Student loan payments: Actual numbers

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Kiwi3891
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Re: Student loan payments: Actual numbers

Postby Kiwi3891 » Wed Nov 11, 2015 4:06 pm

I need some advice on which way to go forward.

My student loans total up to about $180K (including interest :x ) and are coming out of deferment this month. I was approved for the income-driven repayment plan which brought my payments down from around $2K a month to $870. I have other debts such as a mortgage, car note, and the normal living expenses. I currently make $117K plus a 6% company match to 401k. In addition, company adds another 8.25% yearly to 401k account of salary up to social security wage base and another 11% of anything above social security wage base. So I am taking advantage of the 6% match and contributing that much into 401k.

Should I go ahead and try to refinance for a lower rate or stay on the income driven plan? Just looking at the $180K number is driving me insane.

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fats provolone
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Re: Student loan payments: Actual numbers

Postby fats provolone » Wed Nov 11, 2015 4:12 pm

i say max the 401k and never think about your loan balance again

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Danger Zone
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Re: Student loan payments: Actual numbers

Postby Danger Zone » Wed Nov 11, 2015 4:19 pm

You can refi only a portion of the total balance if you want. Good way to hedge your bets against the possibility of becoming unemployed and then being totally fucked with no income based repayment option available anymore.

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Re: Student loan payments: Actual numbers

Postby Anonymous User » Wed Nov 11, 2015 4:35 pm

Danger Zone wrote:You can refi only a portion of the total balance if you want. Good way to hedge your bets against the possibility of becoming unemployed and then being totally fucked with no income based repayment option available anymore.


Even though the interest still accrues, would you not qualify for forbearance (for federal loans) if you lose your job?

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Danger Zone
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Re: Student loan payments: Actual numbers

Postby Danger Zone » Wed Nov 11, 2015 4:53 pm

Federal loans have excellent protection. It's the private loan, the refi, that you need to be careful about. Most have forbearance for unemployment (might even be legally required) but many do NOT have income based repayment options. Basically it's a tradeoff of whether you want a low interest rate or a solid safety net for if you have to take a paycut.

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Re: Student loan payments: Actual numbers

Postby Anonymous User » Wed Nov 11, 2015 5:29 pm

Danger Zone wrote:Federal loans have excellent protection. It's the private loan, the refi, that you need to be careful about. Most have forbearance for unemployment (might even be legally required) but many do NOT have income based repayment options. Basically it's a tradeoff of whether you want a low interest rate or a solid safety net for if you have to take a paycut.


This is what is preventing my husband from refinancing his student loans. My student loans are paid off, but he still has his. The only financial safety net we have is each other, and our expenses are really really high. We live in a high COL area, both support our parents, and I also support 2 grandparents. It feels like too much of a risk to re-finance, even though the savings over time would be over 40k. Student loans are a bitch.

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Re: Student loan payments: Actual numbers

Postby Anonymous User » Wed Nov 11, 2015 9:52 pm

Question about the "avalanche" repayment method and Navient. I have 5 federal loans that were "unbundled" on Navient, each with between 5% and 7.2% interest rates that total about 115k. To do the avalanche method correctly, my repayment process should be the following, right?

- Get the most extended repayment option possible on each loan to lower my monthly payments to the minimums on all 5.
- Set up automatic payment plans on all 5 loans to get the .25% interest discount.
- Then, pay a large chunk extra each month towards my 7.2% loan until it is paid off.
- Repeat this process until they are all paid off.

Ideally, I'll be throwing around 1500 per month at my loans. Is this the right way, logistically, to go about it?

FWIW, I work in private practice making ~130k. Considering refi in 6 - 12 months (once I'm more comfortable at the office).

Would really appreciate any help.

totesTheGoat
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Re: Student loan payments: Actual numbers

Postby totesTheGoat » Thu Nov 12, 2015 1:28 pm

Anonymous User wrote:Question about the "avalanche" repayment method and Navient. I have 5 federal loans that were "unbundled" on Navient, each with between 5% and 7.2% interest rates that total about 115k. To do the avalanche method correctly, my repayment process should be the following, right?

