Student loan payments: Actual numbers

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lacrossebrother
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Re: Student loan payments: Actual numbers

Postby lacrossebrother » Tue Nov 17, 2015 10:12 pm

fats provolone wrote:I'm not a finance masterman so maybe someone can point out the obvious flaw here but aren't these comparisons wrong?

Like, if I pay the minimums on my loans and save or invest money or w/e, I have $X after some period of time. I have some loan debt but it's not negative income. It's a series of cash flows out over time. Doesn't that have to be discounted?

I guess that's what the interest rate is and maybe I just answered my own question.

I don't necessarily understand your question--but I don't even see what you would discount? You're just comparing the interest you accrue over a period to the gains you make on the cash.

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fats provolone
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Re: Student loan payments: Actual numbers

Postby fats provolone » Tue Nov 17, 2015 10:18 pm

I guess my point is the gains you accrue, you have that money in hand. The interest you accrued is still just a debt obligation that you'll repay over a long period of time. But I guess that interest accrues more interest.

dixiecupdrinking
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Re: Student loan payments: Actual numbers

Postby dixiecupdrinking » Tue Nov 17, 2015 10:31 pm

Yeah no mastermind here either but I think it's compound interest either way.

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fats provolone
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Re: Student loan payments: Actual numbers

Postby fats provolone » Tue Nov 17, 2015 10:33 pm

but you might never pay back the loan. then it's all gravy, and you got to freeride on the interest and enjoy your investment returns.

dixiecupdrinking
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Re: Student loan payments: Actual numbers

Postby dixiecupdrinking » Tue Nov 17, 2015 10:51 pm

Yeah that's a whole other ballgame.

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JohannDeMann
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Re: Student loan payments: Actual numbers

Postby JohannDeMann » Tue Nov 17, 2015 11:25 pm

Anonymous User wrote:I see a lot of people here with "manageable" debt loads and their plans. Is it any different for someone with around $250K in debt? I'm a 3L with a biglaw offer in NYC and I'm starting to worry a bit about paying everything back...


yeah im 250k in the hole plus. SO 300k in the hole. We are on PAYE and have paid back like less than $10k combined. just PAYE and who gives a fuck. reassess in a few years.

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JohannDeMann
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Re: Student loan payments: Actual numbers

Postby JohannDeMann » Tue Nov 17, 2015 11:39 pm

lacrossebrother wrote:
fats provolone wrote:I'm not a finance masterman so maybe someone can point out the obvious flaw here but aren't these comparisons wrong?

Like, if I pay the minimums on my loans and save or invest money or w/e, I have $X after some period of time. I have some loan debt but it's not negative income. It's a series of cash flows out over time. Doesn't that have to be discounted?

I guess that's what the interest rate is and maybe I just answered my own question.

I don't necessarily understand your question--but I don't even see what you would discount? You're just comparing the interest you accrue over a period to the gains you make on the cash.


its kind of the interest rate. but i mean its also just deferral and debt obligations in general. most everyone in the business world believes paying back $250k+interest in years 17-20 is better than paying back $250k in years 1-3. why is this? because it lets you choose your investment. getting cash and money is hard as fuck and it opens up lots of opportunities. if everyone that refi-ed in the past year had just been on PAYE and sitting on cash and pushed their cash into the market when it dipped they would have made 20%+. if housing markets decrease, those people could have taken advantage and bought real property.

so i mean while generally you are right that the interest rate is what you should compare because the interest rate dictates what the future value of the extra cash flow is, there are tons of investments out there that get 7%+ post tax. having cash and debt gives you leverage. it's why there is a lot of debate between investing in real property that appreciates at 2% a year compared to the stock market at 8% a year is a very real debate. because you can leverage the hell out of real estate.

finally, you guys should all read about PAYE interest terms. subsidized govt loans dont even accrue interest under PAYE for 3 years. no interest capitalizes, so there is no penalty to keeping accruing interest while all of your gains in the market and housing market do capitalize as you can roll them over. REPAYE pays like half of your interest or the remainder of your interest you dont cover.

