Debt to salary ratios?

Discuss various money matters here. Loans (federal and private), scholarships, lottery winnings, or other school finance related information and queries.
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j.wellington
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Debt to salary ratios?

Postby j.wellington » Fri Apr 02, 2010 11:12 am

I'm sure this has been discussed before, but I'm wondering if there is a rule-of-thumb ratio for how much you reasonably need to earn each year to pay off a certain amount of debt. Between scholarships, savings and sharing COL with my fiance, it's entirely possible I'll need less than $50K in loans for three years at a lower-end T1 school, though I'm padding it to $60-70K to be cautious. This should allow me to get by on Stafford without dipping into GradPlus. I would rather do nonprofit or public interest work and my lifestyle does not require giant paychecks, so long as I am not drowning in debt. What is the minimum salary I would need to pay off these amounts on schedule?

berkeleykel06
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Re: Debt to salary ratios?

Postby berkeleykel06 » Fri Apr 02, 2010 11:24 am

The rule of thumb I've always heard is that you would preferably not take out more in loans than you plan to earn in one year. So if you take out $60K in loans you want to start off in a job that pays at least $60K/year.

I personally wouldn't be too worried about $70K or less in Federal loans for a T1 school, especially if you end up doing PI.

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lallygag
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Re: Debt to salary ratios?

Postby lallygag » Fri Apr 02, 2010 11:40 am

berkeleykel06 wrote:The rule of thumb I've always heard is that you would preferably not take out more in loans than you plan to earn in one year. So if you take out $60K in loans you want to start off in a job that pays at least $60K/year.

I personally wouldn't be too worried about $70K or less in Federal loans for a T1 school, especially if you end up doing PI.


I agree. That wouldn't be too bad of a debt load overall, and for going into PI.

Also, here's a nifty tool - http://www.finaid.org/calculators/doctoraladvisor.phtml - "It is recommended that your educational loan payments represent no more than 10% to 15% of your income."

note: If you select Attorney from the drop down menu it'll automatically assign a starting wage of $97,300, so select "other" in the "Career" field and input the desired salary below, using appropriate interest rates, etc.

Z3RO
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Re: Debt to salary ratios?

Postby Z3RO » Fri Apr 02, 2010 11:52 am

So no law schools are worth paying sticker? (Presumably >200k debt)

I sort of doubt that...

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romothesavior
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Re: Debt to salary ratios?

Postby romothesavior » Fri Apr 02, 2010 11:56 am

Z3RO wrote:So no law schools are worth paying sticker? (Presumably >200k debt)

I sort of doubt that...


Again, it sounds like just a general rule of thumb. Maybe only apply it for schools outside the T6 or something?

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j.wellington
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Re: Debt to salary ratios?

Postby j.wellington » Fri Apr 02, 2010 11:59 am

Thanks for the help. I had never seen that calculator before.

Z3RO wrote:So no law schools are worth paying sticker? (Presumably >200k debt)

I sort of doubt that...


Well, no guideline is going to be applicable to every situation, but I would be extremely hesitant to take out more $200K in debt unless I was going to a truly elite school and had personal connections. But I'm probably more risk-averse than most when it comes to money.

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scribelaw
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Re: Debt to salary ratios?

Postby scribelaw » Fri Apr 02, 2010 12:02 pm

Z3RO wrote:So no law schools are worth paying sticker? (Presumably >200k debt)

I sort of doubt that...


I think these debt-to-income ratios tend to be a little too strict at the upper salary levels.

If you make $160k, you'll be taking home something like $8,000 a month after taxes, even in super high-taxes areas like NYC. At that salary, you can easily afford a $2,000-$2,500 loan payment.

Of course, the only trick is @ sticker, you'd want to be reasonably sure you will make that big salary.

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hans3n
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Re: Debt to salary ratios?

Postby hans3n » Fri Apr 02, 2010 5:15 pm

I was wondering this as well. Would a debt load that would be 2x larger than your starting salary be the worst idea ever? This may be naive of me, but how does the recent bill the president signed affect this? The legislation will cap a graduate's annual student-loan repayments at 10 percent of his or her income.

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j.wellington
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Re: Debt to salary ratios?

Postby j.wellington » Fri Apr 02, 2010 5:46 pm

hans3n wrote:I was wondering this as well. Would a debt load that would be 2x larger than your starting salary be the worst idea ever? This may be naive of me, but how does the recent bill the president signed affect this? The legislation will cap a graduate's annual student-loan repayments at 10 percent of his or her income.


I am not up to date on all the current proposed legislation regarding student loan reform, but under the College Cost Reduction and Access Act passed under Bush in 2007, your annual payments can be capped at 15% of your "discretionary income," which is defined as your adjusted gross income minus 150% of the federal poverty line. That's: 0.15 x [AGI - (1.5 x FPL)]. Confusing, yes. The same bill allows loans to be forgiven entirely after 10 years if you work in a public service field. I believe this is the most current law.

If you're talking about the much-hyped student loan reform that came with the health care reform bill, it doesn't actually make a huge difference for borrowers. The meat of it is that it takes away the privilege of private banks to distribute federal loans on the government's behalf; now you'll borrow straight from the treasury. I know there are (and always are) other student loan reforms floating around in Congress, but I'm not familiar with them. I'd be curious to know more about this 10% cap.

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hans3n
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Re: Debt to salary ratios?

Postby hans3n » Fri Apr 02, 2010 7:27 pm

Another thread discusses it a bit.

viewtopic.php?f=15&t=112736&start=25




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