Student loan payments: Actual numbers

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JohannDeMann
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Re: Student loan payments: Actual numbers

Postby JohannDeMann » Wed Dec 23, 2015 2:16 am

Tiago Splitter wrote:johann you haven't been able to get subsidized loans for law school since I started in 2012, so if this guy is class of 2015 he doesn't have any subsidized loans unless some of that 81k is from undergrad.


shit i did not know that. i got 45k of subsidized loans. good lookout.

well still 81k at 8% interest means accrue $6.4 in interest. you pay $1.2k leaving you and govt to split $5.2k. your share is $2.6k and the $1.2k you pay. $3.8k interest on 81k is still 4.7% effective interest. Also, govt loans do not have compound interest whereas refis do. Also, cash flow.

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bk1
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Re: Student loan payments: Actual numbers

Postby bk1 » Wed Dec 23, 2015 2:24 am

Even if REPAYE for 1 year is beneficial for OP (which I'm not 100% it is), it seems like a lot of hoops to jump through for minimal gain when OP's balance is so low already. To me it seems like REPAYE just allows OP to do interest only payments (at a low rate) for the first year to delay repaying the loan for a year.

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JenDarby
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Re: Student loan payments: Actual numbers

Postby JenDarby » Wed Dec 23, 2015 2:25 am

Before you listen to johann, just recognize he has like 300k+ in loans and is riding out PAYE with every fiber in his being.

Minimum payments on PAYE is NOT the right approach for everyone. Someone with 81k in loans and 150k in salary is a great example, but look for a rate closer to or below 3%, because you should be able to find it.

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JohannDeMann
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Re: Student loan payments: Actual numbers

Postby JohannDeMann » Wed Dec 23, 2015 2:34 am

emkay625 wrote:
bk1 wrote:
emkay625 wrote:Can anyone recommend a good financial planning book that addresses the situation many of us in this thread find ourselves in? (large amounts of student loan debt but very high income). Trying to find a good place to start my personal finance education but everything seems to be targeted at middle-aged folks, or if it is a book focused on millennials, it assumes high amounts of debt but low incomes.

The r/pf wiki is a good place to start on basic personal finance stuff: https://www.reddit.com/r/personalfinance/wiki/index

What are you unsure about? I think the big questions are: (1) how do you want to pay down your debt (income-based vs refinance; aggressive or not), (2) what other things do you want to save money for (e.g., retirement, house down payment, etc), (3) what is your risk tolerance. I don't think the high income/high debt really changes all that much except making the repayment a bit more complex when considering income-based vs refinance.

I think one of the big things to watch out for with people in our situation is not to get hit by lifestyle inflation.


Generally unsure about pretty much everything. Know nothing about finance. No idea how to go about refinancing my loans and honestly don't REALLY 100% understand what that means. Know I want to retire early but no idea how to even start. Thinking about hiring a financial advisor, but want to educate myself first so that 1) I know how to choose one and 2) I actually understand what they're saying.


Just post what your debt is, salary, career goals, and whether you work in industry, govt, or private practice and this thread can give you a pretty good idea.

Finances are very simple. Dont spend a lot of money and put as much money into stock market index funds as early as possible. There are some nuances beyond that but the rules almost everyone plays to get rich and retire early is let your money make money for you. Warren buffet the greatest investor of all time tells us just to put money into S&P500 index (like SPY - thats the stock ticker) steadily without trying to time the market. There are some really brilliant people in here with covering the more complicated areas like tax incentivized retirement savings (Tiago), deductions and lowering your PAYE bill (AVBucks), and refinancing (many in here on this).

Part of the reason I also strongly advocate for PAYE and govt income based repayment is because it gives you a couple free years without much penalty (broadly applicable to almost all debt levels and all incomes - but just to be safe, specify those here) and keeps all your options on the table for future career changes or life circumstance changes. It's an easy way to "check" and see a free card without much risk. It's also easy as hell and lets you ease into the process of all these crazy finance things.

I think hiring a financial advisor is dumb at this point. Id accrue some assets first.

