay down the debt, the minimum required payments would still be due with no income. That is what the emergency fund is for. You are giving bad advice.
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by White Coat Investor »

petulant wrote: Sun Feb 16, 2020 8:40 pm
stoptothink wrote: Sun Feb 16, 2020 7:08 pm
petulant wrote: Sun Feb 16, 2020 2:22 pm
White Coat Investor wrote: Sun Feb 16, 2020 12:12 pm
ASpenderInRecovery wrote: Sun Feb 16, 2020 12:04 pm

I totally get what you’re saying just thought I was maximizing the money by capturing the superior investment returns and borrowing at a lower rate. One thought is to payoff the entire 84k loan by borrowing 44k from my emergency fund which is only paying 1.6% and pay it back to myself over time. I’d still have 4+ months emergency fund leftover and be netting positive there just losing liquidity.
Uhhhh....why do you have student loans still? Here you are arguing for borrowing at a low rate and investing at a high rate when in reality you are borrowing at a high rate and investing at a low rate. Take your cash, pay off your loans, and quit thinking about this. Remove it from your financial life. Simplify, simplify, simplify.

As far as the mortgage, find a "no-cost" 15 year fixed or even an ARM if you think you can pay it off in 5-7 years. It won't cost you a thing and it will probably lower your rate.
This first paragraph is literally not the case if he's borrowing at 2.5% and investing for 5% or more. I don't see how you can miss this.
OP has (at least) $44k sitting in a HYS account earning 1.6%. Furthermore, there is definitely some risk in that assumption (5% or more).
It is exactly not okay to recommend paying down a debt, especially if that debt will not be paid off, with emergency money. The emergency money is there in case of a problem, like job loss. If OP lost his job and had spent the entire emergency fund to pay down the debt, the minimum required payments would still be due with no income. That is what the emergency fund is for. You are giving bad advice.
I disagree. He states he will still have 4.5 months of emergency funds AFTER paying off his loans. That's more than enough, especially given the stability of his income.
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by Flora »

For curiosity sake, please post an update to let us know how much my idea saved you in amending your returns back to 2016.

Please do not wait until April 15 to file the amended 2016 return, that's cutting it close.

Also, send the amended returns by Certified Mail, Return Receipt for proof of timely filing.
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by ASpenderInRecovery »

Flora wrote: Mon Feb 17, 2020 2:20 am For curiosity sake, please post an update to let us know how much my idea saved you in amending your returns back to 2016.

Please do not wait until April 15 to file the amended 2016 return, that's cutting it close.

Also, send the amended returns by Certified Mail, Return Receipt for proof of timely filing.
Will do. I expect to file the amended returns by Friday.
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by petulant »

White Coat Investor wrote: Sun Feb 16, 2020 10:03 pm
petulant wrote: Sun Feb 16, 2020 8:40 pm
stoptothink wrote: Sun Feb 16, 2020 7:08 pm
petulant wrote: Sun Feb 16, 2020 2:22 pm
White Coat Investor wrote: Sun Feb 16, 2020 12:12 pm

Uhhhh....why do you have student loans still? Here you are arguing for borrowing at a low rate and investing at a high rate when in reality you are borrowing at a high rate and investing at a low rate. Take your cash, pay off your loans, and quit thinking about this. Remove it from your financial life. Simplify, simplify, simplify.

As far as the mortgage, find a "no-cost" 15 year fixed or even an ARM if you think you can pay it off in 5-7 years. It won't cost you a thing and it will probably lower your rate.
This first paragraph is literally not the case if he's borrowing at 2.5% and investing for 5% or more. I don't see how you can miss this.
OP has (at least) $44k sitting in a HYS account earning 1.6%. Furthermore, there is definitely some risk in that assumption (5% or more).
It is exactly not okay to recommend paying down a debt, especially if that debt will not be paid off, with emergency money. The emergency money is there in case of a problem, like job loss. If OP lost his job and had spent the entire emergency fund to pay down the debt, the minimum required payments would still be due with no income. That is what the emergency fund is for. You are giving bad advice.
I disagree. He states he will still have 4.5 months of emergency funds AFTER paying off his loans. That's more than enough, especially given the stability of his income.
That's a question about the construction of his emergency fund. I agree with you that OP should have a reasonable emergency fund then put any left over toward a different use. He frankly has not provided enough information to definitively say that, like what his budget is. For example, he previously asked about emergency funds and said he had 11 months saved, but he did not say whether his estimate of a month's expenses includes these debt payments (anywhere that I saw).

