Student loan payments: Actual numbers

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lymenheimer
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Re: Student loan payments: Actual numbers

Postby lymenheimer » Mon Dec 14, 2015 2:51 pm

Anonymous User wrote:Married Income: ~220k
Location: CA
Debt: ~260k at ~2.5%
Payments: ~3500/month

Full federal loans for law school. ~260k debt when I started repayment. 1 year of PAYE as a clerk at 370/month, after which balance was ~270k. Refinanced to 7 year term after entering private practice.


Would you mind elaborating on your refinance? ie with whom you refinanced and your options therein (other terms+percentages, options from other businesses, fixed/variable, etc)? Seems like 2.5% is a much better rate compared to what others are getting ITT.

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bk1
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Re: Student loan payments: Actual numbers

Postby bk1 » Mon Dec 14, 2015 3:00 pm

mylifeis24 wrote:Job: Biglaw ($160K starting)
Wife's Salary: $33K
Location: NYC
Debt: 170K from Law + UG at average weighted rate of 6.269%
Wife's Debt: 41K at average rate of 6.025%

So I've read through a decent number of posts and I see that my initial impression to pay off loans as quickly as possible may not be the best move since I lose early years to invest in IRA/401k accounts and benefit from the compound interest. I absolutely hate the thought of having looming debt, however. I also know that there is no guarantee that someone stays in biglaw for 5, 6, 7 years, but if it's a matter of willpower and fighting through each day, I'm confident I'll get through – just my personality. And as for fear of being laid off or other things mostly out of my control, my loans are all federal, so I have that set of safety nets.

I'm curious if in my scenario, it's possible to pay down my and the wife's combined debt in 6-7 years AND maximize IRA/401k? If based on a 6.5 year repayment plan, the debt would be a total of $~270K. Assuming standard biglaw salary and bonus + my wife's income of $33K, if we started off paying something like $27K our first year, then $35K, then $45K, $53K, $55K, and $55K, and I contributed max of $23.5K each year for IRA/401k, that would still be plenty to live on the first year with NYC rent (assuming something like $3.5K monthly rent) after taxes.I feel like I'm missing something here because this doesn't seem that bad at all... Really appreciate everyone's help and the wise words in this thread!


First, I agree with Johann that your first priority should be creating a liquid emergency fund (3-6 mos expenses). This will help you weather any emergency that comes up, including switching jobs should you have to.

Second, I think you're looking at it slightly incorrectly. If it were simply comparing paying down debt versus retirement then I think debt would win hands down because you're getting a guaranteed ~6% return on your money. The real thing that you're losing by not contributing (or contributing less) to retirement each year is not time, but rather the tax advantaged space. Each year you get 23.5k per person worth of tax advantage space and if you don't use it that year, it disappears (i.e., it's a finite resource that is decreasing each year). Trying to maximize that space could be the reason to contribute to retirement over debt. Personally I'd split the difference. Contribute up to the match (if any) with your wife's 401k (I assume you don't get any 401k matching as a biglaw associate), max out both your IRAs (backdoor Roth), and then pay down debt... all after creating your emergency fund. I think that's safer, but if you can manage to make 30-50k in yearly loan payments will maxing out IRA contributions then more power to you. Keep in mind that your calculations are still leaving out 23.5k worth of tax advantaged space per year (your wife's 401k+IRA).

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Re: Student loan payments: Actual numbers

Postby Anonymous User » Mon Dec 14, 2015 3:04 pm

lymenheimer wrote:
Anonymous User wrote:Married Income: ~220k
Location: CA
Debt: ~260k at ~2.5%
Payments: ~3500/month

Full federal loans for law school. ~260k debt when I started repayment. 1 year of PAYE as a clerk at 370/month, after which balance was ~270k. Refinanced to 7 year term after entering private practice.


Would you mind elaborating on your refinance? ie with whom you refinanced and your options therein (other terms+percentages, options from other businesses, fixed/variable, etc)? Seems like 2.5% is a much better rate compared to what others are getting ITT.

First Republic. Mine is fixed but they offer variable as well; their current rates are on their website. They require you to open a checking account with them, direct deposit into it, and autodebit the loan payment, and their lending requirements are definitely more stringent than other student loan refinanciers (e.g., SoFi, Common Bond, DRB), so I don't think it's for everyone. They also don't have physical branches in a ton of places.

