Throwaway account -
Hi - I'm looking for some 3rd party advice regarding which strategy to take in tackling my federal student loans. I'm trying to figure out whether or not it's worth it to allocate a 30k lump sum payment towards my balance at the end of September 2021 or if I should use that money for other investments while continuing to make minimum payments for 20 more years and then receive REPAYE based forgiveness. Any help is appreciated.
Context: I'm 31 years old with 95k in Graduate level federal loans currently in IBR REPAYE. I've made minimum payments since Jan 2017, so I have 20 more years of minimum payments until I am forgiven. The loans are roughly as follows:
13k @ 6.69%
24k @ 6.69%
13k @ 6.59%
22k @ 5.96%
22k @ 5.59%
Option 1: Make a 30k lump sum payment at the end of September 2021 and reduce my principial balance to ~65k. Once I do this, I can continue to make 500/month payments and will be beating the accruing interest. At the rate of 500/month I will pay off the loans by 2038. Over the next 20-ish years this strategy will cost me around 130k in total.
Option 2: At 500/month I will match the interest accruing on the account and the balance will not increase. Therefore over the next 20 years the 500/month payments will amount to around 120k. At that point the 95k balance will be forgiven as income on my tax return resulting in a roughly 47k tax bomb. Therefore, over the next 20-ish years this strategy will cost me around 170k in total.
20 years is a pretty long investment timeline and I'm having second thoughts about pursuing option 1 when I could throw that 30k into VOO style ETF investments instead. By using strategy 2, I'm assuming that A. my investments will negate the adverse effects of the tax bomb, B. my earning potential and net worth will have increased to a position in which 47k added to my income tax won't be a HUGE deal. I know it's riskier and not guaranteed, but it doesn't seem totally unreasonable. Can anyone help me think through this? Curious to hear your thoughts and thanks for the help.
Submitted July 31, 2021 at 07:58AM by Double-Ad-6735 https://ift.tt/3fbxXv1
