Student loan debt: to pay off or not?

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switters's picture
switters
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Student loan debt: to pay off or not?

I've been thinking a lot lately about whether to pay off my student loan debt ($15k @ 3% interest) or keep that money in cash and gold as it is currently.  I have no credit card debt, 2-3 months of expenses in cash, $30k tied up in land that we're trying to sell, and about $50k that is currently 50/50 in US dollars/gold.

I see why it's important to be debt-free, especially if we experience deflation for a period of time.  But I think that even if we do experience deflation, it won't last more than a couple of years before inflation kicks in.  Once inflation kicks in debt would be much easier to pay off - especially a student loan with a low fixed interest rate.  I am in grad-school (not incurring any additional debt) until April of next year, and then I have an additional 6 months of loan forbearance after that.  So I will not have to start making payments on the student loan debt until one year from now.

I'm just curious to hear what you would do in my situation.  

JAG's picture
JAG
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Re: Student loan debt: to pay off or not?

Switters,

The only debt my wife and I have currently is her student loans. Unfortunately, this is the worst kind of debt to have because its analogous to owing back taxes, meaning there is no way out of it short of death. Many of my friends lives have been ruined by student loans, and I expect our life will follow suit when we become unable to pay as our business fails in this unfolding economic storm. 

My wife and I were aggressively paying off her student loan debt, but now we pay only the minimum and only when we are threatened by lawsuit. I'm sure this is going to end bad for us, but we have higher priorities (aka physical survival) to worry about.

Sorry if this feedback wasn't much help....Jeff

EndGamePlayer's picture
EndGamePlayer
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Re: Student loan debt: to pay off or not?

Hey Switters-

Even 3% is inflating at 3% whether you have grace periods or not. My question is why the 50/50 USD/gold? Dr. Martenson's morning Report was very clear to me - so we are moving out of USD to the max. Gold is good but no debt is good too. I'm finding that even gold-back currancy is a good investment since it is at least backed by something other than the people's intended labor which money is printed on. In an economy when no jobs are available - how can the money printing continue?

When the inflation gets here (and it will sooner or later), debt should not have inflated with it or it's a zero-sum game. Protection & preservation of assets comes first, then look for safe haven gain places or you might as well be playing your money in a casino. Peace On-EGP

switters's picture
switters
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Re: Student loan debt: to pay off or not?

I don't presume that the dollar is dead just yet.  That's why I'm still 50/50.  I happen to think we're going to have another deflationary dip before serious inflation kicks in.  I will buy more gold (and probably silver) then.  Of course I could be wrong.  That's why I'm hedged 50/50.

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Re: Student loan debt: to pay off or not?

Certainly it doesn't seem to make sense to make payments until you have to, ie six months after gradaution. 

At that point, then a reassessment of where you are and what is going on in the economy would be in order. Obviously you'll have to pay the loan off eventually, as JAG is correct about how aggressive student loan collections can be. You can't even discharge student loan debt in bankruptcy. 

But they can't come after you as long as you are making the minimum required payments. You can do deferments/ foreberance, but those are limited and seems prudent to save those for unemployment and other more emergency type situations. 

I would lean towards paying it off as fast as you can, without jeapordizing your other prepardness plans. $15K in student loan debt at 3% isn't that bad, really. Many people have car loans that are larger with higher interest. My student loan debt is substantially higher, and my cash/PM position much, much smaller. Still have car loan and small amount of cc debt too.

you've done a good job. 

docmims's picture
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Re: Student loan debt: to pay off or not?

As long as the interest rate isn't adjustable, just pay the minimums.  Inflation may take care of your problem after 5 or 10 yrs assuming your income keeps pace with inflation.  I doubt deflation will last more than a couple years.  Put any excess payments you might have into your emergency fund which should be 1000 cash at a minimum.  After that I would slowly accumulate a little silver till you have about 500 - 1000 face silver coins.  you can put away a years supply of basic food beans, rice, grain, vegetable oil etc for about 200 to 300 bucks a person.  there are some good cheep books on amazon about food storage.