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Re: Student loan payments: Actual numbers

Postby boredtodeath » Thu Dec 17, 2015 12:05 pm

Debt: About $290k at average rate of 6.94% (mixture of small amount of UG loans + all of LS financed)
Income: Starting as first-year biglaw associate next fall. $160k.
Location: NYC
Plan: Undecided, leaning towards PAYE/IBR
Monthly Payment: On standard 10 yr: ~$3,200/month. On PAYE/IBR: starting ~$1,100/month. I don't have an accurate figure of what it will grow to.

I'm wondering if there is any reason not to choose PAYE/IBR as my repayment plan when I graduate (aside from refinancing with a private lender which I am going to look into)? Why not give myself the safety net of lower monthly payments while still having the option of paying the loans down just as fast as the standard 10 year repayment plan? Am I missing something?

My only real goal outside of paying my debt down as fast as possible is contributing the max towards my 401k/IRA each year. I don't know if that is realistic, at least in the first few years, with this debt load, but it's something I'd like to work towards.

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BrittaBot
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Re: Student loan payments: Actual numbers

Postby BrittaBot » Thu Dec 17, 2015 12:36 pm

I have to re-certify for an income-based repayment plan. Thing I get stuck on is the part where it asks whether your income is substantially different than the last tax year? I wrote an email to fedloan asking and they were basically like if you think it is! if you got a new job!

I honestly have no effing clue if it is. Between my husband's loan/him switching jobs, me switching jobs plus my loan's I feel like it's impossible to figure out. I do have a new job where I am finally making more than like minimum wage but it's not like I'm rich. In 2015, I was unemployed for 1.5 months, then was working part-time @ 15/hr for six months, and now I make ~$60k for the rest of 2015. I have $79k in loans plus about $30k in private loans and those payments are about $300 a month and I can't do anything about that.

Is my income significantly different than 2014? That year I was still in school until mid July at which point I started making $20/hr for 40 hours a week until the end of December. I don't know what the eff to do. Is it similar? Do I just submit paystubs from part-time job in 2015, and one from current job, and explain I was unemployed? And the effing private loans!

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grand inquisitor
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Re: Student loan payments: Actual numbers

Postby grand inquisitor » Thu Dec 17, 2015 1:28 pm

i think i found some examples once that made clear that basically any change is a substantial change. like, the 1% gs bump, without any other change, would be substantial. but idk if you can make your case with a straight face then go for it.

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Re: Student loan payments: Actual numbers

Postby bk1 » Thu Dec 17, 2015 1:30 pm

BrittaBot wrote:I have to re-certify for an income-based repayment plan. Thing I get stuck on is the part where it asks whether your income is substantially different than the last tax year? I wrote an email to fedloan asking and they were basically like if you think it is! if you got a new job!

I honestly have no effing clue if it is. Between my husband's loan/him switching jobs, me switching jobs plus my loan's I feel like it's impossible to figure out. I do have a new job where I am finally making more than like minimum wage but it's not like I'm rich. In 2015, I was unemployed for 1.5 months, then was working part-time @ 15/hr for six months, and now I make ~$60k for the rest of 2015. I have $79k in loans plus about $30k in private loans and those payments are about $300 a month and I can't do anything about that.

Is my income significantly different than 2014? That year I was still in school until mid July at which point I started making $20/hr for 40 hours a week until the end of December. I don't know what the eff to do. Is it similar? Do I just submit paystubs from part-time job in 2015, and one from current job, and explain I was unemployed? And the effing private loans!

I think you have to answer the question in the way that you feel comfortable with. I know that some people have gone from student-->6 figure jobs and not noted that on their IBR/PAYE/etc certification. Not saying that's right, just that people have done it.

First, it shouldn't be that hard to figure out your total income for 2015 (even if you just have to ballpark it). In 2014 you had ~20k in income. It's hard to figure out your 2015 income because you say "part-time" but don't note how much you've been working. I'm going to assume that means 25 hours/week. I also assume that "now I make ~60k" means you've had a salary of 60k for 4.5 months. So you end up with income that looks ~29k (0*1.5/12+30*0.625*4/12+60*4.5/12). If my assumptions are right, that's on you to determine whether the difference is significant. Also, this isn't factoring in your husband's income.

What I will also note is that, based on debt and income (presumably close to 100k once you factor in your husband), you may be getting close to the point where IBR payments aren't going to be lower than the regular 10 year payment plan.