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JohannDeMann
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Re: Student loan payments: Actual numbers

Postby JohannDeMann » Wed Dec 23, 2015 2:37 am

JenDarby wrote: But look for a rate closer to or below 3%, because you should be able to find it.


I do agree with this. My main takeaway is 5.4 is highway robbery.

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bk1
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Re: Student loan payments: Actual numbers

Postby bk1 » Wed Dec 23, 2015 2:40 am

emkay625 wrote:Generally unsure about pretty much everything. Know nothing about finance. No idea how to go about refinancing my loans and honestly don't REALLY 100% understand what that means. Know I want to retire early but no idea how to even start. Thinking about hiring a financial advisor, but want to educate myself first so that 1) I know how to choose one and 2) I actually understand what they're saying.

If you hire an adviser, find one that is fee-based and owes you a fiduciary duty (new rules from Obama are making the fiduciary aspect mandatory starting some time in 2016? iirc). That said, I don't think one is necessary unless you really don't want to do the research yourself. As I said, the personal finance subreddit is a good place to start.

If you want to retire early, you need to figure out how much money you need to achieve financial independence (i.e., able to completely live off your investments). And then your goal will be to get to that amount. There is a subreddit for that as well: https://www.reddit.com/r/financialindependence (though it's not as good as r/personalfinance because it has a much smaller userbase).

I'll give a quick and dirty rundown. There's two basic aspects that matter for your finances: (1) expenses, and (2) surplus money. Keep your finances reasonable and keep track of your expenses each month (i.e., have a budget and stick to it). With your leftover money, first you should build an emergency fund (usually around 3-6 months expenses, can be more, whatever you feel comfortable with... this might also need to be higher if you have assets that can create emergencies other than losing your job, for example a home that can have surprise expensive repairs). The emergency fund should be liquid and not in anything risky (e.g., you should put it in high interest savings account or CDs (certificates of deposit)). After you have an emergency fund, you should contribute to your 401k up to your employer match (most law firms don't match for lawyers, so this is irrelevant).

After the 401k match, you have 4 basic options: saving for an expense (e.g., down payment for a home), paying down debt, contributing to IRA, contributing to 401k. You should generally do the last 3 before the first 1 (i.e., pay off debt and max out retirement before saving for a large expense), but there are exceptions and certain people feel differently. Whether you should pay down debt (above your regular payments) or do retirement (if you don't have enough to do both), depends on the interest rates on the debt. Low interest rate debt, you should do retirement first. High interest rate debt, you should probably do that first. What is low vs high depends on you. Generally I'd say under 3-5 is low and above 5 is high, in the 3-5 range is kind of wash. For retirement, you should always max IRA before 401k (excluding match) because you have more control over your IRA than the 401k (because your employer chooses the 401k provider). The reason maxing those out each year is good is because you only get 23.5k in tax advantaged space (5.5k in Roth, 18k in 401k) and it disappears each year if you don't use it. Because you have high income, you probably need to do a backdoor Roth IRA.

For your investments that are on a long time horizon 5+ years, the market is fine. Under 5 years, you probably don't want to be in the market (use high interest savings or CDs instead). Index funds for the market are generally a good idea (look of target date funds or use a lazy portfolio).

Hope that helps.

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Danger Zone
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Re: Student loan payments: Actual numbers

Postby Danger Zone » Wed Dec 23, 2015 8:45 am

JohannDeMann wrote:
JenDarby wrote: But look for a rate closer to or below 3%, because you should be able to find it.


I do agree with this. My main takeaway is 5.4 is highway robbery.

That's one thing we can agree on.

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Calvin Murphy
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Re: Student loan payments: Actual numbers

Postby Calvin Murphy » Wed Dec 23, 2015 1:12 pm

JohannDeMann wrote:
JenDarby wrote: But look for a rate closer to or below 3%, because you should be able to find it.


I do agree with this. My main takeaway is 5.4 is highway robbery.


If I were in OP's shoes, I would look into 5 year variable rates. These are going to be the ones that start closer to 3%. If they go up, that's when you start dumping in money to pay off the loans as quickly as possible. As long as OP isn't considering waiting a full ten years to pay off loans (something that doesn't seem like it will be an issue given the debt/income ratio), it doesn't make sense to look at 10 year loan rates over 5 year rates.

