Here are the details:
I've got $126k remaining between 3 federal loans ($39k @ 6.6%, $48k @ 4.3%, $39k @ 5.28%)
The company I'm now working for offers $25k/year in student loan repayment compensation in my contract. It is provided as a lump-sum payment so a chunk of it gets eaten by taxes. Call it $17k after taxes.
The options rolling around in my head are these:
Option A- Do absolutely nothing on top of what my employer is providing. With repayments still frozen on federal loans (at least until 10/31/2028) the lazy math I've done looks like $17k/year against $6.5k interest accruing across the 3 loans. So $10.5k/year towards principal.
Option B- Pay the accruing interest on my own to prevent it from capitalizing. $17k/year towards principal
Option C- Just go nuts and pay as much as I can within reason to be done with this garbage.
Option D- Option A but invest the money I would otherwise be spending in Option B
Feel free to correct me if I'm way off on my understanding of my federal loans and loan math. I'm eager to be done with student debt, but also don't want to waste my own money if I can let my employer pay the loans for me.
Loan repayment strategy question: Do I let my employer pay them off and be in debt for more years or make additional payments on top to just be done with them?
byu/No-Set-254 inStudentLoans
Posted by No-Set-254
3 Comments
D
Don’t pay extra on federal student loans at the expand of an emergency fund and retirement savings.
Student loans = simple interest. Retirement contributions = compound interest + tax benefits + potential free money from your employer.
IDR plans determine your monthly payment amount based on your AGI and household size. You can lower your AGI by making HSA/FSA/401k/403b etc contributions.
2028 is a placeholder date. It’s likely payments will start sooner.
Take advantage of a relatively smaller minimum monthly payment to allocate extra payments to the loan with the highest interest rate.
Plan on paying off your loans within say 10 years of entering repayment. I think with the 4.3% loan there is no rush to pay it off before the 10 year mark.
A few questions
1.) Is the employer student loan repayment permanent (As in, it’s not just for a few years?)
2.) Is it factored into your contract – as in, if you didn’t take it/no longer took it, would it improve your base?
3.) If your loans are paid off, do you still get the 25k as a bonus or a base increase? Or is it just permanently lost?
If you say yes to 1, no to 2, and no to 3 – there is absolutely no world where you wouldn’t just do absolutely nothing (as in A).
If you have such a good deal with your employer, I would doubt you need to invest extra (As in choice D), you probably already have a solid 401k and/or pension plan set up.
But 100%, you should milk this ‘bonus’ for all it’s worth, even if that means allowing interest to accrue.