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WhiteyCakes
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Re: Debt Pwnage Calculator

Postby WhiteyCakes » Sat Mar 16, 2013 1:01 pm

NYstate wrote:
kappycaft1 wrote:
NYstate wrote:The law just changed last July. I'm not sure how well people know this shit.

Hopefully at least one person among a group of people hoping to become lawyers understands the law, especially when it directly affects how much money they will owe. If not, maybe the "lawyers are bad at math" argument is true. :lol:

My feeling is that most people don't even want to know their loan balance. Or try to know the exact amount of their monthly payment. Most people arent really adding up their 3 years of debt before they go. As long as the loans cover it, they figure they will worry about it later. Just my impression. I'm willing to bet that most the current students don't know their current loan balance.


True for me for undergrad, not true for law school.

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smaug_
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Re: Debt Pwnage Calculator

Postby smaug_ » Sat Mar 16, 2013 1:13 pm

NYstate wrote: most the current students don't know their current loan balance

:oops: Guilty. I've done the math before, but I generally try to focus on where my debt will be when I exit. I think most people probably have an idea as to how much money they will owe (although I'd guess that most people lowball it.) I'd hope that most folks go through the "this is a large amount of money" stage and the "realistically, how long will this debt take to pay off at different income levels" stages of thought before boarding the debt cruise.
Last edited by smaug_ on Sat Mar 16, 2013 1:24 pm, edited 1 time in total.

annieT
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Re: Debt Pwnage Calculator

Postby annieT » Sat Mar 16, 2013 1:15 pm

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dixiecupdrinking
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Re: Debt Pwnage Calculator

Postby dixiecupdrinking » Sat Mar 16, 2013 1:20 pm

hibiki wrote:
NYstate wrote: most the current students don't know their current loan balance

:oops: Guilty. I've done the math before, but I generally try to focus on where my debt will be when I exit. I think most people probably have an idea as to how much money they will owe (although I'd guess that most people lowball it.) I'd hope that most folks when through the "this is a large amount of money" stage and the "realistically, how long will this debt take to pay off at different income levels" stages of thought before boarding the debt cruise.

I don't know how much I owe right now either, though I have a general idea. What's the point? I looked at the numbers, made my decisions, and I'll deal with the financial consequences when the time comes. The last thing I need is the stress of keeping track of my loan balances to the last dollar when I can't do anything about it yet anyway.

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Lincoln
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Re: Debt Pwnage Calculator

Postby Lincoln » Sat Mar 16, 2013 1:25 pm

kappycaft1 wrote:
Lincoln wrote:Repayment on private loans typically starts immediately, whereas payment on GradPlus loans starts six months after graduation (which is right after many BigLaw jobs start). Although GradPlus loans accrue interest during the time you are in school, the interest isn't compounded (meaning there's no additional interest applied to unpaid interest) until repayment starts. If you ever lose your job or get a lower-paying job, you can reduce your monthly payment in various ways (e.g. IBR). Conversely, if you feel like you can pay more, you can pre-pay and direct such pre-payment towards your high-interest loans. Neither of these options carry a penalty, whereas most private loans punish you for paying early.

I might need to fix the way the calculations are done, then; I thought that the interest that begins accruing on loans (both Federal Direct Unsubsidized Loans and Federal Direct PLUS Loans) was compounded even while you are in school. Not that I'm doubting this, but could you please provide a link just so I can confirm and thereby update the calculator? The way that it is phrased in the Need Access handbook is kind of vague:

Need Access wrote:Grad PLUS loans go into repayment as soon as the funds are disbursed. However, they are automatically placed in an in-school deferment as long as you're enrolled in school at least half-time. They'll also be placed in deferment status for the first six months after you graduate or if your enrollment status changes to less than half-time. You can waive the deferments, but keep in mind they're in place so that you can align the repayment start dates for your Grad PLUS loans with your Federal Direct Unsubsidized Loans.