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Re: Student loan payments: Actual numbers

Postby JenDarby » Wed Dec 23, 2015 1:17 pm

Calvin Murphy wrote:
JohannDeMann wrote:
JenDarby wrote: But look for a rate closer to or below 3%, because you should be able to find it.


I do agree with this. My main takeaway is 5.4 is highway robbery.


If I were in OP's shoes, I would look into 5 year variable rates. These are going to be the ones that start closer to 3%. If they go up, that's when you start dumping in money to pay off the loans as quickly as possible. As long as OP isn't considering waiting a full ten years to pay off loans (something that doesn't seem like it will be an issue given the debt/income ratio), it doesn't make sense to look at 10 year loan rates over 5 year rates.

Yep..

JenDarby wrote:I would look into the other lenders if you haven't already, that interest rate seems too high. If you have enough money to pay a lot down then I would save that and go with a fixed or variable 5 year term, and ride out (ideally for a fairly better rate) variable until they maybe raise it then dump your saved money into it if it makes sense.

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Re: Student loan payments: Actual numbers

Postby gk101 » Wed Dec 23, 2015 1:17 pm

Calvin Murphy wrote:
JohannDeMann wrote:
JenDarby wrote: But look for a rate closer to or below 3%, because you should be able to find it.


I do agree with this. My main takeaway is 5.4 is highway robbery.


If I were in OP's shoes, I would look into 5 year variable rates. These are going to be the ones that start closer to 3%. If they go up, that's when you start dumping in money to pay off the loans as quickly as possible. As long as OP isn't considering waiting a full ten years to pay off loans (something that doesn't seem like it will be an issue given the debt/income ratio), it doesn't make sense to look at 10 year loan rates over 5 year rates.

Cosigned. Look at 5 year variable rates. I got 1.9% on a similar debt amount refinanced through SOFI on a 5 year variable rate. If you plan to pay it off sooner rather than wating for the full 10 years, it makes more sense to go for the variable rates

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Re: Student loan payments: Actual numbers

Postby Anonymous User » Wed Dec 23, 2015 1:37 pm

OP here (150K/82K dude). Thanks for the advice everyone. I'm probably going to try SOFI and see what they offer with a 5 year variable rate since my goal is to pay off sooner.

Also, someone mentioned losing federal protection by refinancing. The common bond note, for what its worth, does allow for a minimum payment of $25 a month.

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Re: Student loan payments: Actual numbers

Postby anonnymouse » Wed Dec 23, 2015 1:59 pm

Tiago Splitter wrote:johann you haven't been able to get subsidized loans for law school since I started in 2012, so if this guy is class of 2015 he doesn't have any subsidized loans unless some of that 81k is from undergrad.

Johanndumbass strikes again.

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Re: Student loan payments: Actual numbers

Postby anonnymouse » Wed Dec 23, 2015 2:03 pm

Anonymous User wrote:OP here (150K/82K dude). Thanks for the advice everyone. I'm probably going to try SOFI and see what they offer with a 5 year variable rate since my goal is to pay off sooner.

Also, someone mentioned losing federal protection by refinancing. The common bond note, for what its worth, does allow for a minimum payment of $25 a month.

My DRB offer for 5yr floating was 3 month libor + 245 bps. If your fico is 760+ you should probably be able to do better than that because your DTI is better than mine was.

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Re: Student loan payments: Actual numbers

Postby WhirledWorld » Wed Dec 23, 2015 2:04 pm

One strategy that's broadly applicable to high income, high-debt folks (i.e. most of us) is refinance for a 5-year variable rate (you can get under 3%; I refinanced for under 2.5%) then refinance again after you have two years full-time experience with First Republic since their fixed rates are phenomenal: https://www.firstrepublic.com/fundyourdreams

Combining those two, your rates will probably be lower than mortgage rates for the life of your student loans, which is a pretty amazing deal considering this is unsecured debt.

