$200,000 in loans - Net Income after taxes and payments

Discuss various money matters here. Loans (federal and private), scholarships, lottery winnings, or other school finance related information and queries.
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wesker
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Re: $200,000 in loans - Net Income after taxes and payments

Postby wesker » Wed Mar 09, 2011 9:04 pm

Basically, if you're dead set on PI or government work, there probably isn't much difference between $100k and $200k debt. Actually, that IBR calculator I linked earlier shows that both $100k and $200k net the same repayment per month. Believe it or not, some people do go to law school and don't want to do biglaw or even go into private practice. Don't get me wrong, six-figure debt is really scary, but there are ways to deal with it.


bigben wrote:As I said above, if you cannot even afford the 10 year minimum payments, chances are you are making a bad investment. Paying high interest for 25 years on an uncertain investment is a very poor financial decision. Loan forgiveness introduces a new wrinkle and deserves its own careful analysis, but your income would have to stay quite low for this to make sense, and you'd have to qualify for the public service forgiveness. I can't imagine the 25 year forgiveness being a good plan in any scenario.

If you think that your income is going to start low and then shoot up dramatically, well... all I can say is a trip to the casino would be a lot less painful.


Also, if this is the case, then no one interested in government work or PI should go to law school with anything less than a full ride (so you're only paying COA) or unless your parents are willing to pay for you go to.

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incase2011
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Re: $200,000 in loans - Net Income after taxes and payments

Postby incase2011 » Wed Mar 09, 2011 9:05 pm

Anonymous Loser wrote:
incase2011 wrote:My point was to give a very simple picture of the worst possible scenario.


Might as well base your example on private loans fixed at 13.25% if you want get the worst case scenario. Ignoring available lending and repayment programs is somewhat disingenuous.


Honestly, Anonymous Loser, I'm a 0L; I'm not familiar with these lending and repayment programs. It seems like you've got a good sense. Could you list the ones that will help to make this as accurate as possible? I'll make an updated thread (I've already got the take home figures - it's just a matter of recalculating the borrowing plan). Please keep in mind, I'm trying to keep these figures as broad as possible (no special or school specific advantages).

bigben
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Re: $200,000 in loans - Net Income after taxes and payments

Postby bigben » Wed Mar 09, 2011 9:14 pm

wesker wrote:Basically, if you're dead set on PI or government work, there probably isn't much difference between $100k and $200k debt. Actually, that IBR calculator I linked earlier shows that both $100k and $200k net the same repayment per month. Believe it or not, some people do go to law school and don't want to do biglaw or even go into private practice. Don't get me wrong, six-figure debt is really scary, but there are ways to deal with it.


bigben wrote:As I said above, if you cannot even afford the 10 year minimum payments, chances are you are making a bad investment. Paying high interest for 25 years on an uncertain investment is a very poor financial decision. Loan forgiveness introduces a new wrinkle and deserves its own careful analysis, but your income would have to stay quite low for this to make sense, and you'd have to qualify for the public service forgiveness. I can't imagine the 25 year forgiveness being a good plan in any scenario.

If you think that your income is going to start low and then shoot up dramatically, well... all I can say is a trip to the casino would be a lot less painful.


Also, if this is the case, then no one interested in government work or PI should go to law school with anything less than a full ride (so you're only paying COA) or unless your parents are willing to pay for you go to.

Many federal government attorneys make 100k+ within a few years.

Lower paying government and PI have two options. They can pay less for law school. Something like 100k at the very most but preferably significantly less than that. Let's be clear: basically every law student has this option. Most forgo this option for ill-perceived benefits of a higher ranked school. A select few forgo this option for a risk that might be worth it. Their second option is loan forgiveness. This requires careful planning and an absolute commitment to public service and a low salary for 10 years.
Last edited by bigben on Wed Mar 09, 2011 9:14 pm, edited 1 time in total.

Anonymous Loser
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Re: $200,000 in loans - Net Income after taxes and payments

Postby Anonymous Loser » Wed Mar 09, 2011 9:14 pm

Desert Fox wrote:
Anonymous Loser wrote:
bigben wrote:
wesker wrote:You'll be able to also consolidate these loans and average the interest rate. Regardless, I used the calcuator at 7.9% interest for the entire $200,000.

