Dave Ramsey says: To pay off the student loan debt as soon as possible or hold off?

Dear Dave,

My wife and I are debt-free except for our mortgage and two Parent PLUS loans for our daughters’ college educations. One of the loans totals $18,078, and the other is for $41,500. Both girls want to pay them off using the new extended plan being offered, but I’m 59 1/2, and I’ve got about $500,000 in a 401(k) from a previous job along with $125,000 from a job I started five years ago. We’ve been thinking about just paying the loans off for the girls, but we wanted to know your thoughts.

Mike

Dear Mike,

If I were in your shoes, I’d just go ahead and pay them off. Technically, you’re liable for the loans. They are not.

The extended plan you’re talking about is garbage. In reality, it means the loans are never paid back. The extended plan is 30 years of not even making the principal payment. No interest is paid, and they don’t touch the principal. The whole thing works backward for 30 years, and it’s the very definition of a stupid government program.

I really don’t think you want your daughters to be part of something like this. But that means you’re going to be stuck with paying off these loans. You might as well just own it and pay them off now.

I want you to understand this, Mike. I don’t advise people to dip into their savings every time a problem comes up prior to retirement. But you’re 59 1/2, and at that point there’s no penalty. Plus, you’ve got $625,000 sitting there. You’re going to pull less than $60,000 out, plus a little in taxes, to make the problem go away. It’s not as bad as it could be, but I’m afraid you’re going to have to pay a little stupid tax on this one. I’m sure your girls didn’t know all this, but it’s a perfect example of what can happen when you put your faith in a stupid plan coming out of Washington, D.C.

I hate it for you guys—and everyone else in America who took out a bunch of student loans—because you’re getting messed over by your own government. The first way they messed you over was to put a student loan program out there and then tell you the way to success was to borrow tens and hundreds of thousands of dollars for a degree in left-handed puppetry. And now, guess what? You’re a barista! Then, they start shouting they’re going to forgive it all. After that it’s, “No, we’re not. Yes, we are. No, we’re not. Yes, we are.”

The fact is, they don’t intend to forgive it. It’s the biggest scam in history—mathematically speaking—perpetrated on the American public by our government.

— Dave

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