Your neighbor believes the world is 6000 years old, for starters.

Having lived and worked in TX, here are my observations:

1) There is no state or local income tax in TX. Sales tax is often 8.25% but you can just deal with paying a little more for things. Money you're putting toward debt reduction isn't being hit by sales tax.

2) Playing with online income tax calculators, it looks like you'd pay about $35K in federal income tax, $11K in social security and $4K in Medicare. So your take-home is around $110K, right where you called it.

3) I had a 2BR apartment, in the "over 1000 square feet" range, in one of the better parts of the major cities. I paid about $950/mo. in rent. Living well is incredibly cheap in TX, which is one of the real advantages of living there.

4) If, out of your post-tax dollars, you took $3K per month and lived off that (and after $1K for an apartment, there's still $2K for car/food/miscellaneous expenses), that'd be $36K per year (like your estimate) and you'd have ($110K-$36K) or $74K left over.

$74K. Seriously. You could pay your entire debt off in less than three years, while still living comfortably.

Re: Not putting everything into loans to get the 7.6% return vs. (i) investing in other things or (ii) putting money into 401k:

(i) I cannot fathom any investment that has a high enough IRR to justify not taking the 100%-certain 7.6% (and this number should be higher - the smart money puts all of their loans into 25-year repayment but still pays the same amount overall. This allows you to put more money into the highest-rate loans. Consolidating makes absolutely no sense when you have some loans at 6.8 and some at 7.9/8.5 (depending on when you took your GradPLUS loans out)). Sure, you might be able to get 10% elsewhere - or you might get stung. 7.6% is a really, really high risk-free rate; getting another 2% doesn't justify the additional risk you take on.

Additionally, the 7.6% isn't subject to another level of tax (presumably capital gains, because getting higher than 7.6% on interest probably isn't going to happen) - which makes the 7.6% even more attractive.

There are decent studios to be had in NYC (Manhattan) for well under $2000. I think you can find one for $1500, to be honest, and maybe less.

Re: Not putting everything into loans to get the 7.6% return vs. (i) investing in other things or (ii) putting money into 401k:

(i) I cannot fathom any investment that has a high enough IRR to justify not taking the 100%-certain 7.6% (and this number should be higher - the smart money puts all of their loans into 25-year repayment but still pays the same amount overall. This allows you to put more money into the highest-rate loans. Consolidating makes absolutely no sense when you have some loans at 6.8 and some at 7.9/8.5 (depending on when you took your GradPLUS loans out)). Sure, you might be able to get 10% elsewhere - or you might get stung. 7.6% is a really, really high risk-free rate; getting another 2% doesn't justify the additional risk you take on.

Additionally, the 7.6% isn't subject to another level of tax (presumably capital gains, because getting higher than 7.6% on interest probably isn't going to happen) - which makes the 7.6% even more attractive.

(ii) I'm not going to contribute to my 401k. If your firm has a match, then you obviously contribute up to the match - that's a no-brainer. But if the firm doesn't have a match, I am not confident enough that any 401k gains are going to outdo the certain return on paying loans - not to mention the flexibility that comes with paying down loans faster (unlike other investments, you can't raid the 401k to pay off your loans early, if you have a change of heart). More importantly, I would say that the chances of taxes being much higher when we're old enough to draw on 401ks makes the tax deferral aspect be of questionable value. Again, you're considering an uncertain return later vs a very certain return now.

There is a big liquidity advantage to having $75k in the bank versus having paid it off in loans.

There is a big liquidity advantage to having $75k in the bank versus having paid it off in loans.

A reasonable person doesn't leave $75k sitting in a bank (unless you're filthy rich and need that much money at a moment's notice because you're blowing something like $75k /month). Short-term investments, on the other hand, are risky, especially when you're talking about 2-3 year investments, like we are here (i.e. the cost of 2-3 year of interest in repaying student loans vs. the potential gain of investing the money for those 2-3 years). Personally, I would rather be debt-free than take risks with hopes of making an extra 2% interest (relative to gains if the money went towards repaying the loans) on that $75k. It'd be a different story if the economy was booming right now, and people were seeing something like 20% returns on large cap stocks.

Just to be clear, I'm not saying it's reasonable to not save anything. But $75k is a lot of money to just sit on when the economy is shitty like it is right now (especially if you live somewhere cheap like Texas), where you can't very easily make returns exceeding your student loan interest rates.

It's not about making a return on that money. It's about having short-term assets that you can liquidate relatively quickly just in case. What if you're presented with an unexpected opportunity? It could be a business opportunity or even just finding a great deal on a house.

