Student loan payments: get advice and actual numbers here Forum

[Anonymous User]

Debt: $67,000.00 (accrued interest included)
Plan: ~12 months
Monthly Payment: $5,300—$5,600/month
Salary: $160,000.00 (started in September)

[Anonymous User]

I just got my quote from SoFi and am disappointed. I wonder what's causing the higher interest rate. Credit score is high 700s.

Salary: 160K
Loans: 103K
Payments: $1100
Interest quote: 5.375%


Wondering if this put an inquiry on my credit because I might shop around... unfortunately my school isn't good enough for Common Bond.

[Dr. Review]

Wondering if this put an inquiry on my credit because I might shop around... unfortunately my school isn't good enough for Common Bond.

Anyone know if it does? If not, I would like to look into getting a quote.

[Anonymous User]

Try DRBank if you are unhappy with SoFi quotes. I got a better 15 year fixed rate from DRBank when I refinanced last January.

[Anonymous User]

1. Any decision under MPT or CAPM would be to take the project that generates outsized return relative to risk. Since paying down debt is a risk-free after-tax return of OP's interest rate, even at a low 4% the MPT/CAPM decision is to pay down the debt before investing. However...

2. Anyone that's at $75k should try like hell to max out (or get as close as they can) 401k to get below the student loan interest deduction phaseout beginning at $60k MAGI. That boosts the risk-free after-tax return even higher to somewhere around 5% (still assuming refi). Apples to apples, a risk-free taxable investment would have to yield around 6-7% to shift the decision toward investing. When was the last time a T-bill had a real yield of 6-7%?

3. Once the debt is exhausted though, your after-tax/tax-advantaged tip is spot on.

4. Hous, you should see what the refi options are but still strongly consider aggressively paying down debt. And if you're a bit above the final phaseout for student loan interest deduction (kicks in at $60k, gone at $75k), don't skimp on the 401k contributions just to pay down more debt.

Any idea on what the #s are for married filing jointly? Thanks!

[Anonymous User]

New PAYE repayment terms got posted to the FedLoan Servicing site today.

Approximate salary: $43K

FEDERAL:
- Debt: $180,461
- Monthly repayment: $213 (increase from $0 for 2014, calculated when I was unemployed).

PRIVATE BAR EXAM LOAN:
- Debt: $5,134
- Monthly repayment: $56 (fixed 10-year repayment)

[Anonymous User]

3rd yr in big law.

Graduated with $185K in loans, between 4.5% and 7.5%.
Current salary is $170K, soon to be 185K.
10 yr repayment plan.
So far, I have paid off about $102K in principal.

My spouse has a decent paying job and we currently split expenses 50/50. I'm on track to pay everything off in approx 15-16 months, so under 4 years total. We live frugally, live close to work, don't own cars, bring lunch to work every day, haven't taken a decent vacation since I graduated, spend minimal on maintaining a professional business wardrobe ($500 a year), minimize dry cleaning (I put my button down shirts in the washer, which is actually better for them than dry cleaning), minimize grubhub purchases, don't pay for a housekeeper, etc. Meanwhile, I've also been maxing out my 401K and putting some money away in savings. It sounds kind of rough, but I'm planning on blowing a full month of salary on a trip after I am debt free. It has helped that I was anything but frugal during law school and bought a bunch of fancy clothes and other necessities.

[KM2016]

We live frugally, live close to work, don't own cars, bring lunch to work every day, haven't taken a decent vacation since I graduated, spend minimal on maintaining a professional business wardrobe ($500 a year), minimize dry cleaning (I put my button down shirts in the washer, which is actually better for them than dry cleaning), minimize grubhub purchases, don't pay for a housekeeper, etc.

While I commend you and your spouse for your discipline, this sounds brutal.

[XxSpyKEx]

We live frugally, live close to work, don't own cars, bring lunch to work every day, haven't taken a decent vacation since I graduated, spend minimal on maintaining a professional business wardrobe ($500 a year), minimize dry cleaning (I put my button down shirts in the washer, which is actually better for them than dry cleaning), minimize grubhub purchases, don't pay for a housekeeper, etc.

While I commend you and your spouse for your discipline, this sounds brutal.

Lol, it's pretty much how the rest of the non-biglaw working world operates though.

