What would you do?

[DaFace]

My wife just finished up her master's degree, and now we're figuring out our strategy for retirement planning and getting rid of student loans. We've got a kind of weird decision to make, so I'm curious how the Planet's financial minds would tackle it.

The crux of the issue is that she will most likely be able to get up to $17,500 of her $25,000 in student loans forgiven in five years since she's 1) a special ed teacher and 2) in a low-income school. However, we'd more than likely be able to pay it off well before then if we really wanted to. So, in a nutshell, here's the decision (over-simplified to make the discussion simpler):

Option 1: Pay off $17,500 in loans over the course of about two years. Zero chance of anything happening with the government that would compromise this option. We'd pay about $1,200 in interest during that time, for a total "payout" of $18,700 or so.

Option 2: Let it sit there for five years, then apply for loan forgiveness. We'd have to cover all of the interest above the $17,500 during that time, which is worth somewhere around $7,500 over five years, but that would be the total payout - a "benefit" of around $11,200 to our bottom line. However, 1) you never know what the government will do with these programs with all the spending cuts that are coming and 2) it sucks to carry debt when you don't have to. Technically, it also requires that she keep teaching for five years, but I don't see that being an issue.

I know the way I'm leaning, but am just curious to know what the financial advisors of ChiefsPlanet (heh) have to say.

(And too bad R8ers isn't here. )

[Saul Good]

Originally Posted by DaFace

I wouldn't think so, but I'm not sure of that. Good point, though.

It's almost certainly either debt forgiveness or straight income. Both of those are taxable.

[DaFace]

Originally Posted by Saul Good

It's almost certainly either debt forgiveness or straight income. Both of those are taxable.

Yeah, you could be right. Still, it seems odd that a tax-supported program would be taxable. For example, we took advantage of the $8k tax credit for our house a few years back, and the $8k was NOT taxable.

[Mike in SW-MO]

If the program is loan forgiveness, then you should take option #1. You borrowed the money and you owe it. You should pay it back.

If the program is contracted benefit to attract a qualified employee, then go modified option 2 with payoff cash in an account ready to go. Debilitating injury/illness in year 4 would really stink. If this is from a locality watch out for severence right before they have to pay out.

I am big fan of free market. If they need that incentive to attract good people then go for it. If that is part of her compensation package, then she deserves every penny.

[Saul Good]

Originally Posted by DaFace

Yeah, you could be right. Still, it seems odd that a tax-supported program would be taxable. For example, we took advantage of the $8k tax credit for our house a few years back, and the $8k was NOT taxable.

That's essentially a write-off. A tax deduction isn't taxable, but income (eg; SS benefits) is.

[cdcox]

According to this link, it probably would not be taxable:

http://www.finaid.org/loans/forgivenesstaxability.phtml

[Saul Good]

Originally Posted by Mike in SW-MO

If the program is loan forgiveness, then you should take option #1. You borrowed the money and you owe it. You should pay it back.

If the program is contracted benefit to attract a qualified employee, then go modified option 2 with payoff cash in an account ready to go. Debilitating injury/illness in year 4 would really stink. If this is from a locality watch out for severence right before they have to pay out.

I am big fan of free market. If they need that incentive to attract good people then go for it. If that is part of her compensation package, then she deserves every penny.

This isn't a handout. It's a way to attract qualified people to areas of need. You should absolutely take advantage of that. It's like the GI bill for teachers in low-income and/or high-need areas.

You wouldn't go through the military and then go "I really shouldn't let them pay for my college". That would be insane. It's part of the deal you signed onto.

[DaFace]

Originally Posted by Mike in SW-MO

If the program is loan forgiveness, then you should take option #1. You borrowed the money and you owe it. You should pay it back.

If the program is contracted benefit to attract a qualified employee, then go modified option 2 with payoff cash in an account ready to go. Debilitating injury/illness in year 4 would really stink. If this is from a locality watch out for severence right before they have to pay out.

I am big fan of free market. If they need that incentive to attract good people then go for it. If that is part of her compensation package, then she deserves every penny.

The program is designed to get people to go into high-need areas, such as special education, math, and science, and it's especially targeted at high need schools as well. So yes, it's an incentive program. However, it didn't make any difference in her choice of school for the most part. She gets a kick out of helping the kids who need it most.

Still, I couldn't care less whether she "deserves" it or not. As I mentioned earlier in the thread, I'm not a huge fan of stuff like this, but I pay for it in my own taxes, so I'm sure as hell not going to say no if it's to my financial advantage.

[Saul Good]

Originally Posted by DaFace

The program is designed to get people to go into high-need areas, such as special education, math, and science, and it's especially targeted at high need schools as well. So yes, it's an incentive program. However, it didn't make any difference in her choice of school for the most part. She gets a kick out of helping the kids who need it most.

Still, I couldn't care less whether she "deserves" it or not. As I mentioned earlier in the thread, I'm not a huge fan of stuff like this, but I pay for it in my own taxes, so I'm sure as hell not going to say no if it's to my financial advantage.

Why wouldn't you be a fan of it? It's simple supply and demand. There is more demand for certain positions than there is supply, so the price has to go up. Because of unions, the salaries can't go up directly, so they have to go about it a different way.

Working for 5 years in order to get $17,500 in extra compensation isn't like taking welfare. There's a reason that they can't fill these positions.

[DaFace]

Originally Posted by cdcox

According to this link, it probably would not be taxable:

http://www.finaid.org/loans/forgivenesstaxability.phtml

Cool. Good to know.

[Saul Good]

Originally Posted by DaFace

Cool. Good to know.

Woo Hoo

[DaFace]

Originally Posted by Saul Good

Why wouldn't you be a fan of it? It's simple supply and demand. There is more demand for certain positions than there is supply, so the price has to go up. Because of unions, the salaries can't go up directly, so they have to go about it a different way.

Working for 5 years in order to get $17,500 in extra compensation isn't like taking welfare. There's a reason that they can't fill these positions.

Eh, her district is one of the highest-paying districts in the state already - partially due to the fact that they have such high demand. I'm just generally not a huge fan of subsidy programs in general. Nothing against this one in particular.

[Buehler445]

Originally Posted by DaFace

Cool - glad to hear someone else has thought about this same situation. And your point about setting it aside somewhere we can get to it is a good one. I suppose that, rather than socking it into an IRA or similar, we could put it into something a little more liquid just in case we needed to dump it in a hurry somewhere down the line.

This is what I would do. You can't have enough cash laying around. If you want to remodel you kitchen or your basement leaks or something stupid, you don't want all your money in an IRA.

[wazu]

Originally Posted by Saul Good

Nothing is changed. You keep paying the monthly payment during those 5 years, so there is no reason for collectors to call. The question isn't whether or not he should stop paying. The question is whether he should just pay the whole thing off and be done with it.

Got it. I want to change my vote now.

[KurtCobain]

What would I do if I was you?

Get off Chiefsplanet and **** my hot wife.

[Earthling]

I would try to figure out what the talking heads and financial gurus would do if this was put in the context of a national debt. Then I would do the opposite.