 

but don't pay off the student loans till you have emergency funds saved up.

neeson02's picture
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Re: Student loan debt: to pay off or not?

This is a very good point to discuss. A student may take some loans for special reason. The interest that they have to paid must be lowest. As we are in the age of deflation, this situation may be last for the next few years. So , student should aware of that.

Puppies for sale

Gungnir's picture
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Re: Student loan debt: to pay off or not?

Switters...

Yes Sudent Loans are hugely problematic, refusal to pay is not an optionand you can very easily end up with wage garnishment and repossession of pretty much anything that you own. Unfortunately that's the way that they were set up to ensure protection the lender and virtually guarantee repayment (if you think about it without these guarantee's then lenders would not be [lenders]).

here's a list of things they can do for default

Your loans may be turned over to a collection agency. You'll be liable for the costs associated with collecting your loan, including court costs and attorney fees. You can be sued for the entire amount of your loan. Your wages may be garnished. (Federal law limits the amount that may be garnished to 15% of the borrower's take-home or 'disposable' pay. This is the amount of income left after deducting any amounts required by law to be deducted. The wage garnishment amount is also subject to a ceiling that requires the borrower to be left with weekly earnings after the garnishment of at least 30 times the Federal minimum wage, per 34 CFR 682.410(b)(9), 34 CFR 34.19(b) and 15 USC 1673(a)(2).) Your federal and state income tax refunds may be intercepted. The federal government may withhold part of your Social Security benefit payments. (The US Supreme Court upheld the government's ability to collect defaulted student loans in this manner without a statute of limitations in Lockhart v US (04-881, December 2005).) Your defaulted loans will appear on your credit record, making it difficult for you to obtain an auto loan, mortgage, or even credit cards. A bad credit record can also harm your ability to find a job. You won't receive any more federal financial aid until you repay the loan in full or make arrangements to repay what you already owe and make at least six consecutive, on-time, monthly payments. (You will also be ineligible for assistance under most federal benefit programs.) You'll be ineligible for deferments. Subsidized interest benefits will be denied. You may not be able to renew a professional license you hold. You may be prohibited from enlisting in the Armed Forces.

nickbert's picture
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Re: Student loan debt: to pay off or not?

I'm also trying to plan out how early to pay off my student debt.  Likewise, the only significant debt my family has are my student loans (we have a car loan but that'll be paid off in a couple months).  On one hand they're quite substantial (over $30k) but on the other I had consolidated them several years ago at an very low fixed rate (1.625%).  One part of me hates the debt and wants to get rid of it, but the other part sees the very low rate and how that money could be put to better use in the near term (pm's and preparation needs).  I'm sitting on a lot of savings in both cash and pm's, and in about 6 months, provided I remain employed, I will have enough to pay it off completely and still leave a healthy cash savings and my pm's intact.  But for now I'm not going to pay it off early just yet.... my gut is telling me to continue to invest in pm's and preparation supplies for now, and see how the situation begins to play out.  If we see mass inflation or a collapse in the dollar in the next few years and my pm holdings compare very favorably to the value of the loan, I will probably pay it off in full.  I expect there might be some funny business from the gov't and lenders though, so I might act a little sooner than later.  If I hear any talk about modifying existing fixed-rate student loans (possible), gold confiscation (probably not likely) or new exorbitant taxes on gold sales (probably very likely), I plan on paying off the loan immediately before any of those actions are carried through.  Until then, I plan on only making the minimum payments for as long as I have work. 

I really do hate how insidious and potentially devastating student loan debt can be.... if it weren't for my student loans, we could be shopping around for land by now.  It really limits our current options.