Btw, anon, the dry cleaner doesn't actually dry clean your dress shirts (unless you specially request it). It washes, dries, and presses them. The thing that kills the shirts is how hot they press them because its easier for them to hot press all shirts and they don't give a fuck about longevity of your shirts.

[JenDarby]

I received my conditional approval for sofi, but still needed to update loan statements (I wasn't in repayment when I applied so they weren't available yet, though I had submitted the 10-day repayment and such info). It's since said "We are reviewing your application and preparing it for signature. Please check back." for about a week.

Did anyone else experience this? I'm not too worried since I'm somewhat on the fence about refinancing now vs. PAYE vs. waiting to refinance until post marriage dual income is factored in since I imagine it will lower my rates even more. Still, I'd like to just get the acceptance package so I can make that decision.

[bdubs]

I received my conditional approval for sofi, but still needed to update loan statements (I wasn't in repayment when I applied so they weren't available yet, though I had submitted the 10-day repayment and such info). It's since said "We are reviewing your application and preparing it for signature. Please check back." for about a week.

Did anyone else experience this? I'm not too worried since I'm somewhat on the fence about refinancing now vs. PAYE vs. waiting to refinance until post marriage dual income is factored in since I imagine it will lower my rates even more. Still, I'd like to just get the acceptance package so I can make that decision.

I just completed my refi with them. Each step took a little while but they were generally super responsive over email so I would just reach out to them to ask.

Totally worth it because my interest accumulation is about half of what it was before.

[Anonymous User]

1. Any decision under MPT or CAPM would be to take the project that generates outsized return relative to risk. Since paying down debt is a risk-free after-tax return of OP's interest rate, even at a low 4% the MPT/CAPM decision is to pay down the debt before investing. However...

2. Anyone that's at $75k should try like hell to max out (or get as close as they can) 401k to get below the student loan interest deduction phaseout beginning at $60k MAGI. That boosts the risk-free after-tax return even higher to somewhere around 5% (still assuming refi). Apples to apples, a risk-free taxable investment would have to yield around 6-7% to shift the decision toward investing. When was the last time a T-bill had a real yield of 6-7%?

3. Once the debt is exhausted though, your after-tax/tax-advantaged tip is spot on.

4. Hous, you should see what the refi options are but still strongly consider aggressively paying down debt. And if you're a bit above the final phaseout for student loan interest deduction (kicks in at $60k, gone at $75k), don't skimp on the 401k contributions just to pay down more debt.

Any idea on what the #s are for married filing jointly? Thanks!

Bump

[anonnymouse]

1. Any decision under MPT or CAPM would be to take the project that generates outsized return relative to risk. Since paying down debt is a risk-free after-tax return of OP's interest rate, even at a low 4% the MPT/CAPM decision is to pay down the debt before investing. However...

2. Anyone that's at $75k should try like hell to max out (or get as close as they can) 401k to get below the student loan interest deduction phaseout beginning at $60k MAGI. That boosts the risk-free after-tax return even higher to somewhere around 5% (still assuming refi). Apples to apples, a risk-free taxable investment would have to yield around 6-7% to shift the decision toward investing. When was the last time a T-bill had a real yield of 6-7%?

3. Once the debt is exhausted though, your after-tax/tax-advantaged tip is spot on.

4. Hous, you should see what the refi options are but still strongly consider aggressively paying down debt. And if you're a bit above the final phaseout for student loan interest deduction (kicks in at $60k, gone at $75k), don't skimp on the 401k contributions just to pay down more debt.

Any idea on what the #s are for married filing jointly? Thanks!

Bump

The investment/return numbers are essentially the same.

The student loan interest deduction numbers are readily available through a simple Google search. http://www.irs.gov/publications/p970/ch04.html

1. The MAGI phaseout range for Married Filing Jointly is $125,000 - $155,000.

2. Note, however, that the maximum deduction remains $2500. (Compare two single filers with $60,000 MAGI and $2500 student loan interest deduction).

3. TL;DR: if you are Married Filing Jointly, it's probably still a good idea to aggressively pay down student loan debt before making any taxable investments.

