08-25-2012 10:35 PM
I would love to cash out my 401k (about 60K right now) and wipe out that amount in student loans. I have $86K in student loans, $50K was mine, the remainder was a parting gift from my recent divorce.
So wiping out $60K would leave me with just $26K, which could be paid off within a few years. I will be 38 soon, so at least another 30 years left to work.
I have seen this question asked and batted down in other forums, but the amount owed in those examples was never above $50k.
Even if I pay $1k a month, I'm almost ten years away from paying it off. I don't think I will ever qualify for a mortgage with this $86k monkey on my back.
Would appreciate some perspective here.
08-25-2012 11:14 PM
Hi OP, I moved your post to Student Loans. Bumping for others much more knowledgable on SLs.
I don't know the tax rules on paying SLs w/ 401(k) money, but there could be some tax considerations.
Lenders don't look at the total balances so much as they do the monthly reported loan payments. That's what they'll use to calculate DTI. So, even if you pay your loans down, the DTI could remain the same. Per FICO scoring, it doesn't matter if balances are high or low on loans, they are scored relatively the same. And that's a good thing otherwise you'd get heavily dinged for adding a loan like a mortgage.
08-26-2012 02:02 AM
If it makes you feel any better, I owe over $100,000 in student loans. We are also planning to buy a house next year. DO NOT use your 401k for your student loans. You will be assessed a 10% penalty by the IRS. You could use your 401k for a downpayment on your house (up to $10,000 without penalty). This would reduce your monthly mortgage payment and free up your monthly budget to tackle those pesky student loans. Student loan debt is not as bad as credit card debt. Also, the interest is tax deductible. If the payments are too much for right now, or if you are concerned about the front end / back end numbers you need to qualify for a mortgage, I would look into a income based, income sensitive, or income contingent repayment plan through your SL lender. There are a number of repayment options available.
Borrowing for an education is easier than borrowing for retirement.
08-26-2012 07:09 AM
Please don't use your 401k. You will ultimately regret it. You will have a penalty plus will have to pay income taxes on the withdrawal. That would likely throw you overall into a higher tax bracket. How much of the 401k will you ultimately have left after taxes and penalty to throw at the student loan debt?
Are your loans consolidated? As said before, check into the income based repayments, etc. Also, with that amount of debt, it may be amortized over 30 years, making a low monthly payment...but you can always pay ahead when things improve.
Me? I'd continue to plug away at the student loan debt. Although I could pay mine off faster, I don't because if I die, the student loan debt is gone. If I am totally disabled, the student loan debt is gone. So, I don't use my retirement savings, and I don't write it against my house (even though the interest rate would be better). I'm willing to work and pay mine off slowly.
If you can't find peace of mind because you have this debt hanging out there....well, then, that is a different matter.