During any period of deferments or forbearance (meaning when you have permission from the loan servicer to postpone payment), interest will accrue and be added to the principal loan balance at the end of the deferment or forbearance period. You will have the right to pay the interest as it accrues if you can afford to do so. This way you won't get hit with a big lump sum at the end.


See the bolded, although I agree that it is less-than-clear. While you are in law school, the deferment ends six months after you graduate. I'm a 3L who just sat through two depressing and mind-numbingly boring hours of a seminar on managing your education debt, so I'm pretty confident about this.

20141023
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Re: Debt Pwnage Calculator

Postby 20141023 » Sat Mar 16, 2013 1:27 pm

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Last edited by 20141023 on Sat Feb 14, 2015 9:22 pm, edited 1 time in total.

qwertyboard
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Re: Debt Pwnage Calculator

Postby qwertyboard » Sat Mar 16, 2013 1:39 pm

Threads like this makes me almost summoned the courage to ask almost millionaire family members for some money...

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Lincoln
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Re: Debt Pwnage Calculator

Postby Lincoln » Sat Mar 16, 2013 1:41 pm

Obligatory disclosure: I'm not a tax lawyer, or a lawyer at all. This isn't meant to constitute legal advice. If you need legal or tax advice consult someone licensed to blah blah blah.

Keep in mind that for tax purposes, and because of the time value of money, rapid repayment is not always the best option. For example, assume you are a junior associate at a big firm. If your tax filing status is single and you don't have any other significant deductions, you are likely taking the standard deduction rather than itemizing deductions. That means you cannot deduct the interest you are paying on your student loans. Now let's say you are interested in some day buying a house. In that case, it may make sense to lower your payments (say, do the 25-year repayment plan rather than the 10-year repayment plan) and instead use your income to save up for a down-payment. Once you have bought your house, you will likely be able to itemize deductions, because you are paying interest on both your mortgage and your student loan and the combined interest payments likely exceed the standard deduction. Because you are in a high marginal tax bracket, the additional interest you are paying on your federal loans may well be lower than the savings in taxes. Combined with the time value of money (that last payment you make in 25 years is, because of inflation, worth significantly less than the first payment) it may be financially much more prudent to reduce payments.

But, on the other hand, if you get pushed out of BigLaw in 3 years and all of a sudden make $60,000, you might lose your house and be unable to make your loan payments and it's all for naught.

TL;DR: This shit is complicated and gives me an ulcer.

NYstate
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Re: Debt Pwnage Calculator

Postby NYstate » Sat Mar 16, 2013 1:43 pm

dixiecupdrinking wrote:
hibiki wrote:
NYstate wrote: most the current students don't know their current loan balance

:oops: Guilty. I've done the math before, but I generally try to focus on where my debt will be when I exit. I think most people probably have an idea as to how much money they will owe (although I'd guess that most people lowball it.) I'd hope that most folks when through the "this is a large amount of money" stage and the "realistically, how long will this debt take to pay off at different income levels" stages of thought before boarding the debt cruise.

I don't know how much I owe right now either, though I have a general idea. What's the point? I looked at the numbers, made my decisions, and I'll deal with the financial consequences when the time comes. The last thing I need is the stress of keeping track of my loan balances to the last dollar when I can't do anything about it yet anyway.


It wasn't a judgement. This not looking at debt seems to be how most people cope. I remember a thread last year of people who were looking at their balance around the time they graduated and they seemed to be a little stunned by the total. They were hesitant to look, probably for similar reasons.

I was explaining to kappycaft1 why people may not know exactly how these new provisions work. If you were already in school when the july revisions took affect, what were you going to do about it? You had to accept it.

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guano
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Re: Debt Pwnage Calculator

Postby guano » Sat Mar 16, 2013 2:29 pm

Lincoln wrote:Obligatory disclosure: I'm not a tax lawyer, or a lawyer at all. This isn't meant to constitute legal advice. If you need legal or tax advice consult someone licensed to blah blah blah.

