Student loan payments: get advice and actual numbers here Forum

[Anonymous User]

From what I understand, the answer is yes, but just checking: After the SCOTUS decision and Biden's new plan, the moratorium on interest is ending and recent law graduates will have to start paying.

yes, but if you're class of 2023, you still get the 6 month delayed start date, so you don't have to start paying exactly when other folks do.

[Anonymous User]

Thoughts on this NYT article?

https://www.nytimes.com/interactive/202 ... esume.html

With how generous IDR is getting (you can completely avoid any interest now if you make the minimum payment), and the possibility that no one will ever pay back the massive pile of outstanding student loans, do you guys think there is an argument for just going on IDR, paying the minimums, and waiting it out for them to cancel the debt rather than aggressively paying down the principal?

Is the bolded actually true? Also don’t you get hit with a tax bomb after forgiveness? Seems unlikely anything will be cancelled regardless

This isn’t accurate with SAVE. If your minimum payment is below the amount of interest due, then the excess interest will be forgiven. In effect, SAVE prevents negative amortization. You’re not receiving a 20 year interest-free loan.

Can I briefly ask for a clarification on this as a non-finance person? This is my understanding of SAVE:

I have a 100K loan and I'm on SAVE with a monthly payment of $150. This doesn't fully satisfy my interest, which is $500 a month. The government, on SAVE, is essentially waiving the $350 difference. Month to month, my loan is staying at exactly 100K, because I'm never paying enough to begin to pay off principal, but there's also no interest accruing. If I do that for 20 years, the government will forgive the 100K that I never technically started to pay off (since my $150 was constantly going towards interest only).

Is this correct?

This looks correct but I will defer to those with more knowledge of the plan.

One question I had for the forum: Is starting on SAVE the right move for class of 2022 associates? I started working in the fall of last year so my 2022 AGI is a lot lower than it will be for 2023. If I apply for SAVE, I’m initially relying on my 2022 income information. I understand I’ll have to recertify my income every year, but it appears somewhat wise to “game” the system and take advantage of my lower income, and hence, my lower monthly payments, up until I have to recertify based on my 2023 income (my first full year in biglaw). I’d essentially lower my interest paid on the loans and can invest my money elsewhere at a higher rate. Does anyone see any issues with this strategy?

[Anonymous User]

Thoughts on this NYT article?

https://www.nytimes.com/interactive/202 ... esume.html

With how generous IDR is getting (you can completely avoid any interest now if you make the minimum payment), and the possibility that no one will ever pay back the massive pile of outstanding student loans, do you guys think there is an argument for just going on IDR, paying the minimums, and waiting it out for them to cancel the debt rather than aggressively paying down the principal?

Is the bolded actually true? Also don’t you get hit with a tax bomb after forgiveness? Seems unlikely anything will be cancelled regardless

This isn’t accurate with SAVE. If your minimum payment is below the amount of interest due, then the excess interest will be forgiven. In effect, SAVE prevents negative amortization. You’re not receiving a 20 year interest-free loan.

Can I briefly ask for a clarification on this as a non-finance person? This is my understanding of SAVE:

I have a 100K loan and I'm on SAVE with a monthly payment of $150. This doesn't fully satisfy my interest, which is $500 a month. The government, on SAVE, is essentially waiving the $350 difference. Month to month, my loan is staying at exactly 100K, because I'm never paying enough to begin to pay off principal, but there's also no interest accruing. If I do that for 20 years, the government will forgive the 100K that I never technically started to pay off (since my $150 was constantly going towards interest only).

Is this correct?

That sounds right to me. If someone actually has a high enough income related to their debt that at least some of the income-based repayment goes to principal, that would pay down the original debt, but what you describe sounds correct for those circumstances. The forgiveness is of whatever you have left of the original debt, and if that's the whole thing, then that's what would be forgiven.

But also not a finance person, so in theory I could be missing something.

Also, re: the other post asking about starting out on SAVE with the first-year lower AGI - this is what I see people commonly do, take advantage of the much lower payments for the first year. It depends on how certain you are that you can invest at a higher rate than the interest.