That's a different issue from whether he could invest better outside the debt, though. Once anything extra in the EF is freed up and available for use, there is still a question about what the best use is. This is a risk-reward question. By the numbers, he could invest that extra money in a higher-yield portfolio primarily centered on equities and expect a better yield than paying down the 2.41% debt more aggressively. However, any higher yield comes with more risk, and the ultimate outcome for OP is unlikely to be materially affected whether he invests first or pays down first. So it's completely reasonable to pay off the debt first. It's just not the case that OP is automatically better off paying down the debt.
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by White Coat Investor »

petulant wrote: Mon Feb 17, 2020 7:59 am
White Coat Investor wrote: Sun Feb 16, 2020 10:03 pm
petulant wrote: Sun Feb 16, 2020 8:40 pm
stoptothink wrote: Sun Feb 16, 2020 7:08 pm
petulant wrote: Sun Feb 16, 2020 2:22 pm

This first paragraph is literally not the case if he's borrowing at 2.5% and investing for 5% or more. I don't see how you can miss this.
OP has (at least) $44k sitting in a HYS account earning 1.6%. Furthermore, there is definitely some risk in that assumption (5% or more).
It is exactly not okay to recommend paying down a debt, especially if that debt will not be paid off, with emergency money. The emergency money is there in case of a problem, like job loss. If OP lost his job and had spent the entire emergency fund to pay down the debt, the minimum required payments would still be due with no income. That is what the emergency fund is for. You are giving bad advice.
I disagree. He states he will still have 4.5 months of emergency funds AFTER paying off his loans. That's more than enough, especially given the stability of his income.
That's a question about the construction of his emergency fund. I agree with you that OP should have a reasonable emergency fund then put any left over toward a different use. He frankly has not provided enough information to definitively say that, like what his budget is. For example, he previously asked about emergency funds and said he had 11 months saved, but he did not say whether his estimate of a month's expenses includes these debt payments (anywhere that I saw).

That's a different issue from whether he could invest better outside the debt, though. Once anything extra in the EF is freed up and available for use, there is still a question about what the best use is. This is a risk-reward question. By the numbers, he could invest that extra money in a higher-yield portfolio primarily centered on equities and expect a better yield than paying down the 2.41% debt more aggressively. However, any higher yield comes with more risk, and the ultimate outcome for OP is unlikely to be materially affected whether he invests first or pays down first. So it's completely reasonable to pay off the debt first. It's just not the case that OP is automatically better off paying down the debt.
That word doesn't mean what you think it means. Yield does not equal return. In fact, I'd argue that investing in equities is likely to provide a LOWER yield than paying off a 2.4% debt. And you're ignoring risk. At any rate, either option is better than what he is doing now which is paying interest at 2.4% after-tax and earning interest at 1.6% pre-tax.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by petulant »

White Coat Investor wrote: Mon Feb 17, 2020 10:17 am
petulant wrote: Mon Feb 17, 2020 7:59 am
White Coat Investor wrote: Sun Feb 16, 2020 10:03 pm
petulant wrote: Sun Feb 16, 2020 8:40 pm
stoptothink wrote: Sun Feb 16, 2020 7:08 pm