Keep in mind that for tax purposes, and because of the time value of money, rapid repayment is not always the best option. For example, assume you are a junior associate at a big firm. If your tax filing status is single and you don't have any other significant deductions, you are likely taking the standard deduction rather than itemizing deductions. That means you cannot deduct the interest you are paying on your student loans. Now let's say you are interested in some day buying a house. In that case, it may make sense to lower your payments (say, do the 25-year repayment plan rather than the 10-year repayment plan) and instead use your income to save up for a down-payment. Once you have bought your house, you will likely be able to itemize deductions, because you are paying interest on both your mortgage and your student loan and the combined interest payments likely exceed the standard deduction. Because you are in a high marginal tax bracket, the additional interest you are paying on your federal loans may well be lower than the savings in taxes. Combined with the time value of money (that last payment you make in 25 years is, because of inflation, worth significantly less than the first payment) it may be financially much more prudent to reduce payments.

But, on the other hand, if you get pushed out of BigLaw in 3 years and all of a sudden make $60,000, you might lose your house and be unable to make your loan payments and it's all for naught.

TL;DR: This shit is complicated and gives me an ulcer.

The amount of student loan interest that you can deduct is very low ($2500) and phases out if your income is between $60k-$70k, so, no, you can't deduct your student loan interest if you're in biglaw.

Yes, if you're interested in buying a home, you should scrounge enough money together for the down payment. However, you shouldn't save a penny more. You don't want to be paying significant amounts of interest in the early years to get a deduction on a small amount of interest later (currently, and for the foreseeable future, mortgage interest is significantly lower than student loans)

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guano
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Re: Debt Pwnage Calculator

Postby guano » Sat Mar 16, 2013 2:32 pm

dixiecupdrinking wrote:
kappycaft1 wrote:
NYstate wrote:The law just changed last July. I'm not sure how well people know this shit.

Hopefully at least one person among a group of people hoping to become lawyers understands the law, especially when it directly affects how much money they will owe. If not, maybe the "lawyers are bad at math" argument is true. :lol:

I am fairly confident that interest accrues but does not compound while you are in school; it's then capitalized when you enter repayment and from that point forward becomes part of your principle balance on which interest accrues.

I actually think that federal loans never compound interest, even in repayment, though I am less confident on that.

I can't (read: don't care enough to) point to any language to substantiate these claims at the moment.

declining balance loans never compound interest (technically, only increasing loan balances can compound), but that doesn't mean the effect is any different.

dixiecupdrinking
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Re: Debt Pwnage Calculator

Postby dixiecupdrinking » Sat Mar 16, 2013 2:57 pm

NYstate wrote:
dixiecupdrinking wrote:
hibiki wrote:
NYstate wrote: most the current students don't know their current loan balance

:oops: Guilty. I've done the math before, but I generally try to focus on where my debt will be when I exit. I think most people probably have an idea as to how much money they will owe (although I'd guess that most people lowball it.) I'd hope that most folks when through the "this is a large amount of money" stage and the "realistically, how long will this debt take to pay off at different income levels" stages of thought before boarding the debt cruise.

I don't know how much I owe right now either, though I have a general idea. What's the point? I looked at the numbers, made my decisions, and I'll deal with the financial consequences when the time comes. The last thing I need is the stress of keeping track of my loan balances to the last dollar when I can't do anything about it yet anyway.


It wasn't a judgement. This not looking at debt seems to be how most people cope. I remember a thread last year of people who were looking at their balance around the time they graduated and they seemed to be a little stunned by the total. They were hesitant to look, probably for similar reasons.

I was explaining to kappycaft1 why people may not know exactly how these new provisions work. If you were already in school when the july revisions took affect, what were you going to do about it? You had to accept it.

Yeah, I wasn't feeling defensive or anything. Sorry if it came off that way. I agree with you, was just elaborating on why.
guano wrote:
dixiecupdrinking wrote:I am fairly confident that interest accrues but does not compound while you are in school; it's then capitalized when you enter repayment and from that point forward becomes part of your principle balance on which interest accrues.

