How fast can loans be paid off? Forum

[Jas]

Okay, I'm sure this has been beaten to death, but can someone please tell me:

ASSUMING someone gets a biglaw job with, say, $135K salary
and that they have, say, $210K in loans (all federal direct sub and unsub and gradplus, no private)
and assuming that they are NOT big spenders (no car payment, no children, rent cap at $950/month)

How fast can these loans be paid off? The fastest possible way. Here's why I ask: the financial aid office at x top law school said something like, "If you listen to me, you can pay your loans off in 5-7 years." I'm thinking, is that the minimum?

Please share your thoughts and calculations.

[Jas]

...

[beesknees]

.

[Doritos]

Okay, I'm sure this has been beaten to death, but can someone please tell me:

ASSUMING someone gets a biglaw job with, say, $135K salary
and that they have, say, $210K in loans (all federal direct sub and unsub and gradplus, no private)
and assuming that they are NOT big spenders (no car payment, no children, rent cap at $950/month)

How fast can these loans be paid off? The fastest possible way. Here's why I ask: the financial aid office at x top law school said something like, "If you listen to me, you can pay your loans off in 5-7 years." I'm thinking, is that the minimum?

Please share your thoughts and calculations.

You are looking at taking home 90-95k after taxes with a 135k year salary. You say rent cap at 950? Factoring other bills (utilities, cell phone, gas, food, etc.) Let's say about 1600 per month to exist. That's right around 20k a year. I would factor in some money for unaccounted life things such as car repairs, new pair of shoes every now and again so let's add another 5k. This is living a very conservative lifestyle but 25k per year for you to live. You are looking at 65 to 70k to put down on your loans. Keep in mind you will have ZERO savings but it looks like it could be done in about 4 years (keep in mind the interest that is accumulating).

[BetterCallSaul]

you'll get raises over that that time too. I think if you get crazy you can make it happen in 3.5 years.

[itsfine]

. But I would say it'd be very tough to live THAT frugally while working a very demanding job.

I would think the more demanding the job the easier it is to live frugally, the busier I am the less time I have to spend money on stuff, less important a big apartment is, etc

[BetterCallSaul]

Also, for people who want to get crazy on their debt, look up Dave Ramsey. It'll make you feel less weird.

[Jas]

How about the other side of the "luck" spectrum, assuming $160K with raises and some modest bonus estimates?

[eth3n]

Isn't there a strong argument for keeping liquid funds on hand and paying at a more standard term? (although of course you will be paying back more) Like, if you get pink-slipped and while you may have very little debt your on the street because you have no money?

I know that this is not what the OP asked, just curious because fast-payoff is my natural reaction but I was convinced into taking the standard route especially ITE.

[BetterCallSaul]

Isn't there a strong argument for keeping liquid funds on hand and paying at a more standard term? (although of course you will be paying back more) Like, if you get pink-slipped and while you may have very little debt your on the street because you have no money?

I know that this is not what the OP asked, just curious because fast-payoff is my natural reaction but I was convinced into taking the standard route especially ITE.

If you think you're going to get laid off it makes sense to save up cash rather than throw it on debt. Nothing wrong with saving up 4-6 months of living expenses as an emergency fund and then going crazy on your debt if you have job stability issues.

Also, you don't need to lock yourself into a 5 year repayment plan, you can set up the standard term and overpay on it as you are able to.

[Jas]

I am going to post this so you can understand the reason for my confusion and/or pick it apart. Assuming:

Gross: 160,000
Net: 109,824
Living expenses: est. 30,000
Loan payments: 79,824
Monthly Loan Payments: 6,652

Assuming 210K debt, about 150,000 from Gradplus at 8.5% with about 66,000 stafford at around 6%, you can simplify the whole thing by using a 210,000 loan with a 7.9 interest rate and you get a three year loan term. That's without bonuses or raises, so you could either pay it off even quicker or just live an increasingly luxurious lifestyle.

So am I wrong? Or do people just not end up doing this?

[alexanderkaim]

Are there any good financial reasons to pay these loans off over 15 years instead of 3-5 years? Seems to me that we would end up paying less in the end if we just lived like students for a few more years.

[CG614]

Are there any good financial reasons to pay these loans off over 15 years instead of 3-5 years? Seems to me that we would end up paying less in the end if we just lived like students for a few more years.

Depends on what you do with the money. If you make the money earn more than the interest paid on the loan, then it is better to not pay the loans off quicker. But this is risky and usually not the best idea.

[vanwinkle]

you'll get raises over that that time too. I think if you get crazy you can make it happen in 3.5 years.

This is of course assuming you're not laid off and forced to settle for lower-paying work within those first 3-4 years, which is certainly possible these days even if you make a competent employee.

[BetterCallSaul]

I am going to post this so you can understand the reason for my confusion and/or pick it apart. Assuming:

Gross: 160,000
Net: 109,824
Living expenses: est. 30,000
Loan payments: 79,824
Monthly Loan Payments: 6,652

Assuming 210K debt, about 150,000 from Gradplus at 8.5% with about 66,000 stafford at around 6%, you can simplify the whole thing by using a 210,000 loan with a 7.9 interest rate and you get a three year loan term. That's without bonuses or raises, so you could either pay it off even quicker or just live an increasingly luxurious lifestyle.

So am I wrong? Or do people just not end up doing this?