Borrow money. Duh.

No, more seriously though, the interest rates are lower on a mortgage than the 8% rates we're getting for student loans. My buddy bought a house a year ago at under 5% fixed interest rate*. It seems to make more sense to just pay off the higher interest rate student loans and borrow at a lower interest rate on that house. Guess the business opportunity situation presents challenges since the interest rate on that will likely be higher than 8% (depending on the riskiness), if you can get the money at all. But then again, not sure that investing in riskier business ventures (or any business ventures for that matter) would be on my to-do list with $200k in non-dischargable 8% interest rate debt. But I do see your point re: the cost of having additional liquidity. I guess if you think you're going to be presented with highly profitable business investments in the near future, taking the $5k risk makes sense.

*I just googled mortgage rates and the first thing that came up was this:
30-year fixed from 3.875% (4.478 APR)
5/1 ARM from 2.500% (2.952 APR)
15-year fixed from 3.250% (3.406 APR)

Definitely seems like it makes more sense to borrow money for a house than save money that could be going to student loans for a house, because student loans are at 8% interest.

Other than the UPS "once in a lifetime investment opportunity" example, does anyone have any examples of the types of investments we're talking about here? Just wondering, I'm not very knowledgeable when it comes to "once in a lifetime business ventures" and the like.

Thanks!

ITT: Rayiner is wrong, gets called out on it, and becomes wronger-er.
100K is a twenty percent down payment on a "great deal" in a major metro? Whose house are you buying? Michael Jackson's?

Not to say that many houses in L.A. or Chicago don't run that steep, but it's laughable to think you can't a very serviceable place, for the foreseeable future, with a fraction of that.

Also, mortgages don't seem to be quite as bad as you're making them out to be. My friend just got cleared for 80K (a relatively cheap place, to be sure, so that may influence things) with a little over 5% down. I'm not even clear if that was required, or if he just had it.

Mortgage through Wells Fargo, if it matters.

There are very few investment opportunities that are one time only and require liquid cash to be on hand. If you know the right people and have been making money or have some assets you can usually find someone to give you a loan if it does turn out to be a once in a lifetime opportunity.

The UPS example is far from a once in a lifetime example.. Doesn't every bum have some idiotic business venture (which they think is a great idea) that they dream of one day starting, but never will? I don't even think rayiner's example shows that "[g]uys who have (comparatively) no money and no education, driving trucks for a living, were less risk averse than most law students" at all. Everyone without money dreams about how they are going to one day start some "great" business venture that will make them rich. I remember after high school, some of my friends and I had the idea of starting a pizza place in Florida. We talked about it like as if we were actually one day going to start this business, and like as if the business idea was viable. Obviously the idea was retarded just like 99% of ideas that most people have, which is why so many of them never are actually implemented, and even out of the ones that are, half of them fail in the first five years.

What exactly is your definition of "serviceable"? $400,000 will buy you a reasonable 1 bedroom apartment in a reasonably nice area of Brooklyn. $300,000 will buy you a fairly nice 2BR in Arlington, Ballston, etc. $80k will not buy you a "serviceable" place anywhere within a 30 minute train ride of downtown NYC/DC/SF/LA.

Putting 5% down will not get you the rates that XxSpy quoted, because you will have to pay for mortgage insurance.

If by "Major metro" you meant New York or (possibly) DC, okay. But then you're a moron. You can, especially ITE, get a good house for 250K in LA metro, San Diego, San Francisco, Dallas, Houston, Chicago metro or any number of secondary markets. I'll admit that I'm not sure about Boston or DC, but I suspect the same is true.

Also, you were talking a rare deal, which immediately required 75k in liquid capital. Don't tell me about averages.

80K wasn't an example in a major metro, just a guy I know I who got his loan at either 4.5% or 5.5% percent. I'd have to confirm. Sorry, though, because I understand how that could have been misleading.

San Diego:
http://www.homesalessandiego.com/search ... s&type=con

Los Angeles:
http://www.homefinder.com/CA/Los_Angele ... _Blvd_E201

Again: LOL at your 100K 20% down payment.

I cannot fathom any investment that has a high enough IRR to justify not taking the 100%-certain 7.6% ... if the firm doesn't have a match, I am not confident enough that any 401k gains are going to outdo the certain return on paying loans

Please don't tell people on here the glory of Texas. Stay the fuck out!

If you lose your six figure job, you'd be better off having the cash than less debt. IBR/LRAP ain't gonna pay your mortgage/rent or car paymentfood.