I also think an important question is whether you think you're going to pay off the whole debt or are going to aim for some kind of forgiveness. Some people commit to paying off their total debt as quickly as possible (in like 2-4 years, which in biglaw would be doable, especially with $145k rather than $300k+), and throw money at it from the earliest opportunity, so wouldn't take the year of lower payment. I do know some biglaw people (not many, but some) who are riding out long-term forgiveness, banking on the investment of what they don't have to pay to the loan to cover the tax bomb, but I have *no idea* whether this is financially sound. However, someone following this tack would definitely pay as little as possible at every opportunity.

The other question is whether you think you'll stay in biglaw long enough to pay the loans down - if you're certain you will, financially, it usually makes sense to refinance to get a lower interest rate, as soon as you can, and probably skip the year of lower payments. But if you refinance you forego the federal repayment plans/protections. If you don't want to be locked into biglaw for the time it takes to pay off loans - especially if you think you might want to take a government or public interest job - then you probably don't want to refinance until you know you won't need some kind of income-based or forgiveness plan, in which case the year of lower payments on SAVE makes a lot of sense.

[Anonymous User]

Also, re: the other post asking about starting out on SAVE with the first-year lower AGI - this is what I see people commonly do, take advantage of the much lower payments for the first year. It depends on how certain you are that you can invest at a higher rate than the interest.

I also think an important question is whether you think you're going to pay off the whole debt or are going to aim for some kind of forgiveness. Some people commit to paying off their total debt as quickly as possible (in like 2-4 years, which in biglaw would be doable, especially with $145k rather than $300k+), and throw money at it from the earliest opportunity, so wouldn't take the year of lower payment. I do know some biglaw people (not many, but some) who are riding out long-term forgiveness, banking on the investment of what they don't have to pay to the loan to cover the tax bomb, but I have *no idea* whether this is financially sound. However, someone following this tack would definitely pay as little as possible at every opportunity.

The other question is whether you think you'll stay in biglaw long enough to pay the loans down - if you're certain you will, financially, it usually makes sense to refinance to get a lower interest rate, as soon as you can, and probably skip the year of lower payments. But if you refinance you forego the federal repayment plans/protections. If you don't want to be locked into biglaw for the time it takes to pay off loans - especially if you think you might want to take a government or public interest job - then you probably don't want to refinance until you know you won't need some kind of income-based or forgiveness plan, in which case the year of lower payments on SAVE makes a lot of sense.

Thanks for this overview. I’m fortunate to be in a position where I’ll have enough saved by the end of the year that I could just pay off my debt. I’m just trying to abide by the “time in the market beats timing the market” principle. It seems like the extra year of investing will only “cost” whatever my lower monthly payment will end up being.

[axiomaticapiary]

My plan is pay off my loans through biglaw, so I think refinancing to get the lower interest rate makes sense. I am pretty pessimistic that any debt will get forgiven now that they would essentially need a Democrat supermajority in Congress to do so.

However, I am currently applying to lots of clerkships before returning to market-paying biglaw. My hope would be to clerk for at least one year, possibly two if the right opportunities came through.

Is refinancing a mistake if you're planning on clerking? Will the private lenders work with you to lower your monthlies for a bit? Or what if I refinanced, then set aside some biglaw salary to cover the higher student loan payments for that year?

[SamuelDanforth]

What kinds of rates are folks seeing for refinancing? I've been trying to ride out the pause as long as possible before refinancing.

[Anonymous User]

I have $50k in federal student loans; I'm going into biglaw off a clerkship (with class credit + bonus). My estimated refinancing rates are ~6-8% right now, which seems super high for someone with good/great credit, but whatever.

At this point, I'm inclined to just pay off the loans over the next year or so and be done with it. I have an okay-ish amount ($150k) already invested for retirement, so I feel okay focusing on loans rather than building a nest egg for a bit.

Does just paying off the loans seem reasonable, or am I missing something?

[Anonymous User]

Chose bigfed over biglaw after clerkship.

Still owe $170,000.

Want to die.

[The Lsat Airbender]

I have $50k in federal student loans; I'm going into biglaw off a clerkship (with class credit + bonus). My estimated refinancing rates are ~6-8% right now, which seems super high for someone with good/great credit, but whatever.