OP has (at least) $44k sitting in a HYS account earning 1.6%. Furthermore, there is definitely some risk in that assumption (5% or more).
It is exactly not okay to recommend paying down a debt, especially if that debt will not be paid off, with emergency money. The emergency money is there in case of a problem, like job loss. If OP lost his job and had spent the entire emergency fund to pay down the debt, the minimum required payments would still be due with no income. That is what the emergency fund is for. You are giving bad advice.
I disagree. He states he will still have 4.5 months of emergency funds AFTER paying off his loans. That's more than enough, especially given the stability of his income.
That's a question about the construction of his emergency fund. I agree with you that OP should have a reasonable emergency fund then put any left over toward a different use. He frankly has not provided enough information to definitively say that, like what his budget is. For example, he previously asked about emergency funds and said he had 11 months saved, but he did not say whether his estimate of a month's expenses includes these debt payments (anywhere that I saw).

That's a different issue from whether he could invest better outside the debt, though. Once anything extra in the EF is freed up and available for use, there is still a question about what the best use is. This is a risk-reward question. By the numbers, he could invest that extra money in a higher-yield portfolio primarily centered on equities and expect a better yield than paying down the 2.41% debt more aggressively. However, any higher yield comes with more risk, and the ultimate outcome for OP is unlikely to be materially affected whether he invests first or pays down first. So it's completely reasonable to pay off the debt first. It's just not the case that OP is automatically better off paying down the debt.
That word doesn't mean what you think it means. Yield does not equal return. In fact, I'd argue that investing in equities is likely to provide a LOWER yield than paying off a 2.4% debt. And you're ignoring risk. At any rate, either option is better than what he is doing now which is paying interest at 2.4% after-tax and earning interest at 1.6% pre-tax.
Sorry, WCI, I respect you a lot, but at this point you're not even reading what I'm writing. I literally said that it's possible to get a higher yield than 2.41% with more risk, meaning it's about a risk-reward tradeoff, not a straight numbers issue. So how am I ignoring risk? And obviously I am using yield colloquially to mean return.

In one thread you appear to have gone from "there is no one right answer to this question" to "there is absolutely a right answer to this question." I don't get it.
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by hightower »

This is a very relevant thread for me right now. I have a mortgage of 404k at 3.85% for 30 years and a 62k student loan of 2.6%. No other debt. We make around 300k a year. We just sold our house last month and we still have over 100k cash sitting in our bank right now, unsure if we should invest or just pay off debt. I already did invest a decent chunk of the original proceeds from the house. I maxed out both our Roths already, maxed out our HSA for the year, placed a lump sum in my daughters 529, purchased about 25k of stocks/bonds in taxable. We also paid for a solar system on our house. But we still have another 100k left.

I get conflicting advice all the time. My brother in law (the finance guy in our family) has convinced my wife it would be stupid to pay off the student loan. Yet, I read threads like this often where people say to just simplify your finances and get rid of it. Further, some people tell me to keep the student loan and pay down the mortgage, then ask for a recast to reduce my monthly payments.

I'm kind of leaning towards what WCI is recommending and getting rid of the student loan. Why? Because right now my wife and I are finding ourselves tempted to do other things with the money like get a new car, remodel the kitchen, etc. We are technically funding our lifestyle with debt. I can't argue that. I guess it just hurts a little to sign over so much cash to Navient, haha.
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by mega317 »

hightower wrote: Mon Feb 17, 2020 10:41 am I get conflicting advice all the time.
And as you can see by this thread, other threads, and your internal conflict there is no right answer. Everyone has different situations and feelings, risk tolerance, etc.

