Wife 330K in student loan debt

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omega53243

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My wife and I just got married a few months back and therefore I inherited her 330K in student loan debt. She recently graduated from dental school so our plan is to live off my salary and focus on paying the loans down as fast as possible with her salary. My question is should i take out a TSP loan for the max allowable which currently for me is 22K to pay off her loans? Her average interest rate is around 7% and it just sickens me to be paying at such a high rate. I also have contemplated taking out a home equity loan for about 60K to also supplement the payoff. I have combed through the site and also tsp.gov to exactly figure out what happens when i take a loan out but it still seems confusing to me. If i do take a loan i understand my wages will be garnished until the loan is repayed but does that also freeze my TSP matching government contributions and bar me from contributing to TSP while my loan is paid off? Right now I only contribute the minimum requred to get all the agency matching benefits of TSP. If i can still do that while having a loan I think this would be a great idea to pay off debt at 7% with a 1.35% interest loan. i dont see the market doing better than 7% right now.
 
omega53243 said:
My wife and I just got married a few months back and therefore I inherited her 330K in student loan debt. She recently graduated from dental school so our plan is to live off my salary and focus on paying the loans down as fast as possible with her salary. My question is should i take out a TSP loan for the max allowable which currently for me is 22K to pay off her loans? Her average interest rate is around 7% and it just sickens me to be paying at such a high rate. I also have contemplated taking out a home equity loan for about 60K to also supplement the payoff. I have combed through the site and also tsp.gov to exactly figure out what happens when i take a loan out but it still seems confusing to me. If i do take a loan i understand my wages will be garnished until the loan is repayed but does that also freeze my TSP matching government contributions and bar me from contributing to TSP while my loan is paid off? Right now I only contribute the minimum requred to get all the agency matching benefits of TSP. If i can still do that while having a loan I think this would be a great idea to pay off debt at 7% with a 1.35% interest loan. i dont see the market doing better than 7% right now.
Click to expand...

First, I highly recommend against a loan to payoff a loan...that money working for you is working for you... That being said:
*Always sit down and budget! After that, you will determine the following:

1. If you take a loan it is treated as an allotment. The terms are on their web-site.
2. You do not lose matching on the current contributions. But I recommend getting the 5% and do not stop that for whatever reason. Except eating of course, Ramen noodles are an acceptable meal.
3. As far as an equity loan from the house, if the interest is tax-deductible a clear and definite "maybe".

Your money in your TSP is supposed to be working for you. Let it!
Get your matching and forget the rest until your budget allows you to pay down/off the debt. 330K in debt seems like a lot, but I hope she has Dr. or MD around her name now.

Budget, Budget, Budget.
 
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You said the market will not bo better that 7% but the real number is 5.65% (7-1.35). The market may not bo better but the question is can YOU do better. Many of us are doing much better than that here on this site. I realize the need (want) to lower interest rates but I always think of my TSP as the very last pot of money to touch. You will grow older (hope...hope) and you will need money. Just my thoughts. Best of luck. Wish we had a good Dentist in the Family.
 
I would think at your ages most of your payoff is going to be labor related and it will take years. Both of you should consider finding part-time jobs several days a week and apply that income toward the loan - there just ain't no easy way out. If you can qualify for a home equity loan that interest cost is tax deductable and will help lower some of your costs. If you had an existing asset base you could take out a margin loan - my cost is 2.75%. It takes money to give you the flexibility you need to maneuver. Taking a part-time job may mean lowering your self-esteem but the objective is to get to a goal quicker down the road. Consider opening an online discout brokerage account and start building a base that in a number of years you can leverage - margin interest remains tax deductable. I wouldn't play around with any loans from your TSP account - that's for retirement. This is just my perspective.
 
Your TSP is for retirement.

That said, if you need a short term loan and can pay it off early than a TSP loan is something less than awful. I don't think borrowing $22K from your TSP holdings will help enough when placed against a $330K debt. It will just add another payment to the mix and reduce your cash flow - the monthly cost of the student loan will not change if you put the $22K into it. All you will have is another minimum payment.

I would continue contributing to TSP - at least to the match - and read the comments by BT and Frixxxx.

Please Note:
  • The 'Fiscal Cliff' changes to the tax code will limit your student loan interest deduction to five years. After that, no deduction.
  • If she starts making money you will fall in the target zone for plutocratic rich and thus the AMT. You should visit a good financial adviser.
  • If the 'Marriage Penalty' is re-implemented than you must get help from a good financial adviser with a strong background in tax planning and preparation.
 
Boghie said:
Your TSP is for retirement.