Caveats are 1) no guarantee First Republic rates will be great in 2 years, 2) First Rebublic requires excellent credit, at least $60k debt and doesn't offer nationwide, 3) you're accepting interest rate risk before you refinance at a fixed rate. The 5-year variable refinancing will also require huge monthly payments, but that's the tradeoff for getting such a low rate on such a huge amount of debt.

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Re: Student loan payments: Actual numbers

Postby Anonymous User » Wed Dec 23, 2015 2:09 pm

WhirledWorld wrote:One strategy that's broadly applicable to high income, high-debt folks (i.e. most of us) is refinance for a 5-year variable rate (you can get under 3%; I refinanced for under 2.5%) then refinance again after you have two years full-time experience with First Republic since their fixed rates are phenomenal: https://www.firstrepublic.com/fundyourdreams

Combining those two, your rates will probably be lower than mortgage rates for the life of your student loans, which is a pretty amazing deal considering this is unsecured debt.

Caveats are 1) no guarantee First Republic rates will be great in 2 years, 2) First Rebublic requires excellent credit, at least $60k debt and doesn't offer nationwide, 3) you're accepting interest rate risk before you refinance at a fixed rate. The 5-year variable refinancing will also require huge monthly payments, but that's the tradeoff for getting such a low rate on such a huge amount of debt.

Just FYI: First Republic is flexible on the 2 year "requirement" if your other factors are strong enough to balance out the lack of experience. A co-signer can also remedy it, but potentially saddling someone else with 6 figure debt isn't something to do lightly.

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Re: Student loan payments: Actual numbers

Postby Anonymous User » Wed Dec 23, 2015 2:45 pm

$270k total student loan debt(all fed loans ugrad & law)
$2.6k credit card debt
$11k car loan
Rent $1,050-$1,100 a month

$75k salary govt job
Repaye soon and obviously will do PLSF.

Advice/tips?

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bk1
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Re: Student loan payments: Actual numbers

Postby bk1 » Wed Dec 23, 2015 2:53 pm

Anonymous User wrote:$270k total student loan debt(all fed loans ugrad & law)
$2.6k credit card debt
$11k car loan
Rent $1,050-$1,100 a month

$75k salary govt job
Repaye soon and obviously will do PLSF.

Advice/tips?

Pay off the CC debt asap. Reducing your taxable income reduces REPAYE payments. I'd max out your traditional retirement accounts as much as you can afford because you are in essence getting an automatic 10% return on traditional retirement contributions.

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Re: Student loan payments: Actual numbers

Postby krads153 » Wed Dec 23, 2015 3:30 pm

bk1 wrote:
Anonymous User wrote:$270k total student loan debt(all fed loans ugrad & law)
$2.6k credit card debt
$11k car loan
Rent $1,050-$1,100 a month

$75k salary govt job
Repaye soon and obviously will do PLSF.

Advice/tips?

Pay off the CC debt asap. Reducing your taxable income reduces REPAYE payments. I'd max out your traditional retirement accounts as much as you can afford because you are in essence getting an automatic 10% return on traditional retirement contributions.


11k car loan? Sell your car and buy a cheaper car. With that level of student loan debt, you shouldn't be taking on more debt.

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Danger Zone
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Re: Student loan payments: Actual numbers

Postby Danger Zone » Wed Dec 23, 2015 3:31 pm

krads153 wrote:
bk1 wrote:
Anonymous User wrote:$270k total student loan debt(all fed loans ugrad & law)
$2.6k credit card debt
$11k car loan
Rent $1,050-$1,100 a month

$75k salary govt job
Repaye soon and obviously will do PLSF.

Advice/tips?

Pay off the CC debt asap. Reducing your taxable income reduces REPAYE payments. I'd max out your traditional retirement accounts as much as you can afford because you are in essence getting an automatic 10% return on traditional retirement contributions.


11k car loan? Sell your car and buy a cheaper car. With that level of student loan debt, you shouldn't be taking on more debt.

Wat

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bk1
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Re: Student loan payments: Actual numbers

Postby bk1 » Wed Dec 23, 2015 3:38 pm

krads153 wrote:11k car loan? Sell your car and buy a cheaper car. With that level of student loan debt, you shouldn't be taking on more debt.

