I have about $350,000 in student loan with 6-8 percent interest. My mom is offering $75,000 to help with student loans. Do you think this is a good idea? Or should I put the $75,000 somewhere else?
The $75,000 is from her HYSA, not 401K.
Parent helping pay off loan
byu/pinkcloudbear inStudentLoans
Posted by pinkcloudbear
14 Comments
A $350k loan is an emergency with life changing consequences unless you have a beyond spectacular income. What is your income? Do you have any other debts?
Are you asking us whether it’s ok to deceive your mom by taking money from her that she earmarks for a specific purpose and using it for some other purpose instead?
Take the money and reduce your student loans. I don’t know how many loans you have but pay off the ones with the highest interests rate. You’ll reduce your interest component of the payments and reduce your payments.
How long have you been paying? Are you planning to have your loans forgiven through IBR, etc? For instance, in my case, I’d save the $75k in a HYSA for the tax bomb I’m getting at forgiveness. (I’m almost 11 years into paying and sitting at $350k right now.) Unless I can guarantee I’d pay my loans in full before forgiveness, it’s better to prepare for the tax bomb. $75k wouldn’t even cover the interest I’ve accrued so far.
I wouldn’t lie to her though. I’d just explain how it’s a better outcome to use it for the tax bomb.
hard to say definitively but I think you should decline the money for nows
Are these federal or private loans?
6% is my threshold.
More than 6% plans pay off the loans, less than 6% I invest.
If you have no savings, you should have 2-3 months of expenses as an emergency fund.
Tell us more about the loans and your earning potential and we can give you a better idea, but definitely don’t accept the money if you don’t plan to use it for its intended purpose.
I don’t know your exact interest rates but you likely can’t make a higher percent per dollar on the $75k than you would save per dollar immediately paying towards loans.
Either you don’t take it at all or you take it and pay down your student loans. It’s not a gift for you to have fun money to blow.
If you’re not going into a field with a loan-forgiveness path, just put it toward the loans. Six-eight percent is pretty high interest.
I don’t suggest taking the lump sum. Ask if she is amenable to doing an installment. At the end of each year apply $5000 to your highest loan amount at the highest interest rate.
$350,000 in student loans is a large amount but not insurmountable. Evaluate all the repayment options especially because no one really knows what is going on at the Federal level. Loan services get periodic updates but forgiveness, income driven, and repayment options have been in flux for over two years.
The reason I suggest the installment plan is future uncertainty paired with current uncertainty. It may take ten years for your income to match up with debt level but after that things will be easy. The $75k today sounds like a good plan but it is a single infusion towards a twenty year problem.
Go ask r/wallstreetbets they give solid advice over there.
75k would wipe out my student loans and leave me with a lot left over.