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I graduated from my doctoral pharmacy program 1.5 years ago with ~215k of student loan debt.

So far, the balance has been paid down to 170k. The weighted-average of the interest rates is 7%.

Fortunately, I am blessed to have a startup (C-Corp) that is having great earnings EBITA > 1M. My business partner and I own >90% of the shares in the company. While we are paying ourselves lower than average salaries, we agreed to find ways to help reduce my student loan debt.

I have become a strong believer in paying debt down aggressively.

Unfortunately, the U.S. tax code is complicated. For example, if we give myself a huge lump-sum bonus through payroll - I am afraid that much of it will end up being taxed and will lose its impact on my student loan balance.

What would be the best strategy to leverage my C-Corp to pay off my loans?

Thanks!

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  • I'm doubtful that you'll really be able to do this in the way you seem to want. If the debt is held by you personally, any means of paying it off will count as income to you. Of course, you can spread the income out and reduce the tax burden by giving yourself small bonuses over multiple years instead of one big bonus, but that will result in paying off the loan more slowly. You could also attempt to get some income in lower-tax form via the corporation, but it would still be taxed. There's no way to suddenly pay all your debt without paying taxes on the money you used to do it.
    – BrenBarn
    Commented Jan 6, 2015 at 19:52
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    @BrenBarn, I do expect to pay taxes and know that there isn't a magical way to prevent it. I want to avoid the excessive tax. I know there are certainly a variety of strategies that can be exercised. For example, I could have the company give me a loan at 2% interest using my shares as the security. Because this would be a loan, it would not count as income. Then, I could then use payroll deductions to pay back my low-interest loan to my company. In that way, I would save 7-8K on interest payments within one year.
    – Matt
    Commented Jan 6, 2015 at 20:08

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Sorry, this isn't terribly helpful and I would post this as a comment but I'm new and apparently can't. Some considerations:

7% seems awfully high. Check SoFi and see if you can't refinance at a rate low(er) enough rate so that you won't be paying so much interest.

How does reinvesting 10k into the company compare to paying off loans? 1.5 years in, you've paid down a lot of interest already...

We would need a lot of particulars to give you specific advice, probably more than you're willing to give over the internet. Who does the financials for you business? They should be able to give you advice, or at least build the models specific for your situation to help you make a decision.

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  • jferr - Thanks for the advice. I'll take a look at SoFi along with some other alternatives and see if I can try refinancing at a lower fixed interest rate.
    – Matt
    Commented Jan 19, 2015 at 12:05

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