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kalvano
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Re: Student loan payments: Actual numbers

Postby kalvano » Wed Nov 18, 2015 12:51 am

Is this the de facto TLS investment advice thread, or is there an official one somewhere that I'm missing?

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lacrossebrother
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Re: Student loan payments: Actual numbers

Postby lacrossebrother » Wed Nov 18, 2015 1:09 am

JohannDeMann wrote:
lacrossebrother wrote:
fats provolone wrote:I'm not a finance masterman so maybe someone can point out the obvious flaw here but aren't these comparisons wrong?

Like, if I pay the minimums on my loans and save or invest money or w/e, I have $X after some period of time. I have some loan debt but it's not negative income. It's a series of cash flows out over time. Doesn't that have to be discounted?

I guess that's what the interest rate is and maybe I just answered my own question.

I don't necessarily understand your question--but I don't even see what you would discount? You're just comparing the interest you accrue over a period to the gains you make on the cash.


its kind of the interest rate. but i mean its also just deferral and debt obligations in general. most everyone in the business world believes paying back $250k+interest in years 17-20 is better than paying back $250k in years 1-3. why is this? because it lets you choose your investment. getting cash and money is hard as fuck and it opens up lots of opportunities. if everyone that refi-ed in the past year had just been on PAYE and sitting on cash and pushed their cash into the market when it dipped they would have made 20%+. if housing markets decrease, those people could have taken advantage and bought real property.

so i mean while generally you are right that the interest rate is what you should compare because the interest rate dictates what the future value of the extra cash flow is, there are tons of investments out there that get 7%+ post tax. having cash and debt gives you leverage. it's why there is a lot of debate between investing in real property that appreciates at 2% a year compared to the stock market at 8% a year is a very real debate. because you can leverage the hell out of real estate.

finally, you guys should all read about PAYE interest terms. subsidized govt loans dont even accrue interest under PAYE for 3 years. no interest capitalizes, so there is no penalty to keeping accruing interest while all of your gains in the market and housing market do capitalize as you can roll them over. REPAYE pays like half of your interest or the remainder of your interest you dont cover.

Ahh ya. So basically factor in a liquidity premium

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Re: Student loan payments: Actual numbers

Postby JohannDeMann » Wed Nov 18, 2015 1:15 am

kalvano wrote:Is this the de facto TLS investment advice thread, or is there an official one somewhere that I'm missing?


I think thesealocust gave investment advice in some threads. He had like 3 vanguard funds he used. Not much investment advice in here other than do I invest or pay down debt super agressive. Usually never get past those 2 thresholds.

I just dump stuff into SPY but that's because it is easiest and has decent results.

n1o2c3a4c5h6e7t
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Re: Student loan payments: Actual numbers

Postby n1o2c3a4c5h6e7t » Wed Nov 18, 2015 1:58 am

Schwab ETFs have lower expense ratios than Vanguard, albeit with slightly higher bid-to-ask spreads, but this is coming down every day and negligble for long-term investors. SCHB is preferable to SPY and the Vanguard broad-market fund. SCHA is nice for small-cap weightings, SCHE for emerging markets, SCHD for dividends, SCHH for REITs, etc.

The difference between a 0.09% expense ratio and a 0.04% expense ratio can be materially significant.

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mornincounselor
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Re: Student loan payments: Actual numbers

Postby mornincounselor » Wed Nov 18, 2015 2:35 am

*sigh*

tagged.

Bree99
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Re: Student loan payments: Actual numbers

Postby Bree99 » Wed Nov 18, 2015 8:25 am

So if I do PAYE (240k debt, big law), and i make some extra payments a month toward the loan with the highest interest rate - is that even worthwhile if subsidize loan interest does not accrue for first three years?


JohannDeMann wrote:
lacrossebrother wrote:
fats provolone wrote:I'm not a finance masterman so maybe someone can point out the obvious flaw here but aren't these comparisons wrong?

Like, if I pay the minimums on my loans and save or invest money or w/e, I have $X after some period of time. I have some loan debt but it's not negative income. It's a series of cash flows out over time. Doesn't that have to be discounted?