- Get the most extended repayment option possible on each loan to lower my monthly payments to the minimums on all 5.
- Set up automatic payment plans on all 5 loans to get the .25% interest discount.
- Then, pay a large chunk extra each month towards my 7.2% loan until it is paid off.
- Repeat this process until they are all paid off.

Ideally, I'll be throwing around 1500 per month at my loans. Is this the right way, logistically, to go about it?

FWIW, I work in private practice making ~130k. Considering refi in 6 - 12 months (once I'm more comfortable at the office).

Would really appreciate any help.


Yep, that's the avalanche method, and at 1500/mo, you're looking at ~99 months (~8 years) to pay this off.

FYI, If you can squeeze another $500/mo out to pay on your loans, you can cut about 2.5 to 3 years off your repayment, and be student loan debt free in 5.5-6 years.

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Re: Student loan payments: Actual numbers

Postby Anonymous User » Fri Nov 13, 2015 12:45 am

totesTheGoat wrote:
Anonymous User wrote:Question about the "avalanche" repayment method and Navient. I have 5 federal loans that were "unbundled" on Navient, each with between 5% and 7.2% interest rates that total about 115k. To do the avalanche method correctly, my repayment process should be the following, right?

- Get the most extended repayment option possible on each loan to lower my monthly payments to the minimums on all 5.
- Set up automatic payment plans on all 5 loans to get the .25% interest discount.
- Then, pay a large chunk extra each month towards my 7.2% loan until it is paid off.
- Repeat this process until they are all paid off.

Ideally, I'll be throwing around 1500 per month at my loans. Is this the right way, logistically, to go about it?

FWIW, I work in private practice making ~130k. Considering refi in 6 - 12 months (once I'm more comfortable at the office).

Would really appreciate any help.


Yep, that's the avalanche method, and at 1500/mo, you're looking at ~99 months (~8 years) to pay this off.

FYI, If you can squeeze another $500/mo out to pay on your loans, you can cut about 2.5 to 3 years off your repayment, and be student loan debt free in 5.5-6 years.


Awesome, thanks. Not sure I can swing an extra $500, but we'll see. Is there any disadvantage to the avalanche method? Or do most people (most people who don't have extenuating circumstances/have at least near big law salary) do the above?

totesTheGoat
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Re: Student loan payments: Actual numbers

Postby totesTheGoat » Fri Nov 13, 2015 12:56 am

Anonymous User wrote:Awesome, thanks. Not sure I can swing an extra $500, but we'll see. Is there any disadvantage to the avalanche method? Or do most people (most people who don't have extenuating circumstances/have at least near big law salary) do the above?


I think the biggest disadvantage of the avalanche method is that it ties up a lot of your money. It's good to do that if you have a goal (getting debt free), but it just ties up liquidity if you're going to be taking more debt on. The advice that I hear is that you don't need to bother doing the avalanche method if you don't plan on doing a monthly budget, and you're planning on taking more debt out (mortgage excluded). The point is that it's better to just pay the minimums and have the extra cash to avoid getting into higher interest/secured debt (credit card, car, business loan etc.) if your finances are tight enough that you can't pay all your current expenses as well as the extra money on the student loans.

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Re: Student loan payments: Actual numbers

Postby Anonymous User » Fri Nov 13, 2015 11:01 am

totesTheGoat wrote:
Anonymous User wrote:Awesome, thanks. Not sure I can swing an extra $500, but we'll see. Is there any disadvantage to the avalanche method? Or do most people (most people who don't have extenuating circumstances/have at least near big law salary) do the above?


I think the biggest disadvantage of the avalanche method is that it ties up a lot of your money. It's good to do that if you have a goal (getting debt free), but it just ties up liquidity if you're going to be taking more debt on. The advice that I hear is that you don't need to bother doing the avalanche method if you don't plan on doing a monthly budget, and you're planning on taking more debt out (mortgage excluded). The point is that it's better to just pay the minimums and have the extra cash to avoid getting into higher interest/secured debt (credit card, car, business loan etc.) if your finances are tight enough that you can't pay all your current expenses as well as the extra money on the student loans.


