Student loan payments: get advice and actual numbers here

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jchiles
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Re: Pay off Loans or Invest (...In What)?

Postby jchiles » Thu Jun 15, 2017 12:27 pm

Sorry to be unresponsive but come on you have enough time between now and when you start getting paid to peruse the various finance threads where this issue has been discussed pretty often.

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Re: Pay off Loans or Invest (...In What)?

Postby Anonymous User » Thu Jun 15, 2017 12:29 pm

jchiles wrote:Sorry to be unresponsive but come on you have enough time between now and when you start getting paid to peruse the various finance threads where this issue has been discussed pretty often.


(Think this might've been why OP created this thread-because those thousands of pages are filled with responses like this instead of simple advice- I have no axe to grind, but I don't know anything about this answer either, and this would be helpful to me as well)

silenttimer
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Re: Pay off Loans or Invest (...In What)?

Postby silenttimer » Thu Jun 15, 2017 12:41 pm

I would recommend saving up for an emergency fund (4-6 months of living expenses) in a saving/checking account. After that, you should dump everything into your loans because it's an automatic return on the money you save from not having to pay interests. With the market being somewhat high right now, I am not certain that you can get 6-8% return from the market this year if you were to start at this point. At $6k per month, you should be able to be done with your loans in 2-3 years. This was my strategy and I've been debt free for over two years now.

Good luck!

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Re: Pay off Loans or Invest (...In What)?

Postby 1styearlateral » Thu Jun 15, 2017 1:02 pm

These are all great uses for anon.

Answer: Buy ethereum.

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trebekismyhero
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Re: Pay off Loans or Invest (...In What)?

Postby trebekismyhero » Thu Jun 15, 2017 1:07 pm

silenttimer wrote:I would recommend saving up for an emergency fund (4-6 months of living expenses) in a saving/checking account. After that, you should dump everything into your loans because it's an automatic return on the money you save from not having to pay interests. With the market being somewhat high right now, I am not certain that you can get 6-8% return from the market this year if you were to start at this point. At $6k per month, you should be able to be done with your loans in 2-3 years. This was my strategy and I've been debt free for over two years now.

Good luck!


Agree with this. I am junior and still have debt, but saved up about $20k in emergency savings account. I have been aggressively paying my loans since. I too am concerned about the stock market peaking so I have opened up a cash value life insurance policy and put a little bit in a mutual fund. I just think we are due for a recession or at least some correction soon so I haven't put much in the market.

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bruinfan10
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Re: Pay off Loans or Invest (...In What)?

Postby bruinfan10 » Thu Jun 15, 2017 1:21 pm

I recommend reading the biglawinvestor blog. You should note, and TLS seems to have a real blind spot for this, that your biggest expense as a BigLaw associate is taxes. So, regardless of whether you feel like you can "time the market" like the poster above me, and regardless of the market return vs. interest on loans debate, you need to realize that placing money in tax advantaged accounts like your firm's 401(k) presents a massive tax-savings opportunity. read up on that.

new associates really, really undervalue 401(k)s. I'd max out your 18k (not much of a burden, as your contribution is pre-tax), and then use the rest of your ample funds to build out an emergency fund and pay down loans.

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trebekismyhero
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Re: Pay off Loans or Invest (...In What)?

Postby trebekismyhero » Thu Jun 15, 2017 1:24 pm

bruinfan10 wrote:I recommend reading the biglawinvestor blog. You should note, and TLS seems to have a real blind spot for this, that your biggest expense as a BigLaw associate is taxes. So, regardless of whether you feel like you can "time the market" like the poster above me, and regardless of the market returns vs. interest on loans debate, you need to realize that placing money in tax advantaged accounts like your firm's 401(k) presents a massive tax-savings opportunity. read up on that.

new associates really, really undervalue 401(k)s. I'd max out your 18k (not much of a burden, as your contribution is pre-tax), and then use the rest of your ample funds to build out an emergency fund and pay down loans.