That said, if you need a short term loan and can pay it off early than a TSP loan is something less than awful. I don't think borrowing $22K from your TSP holdings will help enough when placed against a $330K debt. It will just add another payment to the mix and reduce your cash flow - the monthly cost of the student loan will not change if you put the $22K into it. All you will have is another minimum payment.

I would continue contributing to TSP - at least to the match - and read the comments by BT and Frixxxx.

Please Note:
  • The 'Fiscal Cliff' changes to the tax code will limit your student loan interest deduction to five years. After that, no deduction.
  • If she starts making money you will fall in the target zone for plutocratic rich and thus the AMT. You should visit a good financial adviser.
  • If the 'Marriage Penalty' is re-implemented than you must get help from a good financial adviser with a strong background in tax planning and preparation.
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Nice Points Boghie...I nominate you again for TSP MVP of the year. You rock Brother!
 
Dude you are F'd....Give it 6 years and then see how you feel....I would advise heading for the hills but I see you have already tied the noose, I mean knot...she sounds really great at...that will stop at some point...one more thing did you sign a pre-nup
 
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If she just graduated from dental school, then I assume she will start her practice soon? What kind of earnings should she expect? That is an important factor in this equation. for example, If she expects to earn 150k per year, (checked several forums, and it seems to be a realistic figure depending on region and locality) then this is not such a large mountain to climb. It seems that you might need to sit down with a financial planner and get a budget together and look at the best way to begin to invest, plan for tax issues, etc.
 
thanks everyone for the helpful comments so far. I make about 80K a year and she is projected to make 120K her first year but it will go up quite a bit when she switches from salary to commission at the start of the new year. we got married in June and have already put about 30,000 down on the debt so far so there is 300 left to go. We are going to meet with a financial planner that her boss recommended for people in the medical profession to give us all the tips and angles to reduce our taxable income. i will ask him the question about the student loans and strategies to bring them down while still saving for the future and let you guys know what he says. i can also tell you guys more about myself to help with the discussion.

No prenup. against our beliefs and we dont feel we need one.
Currently live in a condo: purchased for 190K in october 2009 and current value is around 285K (based on hard data - recent unit sales in building)
The condo situation is not very practical for a child. we are 9 floors up, have no back yard, and the family is hounding us to get out of there. we both decide this would be our stragegy to shoot for
Stay in condo and try to start having children in 2 years January 2015 time frame
once we have a child that starts the clock for us to move out within 3 years
so if you factor in the oven time for the baby were looking at around 5.5 years to be out of our condo and into a house which we hope to have a hefty down payment on. (hoping to have at least 200k saved up for a $1,000,000 home).

my wife and i dont live lavishly at all. we both drive cheap cars, we dont buy expensive clothes, we try to vacation once a year but dont go all out, and we are happy with that. we do however like to live in what you would call luxury. and we want privacy and seclusion so we plan to purchase a property with alot of land and build a home on it hence the reason for the high price tag on the home.

in 5.5 years i will owe 110 on the condo and assuming the value goes to 300,000, I will have about 200,000 in equity in the home when we sell which would go towards the house or more likely, it would go towards my wife purchasing a practice.

also I am assuming conservative growth in my salary only 2,000 per year
we are assuming she will be making about 200,000 per year in 3 years.
 
The future looks BRIGHT for you two, just needs a little tweaking. My system was and still is PAY IT OFF EARLY!!! :D
 
omega53243 said:
...also I am assuming conservative growth in my salary only 2,000 per year we are assuming she will be making about 200,000 per year in 3 years.
Click to expand...

If she is going to Commission based pay, your budget will definitely be the flagship for your journey out of debt. My recommendation for anybody on Commission is use the base +% of commission for budget. that % needs to be realistic in the service/product of her career. Then everything above that % needs to be protected in a way to maximize it's power to pay off your debt, but still limit your tax liability.

Good Luck and I hope she is twice as successful as your are forecasting!

Hopefully after meeting with that financial planner for advice/direction it will all sound like deja vu. Let us know what they say. Would love to hear their words on this site for other diligient and cognizant professionals.

Peace!
 
I was told it's almost never a good idea to take out funds from your TSP unless it's time to retire. Investments generally don't make much until that nest egg grows in size, and taking out a loan against it stunts that growth
 
Using your TSP as a loan to pay off debt makes sense if the numbers do... for instance, I paid off kid's school loans (8.5%), with a TSP loan at 3.5%, and diversifying my portfolio to the extent that the remaining amount of the loan is not in equity funds. This was substantial as I lost my butt last year in my TSP account, but leveled it off some due to the loan... the way I figure it, the 12% spread between what I would have paid out and what I am paying back in is a pretty good rate no matter what the market is doing. Money is money no matter what account it is in. The point is to leverage it to earn the most with consideration to how much liquidity you need...
 
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