I could be way off base here, but isn't one advantage to the avalanche method that you aren't committed to making a specific payment (above the minimums)? So even though the goal is the throw as much as possible each month at the loan with the highest interest rate, if some emergency happens, you aren't locked into making any payment above the minimum that's been set?

totesTheGoat
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Re: Student loan payments: Actual numbers

Postby totesTheGoat » Fri Nov 13, 2015 12:13 pm

Anonymous User wrote:I could be way off base here, but isn't one advantage to the avalanche method that you aren't committed to making a specific payment (above the minimums)? So even though the goal is the throw as much as possible each month at the loan with the highest interest rate, if some emergency happens, you aren't locked into making any payment above the minimum that's been set?


Absolutely, but you're not committed to making a specific payment either way (unless you consolidate or refi or something). My point is that if you're going to keep living at or above your means, it's better to pay your student loans off slower and have the cash handy that you would have paid into the loans.

Once you actually make the above-minimum payment, that extra cash is gone. Sure, you can shut off the spigot, but that money that you paid last month is already gone. Now, if you need a certain amount of money, that's even more credit card or other debt that you have to go into, all because you paid more than your minimum last month. Granted (and this is something I've been trying not to say to avoid the appearance of being judgy), I think it's really dumb to try to pay down your student loans really quickly while the rest of your financial life is a dumpster fire.

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Danger Zone
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Re: Student loan payments: Actual numbers

Postby Danger Zone » Fri Nov 13, 2015 12:32 pm

totesTheGoat wrote:
Anonymous User wrote:I could be way off base here, but isn't one advantage to the avalanche method that you aren't committed to making a specific payment (above the minimums)? So even though the goal is the throw as much as possible each month at the loan with the highest interest rate, if some emergency happens, you aren't locked into making any payment above the minimum that's been set?


Absolutely, but you're not committed to making a specific payment either way (unless you consolidate or refi or something). My point is that if you're going to keep living at or above your means, it's better to pay your student loans off slower and have the cash handy that you would have paid into the loans.

Once you actually make the above-minimum payment, that extra cash is gone. Sure, you can shut off the spigot, but that money that you paid last month is already gone. Now, if you need a certain amount of money, that's even more credit card or other debt that you have to go into, all because you paid more than your minimum last month. Granted (and this is something I've been trying not to say to avoid the appearance of being judgy), I think it's really dumb to try to pay down your student loans really quickly while the rest of your financial life is a dumpster fire.

This is a silly analysis that presumes people have no idea how to budget

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lacrossebrother
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Re: Student loan payments: Actual numbers

Postby lacrossebrother » Fri Nov 13, 2015 12:51 pm

I'm doing PAYE, so my goal is to always pay as absolutely little as possible so as to eventually maximize my cancellation, because I believe I will have a balance.

There is a tax credit available for payments made on student interest up to $2500. This won't be relevant to me after my stub year, however I am not phased out this year.

Has anybody weighed whether it makes sense to pay $2,500 of interest in my stub year? Probably would only get like an extra $750 worth of refund for it.
Payments just started so I'd have only paid ~$500. I'd have another $500 due 1/03, so ill pay that early.
I'm also not sure if paying $2500 towards my loans equals $2500 in "interest." I guess maybe only talking about a $1500 decision here.

dixiecupdrinking
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Re: Student loan payments: Actual numbers

Postby dixiecupdrinking » Fri Nov 13, 2015 1:19 pm

Yeah, can we stipulate that you shouldn't pay your loans in advance if you can't pay your credit card bills? doesnt really merit discussion.

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Re: Student loan payments: Actual numbers

Postby dixiecupdrinking » Fri Nov 13, 2015 1:21 pm

lacrossebrother wrote:I'm doing PAYE, so my goal is to always pay as absolutely little as possible so as to eventually maximize my cancellation, because I believe I will have a balance.

There is a tax credit available for payments made on student interest up to $2500. This won't be relevant to me after my stub year, however I am not phased out this year.

Has anybody weighed whether it makes sense to pay $2,500 of interest in my stub year? Probably would only get like an extra $750 worth of refund for it.
Payments just started so I'd have only paid ~$500. I'd have another $500 due 1/03, so ill pay that early.
I'm also not sure if paying $2500 towards my loans equals $2500 in "interest." I guess maybe only talking about a $1500 decision here.

You can only deduct the interest payments so you will have to pay a lot more than $2500 to max out your deduction.