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Re: Student loan payments: Actual numbers

Postby bk1 » Thu Dec 17, 2015 1:35 pm


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sopranorleone
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Re: Student loan payments: Actual numbers

Postby sopranorleone » Thu Dec 17, 2015 1:38 pm

Anonymous User wrote:
lymenheimer wrote:
Anonymous User wrote:Married Income: ~220k
Location: CA
Debt: ~260k at ~2.5%
Payments: ~3500/month

Full federal loans for law school. ~260k debt when I started repayment. 1 year of PAYE as a clerk at 370/month, after which balance was ~270k. Refinanced to 7 year term after entering private practice.


Would you mind elaborating on your refinance? ie with whom you refinanced and your options therein (other terms+percentages, options from other businesses, fixed/variable, etc)? Seems like 2.5% is a much better rate compared to what others are getting ITT.

First Republic. Mine is fixed but they offer variable as well; their current rates are on their website. They require you to open a checking account with them, direct deposit into it, and autodebit the loan payment, and their lending requirements are definitely more stringent than other student loan refinanciers (e.g., SoFi, Common Bond, DRB), so I don't think it's for everyone. They also don't have physical branches in a ton of places.


May I ask how long it took you to hear back from them? I submitted a refinancing app about two weeks ago, but haven't heard anything yet.

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bk1
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Re: Student loan payments: Actual numbers

Postby bk1 » Thu Dec 17, 2015 1:41 pm

boredtodeath wrote:Debt: About $290k at average rate of 6.94% (mixture of small amount of UG loans + all of LS financed)
Income: Starting as first-year biglaw associate next fall. $160k.
Location: NYC
Plan: Undecided, leaning towards PAYE/IBR
Monthly Payment: On standard 10 yr: ~$3,200/month. On PAYE/IBR: starting ~$1,100/month. I don't have an accurate figure of what it will grow to.

I'm wondering if there is any reason not to choose PAYE/IBR as my repayment plan when I graduate (aside from refinancing with a private lender which I am going to look into)? Why not give myself the safety net of lower monthly payments while still having the option of paying the loans down just as fast as the standard 10 year repayment plan? Am I missing something?

My only real goal outside of paying my debt down as fast as possible is contributing the max towards my 401k/IRA each year. I don't know if that is realistic, at least in the first few years, with this debt load, but it's something I'd like to work towards.

You're not really missing anything in choosing IBR/PAYE/etc over 10 year standard (ignoring refinancing). The reason it's a no-brainer for someone like you is that IBR/PAYE/etc have eligibility requirements and thus not everyone has the option to choose them over 10 year standard.

It is definitely possible to max your 401k/IRA each year. It really depends on: (1) your lifestyle, and (2) whether you'd rather pay down debt or contribute to your 401k. I'd also note that some companies do not allow you to contribute to a 401k until you've been with them for a certain amount of time (e.g., 1 year). Whether it's more important to get rid of debt or max out your 401k is your call. Personally I tend to lean towards getting rid of the debt.

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Re: Student loan payments: Actual numbers

Postby Anonymous User » Thu Dec 17, 2015 1:51 pm

sopranorleone wrote:May I ask how long it took you to hear back from them? I submitted a refinancing app about two weeks ago, but haven't heard anything yet.

I was referred by a friend so I initially spoke with them over the phone to discuss it, which helped make clear what my factors needed to be to get approval. Took about a week to get the documents over and then another week to be approved.

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Re: Student loan payments: Actual numbers

Postby sopranorleone » Thu Dec 17, 2015 2:05 pm

Anonymous User wrote:
sopranorleone wrote:May I ask how long it took you to hear back from them? I submitted a refinancing app about two weeks ago, but haven't heard anything yet.

I was referred by a friend so I initially spoke with them over the phone to discuss it, which helped make clear what my factors needed to be to get approval. Took about a week to get the documents over and then another week to be approved.


Thanks!

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Re: Student loan payments: Actual numbers

Postby BrittaBot » Thu Dec 17, 2015 2:55 pm

What I will also note is that, based on debt and income (presumably close to 100k once you factor in your husband), you may be getting close to the point where IBR payments aren't going to be lower than the regular 10 year payment plan.

Thanks for your advice. I guess I will provide them the relevant information. I just wish they had more guidance on it online about what constitutes significant. Is your statement really true? I don't get this. I mean that in a hopeless, frustrated way...

