Deep Thoughts: Go Back To Work Or Pay Off Loans?

Deep Thoughts: Go Back To Work Or Pay Off Loans?

You’re probably scratching your head in bewilderment. The title of this article doesn’t make a whole lot of sense. Or at least it doesn’t seem like it does. You might be asking, “Dr. McFrugal, what does going back to work have to do with paying off loans? Who’s going back to work anyway? And I thought you already paid off all your student loans?!

Well, your’e absolutely right. Yes, I’m still working full time as a physician and I don’t have any more student loans to worry about.

But here’s the thing. These deep thoughts don’t concern me specifically. It’s really about my wife.

If you recall, my wife was granted a generous 14 month maternity leave a week before our baby girl was born. And now our daughter is almost 14 months old now! Time flies (either that or you lose track of it!) when you have a baby.

 

All Good Things Must Come to an End

My wife really enjoyed maternity leave. Sure, it wasn’t easy. And there were probably bouts of postpartum anxiety and mild depression sprinkled in throughout the early stages. But overall, she would tell you that it was a wonderful experience.

Now that it’s coming to an end, my wife sorta dreads going back to work. It’s not because she fears the work itself. She has a law career that allows for a decent degree of lifestyle enjoyment and she has a very supportive workplace environment.

What makes her sad is leaving the baby when she goes to work. It is so hard to let go of someone who has been so dependent on you and has been so attached to your body/chest/heart/soul for so long.

Who’s going to take care of her? How can I entrust a stranger to act in her best interest? Thoughts like this come to mind when a primary caregiver faces the reality of going back to work.

 

Childcare Options

If you’re fortunate enough to have parents (baby’s grandparents) nearby, that provides a lot of help with childcare. Unfortunately, neither of our parents live super close. They would only be available for two days a week.

So that left us with deciding between sending her to daycare versus having a nanny.

We checked out a nearby daycare center, but we weren’t totally in love with it. While it was nice, we weren’t sure if it was the right environment for our daughter.

Ultimately, we decided to go with looking for a nanny. My wife wanted our daughter to be at home where she is comfortable and have one-on-one attention from one primary caregiver. Luckily we found a nanny through a friend we trust.

Searching for a nanny was a stressful process. Before finding the right nanny, we interviewed candidates that were far from ideal.

At one point, we also entertained the thought of having my wife become a stay at home mom.

 

What If One Of Us Stayed Home?

First of all, I am not leaving my job. I have a career that I enjoy, great colleagues, a pretty good work environment that promotes work-life balance, and a high salary that allows our family to live a semi lavish lifestyle while saving quite a bit of money for financial independence. From a financial standpoint, it would not make any sense.

It also wouldn’t make financial sense for my wife to stay at home either. She doesn’t make a whole lot of money (relative to me, at least), but it’s still quite a bit more than what we would pay a nanny. Additionally, we would risk not having her $200,000+ law school loans forgiven by the government through public service loan forgiveness (PSLF). If you recall from a previous article I had written, she would have to go back to full time work for another five years to qualify for loan forgiveness.

It’s pretty clear that the economics does not favor either one of us staying home.

But money isn’t everything.

As parents, we all want the best for our kids. What if my wife staying at home is truly the best thing for our daughter?

With that in mind, I decided to run a few thought experiments…

Scenario 1: Wife stays home and doesn’t return to work

While it doesn’t make sense financially, it’s totally doable.

Ever since the PSLF program, I was somewhat skeptical it would work out for us. Ten years (of making 120 monthly payments) is loooong time. A lot can happen in ten years.

Because of these doubts, we created a PSLF insurance side fund consisting of various taxable accounts between me and my wife. From the beginning, this was a part of our plan (which is detailed in our investor policy statement).

After five years in a growing bull market, this side fund is now large enough to pay off my wife’s student loans outright.

The pros:

• Wife stays at home with baby, which would make both her and baby happy.
• No more work-related stress.
• Peace of mind of having no more loans (other than our mortgage). We would be done with our student loans and we can finally move on with our lives.