[XxSpyKEx]

1. Any decision under MPT or CAPM would be to take the project that generates outsized return relative to risk. Since paying down debt is a risk-free after-tax return of OP's interest rate, even at a low 4% the MPT/CAPM decision is to pay down the debt before investing. However...

2. Anyone that's at $75k should try like hell to max out (or get as close as they can) 401k to get below the student loan interest deduction phaseout beginning at $60k MAGI. That boosts the risk-free after-tax return even higher to somewhere around 5% (still assuming refi). Apples to apples, a risk-free taxable investment would have to yield around 6-7% to shift the decision toward investing. When was the last time a T-bill had a real yield of 6-7%?

3. Once the debt is exhausted though, your after-tax/tax-advantaged tip is spot on.

4. Hous, you should see what the refi options are but still strongly consider aggressively paying down debt. And if you're a bit above the final phaseout for student loan interest deduction (kicks in at $60k, gone at $75k), don't skimp on the 401k contributions just to pay down more debt.

Any idea on what the #s are for married filing jointly? Thanks!

Bump

The investment/return numbers are essentially the same.

The student loan interest deduction numbers are readily available through a simple Google search. http://www.irs.gov/publications/p970/ch04.html

1. The MAGI phaseout range for Married Filing Jointly is $125,000 - $155,000.

2. Note, however, that the maximum deduction remains $2500. (Compare two single filers with $60,000 MAGI and $2500 student loan interest deduction).

3. TL;DR: if you are Married Filing Jointly, it's probably still a good idea to aggressively pay down student loan debt before making any taxable investments.

If you're eligible for Roth IRA contributions (i.e. your salary isn't too high, such as in your $75k /year salary example), it makes sense to max out your Roth IRA before making student loan payments. The maximum contribution is $5,500 /year, and you can't retroactively make contributions for years that you didn't contribute. The tax advantages of Roth IRA are just too good to not be maxing out your contributions each year.

[Johann]

I have 50k in loans. I plan on paying it off within 2 years of now as my house is paid for. My loans have interest rates of 5.8-6.8. Should I consolidate my loans for a lower interest rate and pay it back over a longer period / at the same rate?

I have good credit.

Aggressively paying down debt in this market is so crazy. Conservative investing strategies are yielding 10% a year. Diversify people. Try to cop a 4% rate and spread out payments over 5 years. The market is running right now. Put the rest in the market.

Also if anyone in this thread is a lawyer making 75kish - you should be diversifying by making some after tax retirment contributions. It's likely this will be your lowest tax rate you face in your entire career. If you are below a 30% rate, thats an almost 5% guaranteed savings off the top before you factor in market gains. And could be something like a 20% savings with how liberal our age group is and where the country may be moving.

So you think I should refinance my student loan debt and pay it off over a longer period of time. Any recommendations on where to go to refinance my student loans? I was under the impression the 6.8% APR on the student loans would outweigh any IRA. Should I open an IRA and throw 5.5k in before the end of the year? What do I do with the rest of my money after paying off my monthly minimum student loans and maxing out on the IRA?

Can I put more after tax income away to retirement? My plan is to put in the max into the Roth IRA and max my firm will match into a 401k. I will still have some money left over because my student loans are pretty low and my house is paid off already.

I haven't refinance so I don't know but based on the thread i'd say SoFI or Darrien Rowington or Common Bond. 6.8% on loans isn't outweighing any IRA. You should def open an IRA and throw 5.5k in there. Depending on your income you may not be able to deduct a traditional IRA, in which case you have to use a Roth. Roth is non deductible but its after tax dollars and you dont have to pay taxes when you take it out. Much of what to do re pay back loans or invest is based on risk tolerance, but here its a clear cut decision to max out your 401k at work and also set up a roth/traditional IRA.

[Frayed Knot]

If you're eligible for Roth IRA contributions (i.e. your salary isn't too high, such as in your $75k /year salary example), it makes sense to max out your Roth IRA before making student loan payments. The maximum contribution is $5,500 /year, and you can't retroactively make contributions for years that you didn't contribute. The tax advantages of Roth IRA are just too good to not be maxing out your contributions each year.

Even if you're not eligible for Roth IRA contributions, you can still fund your Roth IRA with backdoor contributions. Here's Bankrate's explanation of that funding process.

Unless I'm missing something, the case for backdoor funding a Roth IRA is just as strong as for funding one through contributions. Is that correct?