I make 60k, my husband makes 24k. Together we probably have 120,000 in loans. most of that is clearly mine. I've entered in data into "loan calculations" before and it tells me I should be paying like $500 a month for federal loans (just me, not husband). That, plus $300 for private loans, is $800 a month! That is basically half of one of my pay checks. I don't even think I make a lot of money, compared to people in this thread. How can they think I can possible afford $800 a month and rent/food/gas/etc. It's not like I waste money either. I haven't been on vacation since 2012 and rarely go shopping. Literally the only things I spend my money are on food and a place to live.

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grand inquisitor
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Re: Student loan payments: Actual numbers

Postby grand inquisitor » Thu Dec 17, 2015 2:58 pm

just be sure to double-check their calculations. they tried to double my income during my latest certification process.

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bk1
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Re: Student loan payments: Actual numbers

Postby bk1 » Thu Dec 17, 2015 4:33 pm

BrittaBot wrote:What I will also note is that, based on debt and income (presumably close to 100k once you factor in your husband), you may be getting close to the point where IBR payments aren't going to be lower than the regular 10 year payment plan.

Thanks for your advice. I guess I will provide them the relevant information. I just wish they had more guidance on it online about what constitutes significant. Is your statement really true? I don't get this. I mean that in a hopeless, frustrated way...

I make 60k, my husband makes 24k. Together we probably have 120,000 in loans. most of that is clearly mine. I've entered in data into "loan calculations" before and it tells me I should be paying like $500 a month for federal loans (just me, not husband). That, plus $300 for private loans, is $800 a month! That is basically half of one of my pay checks. I don't even think I make a lot of money, compared to people in this thread. How can they think I can possible afford $800 a month and rent/food/gas/etc. It's not like I waste money either. I haven't been on vacation since 2012 and rarely go shopping. Literally the only things I spend my money are on food and a place to live.

You can calculate federal payment plans here: https://studentloans.gov/myDirectLoan/m ... tor.action

The first thing to note is that you are pretty much stuck with those private loans. The federal income-based repayment plans are not going to factor in your private student loans and that is why it may seem like the expected payment amounts are higher than you think is fair for your income level. You can of course try to alter your payments on the private loans by refinancing them to change the rate and/or term.

Using the above website, with $90,000 in federal loans at 6.8% (assumed these numbers based on your post), you would pay $1036 for a 10 year repayment plan. Whether you're going to get phased out of an income-based plan really depends on the type of income-based plan you are eligible for. With $84,00 AGI for a family of 2 in CT, your IBR payment would be $751 and your PAYE payment would be $501. At ~$107,000 AGI you pay $693 for PAYE, but become ineligible for IBR. You would phase out of PAYE at ~$150,000 AGI.

However, with the advent of REPAYE, I think you should be able to use that and keep the payments at 10% rather than the 15% that they are under certain IBR plans. As a side note, you can never phase out of REPAYE, but at the point that you would be phased out of PAYE, your payments under REPAYE would be higher than under the standard 10 year.

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Re: Student loan payments: Actual numbers

Postby Anonymous User » Thu Dec 17, 2015 5:18 pm

boredtodeath wrote:Debt: About $290k at average rate of 6.94% (mixture of small amount of UG loans + all of LS financed)
Income: Starting as first-year biglaw associate next fall. $160k.
Location: NYC
Plan: Undecided, leaning towards PAYE/IBR
Monthly Payment: On standard 10 yr: ~$3,200/month. On PAYE/IBR: starting ~$1,100/month. I don't have an accurate figure of what it will grow to.

I'm wondering if there is any reason not to choose PAYE/IBR as my repayment plan when I graduate (aside from refinancing with a private lender which I am going to look into)? Why not give myself the safety net of lower monthly payments while still having the option of paying the loans down just as fast as the standard 10 year repayment plan? Am I missing something?

My only real goal outside of paying my debt down as fast as possible is contributing the max towards my 401k/IRA each year. I don't know if that is realistic, at least in the first few years, with this debt load, but it's something I'd like to work towards.


I normally would say max out 401k, but 300k debt load is insanely high - the amount you would have to be forgiven on PAYE after 20 years or whatever would be insane (and the tax bomb would be at least a couple hundred thousand). If you don't pay down your debt beyond minimum, your balance will increase a ton and you'd be relying on investments in the stock market for gains (and who knows what will happen in the next 20 years). So yeah, put some in your 401k but focus on paying down debt.