This differs from things like credit card debt and getting the 401k match which in most cases there is a right and wrong answer.
https://www.bogleheads.org/forum/viewtopic.php?t=6212
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by White Coat Investor »

petulant wrote: Mon Feb 17, 2020 10:27 am
White Coat Investor wrote: Mon Feb 17, 2020 10:17 am
petulant wrote: Mon Feb 17, 2020 7:59 am
White Coat Investor wrote: Sun Feb 16, 2020 10:03 pm
petulant wrote: Sun Feb 16, 2020 8:40 pm

It is exactly not okay to recommend paying down a debt, especially if that debt will not be paid off, with emergency money. The emergency money is there in case of a problem, like job loss. If OP lost his job and had spent the entire emergency fund to pay down the debt, the minimum required payments would still be due with no income. That is what the emergency fund is for. You are giving bad advice.
I disagree. He states he will still have 4.5 months of emergency funds AFTER paying off his loans. That's more than enough, especially given the stability of his income.
That's a question about the construction of his emergency fund. I agree with you that OP should have a reasonable emergency fund then put any left over toward a different use. He frankly has not provided enough information to definitively say that, like what his budget is. For example, he previously asked about emergency funds and said he had 11 months saved, but he did not say whether his estimate of a month's expenses includes these debt payments (anywhere that I saw).

That's a different issue from whether he could invest better outside the debt, though. Once anything extra in the EF is freed up and available for use, there is still a question about what the best use is. This is a risk-reward question. By the numbers, he could invest that extra money in a higher-yield portfolio primarily centered on equities and expect a better yield than paying down the 2.41% debt more aggressively. However, any higher yield comes with more risk, and the ultimate outcome for OP is unlikely to be materially affected whether he invests first or pays down first. So it's completely reasonable to pay off the debt first. It's just not the case that OP is automatically better off paying down the debt.
That word doesn't mean what you think it means. Yield does not equal return. In fact, I'd argue that investing in equities is likely to provide a LOWER yield than paying off a 2.4% debt. And you're ignoring risk. At any rate, either option is better than what he is doing now which is paying interest at 2.4% after-tax and earning interest at 1.6% pre-tax.
Sorry, WCI, I respect you a lot, but at this point you're not even reading what I'm writing. I literally said that it's possible to get a higher yield than 2.41% with more risk, meaning it's about a risk-reward tradeoff, not a straight numbers issue. So how am I ignoring risk? And obviously I am using yield colloquially to mean return.

In one thread you appear to have gone from "there is no one right answer to this question" to "there is absolutely a right answer to this question." I don't get it.
Maybe it's confusing to you because we're apparently using the word "yield" differently. Just because other people use it incorrectly doesn't mean that you and I, who actually know what it means, should use it that way. Until we agree on what the words mean, it's hard to have a meaningful conversation.

I agree with you that the return on stocks going forward over the long run is likely to be higher than 2.41%. Thus, it is reasonable to sit on debt and invest, assuming you actually invest. If you're like most of us, and spend at least some of that money instead of investing it, it is reasonable to pay off the debt, despite its low interest rate. Math vs Behavior.

But whether he has 4 months of expenses or 11 months of expenses saved in cash, he is clearly making a mistake. He should EITHER invest that money OR use it to pay off his debts. We can argue all day about which of those two is better, but either is better than what he is doing now.
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by petulant »

White Coat Investor wrote: Mon Feb 17, 2020 11:35 am
petulant wrote: Mon Feb 17, 2020 10:27 am
White Coat Investor wrote: Mon Feb 17, 2020 10:17 am
petulant wrote: Mon Feb 17, 2020 7:59 am
White Coat Investor wrote: Sun Feb 16, 2020 10:03 pm

I disagree. He states he will still have 4.5 months of emergency funds AFTER paying off his loans. That's more than enough, especially given the stability of his income.
That's a question about the construction of his emergency fund. I agree with you that OP should have a reasonable emergency fund then put any left over toward a different use. He frankly has not provided enough information to definitively say that, like what his budget is. For example, he previously asked about emergency funds and said he had 11 months saved, but he did not say whether his estimate of a month's expenses includes these debt payments (anywhere that I saw).