[Tiago Splitter]

Unless I'm missing something, the case for backdoor funding a Roth IRA is just as strong as for funding one through contributions. Is that correct?

It's only a problem if you have pre-tax IRA money. As long as you don't it's just like funding a Roth IRA the regular way.

[anonnymouse]

If you're eligible for Roth IRA contributions (i.e. your salary isn't too high, such as in your $75k /year salary example), it makes sense to max out your Roth IRA before making student loan payments. The maximum contribution is $5,500 /year, and you can't retroactively make contributions for years that you didn't contribute. The tax advantages of Roth IRA are just too good to not be maxing out your contributions each year.

Agreed. And if you're around $78k/year then you really want to max out 401k/403b ($18k limit for 2015) to get your MAGI down below the phaseout, too. I considered mentioning the above but decided not to in the interest of reducing complexity.

[XxSpyKEx]

Unless I'm missing something, the case for backdoor funding a Roth IRA is just as strong as for funding one through contributions. Is that correct?

It's only a problem if you have pre-tax IRA money. As long as you don't it's just like funding a Roth IRA the regular way.

I suspect backdoor IRA isn't very useful for most people (I would think that most people don't simply neglect making any contributions towards their pre-tax IRA).

[GOATlawman]

Unless I'm missing something, the case for backdoor funding a Roth IRA is just as strong as for funding one through contributions. Is that correct?

It's only a problem if you have pre-tax IRA money. As long as you don't it's just like funding a Roth IRA the regular way.

I suspect backdoor IRA isn't very useful for most people (I would think that most people don't simply neglect making any contributions towards their pre-tax IRA).

what??? Whatever TF this says makes zero sense

You can't contribute simultaneously to both a traditional and a Roth IRA.

if you have $ in a previously existing traditional IRA, then when in your new job you try to convert your $ to a roth, you the conversion will pull proportional amounts from your taxable and untaxable accounts instead of just your contributions from that one year being converted

IME the vast majority of law students going into biglaw have not had prior careers where they maxed their prior IRAs

also you can get around this if your firm would allow you to roll your existing IRA into their 401k before u do the conversion, but idk if most firms will

[Tiago Splitter]

Unless I'm missing something, the case for backdoor funding a Roth IRA is just as strong as for funding one through contributions. Is that correct?

It's only a problem if you have pre-tax IRA money. As long as you don't it's just like funding a Roth IRA the regular way.

I suspect backdoor IRA isn't very useful for most people (I would think that most people don't simply neglect making any contributions towards their pre-tax IRA).

Nah, most people just graduating law school won't have pre-tax balances at all, and as GOATLawMan said you can often roll pre-tax IRA into a qualified plan like a 401k to avoid the issue. FWIW, the "problem" is that you'll owe some tax when you convert because conversions are pro-rated between pre- and after-tax dollars. But that's not the end of the world.

You can't contribute simultaneously to both a traditional and a Roth IRA.

I can tell you probably know this GOAT but for those who don't you can contribute to both you are just limited to $5500 total.

[XxSpyKEx]

Unless I'm missing something, the case for backdoor funding a Roth IRA is just as strong as for funding one through contributions. Is that correct?

It's only a problem if you have pre-tax IRA money. As long as you don't it's just like funding a Roth IRA the regular way.

I suspect backdoor IRA isn't very useful for most people (I would think that most people don't simply neglect making any contributions towards their pre-tax IRA).

what??? Whatever TF this says makes zero sense

You can't contribute simultaneously to both a traditional and a Roth IRA.

if you have $ in a previously existing traditional IRA, then when in your new job you try to convert your $ to a roth, you the conversion will pull proportional amounts from your taxable and untaxable accounts instead of just your contributions from that one year being converted

IME the vast majority of law students going into biglaw have not had prior careers where they maxed their prior IRAs

also you can get around this if your firm would allow you to roll your existing IRA into their 401k before u do the conversion, but idk if most firms will

It sounds like I don't fully understand how the taxes on the backdoor IRA works. What exactly is taxed when you backdoor a traditional IRA to a Roth IRA? Is it the entire value of your 401k from previous employment? I was under the impression that it was the entire value of your 401k contributions for that year plus your Roth IRA contribution. By way of example, say in 2013 you contribute $17,500 towards your 401k, put $5,500 in your traditional IRA and then backdoor that into the Roth IRA. Say you also have $100k sitting in another 401k plan from your previous employment. What exactly is taxed? Is it the $17,500 plus the $5,500 that is taxed, the entire value of your previous 401k ($100k) plus the $5,500, the $5,500 new contribution plus another $5,500 from the previous 401k plan ($11,000 total), or something completely different?