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Re: Student loan payments: Actual numbers

Postby AVBucks4239 » Thu Dec 17, 2015 5:53 pm

Anonymous User wrote:
boredtodeath wrote:Debt: About $290k at average rate of 6.94% (mixture of small amount of UG loans + all of LS financed)
Income: Starting as first-year biglaw associate next fall. $160k.
Location: NYC
Plan: Undecided, leaning towards PAYE/IBR
Monthly Payment: On standard 10 yr: ~$3,200/month. On PAYE/IBR: starting ~$1,100/month. I don't have an accurate figure of what it will grow to.

I'm wondering if there is any reason not to choose PAYE/IBR as my repayment plan when I graduate (aside from refinancing with a private lender which I am going to look into)? Why not give myself the safety net of lower monthly payments while still having the option of paying the loans down just as fast as the standard 10 year repayment plan? Am I missing something?

My only real goal outside of paying my debt down as fast as possible is contributing the max towards my 401k/IRA each year. I don't know if that is realistic, at least in the first few years, with this debt load, but it's something I'd like to work towards.


I normally would say max out 401k, but 300k debt load is insanely high - the amount you would have to be forgiven on PAYE after 20 years or whatever would be insane (and the tax bomb would be at least a couple hundred thousand). If you don't pay down your debt beyond minimum, your balance will increase a ton and you'd be relying on investments in the stock market for gains (and who knows what will happen in the next 20 years). So yeah, put some in your 401k but focus on paying down debt.

I disagree about his balance getting out of control.

AGI (Max 401k): $142,000 (not eligible for most other deductions)

Estimated REPAYE Payment: $1037.50 ($12,450 for the year)

Yearly Interest on $294k Loan at 6.94%: $20,126

Subtract payments made towards loan ($12,450): $7,676 interest accrued

Government subsidizes 50% of unpaid interest (REPAYE): $3,838

So his loan only goes up $3,838 that year. His payments will increase in future years meaning that the amount growing on the loan is less and less.


As to whether to do standard ten year repayment or PAYE/invest:

If he pays it off in ten years he will pay $411,000 towards the loan.

If he does REPAYE and averages paying $15,000/year towards the loan he will pay $375,000 plus tax bomb. And if he averages that yearly amount his loan will have gone up about $62,500 ($2,500 per year times 25). Add that to the current principal and that's $356,500 for the tax. Call it 38% tax bracket so $135,000 tax.

$135,000 + $375,000 = $510,000, so $100k more but with 15 extra years.

Those payments obviously are purely hypothetical, but the more he pays, the lower the tax bomb and vice versa. So I think the total paid towards those loans is somewhere in the $500-550 ballpark if he rides the REPAYE train all the way through.


Now, I'm not recommending anything because this calculation (especially average paid towards loan/year) is exploding with hypothetical numbers that we just don't know. That said, you might want to think about enrolling in PAYE, max 401k, then maybe pay as much as possible towards highest interest rate loans. Just a thought.

So TL;DR to OP: PAYE might make sense, paying them off might too. But don't think you have to put all your eggs in one basket and pick one hardcore approach (minimize AGI and loan payments) or the other (slave to your loans). There's a middle ground that probably makes personal, emotional, and financial sense. That's for you to decide.

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Re: Student loan payments: Actual numbers

Postby boredtodeath » Thu Dec 17, 2015 7:11 pm

AVBucks4239 wrote:
Anonymous User wrote:
boredtodeath wrote:Debt: About $290k at average rate of 6.94% (mixture of small amount of UG loans + all of LS financed)
Income: Starting as first-year biglaw associate next fall. $160k.
Location: NYC
Plan: Undecided, leaning towards PAYE/IBR
Monthly Payment: On standard 10 yr: ~$3,200/month. On PAYE/IBR: starting ~$1,100/month. I don't have an accurate figure of what it will grow to.

I'm wondering if there is any reason not to choose PAYE/IBR as my repayment plan when I graduate (aside from refinancing with a private lender which I am going to look into)? Why not give myself the safety net of lower monthly payments while still having the option of paying the loans down just as fast as the standard 10 year repayment plan? Am I missing something?

My only real goal outside of paying my debt down as fast as possible is contributing the max towards my 401k/IRA each year. I don't know if that is realistic, at least in the first few years, with this debt load, but it's something I'd like to work towards.