I guess that's what the interest rate is and maybe I just answered my own question.

I don't necessarily understand your question--but I don't even see what you would discount? You're just comparing the interest you accrue over a period to the gains you make on the cash.


its kind of the interest rate. but i mean its also just deferral and debt obligations in general. most everyone in the business world believes paying back $250k+interest in years 17-20 is better than paying back $250k in years 1-3. why is this? because it lets you choose your investment. getting cash and money is hard as fuck and it opens up lots of opportunities. if everyone that refi-ed in the past year had just been on PAYE and sitting on cash and pushed their cash into the market when it dipped they would have made 20%+. if housing markets decrease, those people could have taken advantage and bought real property.

so i mean while generally you are right that the interest rate is what you should compare because the interest rate dictates what the future value of the extra cash flow is, there are tons of investments out there that get 7%+ post tax. having cash and debt gives you leverage. it's why there is a lot of debate between investing in real property that appreciates at 2% a year compared to the stock market at 8% a year is a very real debate. because you can leverage the hell out of real estate.

finally, you guys should all read about PAYE interest terms. subsidized govt loans dont even accrue interest under PAYE for 3 years. no interest capitalizes, so there is no penalty to keeping accruing interest while all of your gains in the market and housing market do capitalize as you can roll them over. REPAYE pays like half of your interest or the remainder of your interest you dont cover.

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Danger Zone
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Re: Student loan payments: Actual numbers

Postby Danger Zone » Wed Nov 18, 2015 8:42 am

Grad PLUS loans are not subsidized.

Anonymous User
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Re: Student loan payments: Actual numbers

Postby Anonymous User » Wed Nov 18, 2015 8:47 am

Graduating with just under $200k in debt.

Does it make sense to take out on loan on real estate to pay for part or all of this debt as quickly as possible?

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kalvano
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Re: Student loan payments: Actual numbers

Postby kalvano » Wed Nov 18, 2015 9:31 am

JohannDeMann wrote:
kalvano wrote:Is this the de facto TLS investment advice thread, or is there an official one somewhere that I'm missing?


I think thesealocust gave investment advice in some threads. He had like 3 vanguard funds he used. Not much investment advice in here other than do I invest or pay down debt super agressive. Usually never get past those 2 thresholds.

I just dump stuff into SPY but that's because it is easiest and has decent results.


Alrighty, I'll find those. I just paid off my loans and I figure I need to start dumping money into other things that actually do stuff.

kcdc1
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Re: Student loan payments: Actual numbers

Postby kcdc1 » Wed Nov 18, 2015 10:50 am

Anonymous User wrote:Graduating with just under $200k in debt.

Does it make sense to take out on loan on real estate to pay for part or all of this debt as quickly as possible?

Depends. Compare interest rates and tax treatment, consider whether there is a possibility of debt forgiveness for the student loans.

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JenDarby
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Re: Student loan payments: Actual numbers

Postby JenDarby » Wed Nov 18, 2015 11:23 am

kalvano wrote:Is this the de facto TLS investment advice thread, or is there an official one somewhere that I'm missing?

This lounge thread is for overall finance matters:

viewtopic.php?f=10&t=208952&start=900

Regarding debt loan and refinancing, I think under 200k and a good income then refinancing makes complete sense and you should do it. I do think the evaluation changes the higher your debt load gets though.

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Old Gregg
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Re: Student loan payments: Actual numbers

Postby Old Gregg » Wed Nov 18, 2015 11:52 am

People are looking for investing to seem much more difficult than it actually is. For the vast majority of people, simple funds that track major indices are enough. Emphasis on "vast." If you're looking for a better ROI, you should become an LP in a PE or hedge fund. But odds are your net worth isn't high enough, and won't likely ever be high enough, as a lawyer to ever do that.

Anonymous User
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Re: Student loan payments: Actual numbers

Postby Anonymous User » Wed Nov 18, 2015 12:28 pm

$320K combined household PAYE-eligible student debt, $160k combined income, early 30s.