That's a different issue from whether he could invest better outside the debt, though. Once anything extra in the EF is freed up and available for use, there is still a question about what the best use is. This is a risk-reward question. By the numbers, he could invest that extra money in a higher-yield portfolio primarily centered on equities and expect a better yield than paying down the 2.41% debt more aggressively. However, any higher yield comes with more risk, and the ultimate outcome for OP is unlikely to be materially affected whether he invests first or pays down first. So it's completely reasonable to pay off the debt first. It's just not the case that OP is automatically better off paying down the debt.
That word doesn't mean what you think it means. Yield does not equal return. In fact, I'd argue that investing in equities is likely to provide a LOWER yield than paying off a 2.4% debt. And you're ignoring risk. At any rate, either option is better than what he is doing now which is paying interest at 2.4% after-tax and earning interest at 1.6% pre-tax.
Sorry, WCI, I respect you a lot, but at this point you're not even reading what I'm writing. I literally said that it's possible to get a higher yield than 2.41% with more risk, meaning it's about a risk-reward tradeoff, not a straight numbers issue. So how am I ignoring risk? And obviously I am using yield colloquially to mean return.

In one thread you appear to have gone from "there is no one right answer to this question" to "there is absolutely a right answer to this question." I don't get it.
Maybe it's confusing to you because we're apparently using the word "yield" differently. Just because other people use it incorrectly doesn't mean that you and I, who actually know what it means, should use it that way. Until we agree on what the words mean, it's hard to have a meaningful conversation.

I agree with you that the return on stocks going forward over the long run is likely to be higher than 2.41%. Thus, it is reasonable to sit on debt and invest, assuming you actually invest. If you're like most of us, and spend at least some of that money instead of investing it, it is reasonable to pay off the debt, despite its low interest rate. Math vs Behavior.

But whether he has 4 months of expenses or 11 months of expenses saved in cash, he is clearly making a mistake. He should EITHER invest that money OR use it to pay off his debts. We can argue all day about which of those two is better, but either is better than what he is doing now.
Well, we agree that OP does need to make sure he's only got a reasonable emergency fund, then use the rest for a better return, whether paying down debt or investing.
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by White Coat Investor »

petulant wrote: Mon Feb 17, 2020 11:41 am

Well, we agree that OP does need to make sure he's only got a reasonable emergency fund, then use the rest for a better return, whether paying down debt or investing.
Okay, now that we have that straight, let's talk about our disagreement.

I'm going to challenge you the same way I do every one who advocates this idea of carrying around low interest rate student loans or a low interest rate mortgage in order to invest.

Did it work for you? I mean, was this a major reason for your financial success? Did you become financially independent much sooner because you did this? Are you now a multi-millionaire because you delayed paying off your mortgage?

I keep asking people this and almost never does the person answer in the affirmative. It never seems to be a major factor. The major factors always seem to be:

1) Increasing income
2) Boosting savings rate
3) Sticking with a reasonable investing plan for years

And in fact a large percentage of these financially successful folks admit (and even feel guilty about) that they paid off debt knowing they could probably earn a higher return elsewhere.

Thus, I'm left to conclude that most financially successful people don't do what you're advocating they do. Sure, if they're investing in real estate they often use some leverage. But it's usually 50-66%, not 90% and they're sending most of the income from their properties toward the mortgage. And sure, they made sure they maxed out their retirement accounts before paying off their low interest rate debt. But mostly, I've found really rich people tend to be pretty debt averse. The same mindset that led them to save and invest also led them to pay off their debts rapidly.

But it seems like every time I run into someone advocating your favored strategy, they've only got a million dollars in assets and they've got 700K in debts and they somehow think managing those debts properly is going to be the secret to their success. That is to say that despite the strong mathematical argument you make, nobody actually gets rich that way. I'm not innocent by any means. I once funded our Roth IRAs using a 0% credit card loan and we drug out our mortgage 2 years longer than we had to in order to invest. But those moves just didn't move the needle. The money we earned doing that can't possibly be even 1% of our net worth.

