Hi all, quick question. I have 94k in student loans with an average interest rate of 8%. I live in HCOL with a high salary and plan to contribute ~4k/month starting in April to pay off the loans in around 26 months (~2 years). A close family friend has offered to pay the entirety of my loans down now and instead have me pay the 4k/month to him interest free so that I don't have additional interest at 8%. I put my loans in a calculator online and this wound be about 8.5k saved in interest (correct me if that seems off) should I have stuck to my 2 year schedule. He is a single bachelor who "wants to help the kids he never had" and definitely has enough as he sold his tech company for millions in the past.
Should I take his offer? Does the 8.5k saved warrant paying it off now? There are no other strings attached, he's ready to transfer 94k to my bank account should I accept. Willing to answer any other questions. Just in shock atm and want to make sure I'm not missing anything or if there is an alternative that is more advantageous for both of us.
Friend Offered to Pay Student Loans Y/N?
byu/Respected-Ambassador inpersonalfinance
Posted by Respected-Ambassador
29 Comments
Without any other information this seems like a no brainer. I would still consider getting a contract written both to protect him but also you
You’re lucky to have a friend like this. I would say yes and make monthly payments. Enjoy the free interest loan!
Yes, great deal for you. He risks running afoul of the IRS’ minimum interest rate rules (AFRs) and creating potential tax problems for himself, but not your issue.
I would want a legal contract of some kind. I wouldn’t want anything weird to come up later
I think the only issue is that youre taking on aggressive loan terms you otherwise wouldnt have. What happens if you lose your job and cant afford to keep paying 4k a month?
I’ll probably get downvoted but I’d say no. I don’t think the 8.5k you’d save over 2 years is worth the risk of potentially ruining a relationship with a close family friend just in case something goes horribly wrong. Especially a very generous one.
If you have a high salary and can contribute 4k a month to your loans, 8.5k means nothing to you. It’s a drop in the bucket.
What happens if you can’t pay the 4K at some point? With the loan, you can fall back on the minimum at 8%. You won’t get another loan at 8%.
But if everything goes well it is a really good deal.
Hey friend, let’s put this in writing to protect ourselves…and quick legal zoom contract later take it and thank profusely
Financially, it is a smart move.
But relationship wise, it’s a grey area. People will tell you to never mix friendship with money, as things can get sour quick.
If your lucky the friend will disappear so you don’t need to repay them…..
Wouldn’t he have to pay gift tax?
There will probably be strings attached to that at some point. No way dude doesn’t hold that over your head for one reason or another. Is there any chance this could be some sort of laundering somehow?
Get everything in writing and an out clause if it gets sketchy. At face value it would do it.
As long as there are no strings attached… Also, are there tax benefits attached to student loan repayment in your country?
First semester of business school: There is no such thing as a free lunch. What is in this for him? He is taking 94k out of the investment mkt to give to you with no interest payments. What strings will be attached to this offer he is making cause it ain’t out of the good of his heart.
Sounds like a terrible idea that will eventually ruin this friendship, even though they seem like they want to help you. Just budget and pay off the loans early to save on the interest. You’ll save yourself potential drama if this arrangement goes sour.
I mean… whats in it for them would be my only question. Assuming literally nothing, great, free money, good family friend… but even then… Taxes wise I am not even sure you can just give someone 94k in a single year without flagging something. So not only is this person giving you a huge break, they may be paying for the privilege to do so… that’s all very strange. But… if they are close and well off, not unthinkable.
I’m not doing this without a contract signed and notarized.
As long it is really pure motives then it’s a good thing.
You have to decide. There may be a tax consequence as the IRS imputes a minimal interest rate of 3% or similar- check current rates.
Is there even a downside in your head?
NO.
I wouldn’t borrow money from any friend/family. Changes the dynamic of the relationship, and has absolutely ruined too many people.
It’s a no brainer here. No interest, you’re already making 4k a month and you’ll pay it off quicker than you ever would going through the normal process.
HOWEVERRRRRRRRRRRRRRRR
You MUST get a contract written up AND notarized that it is interest free, x amount per month for x months until paid off. You can even write in there to skip a month like birthday or Christmas if you want to treat yourself or others.
You must ALSOOOOOOOOOO
Get or provide a receipt of payment each time regardless of who the friend is. Money is evil.
Someone is helping you out. I would go for it.
You lose the ability to defer payments and go on reduced payment plans if you hit financial hardship over the course of the loan. Maybe your friend would be willing renegotiate if your life goes sideways. But you never know.
I know you plan to pay the loan off in 26 months, but shit happens. You could lose your job. You could have sudden expenses that eat into your free income. You could get into a car accident. You never know.
If you’re OK with the fact that life could throw you some curveballs in the next few years, then it sounds like a pretty good deal.
If they’re so rich, why do they expect repayment?
Based on how he put it, seems like there’s also the unspoken expectation that he would get to spend more time with your kids, like a second dad. If you’re okay with that then go for it.
100% take the offer. And when it’s all said and you have paid him back, take him out to a nice dinner.
If you accept this generous offer, it will be worth looking into a good credit card that accrues rewards & points on expenditures, to set up on autopay. Set it up under utilities, if need be, if there are particular restrictions.
And do set up and sign a contract, without fail.