Oh yeah, I meant more for things beyond the 401(k) in terms of investing. Definitely max out your 401(k). I just assumed that was a given

silenttimer
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Re: Pay off Loans or Invest (...In What)?

Postby silenttimer » Thu Jun 15, 2017 1:25 pm

bruinfan10 wrote:I recommend reading the biglawinvestor blog. You should note, and TLS seems to have a real blind spot for this, that your biggest expense as a BigLaw associate is taxes. So, regardless of whether you feel like you can "time the market" like the poster above me, and regardless of the market return vs. interest on loans debate, you need to realize that placing money in tax advantaged accounts like your firm's 401(k) presents a massive tax-savings opportunity. read up on that.

new associates really, really undervalue 401(k)s. I'd max out your 18k (not much of a burden, as your contribution is pre-tax), and then use the rest of your ample funds to build out an emergency fund and pay down loans.


Oh I totally agree with this. I should amend my statement to say emergency fund, max out 401K, and dump everything else into the loans. I presume that everyone is already maxing out 401k, but I probably should not.

Also, this may be highly relevant to OP: http://www.biglawinvestor.com/lawyers-w ... #more-3116

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dailygrind
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Re: Pay off Loans or Invest (...In What)?

Postby dailygrind » Thu Jun 15, 2017 2:07 pm

This is pretty much common wisdom as well, but if you've got an HSA, you should also max that out, since those can basically function as tax-advantaged retirement accounts.

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nealric
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Re: Pay off Loans or Invest (...In What)?

Postby nealric » Thu Jun 15, 2017 2:17 pm

It depends a bit on the interest rate and your risk tolerance. I assume your loans are at the regular federal rates, but it may make sense to refinance. I went from 6.8% to under 3% when I refinanced (variable rate, but I was on a quick payment plan). However, you lose many of the protections federal student loans carry- It's a bit of a risky move. If you are more risk tolerant, you can likely beat a good refi rate with an equity heavy portfolio. But you subject yourself for the possibility of a big loss.

The super safe bet is to save an decent-size emergency fund, then put every extra dollar towards loans without a refi. That option may leave a lot of money on the table (especially if you aren't utilizing your retirement accounts). The riskiest is to refi, pay the minimum, and put the money in equities. There are middle grounds between that.

Personally, I saved an emergency fund of 6 months expenses, maxed my 401k (this was before the backdoor Roth and current HSA regime), and then put every extra dollar towards loans. It was the right answer for me because having to shell out money to loans every month was a psychological burden. It was a huge relief to have that monkey off my back.

If you are investing, I recommend a total stock market fund with low fees (personally I like the Vanguard total market fund VTSAX), and a total bond market fund (like VBTLX). Don't bother trying to figure out individual stocks or bonds- it's not worth your very limited time. If you must trade individual stocks, consider stock trading a potentially expensive hobby.

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Re: Pay off Loans or Invest (...In What)?

Postby lolwat » Thu Jun 15, 2017 2:32 pm

Save emergency fund
Max out retirement or other tax advantage accounts
Then pay off loans


Consider investing only if you can guarantee the returns will be greater than the interest rate on your loans

But even then, there is a very nice peace of mind to no longer being in debt

Unless you have time and a higher risk tolerance, don't bother with stocks. There have been a bunch of great solid ones (NFLX, AMZN, many chip stocks, with NVDA leading; many videogame stocks like TTWO ATVI EA, etc) but a ton of them also fail hard (like retail) so yea...

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nealric
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Re: Pay off Loans or Invest (...In What)?

Postby nealric » Thu Jun 15, 2017 2:41 pm

lolwat wrote:
Consider investing only if you can guarantee the returns will be greater than the interest rate on your loans


Nobody can do that (at least not unless interest rates rise dramatically).

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nealric
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Re: Pay off Loans or Invest (...In What)?

Postby nealric » Thu Jun 15, 2017 2:43 pm

lolwat wrote:
There have been a bunch of great solid ones (NFLX, AMZN, many chip stocks, with NVDA leading; many videogame stocks like TTWO ATVI EA, etc) but a ton of them also fail hard (like retail) so yea...


