114/132 Student Loan Strategy Shift

by Andy Hough on August 21, 2017

My student loan payoff has stalled out the last few months. Due to the lack of income during my eight weeks off from my job I was unable to make any big payments on my student loan. I’ve made a couple of payments in the last couple of months, but they were just enough to cover the interest. Now that I’m back to work, I can finally start making progress on the loans again.

However, I’ve decided to hold off on making big payments towards the student loan for the rest of the year. The reason for that is I want to put as much money as possible in my retirement accounts. Doing that will reduce the amount of my taxable income. That should keep me from having to repay any of the advance premium tax credit I received and hopefully result in a large tax refund. Since tax is currently being withheld from my paychecks based on me making $48,000 a year, I’ll get most of that tax back if I manage to reduce my income to about $20,000.

Based on my calculations, I’ll be eligible for the company 401k starting the next pay period. Since I turn 50 next month I’m eligible to contribute 100% of my pay to the 401k. My allowed employee contribution would be $24,000. I can also put $6500 in an IRA. There is no way I’ll be able to max both of those out, but I’m going to put in as much as possible. I’ll also be eligible to open a Health Savings Account next month. Since I’ve already got more savings capacity than I can use I’m going to put off opening an HSA until next year.

In 2018 I’ll switch my 401k contribution percentage to 4%. Just enough to get the full company match. That will leave me plenty of money to use towards paying my student loan.

I’m considering not re-certifying my income based repayment plan which will result in my student loan switching to the standard 10-year repayment plan. I think my monthly payment on the 10-year plan would be about $1300 which is about the same amount as my paycheck. That would give me one paycheck for the student loan and one paycheck for everything else. That might motivate me to make more money and figure out a way to pay the loan off faster. I’m not sure if that is a good idea or not. What do you think?

{ 2 comments… read them below or add one }

1 Kevin Sheely August 21, 2017 at 11:52 pm

If you work at a non-profit for a certain number of years you can get it forgiven by the government right?

2 Andy Hough August 23, 2017 at 8:49 pm

Kevin – That is right for now. I think they’ll probably change that at some point. I wouldn’t want to depend on it happening. Since I’m not working at a non-profit or government job and I don’t foresee working at one, it doesn’t matter currently. If I ever get one of those jobs I’ll have to consider that option.

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