Now I know your n is only 1, but I'm curious if your strategy made you rich or not. Do you really think this was a major factor in reaching your financial goals?
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by petulant »

White Coat Investor wrote: Mon Feb 17, 2020 12:06 pm
petulant wrote: Mon Feb 17, 2020 11:41 am

Well, we agree that OP does need to make sure he's only got a reasonable emergency fund, then use the rest for a better return, whether paying down debt or investing.
Okay, now that we have that straight, let's talk about our disagreement.

I'm going to challenge you the same way I do every one who advocates this idea of carrying around low interest rate student loans or a low interest rate mortgage in order to invest.

Did it work for you? I mean, was this a major reason for your financial success? Did you become financially independent much sooner because you did this? Are you now a multi-millionaire because you delayed paying off your mortgage?

I keep asking people this and almost never does the person answer in the affirmative. It never seems to be a major factor. The major factors always seem to be:

1) Increasing income
2) Boosting savings rate
3) Sticking with a reasonable investing plan for years

And in fact a large percentage of these financially successful folks admit (and even feel guilty about) that they paid off debt knowing they could probably earn a higher return elsewhere.

Thus, I'm left to conclude that most financially successful people don't do what you're advocating they do. Sure, if they're investing in real estate they often use some leverage. But it's usually 50-66%, not 90% and they're sending most of the income from their properties toward the mortgage. And sure, they made sure they maxed out their retirement accounts before paying off their low interest rate debt. But mostly, I've found really rich people tend to be pretty debt averse. The same mindset that led them to save and invest also led them to pay off their debts rapidly.

But it seems like every time I run into someone advocating your favored strategy, they've only got a million dollars in assets and they've got 700K in debts and they somehow think managing those debts properly is going to be the secret to their success. That is to say that despite the strong mathematical argument you make, nobody actually gets rich that way. I'm not innocent by any means. I once funded our Roth IRAs using a 0% credit card loan and we drug out our mortgage 2 years longer than we had to in order to invest. But those moves just didn't move the needle. The money we earned doing that can't possibly be even 1% of our net worth.

Now I know your n is only 1, but I'm curious if your strategy made you rich or not. Do you really think this was a major factor in reaching your financial goals?
Look, I still feel like you haven't actually read the things I've written in this thread. I actually agree with this point and already made it earlier. See quote, except I changed the word "yield" to "return" to avoid triggering you again:
petulant wrote:That's a different issue from whether he could invest better outside the debt, though. Once anything extra in the EF is freed up and available for use, there is still a question about what the best use is. This is a risk-reward question. By the numbers, he could invest that extra money in a higher-return portfolio primarily centered on equities and expect a better return than paying down the 2.41% debt more aggressively. However, any higher return comes with more risk, and the ultimate outcome for OP is unlikely to be materially affected whether he invests first or pays down first. So it's completely reasonable to pay off the debt first. It's just not the case that OP is automatically better off paying down the debt.
So, yes, OP is probably fine either way, and it's an issue of risk-reward and preference. At other times I have advocated that people pay down debt first. In OP's case I am not advocating doing so because of OP's high income and the particularly low interest rate at issue here. OP has borrowed at a rate better than most large corporations.

In my own case, yes, I have permanently made my family better off by carefully managing debt at low interest rates. I have specifically held a combination of zero-APR and 3% APR loans to take advantage of tax-related strategies that saved thousands of dollars, including lumping charitable donations for tax year 2019 and making IRA contributions that saved not only taxes but also REPAYE-imposed 10% amounts. I reduced the risk of these debts by ensuring we continued to maintain an adequate emergency fund and income coverage over the next year, among other measures. If I have opportunities in the future to borrow at low rates and invest the rest, I will study them carefully and act according to my entire situation and the opportunities available to me.
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by White Coat Investor »

petulant wrote: Mon Feb 17, 2020 12:38 pm

In my own case, yes, I have permanently made my family better off by carefully managing debt at low interest rates. I have specifically held a combination of zero-APR and 3% APR loans to take advantage of tax-related strategies that saved thousands of dollars, including lumping charitable donations for tax year 2019 and making IRA contributions that saved not only taxes but also REPAYE-imposed 10% amounts. I reduced the risk of these debts by ensuring we continued to maintain an adequate emergency fund and income coverage over the next year, among other measures. If I have opportunities in the future to borrow at low rates and invest the rest, I will study them carefully and act according to my entire situation and the opportunities available to me.
You didn't answer the question. Better off could be 10 cents better off. Even a few thousand bucks here and there doesn't make much difference for those with large student loans.I asked if you got rich because you did this and you're avoiding the question. I'm saying that I got rich and these sorts of games didn't have anything to do with it. Maybe they even held me back.