Why would anyone ever do this? Very foolish. You should leave them unconsolidated and put any extra cash toward the higher interest rate loan.


The consolidation rate is a weighted average.


If you pay down the higher rate, and only pay minimum on the low rate you can save money.


I misread and self-pwned. For some reason I thought bigben was under the assumption that consolidation would result in a higher overall rate; you guys are both totally right, of course.


edited to add: :oops:
Last edited by Anonymous Loser on Wed Mar 09, 2011 9:17 pm, edited 1 time in total.

Anonymous Loser
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Re: $200,000 in loans - Net Income after taxes and payments

Postby Anonymous Loser » Wed Mar 09, 2011 9:16 pm

incase2011 wrote: Could you list the ones that will help to make this as accurate as possible? I'll make an updated thread (I've already got the take home figures - it's just a matter of recalculating the borrowing plan). Please keep in mind, I'm trying to keep these figures as broad as possible (no special or school specific advantages).


Here is the Department of Education's FAQ on repayment plans.

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wesker
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Re: $200,000 in loans - Net Income after taxes and payments

Postby wesker » Wed Mar 09, 2011 9:22 pm

bigben wrote:Many federal government attorneys make 100k+ within a few years.

Right, and once your income begins to approach six-figures, your larger debt payments become more manageable (because you make more money). You'll still get your debt forgiven in 10 years and yes, it does require a 10 year commitment PI/gov't work.

Also, I'm assuming a manageable 10 year debt payment with a PI/gov't job and no dependents. I guess it really depends on where you currently are in your life. For example, someone graduating at 24-25 planning on government work would have their debt forgiven by the time they're 35. Once you throw children into the matter, obviously a lot changes. Kids are expensive, and for someone who's going to law school that's planning on having children in the near future, $100-200k begins to get a lot more daunting.

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incase2011
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Re: $200,000 in loans - Net Income after taxes and payments

Postby incase2011 » Wed Mar 09, 2011 9:41 pm

wesker wrote:
bigben wrote:Many federal government attorneys make 100k+ within a few years.

Right, and once your income begins to approach six-figures, your larger debt payments become more manageable (because you make more money). You'll still get your debt forgiven in 10 years and yes, it does require a 10 year commitment PI/gov't work.

Also, I'm assuming a manageable 10 year debt payment with a PI/gov't job and no dependents. I guess it really depends on where you currently are in your life. For example, someone graduating at 24-25 planning on government work would have their debt forgiven by the time they're 35. Once you throw children into the matter, obviously a lot changes. Kids are expensive, and for someone who's going to law school that's planning on having children in the near future, $100-200k begins to get a lot more daunting.


I think most people enter law school at 26 right? Graduate at 29, finish off loans at 39. That's gonna cut into the baby makin years...

The good news is: I've been looking at Federal Loans from anon's link. It seems like the main conclusion we should draw is that up to $20,500 each year should be calculated with a 6.8% interest rate.

Any suggestions? I just gave it a cursory glance. As someone stated before, it's difficult to ignore particular circumstances to establish a broad example.

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mr_toad
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Re: $200,000 in loans - Net Income after taxes and payments

Postby mr_toad » Wed Mar 09, 2011 9:55 pm

Two things. First, people keep mentioning kids, but kids are taken into account for IBR in that it's calculated based off of the federal poverty limit * 1.5. I'm fairly sure (though not certain) that this is calculated on a household level (which can be a negative because right now they take into account the income of your spouse but not his/her debt payments... eek). So more kids equals more money that is protected from IBR. It's fairly simple to figure out if you spend time with different options, but it would certainly be tough to send your kids to private schools if that's your thing.

The other thing is something I'm very curious about: if you start off in a big law gig and after three years you get canned and somehow find a job working for a government agency, can you change your repayment (edit add: in the sense of downsizing to IBR), or is that set once you select it at the beginning... ? Scary choice to make, if so.

rose711
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Re: $200,000 in loans - Net Income after taxes and payments

Postby rose711 » Wed Mar 09, 2011 10:11 pm

FeelTheHeat wrote:I for one appreciate the fact someone actually puts this out there with actual facts and numbers so 0Ls can see it without any TLS opinion and make a decision for themselves.