I normally would say max out 401k, but 300k debt load is insanely high - the amount you would have to be forgiven on PAYE after 20 years or whatever would be insane (and the tax bomb would be at least a couple hundred thousand). If you don't pay down your debt beyond minimum, your balance will increase a ton and you'd be relying on investments in the stock market for gains (and who knows what will happen in the next 20 years). So yeah, put some in your 401k but focus on paying down debt.

I disagree about his balance getting out of control.

AGI (Max 401k): $142,000 (not eligible for most other deductions)

Estimated REPAYE Payment: $1037.50 ($12,450 for the year)

Yearly Interest on $294k Loan at 6.94%: $20,126

Subtract payments made towards loan ($12,450): $7,676 interest accrued

Government subsidizes 50% of unpaid interest (REPAYE): $3,838

So his loan only goes up $3,838 that year. His payments will increase in future years meaning that the amount growing on the loan is less and less.


As to whether to do standard ten year repayment or PAYE/invest:

If he pays it off in ten years he will pay $411,000 towards the loan.

If he does REPAYE and averages paying $15,000/year towards the loan he will pay $375,000 plus tax bomb. And if he averages that yearly amount his loan will have gone up about $62,500 ($2,500 per year times 25). Add that to the current principal and that's $356,500 for the tax. Call it 38% tax bracket so $135,000 tax.

$135,000 + $375,000 = $510,000, so $100k more but with 15 extra years.

Those payments obviously are purely hypothetical, but the more he pays, the lower the tax bomb and vice versa. So I think the total paid towards those loans is somewhere in the $500-550 ballpark if he rides the REPAYE train all the way through.


Now, I'm not recommending anything because this calculation (especially average paid towards loan/year) is exploding with hypothetical numbers that we just don't know. That said, you might want to think about enrolling in PAYE, max 401k, then maybe pay as much as possible towards highest interest rate loans. Just a thought.

So TL;DR to OP: PAYE might make sense, paying them off might too. But don't think you have to put all your eggs in one basket and pick one hardcore approach (minimize AGI and loan payments) or the other (slave to your loans). There's a middle ground that probably makes personal, emotional, and financial sense. That's for you to decide.


Thanks.

Probably a dumb question but if you're on PAYE and you end up paying off your balance prior to the end of the 25 yr period, you're done right? They don't drag you out to the 25 yrs with a $0 balance right?

I think what you said in your second to last paragraph makes the most sense to me. Sign up for PAYE, max out 401k and then put everything else I can towards my loans each month, regardless of what PAYE mandates I pay that month. This way I'm creating some sort of retirement savings, paying down my debt as fast as possible, but still giving myself the safety net of the lower PAYE monthly payments.

My only other question is, if you're going to go on PAYE does it make more sense to just pay minimum and ride it all the way out and pay the tax bomb or does it make more sense to do what I said above?

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Re: Student loan payments: Actual numbers

Postby Anonymous User » Thu Dec 17, 2015 7:31 pm

This might be a stupid question, but if an associate chooses not to contribute to their 401 k, their after tax income increases correct?

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Re: Student loan payments: Actual numbers

Postby bk1 » Thu Dec 17, 2015 7:35 pm

boredtodeath wrote:Probably a dumb question but if you're on PAYE and you end up paying off your balance prior to the end of the 25 yr period, you're done right? They don't drag you out to the 25 yrs with a $0 balance right?

Once you've paid off the balance, you are done.

boredtodeath wrote:I think what you said in your second to last paragraph makes the most sense to me. Sign up for PAYE, max out 401k and then put everything else I can towards my loans each month, regardless of what PAYE mandates I pay that month. This way I'm creating some sort of retirement savings, paying down my debt as fast as possible, but still giving myself the safety net of the lower PAYE monthly payments.

I'm not AVbucks, but I personally would do less to retirement. You're talking 23.5k/year (401k+IRA) into retirement. My reason is that paying off your loans early affords earlier career flexibility and that to me is more important than maxing out tax advantaged accounts. In the end, you have to make the choice you're most comfortable with.

boredtodeath wrote:My only other question is, if you're going to go on PAYE does it make more sense to just pay minimum and ride it all the way out and pay the tax bomb or does it make more sense to do what I said above?

As AVbucks alluded to, this is really difficult to calculate because it hinges on two numbers you don't know right now: (1) what your income will be over the next 20 years, and (2) what the marginal tax brackets and rates will be in 20 years. You can make certain assumptions, calculate based on that, and then determine whether it makes sense to pay the PAYE minimum or to pay off aggressively. In the end, if you have a salary that is similar to biglaw for an appreciable amount of time, you will end up paying off a significant amount even with PAYE.