What I'm saying is that people who actually reach their reasonable financial goals stop caring about stuff like this because it's trivial. It's like credit card points. Yes, you're technically, mathematically better off running your expenses through a credit card but it isn't going to help much and it may lead you to buy more than you otherwise would actually setting you back.

But there are other benefits to paying off even low interest rate debt. For instance, if you have no debt you have a lower monthly required spend so you can now have less money in your emergency fund and invest the difference. Your improved cash flow also gives you more to invest every month. Maybe you can handle a more aggressive asset allocation. Maybe you feel better about quitting your job and going into business for yourself and end up making a lot more money. Or asking for a raise. Or changing jobs. Or perhaps cutting back at work and going on the parent track. It's just not a simple weighing of interest rates against potential returns. There is a lot more to it. It's not just "a psychological crutch" to pay off debt.

Go ask a bunch of people who got rich how they did it. I'll bet none of them say they did it by dragging out their student loans, scoring bonuses from moving assets from one brokerage to another, getting credit card points, or the myriad of other "tricks" out there in the personal finance space.

Go ask people who paid off their debt if they regret it. Good luck finding any takers. There's probably a reason for that and it isn't that they're all nuts.
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by petulant »

White Coat Investor wrote: Mon Feb 17, 2020 12:48 pm
petulant wrote: Mon Feb 17, 2020 12:38 pm

In my own case, yes, I have permanently made my family better off by carefully managing debt at low interest rates. I have specifically held a combination of zero-APR and 3% APR loans to take advantage of tax-related strategies that saved thousands of dollars, including lumping charitable donations for tax year 2019 and making IRA contributions that saved not only taxes but also REPAYE-imposed 10% amounts. I reduced the risk of these debts by ensuring we continued to maintain an adequate emergency fund and income coverage over the next year, among other measures. If I have opportunities in the future to borrow at low rates and invest the rest, I will study them carefully and act according to my entire situation and the opportunities available to me.
You didn't answer the question. Better off could be 10 cents better off. Even a few thousand bucks here and there doesn't make much difference for those with large student loans.I asked if you got rich because you did this and you're avoiding the question. I'm saying that I got rich and these sorts of games didn't have anything to do with it. Maybe they even held me back.

What I'm saying is that people who actually reach their reasonable financial goals stop caring about stuff like this because it's trivial. It's like credit card points. Yes, you're technically, mathematically better off running your expenses through a credit card but it isn't going to help much and it may lead you to buy more than you otherwise would actually setting you back.

But there are other benefits to paying off even low interest rate debt. For instance, if you have no debt you have a lower monthly required spend so you can now have less money in your emergency fund and invest the difference. Your improved cash flow also gives you more to invest every month. Maybe you can handle a more aggressive asset allocation. Maybe you feel better about quitting your job and going into business for yourself and end up making a lot more money. Or asking for a raise. Or changing jobs. Or perhaps cutting back at work and going on the parent track. It's just not a simple weighing of interest rates against potential returns. There is a lot more to it. It's not just "a psychological crutch" to pay off debt.

Go ask a bunch of people who got rich how they did it. I'll bet none of them say they did it by dragging out their student loans, scoring bonuses from moving assets from one brokerage to another, getting credit card points, or the myriad of other "tricks" out there in the personal finance space.