I actually think that federal loans never compound interest, even in repayment, though I am less confident on that.

I can't (read: don't care enough to) point to any language to substantiate these claims at the moment.

declining balance loans never compound interest (technically, only increasing loan balances can compound), but that doesn't mean the effect is any different.

Can you elaborate on this? I don't have the most sophisticated financial background. I was thinking of a scenario where your payments are less than the rate at which interest is accruing, if you're on IBR for instance. I think, but I'm not positive, that in that scenario, you will only continue to accrue interest on the principle amount, and your accrued interest will not compound, despite the negative amortization.

20141023
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Re: Debt Pwnage Calculator

Postby 20141023 » Sat Mar 16, 2013 4:47 pm

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Last edited by 20141023 on Sat Feb 14, 2015 9:22 pm, edited 1 time in total.

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guano
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Re: Debt Pwnage Calculator

Postby guano » Sat Mar 16, 2013 4:53 pm

http://studentaid.ed.gov/repay-loans/understand/plans/income-based http://www.finaid.org/loans/ibr.phtml
it took me less than 5 seconds to find this in google

That being said, if your payment is less than the interest on the loan, for the first 3 years the excess will be forgiven. Thereafter unpaid interest will be capitalized, meaning that your loan balance grows and interest will be calculated on the increased balance
So, if your balance is $100,000 starting out, at a rate of 7.9%, the interest per year is $7,900 (yes, I'm ignoring stafford loans)
Now let's say your annual income is $60k, so your monthly repayment is capped at $547
You're short $1,336 per year. For the first 3 years, that will be forgiven.
If, in year 4, you're still only making $60k, then at the end of the year your loan balance will be $101,336 (yes, I'm using annual calculations, not monthly; reality will be slightly worse)
The next year, the interest will be $8,006; after making that same payment, by the end of year 5 you will owe $102,776
This will keep growing until you hit the 20/25 year mark, when your outstanding balance will be forgiven.
Sounds good? No it isn't. Let's say your loan has grown to $200,000 at this point. Well, that will be taxed as ordinary income. Let's fiddle the numbers for ease of use and say that you now owe $60k tax to the IRS on that forgiven loan. So, you have 2 options:
1) make a payment plan with the IRS - you get to keep whatever stuff you've accumulated, but you'll need to keep paying for years to come. The IRS will probably limit your payments using a formula similar to IBR, but they'll charge interest on the unpaid balance. Welcome to indentured servitude.
2) Go bankrupt. You couldn't afford to make more than minimal payments for the last quarter century, when did you have a chance to accumulate jack shit? Congratulations, you're now debt free. You also have no assets, and may have trouble with the bar (as well as many employers who run a credit check as part of your general background). You get to spend the rest of your life working in the local kwik-e-mart, sucking the leftovers out of the slurpy machine.

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guano
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Re: Debt Pwnage Calculator

Postby guano » Sat Mar 16, 2013 4:55 pm

kappycaft1 wrote:Thank you all for providing more insight into this. So, just to make sure that I am getting the calculations right, if someone went to law school "at sticker" and paid $75,000 for COA per year, their breakdown would work as follows (hypothetically assuming that they didn't pay anything back for 6 years, starting from the end of their first year at law school):

End of Year 1:
To Date Federal Direct Unsubsidized Loans: $20,500.00
To Date Federal Direct PLUS Loans: $54,500.00
To Date Interest Accumulated on Federal Direct Unsubsidized Loans: $1,394.00
To Date Interest Accumulated on Federal Direct PLUS Loans: $4,305.50
To Date Total: $80,699.50

End of Year 2:
To Date Federal Direct Unsubsidized Loans: $41,000
To Date Federal Direct PLUS Loans: $109,000.00
To Date Interest Accumulated on Federal Direct Unsubsidized Loans: $4,182.00
To Date Interest Accumulated on Federal Direct PLUS Loans: $12,916.50
To Date Total: $167,098.50