The Cons:

• Depleting the PSLF side fund, which if not used could have accelerated our path to full financial freedom and been used to fund an early retirement.
• Paying capital gains tax on the realized gains after selling shares in the PSLF side fund.
• Losing out on tax free loan forgiveness. Instead of being forgiven $200,000+, we would have to pay $200,000+. That’s almost a half a million dollar swing!  (Edit: Physician on Fire wisely pointed out that we would either be forgiven $200,000+ or pay $200,000+, so it would not be a half a million dollar swing as I had initially written.)

 

Scenario 2: Wife stays home for now, then returns to work after a few years

When pursuing PSLF, you don’t necessarily have to make 120 consecutive qualifying payments within a defined 10 year period. You simply have to make 120 qualifying payments. There could be gaps in payments and the time period could span more than 10 years.

One idea that we floated around was having my wife stay at home now. Then in the future, when our kid(s) are in school, she can return to a government job (or other PSLF qualifying employer) in the future and apply for loan forgiveness later.

The pros:

• Wife stays at home with kid(s) while they are young and need the most attention.
• If she gets bored of being a stay at home mom, then the eventual return to work may provide some outside fulfillment.
• She would still be eligible for PSLF (hopefully).

The cons:

• Delaying loan forgiveness even longer is a significant risk, especially given my current doubts that it will work out. Will a gap in her payments reduce the changes of her being grandfathered in to the program? Multiple proposals have been made in Congress to change PSLF, so nobody knows what will happen.
• By the time my wife wants to return to work, there’s no guarantee that she’ll find a PSLF-qualifying job that she enjoys.
• The balance of her student loans (which has a high interest rate) will continue to grow even further. This would be a huge financial (and psychological) burden hanging over our heads.

 

Scenario 3: Wife returns to work, then leaves after loan forgiveness or whenever she wants

This is the path we ultimately chose.

Financially, it makes the most sense. And after we found a nanny we really liked, my wife was more at ease with the thought of leaving the baby in trusted hands. Knowing this, my wife doesn’t feel quite as sad about going back to work. To sweeten the pot, she can work from home once a week and she is entitled to a regular day off every other week and still be considered employed full time. She will only be away from baby for about 9 hours during those three to four days a week, which is not bad.

After much thought, we concluded that this would give us the greatest amount of flexibility for the future.

The hope is that after making five more years of qualified payments, she continues to be grandfathered in to the PSLF program and her loans will be forgiven. After that, we shall see. Maybe she’ll want to stay home and help the kid(s) with school. Or maybe she’ll work part time, find a fulfilling balance between work and home, and continue working until she’s sixty years old. Who knows.

I don’t have a crystal ball to foresee the future. But it’s nice to have flexibility and the ability to make choices based on what the future holds for us.

 

Final Thoughts

Being a parent is tough. Babies do not come with a user’s manual that provides all the answers and solutions. Sure, there are plenty of baby books out there, but the vast amount of information is overwhelming and at times it makes you feel like you’re “doing it all wrong” or “not doing enough”. For the most part, parents just have to figure it out on their own. Since my wife is the primary caregiver, she’s been trying to figure it all out for the past 14 months! And during that time, they formed a special mother-child bond.

My parental leave was short. It was only three weeks. And when I went back to work I thought about our daughter a lot. I can only imagine how my wife will feel when she goes back to work. For her, it will be a total lifestyle change. There will likely be plenty of emotion and tears. She’s such a loving, caring, committed, devoted mother. It’s going to be tough.

We both know it’s going to be tough for her, so we talk about it often. And during those conversations we always try to take a step back to maintain a perspective of gratitude. We are incredibly grateful that she has been able to stay at home with our baby for such a long time. Very few people have to opportunity to this. We are also grateful that we have such a healthy and happy baby girl. There is so much to be grateful for and nothing should ever be taken for granted.

Life is not easy. Parenting is not easy. Going back to work after a long maternity leave easy. Life is dynamic and always in flux. The decisions that we make based on these life changes is what life is all about. And in the end, it all works out.