The student debt scale in the United States today is amazing. Americans must collectively $ 1,814 billion on student loans, with an average balance of $ 42,673. (1)
Most people would love to get rid of their student loans, but a man in New Jersey called The Ramsey show for help with the opposite problem.
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John’s wife does not want to pay her relatively small student debt of $ 6,500, although she and John have a combined income of $ 300,000 a year and could do it easily. When Dave Ramsey discovered why, he was amazed.
“This is stupid,” Ramsey said. “She needs to wrap her head around the mathematics of the fool that is not an outbreak.”
For the most part, John and his wife have been aggressively eliminating the debt. They have already paid $ 100,000, leaving only two debts: a 401 (K) loan worth $ 40,000 and the $ 6,500 student loan.
So why not pay the student loan? John’s wife wants to continue carrying it because her employer gives her a monthly stipend of $ 50 to help with the reimbursement of student loans. She considers “free money”, so that it would not move.
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Ramsey explained that if she continues to pay the student loan only one month at a time, it will take 10 years to get rid of him. The Jade Warshaw coanfrerion added that interest will accumulate in that debt, eliminating the ‘free money’ appearance.
“We are not maintaining this as if it were a pet,” Ramsey said.
John’s wife is not the only one who receives the reimbursement of student loans from her employer.
The International Foundation of Employee Benefits Plans reports that these benefits are increasing, with 14% of employers who offer said student debt refund program in 2024, more than triple the number offered by one in 2019. (2)
Upsolve informs that some important employers in a range of industries, from retail trade to technology to finance, offer a quite generous student loan reimbursement stipend. Here are some examples: (3)
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AETNA – $ 2,000 per year, Lifetime Max of $ 10,000
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Ally Financial – $ 1,200 per year, Lifetime Max of $ 10,000
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LIVENATION – $ 1,200 per year, useful life of $ 6,000
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New York Life – $ 2,040 per year, Lifetime Max of $ 10,200
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PWC – $ 1,200 per year, Lifetime Max of $ 10,000
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Gerstaples – $ 1,200 per year, useful life of $ 3,600
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Sofi – $ 5,250 per year, Lifetime Max of $ 25,000
By law, the maximum that a company can contribute to student loans for employees is $ 5,250 per year, according to IRS.
It is a valuable benefit. Such assistance can not only help workers to make their monthly loan payments on time and in their entirety, but can even help them pay their student debt before.
On the other hand, I could tempt some, like John’s wife, fall into the trap of carrying student loans more time than necessary to continue obtaining that benefit.
If you have student debt and your employer offers a student-project reimbursement program, make calculations to see if it makes sense to obtain that benefit or if you will save more money on interest paying your student debt before.
For example, an additional month of reimbursement of your loans can cost you $ 60 in interest, but come with $ 100 for your balance. A financial advisor can help you execute the numbers if you are not sure how yourself.
If you have some different debts, you may not be sure which one to address first. Ramsey recommends the snowball method, where he pays debts in order of greater balance for the largest.
But in some cases, it may make sense to prioritize the payment of the debt based on other factors, including:
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Interest rate
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Risk
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Amount of stress
For a 401 loan (K), the interest rate is typically the preferential or higher rate. (4) The current main rate is 7.5%.
The interest rates of federal student loans currently vary from 6.39% to 8.94%, depending on the loan type.
Private lenders can establish their own rates, but the education data initiative places the typical range of private loans for students by 3.19% to 17.95%. If you are paying a higher interest in a student loan than a 401 loan (K), that is a good reason to address it first. (5)
That said, loans 401 (k) can be more risky because if you leave your job (voluntarily or otherwise), your reimbursement window can be reduced to just a few months. In some cases, you may have to pay that loan immediately. (6)
If it does not, it can be treated as a 401 withdrawal (K). And if you don’t have 59½ yet, that means a 10% early retracted penalty. That really makes the argument to pay a 401 loan first (K).
Finally, think about what kind of debt you are playing more with your mental health. In a well -being survey in the workplace of the Institute for Benefits Research for Employees of 2023, 13% of the workers said that the reimbursement of the students of the students was the financial problem that caused them the greatest stress.
So, if you have two types of debt with similar interest rates and one is causing you to lose more sleep, that can be the one worth prioritizing.
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(1). Education Data Initiative “Student Student Statistics Statistics”
(2). (The International Foundation of Employee Benefits Plans) (https://blog.ifebp.org/student-loan-repayment-benefits-on-the-rise/) “Benefits of reimbursement of increasing student loans”
(3). UPSole “25 companies that will help you pay your student loans (4). John Hancock” what you need to know about 401 (k) loans “
(5). Education data initiative “Average interest rate of student loans”
(6). Empower “401 (k) Loans: what they are and how they work”
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This article provides only information and should not be interpreted as advice. It is provided without guarantee of any kind.