End of Year 3:
To Date Federal Direct Unsubsidized Loans: $61,500.00
To Date Federal Direct PLUS Loans: $163,500.00
To Date Interest Accumulated on Federal Direct Unsubsidized Loans: $8,364.00
To Date Interest Accumulated on Federal Direct PLUS Loans: $25,833.00
To Date Total: $259,197.00

End of Year 3.5: - End of Deferment Period
To Date Federal Direct Unsubsidized Loans: $61,500.00
To Date Federal Direct PLUS Loans: $163,500.00
To Date Interest Accumulated on Federal Direct Unsubsidized Loans: $10,455.00
To Date Interest Accumulated on Federal Direct PLUS Loans: $32,291.25
To Date Total: $267,746.25

End of Year 4:
To Date Federal Direct Unsubsidized Loans: $61,500.00
To Date Federal Direct PLUS Loans: $163,500.00
To Date Interest Accumulated on Federal Direct Unsubsidized Loans: $12,901.47
To Date Interest Accumulated on Federal Direct PLUS Loans: $40,025.00
To Date Total: $277,926.47

End of Year 5:
To Date Federal Direct Unsubsidized Loans: $61,500.00
To Date Federal Direct PLUS Loans: $163,500.00
To Date Interest Accumulated on Federal Direct Unsubsidized Loans: $17,960.77
To Date Interest Accumulated on Federal Direct PLUS Loans: $56,103.48
To Date Total: $299,064.25

End of Year 6:
To Date Federal Direct Unsubsidized Loans: $61,500.00
To Date Federal Direct PLUS Loans: $163,500.00
To Date Interest Accumulated on Federal Direct Unsubsidized Loans: $23,364.10
To Date Interest Accumulated on Federal Direct PLUS Loans: $73,452.15
To Date Total: $321,816.26

Does this math work out? If it looks okay, I am going to update the calculator to reflect the interest not to compound until 3.5 years have passed. I am also going to recalculate the origination fee based on this.

Does this factor in repayments?

20141023
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Re: Debt Pwnage Calculator

Postby 20141023 » Sat Mar 16, 2013 5:01 pm

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Last edited by 20141023 on Sat Feb 14, 2015 9:23 pm, edited 1 time in total.

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guano
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Re: Debt Pwnage Calculator

Postby guano » Sat Mar 16, 2013 5:09 pm

kappycaft1 wrote:
guano wrote:Does this factor in repayments?

kappycaft1 wrote:(hypothetically assuming that they didn't pay anything back for 6 years, starting from the end of their first year at law school)

No, I am just trying to make sure that the calculation of how the interest accrues is correct before getting into that... but from what it sounds like that might not be possible because of the whole 3-year forgiveness thing if the payments are less than interest.

Also, thanks for sharing those links. Because of the way laws have changes since I was in undergrad and the loans I will be borrowing in general are different (not to mention the amount a lot more), I want to make sure I have a sound repayment plan going in so that I don't run into any surprises. :wink:

easy: get biglaw, pay as much as you possibly can toward your loans, don't waste money on things you don't need and curtail your drinking/traveling/fine dining (or whatever else you;d do) during your downtime.

If you don't get biglaw, expect bigbankruptcy (just kidding)

As an aside, feel free to take whatever you want from the spreadsheets I linked earlier and amend as you see fit. The calculator created by Hobie has a good layout (especially in terms of repayment), though I'm fairly certain you can improve on it in many ways.

dixiecupdrinking
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Re: Debt Pwnage Calculator

Postby dixiecupdrinking » Sat Mar 16, 2013 7:26 pm

guano wrote:http://studentaid.ed.gov/repay-loans/understand/plans/income-based http://www.finaid.org/loans/ibr.phtml
it took me less than 5 seconds to find this in google