You're not wrong, but I don't think anyone signs up for a 3 year loan term--you'd have to get a deferment the second anything about your life changes (baby, job loss, medical expenses...). My plan is to have a 10 year term and then overpay every month as much as I can.

People don't end up doing it because having a student loan is normal and they don't feel any urgency to get rid of it. They want to do other things like buy houses and cars and get in more debt.

[KG_CalGuy]

My plan is to have a 10 year term and then overpay every month as much as I can.

People don't end up doing it because having a student loan is normal and they don't feel any urgency to get rid of it. They want to do other things like buy houses and cars and get in more debt.

+1

[Jas]

My plan is to have a 10 year term and then overpay every month as much as I can.

People don't end up doing it because having a student loan is normal and they don't feel any urgency to get rid of it. They want to do other things like buy houses and cars and get in more debt.

+1

Oh, is that all? Awesome. I guess I'm not normal. I still don't trust you guys over the fin. aid office, but this discussion has been reassuring.

[usnwfu]

to play devils advocate here...

So your NEVER going to go out on a date? assuming you'd want to ... u might need a car cuz the bus just ain't gonna cut it these days

Dinner with colleagues? socializing? cable/tv and internet?

No car even after graduation? i mean... lets work with honest living numbers

950 rent + 200 car payment + 100 insurance + 70 gas (being conservative) + 100 tv/net + 75 cell phone + 100 bills + 400 groceries = almost 2000 NOT counting social life (which is important), other needs (laundry, cleaning supplies, shampoo, dry cleaning etc etc), life's misfortunes (car repair, lost xyz) ... i say a REALISTIC number to go off is 2,200 - 2,500 if ur looking at $950 rent.

I mean u can just live off McD/Wendys/BK value menu for about $10 a day... so cut food to $300 a month but i suggest you watch supersize me before making that decision.

P.S. I don't know about 'real' lawyers but I assuming a 135k associate won't drive a 1980 buick and wear a $99 suit everyday.

::edit:: and depending where u work, think about state/local/social security taxes

[MTal]

Yes, go ahead and take out $210k in loans for a 10 % chance of getting a job which MAY allow you to pay back your loans within 5-7 years. As series 7/63 licensed broker I can tell you that this is the type of thinking which turns people into MILLIONAIRES!

*Note, obvious sarcasm intended.

[Mr. Matlock]

Yes, go ahead and take out $210k in loans for a 10 % chance of getting a job which MAY allow you to pay back your loans within 5-7 years. As series 7/63 licensed broker I can tell you that this is the type of thinking which turns people into MILLIONAIRES!

*Note, obvious sarcasm intended.

Dammit MTal, if you're going to post, you could at least pass along a few hot market tips, here and there.

[BetterCallSaul]

to play devils advocate here...

So your NEVER going to go out on a date? assuming you'd want to ... u might need a car cuz the bus just ain't gonna cut it these days

Dinner with colleagues? socializing? cable/tv and internet?

No car even after graduation? i mean... lets work with honest living numbers

950 rent + 200 car payment + 100 insurance + 70 gas (being conservative) + 100 tv/net + 75 cell phone + 100 bills + 400 groceries = almost 2000 NOT counting social life (which is important), other needs (laundry, cleaning supplies, shampoo, dry cleaning etc etc), life's misfortunes (car repair, lost xyz) ... i say a REALISTIC number to go off is 2,200 - 2,500 if ur looking at $950 rent.

P.S. I don't know about lawyers yet but I assuming a 135k associate won't drive a 1980 buick and wear a $99 suit everyday.

::edit:: and depending where u work, think about state/local/social security taxes

you think you'll have time to go on dates?!

say no to car payments! take the bus or drive a clunker.
see? now you have $200/month for dates.

Having a spouse who is willing to go crazy on debt with you makes it a lot easier. No dates. Two incomes. Someone to pack your lunches...now is a good time to lock someone down.

In seriousness, even if you budget 2200-2500 a month you can pay down debt super fast--it's however low you can go while staying motivated.

[sanpiero]

Assuming a T14, I think a better (more conservative) choice would be a salary of $120k but we'll run with 135. After SS, state tax, federal tax, and local income taxes, I think you'll net about 65% (23% federal, 4% state/local, 7.65% SS), or ~$88k. Assuming low expenses (~$23k), this leaves you about $65k.

210k debt @8% (150k @ 8.5%/60k @ 6.8%)

3 year repayment: $79,000/yr
4 year repayment: 61,500/yr
5 year repayment: 51,000/yr

Looks like 4 years is doable on a strict budget (see: no tropical vacations). 3 years would be virtually impossible w such a salary. Even if you lived like a student and found a market-paying gig (160k), 3 years would be extremely difficult.

[MTal]

Yes, go ahead and take out $210k in loans for a 10 % chance of getting a job which MAY allow you to pay back your loans within 5-7 years. As series 7/63 licensed broker I can tell you that this is the type of thinking which turns people into MILLIONAIRES!

*Note, obvious sarcasm intended.

Dammit MTal, if you're going to post, you could at least pass along a few hot market tips, here and there.

Fastest possible way for me to lose my license...but if it weren't for that, I totally would.

[alexanderkaim]

to play devils advocate here...

I mean u can just live off McD/Wendys/BK value menu for about $10 a day... so cut food to $300 a month but i suggest you watch supersize me before making that decision.

You could also shop at a grocery store and spend even less than $10 a day for healthier food.

[mrm2083]

Move back in with parents for 2-3 yrs. Problem solved