A friend of mine came to me recently asking what their best student loan repayment option would be. To start with, all I knew was that they both made pretty good money and his wife had significant student loans. Being the tax accountant that I am, my first response was “It depends”.
When making decisions that affect your life for the long term, it’s well worth the time to consult a professional. I’ll use my friend’s situation as my example of the impact a true analysis can have on a borrower’s results.
How Can A Student Loan Payment Analysis Benefit You?
After a thorough review of their financial situation, I was blown away by some of the results. In their case, taxes were one thing, but his wife’s student loan payments would be another. The total cost of her education at the end of the loan term presented a much different result than I had expected.
We knew the education costs and loan payments would change, but what we really needed to know was what the cost of paying student loan interest, with a 20-year repayment plan, would be for a married couple vs. a single individual.
The loan program for her education was unique, something over $420,000 in debt. She’s a veteran, so it makes sense to borrow an income-based 20-year repayment plan, with payment options varying based marital status, dependency status (having children of their own), plus, and monthly payment amounts varying from $1100-1700 per month.
I provided a cost comparison or a loan payment analysis. In their situation, the loan payments wouldn’t pay the total interest per month, so it was negative amortizing. At the end of the loan term, the amount left would be forgiven (to the tune of about $660,000).
In my analysis, I calculated the total payments made, the tax on the amount forgiven, plus total education cost with kids for a single parent, which came out to about $550,000 over the repayment term. But when compared to a married couple repayment analysis (with their combined income) it was $745,000.
The calculated result? Almost a $200,000 savings in the total education cost, just by not being married!! EVERYTHING else in their life would stay the same – income, housing, car payments, etc.
Why A Loan Payment Analysis Is An Investment.
I was reminded how important loan payment analysis really is when making some of these large life decisions. Going back on my life – I was lucky, I didn’t have any crazy decisions to make when I was in paying for college. I married my high school sweetheart when we were 22. We were both broke, working college kids with not much to our names.
It blew me away that the federal government has these student loan payment programs out there. It reminds me of the mortgage loans that had big balloon payments. Student loans are just a tax bill balloon payment, with debt forgiveness. And we all know how that situation worked out with mortgages, but I digress.
My friends, on the contrary, one friend a Veteran and another in public works, were provided two hours of time that saved them tens of thousands of dollars by comparing the married vs. single filing analysis on their student loan payment.
In these instances, we are here to help put your financial situation on paper and map out a clear plan, so you can be empowered to make a better present and future decisions.
If you or anyone you know is going to college, trade school, taking on loans, leveraging real estate, planning for retirement or getting married there are some very important factors to consider.
Consider this reality. Investing in two, three, or even five hours worth of analysis on your loan payment(s) is a minimal cost for you to have a better opportunity to make your best financial decision.
To find out which option(s) will benefit you, get in touch with us. We’d love to help!