That being said, if your payment is less than the interest on the loan, for the first 3 years the excess will be forgiven. Thereafter unpaid interest will be capitalized, meaning that your loan balance grows and interest will be calculated on the increased balance
So, if your balance is $100,000 starting out, at a rate of 7.9%, the interest per year is $7,900 (yes, I'm ignoring stafford loans)
Now let's say your annual income is $60k, so your monthly repayment is capped at $547
You're short $1,336 per year. For the first 3 years, that will be forgiven.
If, in year 4, you're still only making $60k, then at the end of the year your loan balance will be $101,336 (yes, I'm using annual calculations, not monthly; reality will be slightly worse)
The next year, the interest will be $8,006; after making that same payment, by the end of year 5 you will owe $102,776
This will keep growing until you hit the 20/25 year mark, when your outstanding balance will be forgiven.
Sounds good? No it isn't. Let's say your loan has grown to $200,000 at this point. Well, that will be taxed as ordinary income. Let's fiddle the numbers for ease of use and say that you now owe $60k tax to the IRS on that forgiven loan. So, you have 2 options:
1) make a payment plan with the IRS - you get to keep whatever stuff you've accumulated, but you'll need to keep paying for years to come. The IRS will probably limit your payments using a formula similar to IBR, but they'll charge interest on the unpaid balance. Welcome to indentured servitude.
2) Go bankrupt. You couldn't afford to make more than minimal payments for the last quarter century, when did you have a chance to accumulate jack shit? Congratulations, you're now debt free. You also have no assets, and may have trouble with the bar (as well as many employers who run a credit check as part of your general background). You get to spend the rest of your life working in the local kwik-e-mart, sucking the leftovers out of the slurpy machine.

I still don't see any indication that the interest is capitalized on an ongoing basis when you're in repayment.

In fact, your first link says: "Limitation on the capitalization of interest—While you have a partial financial hardship, interest that accrues but is not covered by your loan payments will not be capitalized, even if interest accrues during a deferment or forbearance."

[Edit: The second link says: "Interest on unsubsidized loans and interest that accrues on subsidized Stafford loans after the first three years will be capitalized upon status changes (e.g., a borrower is no longer eligible for IBR or chooses to switch to a different repayment plan)." This seems to imply that interest does not capitalize unless/until you leave IBR.]

So if you're on IBR, it seems to be the case that your accrued interest doesn't compound. ("Partial financial hardship" is defined as when your IBR payment is less than your payment would be under a ten-year plan, so should pretty much apply to everyone on IBR.)

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guano
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Re: Debt Pwnage Calculator

Postby guano » Sat Mar 16, 2013 8:47 pm

It took me a sec to find it. Most websites don't go into it, or at most talk about how the govt will pick up the unpaid interest during the first three years (and silent on what happens thereafter. It took me a while to find this nugget (in one of those links):
Borrowers who are concerned about the potential for negative amortization, where the amount owed grows because the payments are less than the interest that accrues, always have the option of increasing the payment to at least the interest since federal education loans do not have prepayment penalties.
tuis doesn't come out and say it, but implies that your loan balance will increase if you don't make sufficient payments. There are other indicators as well, but it seems like nobody wants to mention the elephant in the room

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BlueJeanBaby
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Re: Debt Pwnage Calculator

Postby BlueJeanBaby » Sat Mar 16, 2013 9:54 pm

Someone told me you can add your student loan debt to your mortgage. Anyone ever heard of this or why it would be beneficial?

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guano
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Re: Debt Pwnage Calculator

Postby guano » Sat Mar 16, 2013 9:59 pm

BlueJeanBaby wrote:Someone told me you can add your student loan debt to your mortgage. Anyone ever heard of this or why it would be beneficial?

No, you can't.
What you can do is A) take out a mortgage to pay for school, or B) take out a HELOC to pay off your loan.
In both cases the advantages are:
1) lower interest rate
2) no limit on tax deduction of interest generally; talk to an accountant for details
3) debt is dischargeable in bankruptcy

The general downside is that screwing up payments on a mortgage is more problematic than screwing up payments on student loans (you're more likely to lose your home if you miss a mortgage payment). This is especially true in states that give very generous homestead protections in their bankrupty laws




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