How long to pay back$150,000

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incase2011
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Re: $200,000 in loans - Net Income after taxes and payments

Postby incase2011 » Wed Mar 09, 2011 10:43 pm

I guess I'm confused - IBR doesn't pertain to private loans. What's the average amount of Federal Student Loans a student takes out? I feel like we're assuming it's the full amount.

bigben
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Re: $200,000 in loans - Net Income after taxes and payments

Postby bigben » Wed Mar 09, 2011 10:47 pm

incase2011 wrote:I guess I'm confused - IBR doesn't pertain to private loans. What's the average amount of Federal Student Loans a student takes out? I feel like we're assuming it's the full amount.

You can get federal loans for the full amount. Some people choose not to because private interest rates are lower. They are also variable, but chances are they will stay under 8%. But then you lose the federal repayment options.

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incase2011
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Re: $200,000 in loans - Net Income after taxes and payments

Postby incase2011 » Wed Mar 09, 2011 11:01 pm

Are private loans really lower? It seems like Federal loans are all under 8% from what I've seen so far.

Also, from the IBR website (http://www.finaid.org/loans/ibr.phtml):

"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). 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."

I started thinking. Alright, I'm working at 80k a year, or something like that, I'm doing pretty well because of my IBR plan, waiting for my 25 year cap. Interest is probably growing like crazy on my loans, but who cares?

Great, I just got some awesome promotion or find a better job, and I start doing well enough that I push past the IBR limit and no longer qualify. Ten years, up to 24 years (can you imagine!) of accrued interest falls on my head. Unless it's a massive pay increase, I'm screwed. One toe over the line, and the party's over. I mean 25 years is a long time.

So I guess you would factor in an appropriate interest repayment each month on top of your monthly IBR amount. I need to find out a little more about specific goverment loans, and I think I can give a pretty good loan repayment calculation for let's say $150,000 this time.

Edit: People were talking about gov't/PI work, which seems to make sense with a 10 year tax-free cap. I thought we should consider the private sector route.

Oh that reminds me. Everything that's discharged after 25 years; don't think we're not paying income tax on that. Lump sum as if you received a bonus that year.

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powerlawyer06
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Re: $200,000 in loans - Net Income after taxes and payments

Postby powerlawyer06 » Wed Mar 09, 2011 11:12 pm

This is the real break down with 200k of debt:

Stafford Loans
Loan Balance: $60,000.00
Adjusted Loan Balance: $60,000.00
Loan Interest Rate: 6.80%
Loan Term: 20 years
Monthly Loan Payment: $458.00

Graduate Plus Loans
Loan Balance: $140,000.00
Adjusted Loan Balance: $140,000.00
Loan Interest Rate: 7.90%
Loan Term: 20 years
Monthly Loan Payment: $1,162.32

Total Monthly Payment = $1620.32

If you are confident you can’t get big law and make 160k a year that payment is only 12% of your gross monthly income.

Of course Big Law is not easy to come by and you should make larger payments than the minimum but it is definitely affordable.

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incase2011
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Re: $200,000 in loans - Net Income after taxes and payments

Postby incase2011 » Wed Mar 09, 2011 11:42 pm

powerlawyer06 wrote:This is the real break down with 200k of debt:

Stafford Loans
Loan Balance: $60,000.00
Adjusted Loan Balance: $60,000.00
Loan Interest Rate: 6.80%
Loan Term: 20 years
Monthly Loan Payment: $458.00

Graduate Plus Loans
Loan Balance: $140,000.00
Adjusted Loan Balance: $140,000.00
Loan Interest Rate: 7.90%
Loan Term: 20 years
Monthly Loan Payment: $1,162.32

Total Monthly Payment = $1620.32

If you are confident you can’t get big law and make 160k a year that payment is only 12% of your gross monthly income.

Of course Big Law is not easy to come by and you should make larger payments than the minimum but it is definitely affordable.


Thanks for the post powerlawyer! With these amounts in mind, I'm going to create a new, more accurate topic at $150,000, which seems like a more accurate number.