- Nickbert

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Re: Student loan debt: to pay off or not?
nickbert wrote:

I'm also trying to plan out how early to pay off my student debt.  Likewise, the only significant debt my family has are my student loans (we have a car loan but that'll be paid off in a couple months).  On one hand they're quite substantial (over $30k) but on the other I had consolidated them several years ago at an very low fixed rate (1.625%). I plan on only making the minimum payments for as long as I have work. 

I really do hate how insidious and potentially devastating student loan debt can be.... if it weren't for my student loans, we could be shopping around for land by now.  It really limits our current options.

- Nickbert

Just pay the minimums.  If you have extra to pay, put it in an emergency fund of cash until you accumulate enough to buy land outright. Make you payments monthly and never be late.  That low interest rate on the debt is definately lower than inflation.  Also land prices are falling into the near future at least and it is expensive (tax wise) to carry raw land -- and you thought land was yours when you bought it when in fact it is just leased from the government for yearly property tax payments..

nickbert's picture
nickbert
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Re: Student loan debt: to pay off or not?
docmims wrote:

Just pay the minimums.  If you have extra to pay, put it in an emergency fund of cash until you accumulate enough to buy land outright. Make you payments monthly and never be late.  That low interest rate on the debt is definately lower than inflation.  Also land prices are falling into the near future at least and it is expensive (tax wise) to carry raw land -- and you thought land was yours when you bought it when in fact it is just leased from the government for yearly property tax payments..

One of the advantages of living in Alaska is there's a lot of rural areas (including the area where I work) that do not have property taxes Smile.  But yes, I do reaize that even in that case it's not truly "owning" the land and there are still a few circumstances where it can be taken away. 

The very low interest rate is a blessing, but only so long as I have the income to make the payments and that income rises along with inflation.  It's both those things I have doubts about... my income is considerable right now, but I have no guarantees my job (or others like it) will still be here a year from now, and right now benefits (and some jobs) are being cut and pay raises are likely to be frozen.  So that low interest rate has been great so far, but if income turns sour it might not count for much in the long term.  But until then, yes, it's just the minimum payments for now, and keep the savings piled up in case an exceptional buying opportunity pops up.  Who knows, if credit markets implode the pool of available buyers for large purchases may shrink to nothing, and those with available cash may find very good deals on many things.  Flexibility is the word I'm trying to live by.

- Nickbert 

Gungnir's picture
Gungnir
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Re: Student loan debt: to pay off or not?

Hey Nick, how's things, seems like a long time since we met up at Delta.

As far as with AK, and property. If you have the land patents (and we do), and you're "known" to be living or working on the land or any portion of a contiguous section of land for which you hold the patents, then you're protected under homesteading laws, so that you cannot lose that land in a foreclosure, nor any property, vehicles, equipment or supplies that are needed for supporting yourself or your survival living on that (those) patented parcel(s).

Which means that you could own 200k acres of non-contiguous 20 acre plots and as long as you live on one, and cut down a tree on the remaining 99 a year you would be covered under the homesteading laws on those 200k acres.

However unfortunately Federal Law takes precedence as regards to Student loans...

nickbert's picture
nickbert
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Re: Student loan debt: to pay off or not?

Gungnir,

Yeah, seems like it was a long time ago, but it was only July I think.  Things are going pretty well so far.... the wife and baby are acclimating well, and while the job is still tedious and boring it's letting me save a lot.  Depending on how things play out in the next 2 years, by 2011 we hope to have enough to buy a little land for homesteading and/or start a business venture with our savings.  Delta Junction has recently been getting wicked cold with the high winds, so I hope your neck of the woods is a little bit warmer than here.  From reading your blog it looks like you two pretty much have things well in hand Smile

I've heard of land patents or allodial titles and from what little I know they can be acquired in certain cases, but I haven't seen much information on it.  How did you and Plickety apply for and receive your land patent when buying your land, and were there any difficulties involved or restrictions on where you could get a land patent in the state?  Who knows, we might buy land sooner than we think if a great opportunity pops up...

 

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