Go ask people who paid off their debt if they regret it. Good luck finding any takers. There's probably a reason for that and it isn't that they're all nuts.
WCI, I'm not avoiding the question at all. I said I got better off by thousands of dollars, which is a lot for my non-physician household. For the actions taken in 2019, I likely generated value around 5% of my AGI. But I am still in my 20s, so it is impossible for me to have gotten eye-popping rich by either labor or normal capital returns, since even managing debt smartly isn't going to do more than add several thousand dollars or a few percentage points here and there. Thousands of dollars probably doesn't sound like much to you because of your background income level.

I didn't sit here and say people are going to get rich off of any of the things you're talking about. You are projecting onto me some kind of weird poster child of gimmicks that I have not advocated for on BH. I didn't say your recommendation was a psychological crutch to pay off debt; I actually said I've advocated for others to do it. I didn't say anybody was nuts; I actually said your recommendation was entirely reasonable, that it was a preference issue, and it had to do with risk-reward tradeoffs.

This is frankly the strangest experience I have ever had in an exchange on BH.
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by White Coat Investor »

petulant wrote: Mon Feb 17, 2020 12:58 pm I am still in my 20s, so it is impossible for me to have gotten eye-popping rich by either labor or normal capital returns, since even managing debt smartly isn't going to do more than add several thousand dollars or a few percentage points here and there.
I rest my case. Let me know if you still feel the same way about debt in a decade or two. My point was that every time I hear someone advocating this strategy they're 25 and not rich yet. I never hear 60 year old multimillionaires advocating for it. I think there's a lesson there. The older I get, the dumber of an idea it seems to me.
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by ASpenderInRecovery »

Flora wrote: Mon Feb 17, 2020 2:20 am For curiosity sake, please post an update to let us know how much my idea saved you in amending your returns back to 2016.

Please do not wait until April 15 to file the amended 2016 return, that's cutting it close.

Also, send the amended returns by Certified Mail, Return Receipt for proof of timely filing.
OP Here and back with an incredible update. Your idea of amending our tax returns back to 2016 saved me just over $23k! This site/community has been and continues to be a wealth of wisdom and a massive help to my financial well being. By taking the advice offered here, abandoning PSLF, changing our filing status, we will be able to payoff the student loans within a couple of months and won't have to dip into our emergency fund. Remaining in PSLF for the possibility of getting 85k forgiven after 10 years would have cost us 63k in taxes in 4 years alone.

Thank you all for your advice.
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by hightower »

This thread inspired me to pay off my last student loan. I just sent $62k to Navient this past week. Feels good. Now we are chipping away at our mortgage too. We're on a roll.
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by ASpenderInRecovery »

hightower wrote: Sun Feb 23, 2020 3:01 pm This thread inspired me to pay off my last student loan. I just sent $62k to Navient this past week. Feels good. Now we are chipping away at our mortgage too. We're on a roll.
That’s great! I look forward to joining you and putting this student debt behind us.
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by Flora »

I'm glad that my idea will result in an additional $23k plus in refunds! You are welcome!

Now please keep in mind that any state refunds may be taxable in the year received (presumably 2020) if you originally received a tax benefit on your federal return for the years deducted and paid (Did you itemize your deductions? Were you in AMT?).

Flora, CPA
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Re: Just abandoned PSLF for SoFi - how aggressively should I pay this off?

Post by ASpenderInRecovery »

Flora wrote: Sun Feb 23, 2020 11:11 pm I'm glad that my idea will result in an additional $23k plus in refunds! You are welcome!

Now please keep in mind that any state refunds may be taxable in the year received (presumably 2020) if you originally received a tax benefit on your federal return for the years deducted and paid (Did you itemize your deductions? Were you in AMT?).

Flora, CPA
Yes thank you very much! Folks like you are what make this community great. This is a big chunk of unexpected money that will be a big help in paying off the student loan.

Fortunately I’ve never had a sizable state return and ended up owing the state money for one of the years. We submitted the amended returns separately by mail on Friday as I understand that is the only way they are accepted.
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