What does it take to qualify for stafford loans and unsubsidized Grad PLUS loans? Anyone know off the top of their head? Can pretty much everyone qualify (I don't want to limit our reach here too much).

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powerlawyer06
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Re: $200,000 in loans - Net Income after taxes and payments

Postby powerlawyer06 » Thu Mar 10, 2011 12:04 am

incase2011 wrote:Thanks for the post powerlawyer! With these amounts in mind, I'm going to create a new, more accurate topic at $150,000, which seems like a more accurate number.

What does it take to qualify for stafford loans and unsubsidized Grad PLUS loans? Anyone know off the top of their head? Can pretty much everyone qualify (I don't want to limit our reach here too much).


A qualified Graduate PLUS Loan borrower does not have an adverse credit history (defined in regulations as being 90 days or more delinquent on any debt, or having a credit report that shows default, discharge, foreclosure, repossession, tax lien, wage garnishment or write-off of a Title IV debt during the five years preceding the date of the credit report). Note that Graduate and Professional Student PLUS loans do not use any kind of a debt-to-income ratio or FICO® score, unlike private education loans.

http://www.gradloans.com/graduate-plus-loan/

Anonymous Loser
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Re: $200,000 in loans - Net Income after taxes and payments

Postby Anonymous Loser » Thu Mar 10, 2011 1:29 am

incase2011 wrote:
Great, I just got some awesome promotion or find a better job, and I start doing well enough that I push past the IBR limit and no longer qualify. Ten years, up to 24 years (can you imagine!) of accrued interest falls on my head. Unless it's a massive pay increase, I'm screwed. One toe over the line, and the party's over. I mean 25 years is a long time.


The only way you "lose eligibility" for the IBR repayment plan is if you no longer have FFEL or Direct educational loans. There is no income limit to participation in the program. Thus, unless you opt out via a consolidation loan with a private lender, the capitalization issue you've raised is a non-issue. If you get an awesome promotion, don't make any changes to your repayment plan, simply make additional payments to principal. Or, in the alternative, simply make the maximum payments required, which will be equivalent to those required under the 10-year repayment program.
.

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incase2011
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Re: $200,000 in loans - Net Income after taxes and payments

Postby incase2011 » Thu Mar 10, 2011 2:13 am

Anonymous Loser wrote:
incase2011 wrote:
Great, I just got some awesome promotion or find a better job, and I start doing well enough that I push past the IBR limit and no longer qualify. Ten years, up to 24 years (can you imagine!) of accrued interest falls on my head. Unless it's a massive pay increase, I'm screwed. One toe over the line, and the party's over. I mean 25 years is a long time.


The only way you "lose eligibility" for the IBR repayment plan is if you no longer have FFEL or Direct educational loans. There is no income limit to participation in the program. Thus, unless you opt out via a consolidation loan with a private lender, the capitalization issue you've raised is a non-issue. If you get an awesome promotion, don't make any changes to your repayment plan, simply make additional payments to principal. Or, in the alternative, simply make the maximum payments required, which will be equivalent to those required under the 10-year repayment program.
.


Ya, I've been trying to figure this out. What I'm saying here is that if you no longer demonstrate partial financial hardship, you should lose the IBR plan. In other words, let's say I lose the IBR plan after 22.5 years as you would with an $80k salary increasing 4% a year paying off $150k in loans at about 7.46% consolidated interest (pretty standard rate for Fed loans of this amount). Your interest is about three times what it would have been with a standard 10 year loan, assuming you haven't made additional payments each month for interest.

You would think at this point the IBR was a bad decision haha, but I found this paragraph in the FAQ on the FinAid website:

"The forgiveness occurs after 25 years in income-based repayment, income-contingent repayment and/or the economic hardship deferment, not other repayment plans. (Loan payments made under a standard ten-year repayment plan also count, but obviously a borrower who is using the standard repayment plan will have paid off the debt in full in only ten years. This provision is mainly beneficial to borrowers who were previously using income-based repayment but no longer demonstrate a partial financial hardship.)"


If I understand this correctly: when you lose your IBR plan, you can go into a standard 10 year plan. If you continue to make payments such that the amount of combined years of repayment between the IBR and 10 year plans reaches the 25 year mark, prior to loan repayment, you'll qualify for the loan discharge.




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