At this point, I'm inclined to just pay off the loans over the next year or so and be done with it. I have an okay-ish amount ($150k) already invested for retirement, so I feel okay focusing on loans rather than building a nest egg for a bit.

Does just paying off the loans seem reasonable, or am I missing something?

Lenders can get 4-5% on Treasuries right now, so no your unsecured personal debt isn't going to get lower than 6-8%. Nothing personal.

I think you're right that you should just pay this down. Delaying retirement savings is thematically fine because you're getting a great RoI paying down loans, especially in 2023 when you'll be in a lower tax bracket (so 401(k) is comparatively less powerful). Just make sure you turn your savings back on when you're done instead of moving into a nicer apartment or whatever.

[Anonymous User]

Lenders can get 4-5% on Treasuries right now, so no your unsecured personal debt isn't going to get lower than 6-8%. Nothing personal.

I think you're right that you should just pay this down. Delaying retirement savings is thematically fine because you're getting a great RoI paying down loans, especially in 2023 when you'll be in a lower tax bracket (so 401(k) is comparatively less powerful). Just make sure you turn your savings back on when you're done instead of moving into a nicer apartment or whatever.

Thanks, as always, for the thoughtful and incisive advice!

[Anonymous User]

Anyone willing to point me toward the best repayment option?

Law school c/o 2021. Balance right around $180K ($175K principal, $5K accrued interest on UG loans during law school). Spent one year in Biglaw in HCOL market, currently clerking, and returning to same firm in same market. Married, spouse currently works and makes about $65K. No kids and none on the horizon.

I enjoyed my first year and anticipate spending at least 3-4 more years in Biglaw. Would consider making it a career, or heading to Midlaw/boutique. Basically, I don't have any interest in leaving early to go in-house or into a Gov. role so I am not looking to pay off loans as quickly as possible.

Which repayment option makes the most sense for me? I am currently considering paying the absolute minimum term-based plan (extended graduated) and prioritizing saving/investing for a few years, then looking into refinancing in a better rate environment. With my current (clerkship) household income, I would also get a nice SAVE monthly payment, but my most recent tax return obviously reflects my first-year associate income so I am not sure how that would work with the verification requirement.

Any thoughts/feedback are welcome. I am considering speaking with a financial advisor who specializes in working with Biglaw types, but I am not sure I need that just yet.

[Anonymous User]

Re SAVE and clerking - you should be able to certify your income with a current pay stub rather than with your most recent tax return. People don’t do this as often because salaries tend to increase so the tax return is usually more beneficial, but the pay stub option is there precisely for people who take a pay cut.

[Anonymous User]

Is there any reason not to do the SAVE plan? I have $50-60k and want to pay it down pretty much immediately when interest starts accruing. Entering as a second-year with clerkship bonus if that affects things.

[Anonymous User]

Is there any reason not to do the SAVE plan? I have $50-60k and want to pay it down pretty much immediately when interest starts accruing. Entering as a second-year with clerkship bonus if that affects things.

If your 2022 AGI is below ~$33k then your monthly payments will be $0 for a whole year, maybe even two years depending on your income recertification date. No reason at all to pay down immediately in that case.

[Anonymous User]

Can I avoid interest accruing by paying off the loans on 8/31? I don't quite get interest resuming before payments, and I feel like an idiot (candidly).

I have the savings to pay off a significant amount (c/o 2020, and have maintained a HYSA specifically for my loans, basically treated it like the actual loan and paid from each paycheck to it), and would prefer not to pay extra interest if possible, but I also don't want to pay and lose the 5% on 160k for a month, if unnecessary, either.

ETA: I'm in biglaw, might make bonus this year.

[Anonymous User]

If your 2022 AGI is below ~$33k then your monthly payments will be $0 for a whole year, maybe even two years depending on your income recertification date. No reason at all to pay down immediately in that case.

My 2022 income was more like $40-50k and my 2023 income will be around $130k.

[Anonymous User]

If your 2022 AGI is below ~$33k then your monthly payments will be $0 for a whole year, maybe even two years depending on your income recertification date. No reason at all to pay down immediately in that case.

My 2022 income was more like $40-50k and my 2023 income will be around $130k.