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bk1
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Re: Student loan payments: Actual numbers

Postby bk1 » Thu Dec 17, 2015 7:37 pm

Anonymous User wrote:This might be a stupid question, but if an associate chooses not to contribute to their 401 k, their after tax income increases correct?

You're looking at it backwards. 401k contributions are optional so choosing not to contribute doesn't change your after-tax take home. If you contribute to a 401k, your after-tax take home goes down because your pre-tax take home goes down.

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Tiago Splitter
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Re: Student loan payments: Actual numbers

Postby Tiago Splitter » Thu Dec 17, 2015 7:43 pm

bk1 wrote:
boredtodeath wrote:I think what you said in your second to last paragraph makes the most sense to me. Sign up for PAYE, max out 401k and then put everything else I can towards my loans each month, regardless of what PAYE mandates I pay that month. This way I'm creating some sort of retirement savings, paying down my debt as fast as possible, but still giving myself the safety net of the lower PAYE monthly payments.

I'm not AVbucks, but I personally would do less to retirement. You're talking 23.5k/year (401k+IRA) into retirement. My reason is that paying off your loans early affords earlier career flexibility and that to me is more important than maxing out tax advantaged accounts. In the end, you have to make the choice you're most comfortable with.

I'd go all in on PAYE for just this reason. If you dedicate most of your income to loans you won't have any flexibility for many, many years. Even if you pay 50k a year towards loans your loan balance will be up around 200k after three years.

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JohannDeMann
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Re: Student loan payments: Actual numbers

Postby JohannDeMann » Thu Dec 17, 2015 8:18 pm

BrittaBot wrote:I have to re-certify for an income-based repayment plan. Thing I get stuck on is the part where it asks whether your income is substantially different than the last tax year? I wrote an email to fedloan asking and they were basically like if you think it is! if you got a new job!

I honestly have no effing clue if it is. Between my husband's loan/him switching jobs, me switching jobs plus my loan's I feel like it's impossible to figure out. I do have a new job where I am finally making more than like minimum wage but it's not like I'm rich. In 2015, I was unemployed for 1.5 months, then was working part-time @ 15/hr for six months, and now I make ~$60k for the rest of 2015. I have $79k in loans plus about $30k in private loans and those payments are about $300 a month and I can't do anything about that.

Is my income significantly different than 2014? That year I was still in school until mid July at which point I started making $20/hr for 40 hours a week until the end of December. I don't know what the eff to do. Is it similar? Do I just submit paystubs from part-time job in 2015, and one from current job, and explain I was unemployed? And the effing private loans!

substantial change is change in job.

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bk1
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Re: Student loan payments: Actual numbers

Postby bk1 » Thu Dec 17, 2015 8:42 pm

Tiago Splitter wrote:I'd go all in on PAYE for just this reason. If you dedicate most of your income to loans you won't have any flexibility for many, many years. Even if you pay 50k a year towards loans your loan balance will be up around 200k after three years.

But I feel like PAYE is somewhat false flexibility because if you do go with a low paying job, you may need to save more to cover the tax bomb (which will likely be larger because of the lower paying job). I mean it's definitely flexibility in the moment, but there is an accounting for that flexibility after 20 years.

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Tiago Splitter
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Re: Student loan payments: Actual numbers

Postby Tiago Splitter » Thu Dec 17, 2015 8:53 pm

bk1 wrote:
Tiago Splitter wrote:I'd go all in on PAYE for just this reason. If you dedicate most of your income to loans you won't have any flexibility for many, many years. Even if you pay 50k a year towards loans your loan balance will be up around 200k after three years.

But I feel like PAYE is somewhat false flexibility because if you do go with a low paying job, you may need to save more to cover the tax bomb (which will likely be larger because of the lower paying job). I mean it's definitely flexibility in the moment, but there is an accounting for that flexibility after 20 years.

But it's not like you are going to be able to take the lower paying job under standard repayment. In either case you're in a lot of trouble.

For me this is more specific to biglaw. In a different industry where you expected to be around a while at a fairly stable pay level paying down the loans makes more sense. You'd just assume you will have everything paid off after 10-15 and then you're in good shape. The problem with biglaw is you may need flexibility much sooner and paying down loans aggressively really limits that flexibility.




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