My fear is that actually attempting to pay off the debt will rob us of all cash for the next 10 years. This isn't really possible w/kids, desire to save for a house downpayment, emergency fund, and other expenses incurred in your 30s. Alternatively, we could PAYE for 20 years and keep some cash for the tax bomb.

Realistically, where is the line for paying the debt vs. riding the PAYE train?

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Danger Zone
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Re: Student loan payments: Actual numbers

Postby Danger Zone » Wed Nov 18, 2015 12:29 pm

Anonymous User wrote:$320K combined household PAYE-eligible student debt, $160k combined income, early 30s.

My fear is that actually attempting to pay off the debt will rob us of all cash for the next 10 years. This isn't really possible w/kids, desire to save for a house downpayment, emergency fund, and other expenses incurred in your 30s. Alternatively, we could PAYE for 20 years and keep some cash for the tax bomb.

Realistically, where is the line for paying the debt vs. riding the PAYE train?

I don't know but you crossed it

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fats provolone
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Re: Student loan payments: Actual numbers

Postby fats provolone » Wed Nov 18, 2015 1:38 pm

PAYE it bro. Debt is imaginary. Enjoy life

PMan99
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Re: Student loan payments: Actual numbers

Postby PMan99 » Wed Nov 18, 2015 2:01 pm

JohannDeMann wrote:
Anonymous User wrote:I see a lot of people here with "manageable" debt loads and their plans. Is it any different for someone with around $250K in debt? I'm a 3L with a biglaw offer in NYC and I'm starting to worry a bit about paying everything back...


yeah im 250k in the hole plus. SO 300k in the hole. We are on PAYE and have paid back like less than $10k combined. just PAYE and who gives a fuck. reassess in a few years.


tcr.

I started with ~240 or so debt. If I end up staying in biglaw for 5-6 years and saving a ton, maybe I will reassess and pay off all of my loans then (yes this would be inefficient). The worst case scenario for me would be paying 4-5k a month for 3 years, getting canned, and still having 100k debt and no assets at the end of biglaw and rapidly approaching 30. Then I take a lower paying job where trying to pay off 100k debt is still a burden.

PAYE is nice because it reduces risk. If I get canned and enter a lower paying job, I pay less on my loans (both monthly and overall). If I end up somehow sticking around biglaw or cop a good in-house job, I pay more in interest but the money is less valuable to me and maybe I make an expensive decision to be debt-free if I really want it.

Also if I put in $25k a year for my first two years and nothing else ever, that will end up being about $165k 19 years down the line from then with 6.5% growth. That's enough to cover ~400k in tax bomb. 25k is a lot of money but far less than I'd have been paying if I was aggressively paying down loans (even when you add in the PAYEments of like 1.2k a month, still far less than what I'd have been paying if averaging 4k / month).

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Old Gregg
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Re: Student loan payments: Actual numbers

Postby Old Gregg » Wed Nov 18, 2015 2:02 pm

move to germany or netherlands and ditch the loans

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AVBucks4239
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Re: Student loan payments: Actual numbers

Postby AVBucks4239 » Wed Nov 18, 2015 2:03 pm

Anonymous User wrote:$320K combined household PAYE-eligible student debt, $160k combined income, early 30s.

My fear is that actually attempting to pay off the debt will rob us of all cash for the next 10 years. This isn't really possible w/kids, desire to save for a house downpayment, emergency fund, and other expenses incurred in your 30s. Alternatively, we could PAYE for 20 years and keep some cash for the tax bomb.

Realistically, where is the line for paying the debt vs. riding the PAYE train?

I used to post your question all the time. I think it's an adjustable line depending on income/family situation, but you're well past the line. PAYE and get your AGI down for as long as humanly possible. Both of you max out your 401k ($37k), HSA, 529s, etc. and get your payments down. Then you'll be paying less on your loans and increasing your savings rate.

FWIW, the anonymous poster above who paid off $200k in debt could probably have well over half a million in investments (at least, given the high returns in 2012, 2013, etc.) had he/she acted rationally/logically instead of emotionally. But hey, personal finance is personal, and he/she probably feels pretty good about being debt free.




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