I don't think an 11k car note on a 60-70k salary is unreasonable. It also doesn't make sense to treat the actual balance as OP's real debt amount. The debt amount isn't "real" in the sense that it will be forgiven via PSLF. Since OP can't even come close to paying it off with normal payments, treating it as a real balance is pointless (i.e., it might make sense to treat it as real if there was a chance OP could pay it off because of the risk of losing PSLF eligibility). It's better to just treat it like the debt is 10% of OP's income for the 10 year PSLF period and make financial decisions based on that.

While getting a cheap 5k beater would be more frugal, I don't see that as necessary. If OP values having a nicer car than a beater, that's not unreasonable based on his salary. However, I don't think carrying a credit card balance from month-to-month is reasonable.

krads153
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Re: Student loan payments: Actual numbers

Postby krads153 » Wed Dec 23, 2015 3:40 pm

bk1 wrote:
krads153 wrote:11k car loan? Sell your car and buy a cheaper car. With that level of student loan debt, you shouldn't be taking on more debt.

I don't think an 11k car note on a 60-70k salary is unreasonable. It also doesn't make sense to treat the actual balance as OP's real debt amount. The debt amount isn't "real" in the sense that it will be forgiven via PSLF. Since OP can't even come close to paying it off with normal payments, treating it as a real balance is pointless (i.e., it might make sense to treat it as real if there was a chance OP could pay it off because of the risk of losing PSLF eligibility). It's better to just treat it like the debt is 10% of OP's income for the 10 year PSLF period and make financial decisions based on that.

While getting a cheap 5k beater would be more frugal, I don't see that as necessary. If OP values having a nicer car than a beater, that's not unreasonable based on his salary. However, I don't think carrying a credit card balance from month-to-month is reasonable.


Ok, well, I don't believe in borrowing at all to buy cars (which depreciate rapidly, etc.) but to each their own. And especially not on a 75k salary with that much SL debt (who knows if poster will last long enough in that gov job). But whatever, people have different priorities and I'm generally a cheap ass.

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bk1
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Re: Student loan payments: Actual numbers

Postby bk1 » Wed Dec 23, 2015 3:42 pm

krads153 wrote:Ok, well, I don't believe in borrowing at all to buy cars (which depreciate rapidly, etc.) but to each their own. And especially not on a 75k salary with that much SL debt (who knows if poster will last long enough in that gov job). But whatever, people have different priorities and I'm generally a cheap ass.

That's fine for you to not to want to borrow for a depreciating asset, but it's not an unreasonable way to use funds for most people who have the space in their budget (using the 20% of gross, paying off within 3 years guideline). Certain people are willing to use their surplus income on a car. Others want to eat out a bunch. Others want to drink a lot. As long as it's reasonable for OP's budget, I don't really begrudge it.

OP may lose the gov job, but it doesn't really matter because OP can't even come close to paying off that kind of debt anyways. So treating it as a real amount serves no purpose.

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JohannDeMann
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Re: Student loan payments: Actual numbers

Postby JohannDeMann » Wed Dec 23, 2015 4:06 pm

anonnymouse wrote:
Tiago Splitter wrote:johann you haven't been able to get subsidized loans for law school since I started in 2012, so if this guy is class of 2015 he doesn't have any subsidized loans unless some of that 81k is from undergrad.

Johanndumbass strikes again.


Except I was still right.

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JohannDeMann
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Re: Student loan payments: Actual numbers

Postby JohannDeMann » Wed Dec 23, 2015 4:10 pm

You cannot lose govt jobs. It's almost undoable.

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wiz
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Re: Student loan payments: Actual numbers

Postby wiz » Wed Dec 23, 2015 4:15 pm

anonnymouse wrote:
Tiago Splitter wrote:johann you haven't been able to get subsidized loans for law school since I started in 2012, so if this guy is class of 2015 he doesn't have any subsidized loans unless some of that 81k is from undergrad.

Johanndumbass strikes again.

Lolwut

He didn't say anything wrong




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