Every newbie investor should memorize this phrase: past performance is not necessarily indicative of future performance. Netflix has done well recently, but if you can predict what it's going to do tomorrow, you should get out of the law game and start a hedge fund. Most of those guys can't even beat the market.

lolwat
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Re: Pay off Loans or Invest (...In What)?

Postby lolwat » Thu Jun 15, 2017 3:07 pm

nealric wrote:
lolwat wrote:
Consider investing only if you can guarantee the returns will be greater than the interest rate on your loans


Nobody can do that (at least not unless interest rates rise dramatically).


Guarantee is a bad word, yes, but you can get pretty confident if you refi the loan, get 3% interest rate, and put the $ in a fund rather than try to find stocks on your own. I'm not sure how likely that is anymore but I did get my rates down to like 3.5-4% before. Still paid it all off first opportunity I got though.

But the point of my post (which might not have gotten across) was really that for the most part, investing entails risk, while on the other hand paying off loans guarantees you won't continue paying the interest on it. So you could come out better investing but it's not easy and requires a lot of research and time and patience

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Re: Pay off Loans or Invest (...In What)?

Postby A. Nony Mouse » Thu Jun 15, 2017 3:20 pm

Anonymous User wrote:
jchiles wrote:Sorry to be unresponsive but come on you have enough time between now and when you start getting paid to peruse the various finance threads where this issue has been discussed pretty often.


(Think this might've been why OP created this thread-because those thousands of pages are filled with responses like this instead of simple advice- I have no axe to grind, but I don't know anything about this answer either, and this would be helpful to me as well)

1) well, of course it would be helpful to you as well, you ARE the OP. I'm not outing because you posted about your finances, but don't sock puppet and pretend you're not the person who posted this to start with.

2) we have TWO stickied threads devoted to this topic so yes, I am going to be that person and merge this with the more appropriate one. This thread is where a lot of people have posted their "here's my debt, what should I do?" questions so keeping them all together is helpful for future users.

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nealric
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Re: Pay off Loans or Invest (...In What)?

Postby nealric » Thu Jun 15, 2017 4:45 pm

lolwat wrote:
nealric wrote:
lolwat wrote:
Consider investing only if you can guarantee the returns will be greater than the interest rate on your loans


Nobody can do that (at least not unless interest rates rise dramatically).


Guarantee is a bad word, yes, but you can get pretty confident if you refi the loan, get 3% interest rate, and put the $ in a fund rather than try to find stocks on your own. I'm not sure how likely that is anymore but I did get my rates down to like 3.5-4% before. Still paid it all off first opportunity I got though.

But the point of my post (which might not have gotten across) was really that for the most part, investing entails risk, while on the other hand paying off loans guarantees you won't continue paying the interest on it. So you could come out better investing but it's not easy and requires a lot of research and time and patience


I'm not sure you can even be that confident- at least over the short term. You can't just get 3% returns to beat loan repayment, you actually need more like 4% after tax. Getting 4% is certainly doable (and extremely likely over the long term), but you aren't doing it with "widows and orphans" bonds.I wouldn't be "pretty confident" of beating 4% in a given year, only over a longer time horizon. You've got to be comfortable with a lot of volatility.

somedude
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Re: Pay off Loans or Invest (...In What)?

Postby somedude » Fri Jun 16, 2017 4:34 pm

trebekismyhero wrote:
silenttimer wrote:I would recommend saving up for an emergency fund (4-6 months of living expenses) in a saving/checking account. After that, you should dump everything into your loans because it's an automatic return on the money you save from not having to pay interests. With the market being somewhat high right now, I am not certain that you can get 6-8% return from the market this year if you were to start at this point. At $6k per month, you should be able to be done with your loans in 2-3 years. This was my strategy and I've been debt free for over two years now.

Good luck!