Assuming AGI of $45k, your monthly payment will be $100. Make that payment and any excess interest will not capitalize and your principal will remain the same. $1200 divided by $55k loan balance means you'll have an effective interest rate of ~2.2%. Up to you what you want to do with your savings. Can't go wrong either way but to me, that interest rate is low enough to invest elsewhere and not worry not making a positive effective return.

Edit: Also, your 2023 income shouldn't matter. If you recertify early enough in 2024, you can still take advantage of your 2022 AGI for an additional year as 2022 will still be considered your most recent tax return. This is all dependent on when your servicer requests you to recertify. Worst case scenario, if the recertification date is past the initial tax filing deadline of April 2024, you can file an extension and push off filing until October. I'd imagine the recertification date will occur prior to the later October filing deadline.

[Anonymous User]

2023 grad doing FC --> BigLaw here who paid sticker at a lower CoL T14, so 277k debt right now. Got signed up for SAVE and it is fucking incredible. I'm looking at sub $100 monthly payments that (I think) go straight to principal and, looking things over, I don't think any interest is going to accrue until like 2026??? (because my 2022 tax return is all just SA income so sub 50k, my 2023 tax return will just be my summer stipend + a few months of GS-11 so sub 50k, and depending on the thresholds, my 2024 tax return might be low enough to keep me within the save plan depending on how much the clerkship plus my initial BL months are). I think this basically solves the student loan problem for high debt law grads?

So I think interest restarts this September. But I'm not really sure how that works, because my SAVE application is still processing through the student loan issuers and I haven't made a payment yet and I'm seeing payments don't restart for anyone until October. Am I just gonna have to take the September interest on the chin because I waited too long to apply for SAVE? That's okay if it's the case because grand scheme one month of interest is not the worst thing ever, but just wanted to clarify if anyone here knew better.

[Anonymous User]

I am a Class of 2020 grad in big law who has a ton of law school debt that I haven't yet had to make payments on. With payments resuming, I'm trying to figure out a plan. It seems like the consensus is that SAVE is not a good move with such high income. I'm trying to understand the downside to going on SAVE, having a lower payment than under standard repayment (under standard mine is around 3K and save it should start at around $1500), and making payments greater than the minimum (but maybe still less than standard). That would give me some wiggle room in case an unexpected expense arises, and with the difference in the interest that accrues but is not paid being forgiven (right?), I wouldn't be digging myself into a huge hole. I must have how the interest works wrong. Can someone please explain this to me like I'm financially inept?

[Anonymous User]

Data point: Graduated in 2018 with 164k of law school debt. Made minimum payments clerking 2018-2019 and refinanced privately in December 2019. Made last payment August 2023. 2 years clerking, 3 years biglaw. NYC.

[Anonymous User]

What was your interest rate? This is a good example of what not to do - rush loan payments when you (should be) on a low interest rate after refinancing pre-Covid. You basically threw away free money compared to just saving it in a HYSA getting 4.5%+

[Anonymous User]

What was your interest rate? This is a good example of what not to do - rush loan payments when you (should be) on a low interest rate after refinancing pre-Covid. You basically threw away free money compared to just saving it in a HYSA getting 4.5%+

Relax, that 4.5% HYSA rate is pre-tax and it only rose to 4.5%+ in the recent months. Assuming 35% tax bracket, refi rates would have to be extremely low (under 3%) for it to make sense not to make advance payments.

[Anonymous User]

What was your interest rate? This is a good example of what not to do - rush loan payments when you (should be) on a low interest rate after refinancing pre-Covid. You basically threw away free money compared to just saving it in a HYSA getting 4.5%+

Relax, that 4.5% HYSA rate is pre-tax and it only rose to 4.5%+ in the recent months. Assuming 35% tax bracket, refi rates would have to be extremely low (under 3%) for it to make sense not to make advance payments.

This. The arbitrage opportunity looks better on paper than it is in reality. It was a 3.3% 7-year loan with First Republic (RIP). By paying off within 4 years, I got 2% of the principal paid back to me (JPM honored this term in the loan agreement). Effective rate ended up being like 1.3% over the ~4 years. Worth it IMO to just be done.