[Tiago Splitter]

It sounds like I don't fully understand how the taxes on the backdoor IRA works. What exactly is taxed when you backdoor a traditional IRA to a Roth IRA? Is it the entire value of your 401k from previous employment? I was under the impression that it was the entire value of your 401k contributions for that year plus your Roth IRA contribution. By way of example, say in 2013 you contribute $17,500 towards your 401k, put $5,500 in your traditional IRA and then backdoor that into the Roth IRA. Say you also have $100k sitting in another 401k plan from your previous employment. What exactly is taxed? Is it the $17,500 plus the $5,500 that is taxed, the entire value of your previous 401k ($100k) plus the $5,500, the $5,500 new contribution plus another $5,500 from the previous 401k plan ($11,000 total), or something completely different?

Your 401k is in no way impacted if you do a Roth conversion. But let's say you have 10k sitting in IRA/SEP/SIMPLE accounts and want to backdoor 5k into your Roth. You could put the 5k into the IRA and then convert 5k, but 2/3 of whatever you convert will be taxed because 2/3 of the IRA money is pre-tax. You could have another million dollars in a 401k and it wouldn't change the calculation.

[XxSpyKEx]

It sounds like I don't fully understand how the taxes on the backdoor IRA works. What exactly is taxed when you backdoor a traditional IRA to a Roth IRA? Is it the entire value of your 401k from previous employment? I was under the impression that it was the entire value of your 401k contributions for that year plus your Roth IRA contribution. By way of example, say in 2013 you contribute $17,500 towards your 401k, put $5,500 in your traditional IRA and then backdoor that into the Roth IRA. Say you also have $100k sitting in another 401k plan from your previous employment. What exactly is taxed? Is it the $17,500 plus the $5,500 that is taxed, the entire value of your previous 401k ($100k) plus the $5,500, the $5,500 new contribution plus another $5,500 from the previous 401k plan ($11,000 total), or something completely different?

Your 401k is in no way impacted if you do a Roth conversion. But let's say you have 10k sitting in IRA/SEP/SIMPLE accounts and want to backdoor 5k into your Roth. You could put the 5k into the IRA and then convert 5k, but 2/3 of whatever you convert will be taxed because 2/3 of the IRA money is pre-tax. You could have another million dollars in a 401k and it wouldn't change the calculation.

Ahh, okay, so as long as you didn't put money into a traditional IRA account, you won't get hit with additional taxes, even if you have $250k in a previous employer's 401k plan and $100k in a Roth IRA plan (both from the prior career)? If that's the case, backdoor IRA should be pretty doable for most people (i.e. why would anyone ever put any money into a traditional IRA account, when you could simply put the money into a Roth IRA/backdoor the money into a Roth IRA? Only thing I can think of is if the tax rules have changed and people invested into a traditional IRA before backdoor Roth IRA was available).

[Tiago Splitter]

Ahh, okay, so as long as you didn't put money into a traditional IRA account, you won't get hit with additional taxes, even if you have $250k in a previous employer's 401k plan and $100k in a Roth IRA plan (both from the prior career)? If that's the case, backdoor IRA should be pretty doable for most people (i.e. why would anyone ever put any money into a traditional IRA account, when you could simply put the money into a Roth IRA/backdoor the money into a Roth IRA? Only thing I can think of is if the tax rules have changed and people invested into a traditional IRA before backdoor Roth IRA was available).

Until 2010 no one with an AGI over 100k was allowed to do a Roth conversion so this tactic is fairly new. The issue of having pre-tax money in an IRA will normally only affect people who are a little older and/or who participated in a qualified plan through their employer but then left that employer and rolled the money into an IRA. As was mentioned before you often roll your pre-tax money back into an employer plan, but not all plan sponsors allow for this.