Agree with this. I am junior and still have debt, but saved up about $20k in emergency savings account. I have been aggressively paying my loans since. I too am concerned about the stock market peaking so I have opened up a cash value life insurance policy and put a little bit in a mutual fund. I just think we are due for a recession or at least some correction soon so I haven't put much in the market.


This kind of behavior is called "market timing." It is well-established to be irrational---you can't time the market; you can only ride the wave. You might reasonably decide to aggressively attack loans before investing in after-tax accounts, but "the market is high right now" is not a good reason for doing this.

anonnymouse
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Re: Pay off Loans or Invest (...In What)?

Postby anonnymouse » Sun Jun 18, 2017 10:52 am

nealric wrote:
lolwat wrote:
nealric wrote:
lolwat wrote:
Consider investing only if you can guarantee the returns will be greater than the interest rate on your loans


Nobody can do that (at least not unless interest rates rise dramatically).


Guarantee is a bad word, yes, but you can get pretty confident if you refi the loan, get 3% interest rate, and put the $ in a fund rather than try to find stocks on your own. I'm not sure how likely that is anymore but I did get my rates down to like 3.5-4% before. Still paid it all off first opportunity I got though.

But the point of my post (which might not have gotten across) was really that for the most part, investing entails risk, while on the other hand paying off loans guarantees you won't continue paying the interest on it. So you could come out better investing but it's not easy and requires a lot of research and time and patience


I'm not sure you can even be that confident- at least over the short term. You can't just get 3% returns to beat loan repayment, you actually need more like 4% after tax. Getting 4% is certainly doable (and extremely likely over the long term), but you aren't doing it with "widows and orphans" bonds.I wouldn't be "pretty confident" of beating 4% in a given year, only over a longer time horizon. You've got to be comfortable with a lot of volatility.


I basically took this approach with a FRB refi last Fall. My refi is 5 years at 1.95% and I put whatever extra amount I would have been paying down principal on my loans (between $2500 and $4000/mo, plus at least a portion of annual bonus) into an equal-dollar weight blend of intermediate-term and long-term muni bond funds (VWITX and VWLTX, respectively) which have a blended, tax-free distribution yield of about 3.2%. The blended duration is about 5.5 years so the interest rate volatility is fairly low. By coincidence of timing, every single one of my tax lots since starting this plan has a cap gain (again, coincidence of timing), not even including distribution gains.

But I'm pretty risk averse. I lived and adulted in the real world before ITE/GFC/2008/8 year bull markets. I'm also not at the same stage in my life as most posters and as degenerate gambler johan, plus I have plenty of equity exposure in my retirement accounts (401k from before law school, 401k from after law school, and Roth IRA). I also have a pretty structured plan involving tax-loss harvesting (should tax lot purchases fall in value) and charitable contributions (should tax lot purchases appreciate) that will off-set a significant portion of any volatility. This plan fits me for my stage of life and for my risk preferences.

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Re: Pay off Loans or Invest (...In What)?

Postby Nebby » Mon Jun 19, 2017 7:58 am

A. Nony Mouse wrote:
Anonymous User wrote:
jchiles wrote:Sorry to be unresponsive but come on you have enough time between now and when you start getting paid to peruse the various finance threads where this issue has been discussed pretty often.


(Think this might've been why OP created this thread-because those thousands of pages are filled with responses like this instead of simple advice- I have no axe to grind, but I don't know anything about this answer either, and this would be helpful to me as well)

1) well, of course it would be helpful to you as well, you ARE the OP. I'm not outing because you posted about your finances, but don't sock puppet and pretend you're not the person who posted this to start with.

2) we have TWO stickied threads devoted to this topic so yes, I am going to be that person and merge this with the more appropriate one. This thread is where a lot of people have posted their "here's my debt, what should I do?" questions so keeping them all together is helpful for future users.