Whatever you save in taxes won't be more than you pay, so there is no reason to do this if you're all in on getting forgiveness.

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JenDarby
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Re: Student loan payments: Actual numbers

Postby JenDarby » Fri Nov 13, 2015 2:04 pm

My PAYE loan service provider automatically applied any payments over the minimum to interest on the highest interest rate loans. They wouldn't let me pay down extra on principal until ALL interest was paid off on all loans ($17k by Nov. after graduating) without jumping through a ton of hoops. Then I refinanced and that was all a waste of time.

totesTheGoat
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Re: Student loan payments: Actual numbers

Postby totesTheGoat » Fri Nov 13, 2015 2:32 pm

Danger Zone wrote:This is a silly analysis that presumes people have no idea how to budget


Of course it's a silly analysis. As I said:

totesTheGoat wrote: I think it's really dumb to try to pay down your student loans really quickly while the rest of your financial life is a dumpster fire.


Knowing how to budget doesn't mean that the budget magically fulfills itself. There's no point in dumping extra money in the student loans when you haven't developed the discipline to consistently and predictably spend less than you make, month in and month out.

Yeah, can we stipulate that you shouldn't pay your loans in advance if you can't pay your credit card bills? doesnt really merit discussion.


You'd be surprised how many people try to rationalize away paying extra on their loans and carrying a credit card balance. However, I agree that the discussion that has already happened is more than enough, and it was really started by me stretching to find a negative for the avalanche method. Case closed.

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JenDarby
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Re: Student loan payments: Actual numbers

Postby JenDarby » Fri Nov 13, 2015 2:39 pm

If your financial life is a dumpster fire outside of simply having a large to massive student debt load, then your problems really exceed the scope of this thread.

Maybe I give law school grads too much credit, but I'd like to assume no one in here is paying above the minimum on their student loans while racking up credit card debt at 29 fucking percent.

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El Pollito
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Re: Student loan payments: Actual numbers

Postby El Pollito » Fri Nov 13, 2015 2:41 pm

i don't believe that "many" people are paying off loans and carrying cc balances but nice anecdata

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fats provolone
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Re: Student loan payments: Actual numbers

Postby fats provolone » Fri Nov 13, 2015 2:43 pm

El Pollito wrote:i don't believe that "many" people are paying off loans and carrying cc balances but nice anecdata

he's just saying it's not the IDEAL way to manage your debts, that's all.

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Mlk&Ckies
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Re: Student loan payments: Actual numbers

Postby Mlk&Ckies » Fri Nov 13, 2015 2:48 pm

lacrossebrother wrote:I'm doing PAYE, so my goal is to always pay as absolutely little as possible so as to eventually maximize my cancellation, because I believe I will have a balance.

There is a tax credit available for payments made on student interest up to $2500. This won't be relevant to me after my stub year, however I am not phased out this year.

Has anybody weighed whether it makes sense to pay $2,500 of interest in my stub year? Probably would only get like an extra $750 worth of refund for it.
Payments just started so I'd have only paid ~$500. I'd have another $500 due 1/03, so ill pay that early.
I'm also not sure if paying $2500 towards my loans equals $2500 in "interest." I guess maybe only talking about a $1500 decision here.


If you just entered repayment, you likely had a ton of interest capitalize on the loan that was accruing during your time in law school. This technically counts as an interest payment and is deductible, so you likely have already hit your $2500 cap.

https://www.irs.gov/publications/p970/c ... 1000178256

Capitalized interest. This is unpaid interest on a student loan that is added by the lender to the outstanding principal balance of the loan. Capitalized interest is treated as interest for tax purposes and is deductible as payments of principal are made on the loan. No deduction for capitalized interest is allowed in a year in which no loan payments were made.

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fats provolone
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Re: Student loan payments: Actual numbers

Postby fats provolone » Fri Nov 13, 2015 2:50 pm

dope tip. did not know that

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grand inquisitor
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Re: Student loan payments: Actual numbers

Postby grand inquisitor » Fri Nov 13, 2015 2:54 pm

that mlk & ckies tip just made all my time at TLS worth it in one post

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El Pollito
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Re: Student loan payments: Actual numbers

Postby El Pollito » Fri Nov 13, 2015 2:58 pm

dank as hell




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