A few weeks ago, I mentioned that there might be a change in my student loan balance due to an inheritance (of sorts) that a close relative received. Actually, the 'close relative' is my father. Many (many) years ago when I was making some bad decisions in high school, my dad said, quote: "you get into college, and we'll find a way to pay for it". What I didn't realize at the time was that this meant students loans - for me.
After my first graduate degree was finished, my dad commented that when he received an expected inheritance, he would help me with my student loan balance (which was around $50,000 at that time). Over the years since then, I've not counted on that happening, for various reasons. One of those reasons is that I consider these loans to be 'mine', and therefore my responsibility to pay off. 
However, just recently, my dad started the conversation again about how he could help me with my student loan balance. The scheme he's come up with has its merits and its downsides. Basically, he will transfer some stock to me equal to about half the balance of my current student loans. Then it will be my decision whether to sell that stock immediately (taking a capital gains tax hit), or to hold the stock with the assumption that the shares will 'split' as they've done in the past (this is stock from a major U.S. company) and will eventually - in who knows how many years - be worth much more.
The merits of this plan are that at a minimum, I'll have about $25,000 to pay down my student loan balance if I'm willing to sell the stock immediately and take the tax hit. The downside? Knowing whether to sell right away or wait and see what happens with this stock. If I wait for the stock to split (and there's no guarantee that this will happen soon, though it looks like a possibility given the direction the stock is heading) and ultimately gain value again, I could have more of my balance paid off than if I were to sell right away.
What a conundrum! Looks like I've got some thinking (and learning) to do! In the meantime, I'm going to continue working on my second mortgage debt while paying at least the interest (but probably a little more than that) on my student loan balance.
Wednesday, December 22, 2010
Student loan shenanigans. . . .
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4 comments:
I would talk to a tax advisor. Debating on the value of the stocks when dad gives/gave them and today's value, you may not have too much of a hit. However, if dad moves over too much stock one/both of you will need to cover gift taxes. This may be something best done over time.
a bird in the hand is worth two in the bush..... or similar....
You of course will have to make up your own mind on this - like you said, yes, it's gambling. Find out what the taxes exactly will be, so you have ALL the figures you need to figure it all out...
If it goes up, you get the glory of more of your loan paid off.... but, if it goes down, then you have more to pay off... and what if it totally sinks for a few years???? Are you prepared for that scenario also?
In the meantime, the loan interest is building and building..... where is the breakeven point on the interest vs waiting a year or two???
Me? I'd go for the sure bet - sell now - but then I am VERY conservative and have NO tolerance for risk.....
You have to decide what's right for you :) Good luck and make sure you look at it from all the angles!
marci357
What a fantastic conundrum to have! When I see the word "inheritance" I always think that someone close to the person has died, but in your situation that isn't the case. :)
Why don't you sell half of them, take a smaller capital gains hit, and then let the other half sit to potentially grow? Your debt is cut down, and you have a decent sized investment account then.
The stock market is a gamble and a hard decision you'll have to make. I've had stocks that remain stable for months and others that fluctuate drastically in one day. As one of your readers said maybe withdraw half and reallocate the rest into stocks of varying risks. Remember that unless you have someone who is closely watching stocks daily it may be best to lean toward the conservative side just in case.
good luck!
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