Rekt

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Re: Student loan payments: get advice and actual numbers here

Postby Anonymous User » Wed Jun 21, 2017 2:58 pm

So my fiancé and I are planning on getting married next year. I'm a federal govt employee and he's in the private sector. My insurance benefits are signifncantly better than his, but I also have $220k of student loans and he has $0. I'm ineligible for PAYE (one loan is 25 days too old) so I'm on REPAYE. Based on my understanding, to get him on my insurance and not get destroyed by REPAYE's marriage penalty (i.e. that we have to file taxes jointly) is to switch from REPAYE to IBR, which in and of itself costs me an extra $400 in monthly payments - which might not be worth it to get him on my insurance. The alternative to all of this is (1) not get married and (2) get a civil union at least for the state benefits. I have 8 years left on PSLF.

Am I missing something? Any advice anyone can offer?

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Re: Student loan payments: get advice and actual numbers here

Postby Johann » Wed Jun 21, 2017 3:57 pm

Anonymous User wrote:So my fiancé and I are planning on getting married next year. I'm a federal govt employee and he's in the private sector. My insurance benefits are signifncantly better than his, but I also have $220k of student loans and he has $0. I'm ineligible for PAYE (one loan is 25 days too old) so I'm on REPAYE. Based on my understanding, to get him on my insurance and not get destroyed by REPAYE's marriage penalty (i.e. that we have to file taxes jointly) is to switch from REPAYE to IBR, which in and of itself costs me an extra $400 in monthly payments - which might not be worth it to get him on my insurance. The alternative to all of this is (1) not get married and (2) get a civil union at least for the state benefits. I have 8 years left on PSLF.

Am I missing something? Any advice anyone can offer?


i would REPAYE and civil union.

Anonymous User
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Re: Student loan payments: get advice and actual numbers here

Postby Anonymous User » Wed Jun 21, 2017 4:18 pm

Johann wrote:
Anonymous User wrote:So my fiancé and I are planning on getting married next year. I'm a federal govt employee and he's in the private sector. My insurance benefits are signifncantly better than his, but I also have $220k of student loans and he has $0. I'm ineligible for PAYE (one loan is 25 days too old) so I'm on REPAYE. Based on my understanding, to get him on my insurance and not get destroyed by REPAYE's marriage penalty (i.e. that we have to file taxes jointly) is to switch from REPAYE to IBR, which in and of itself costs me an extra $400 in monthly payments - which might not be worth it to get him on my insurance. The alternative to all of this is (1) not get married and (2) get a civil union at least for the state benefits. I have 8 years left on PSLF.

Am I missing something? Any advice anyone can offer?


i would REPAYE and civil union.


I'm leaning towards this, though I don't think I can get him on my insurance that way.

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Re: Student loan payments: get advice and actual numbers here

Postby Anonymous User » Wed Jun 21, 2017 10:07 pm

Do you get any breaks for IBR/PAYE repayment calculations if you live in a state with income tax? I'm moving from a state with no income tax to a state with income tax and was wondering if the AGI for my repayment calculation will take into account state income taxes.

Basically, would someone with a salary of $100k in a no-income tax state make the same payments as someone with the same salary in a state with income tax (assume identical deductions, with the exception of the state income tax deduction for federal taxes)?

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A. Nony Mouse
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Re: Student loan payments: get advice and actual numbers here

Postby A. Nony Mouse » Wed Jun 21, 2017 10:52 pm

As far as I can tell, yes - your taxes are calculated based on your AGI, not the other way around.

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Johann
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Re: Student loan payments: get advice and actual numbers here

Postby Johann » Sun Jun 25, 2017 2:57 pm

Anonymous User wrote:Do you get any breaks for IBR/PAYE repayment calculations if you live in a state with income tax? I'm moving from a state with no income tax to a state with income tax and was wondering if the AGI for my repayment calculation will take into account state income taxes.

Basically, would someone with a salary of $100k in a no-income tax state make the same payments as someone with the same salary in a state with income tax (assume identical deductions, with the exception of the state income tax deduction for federal taxes)?


the prior year's state and local taxes are deductible if you itemize your deductions. so the answer is it depends. and it would have a 1 year lag. https://www.irs.gov/taxtopics/tc503.html




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