Anonymous User wrote:I have been a long-term follower of this forum, and it has had a tangible impact on my law school journey and career-path. Im hoping to now get some insight from a financial perspective: I have just over 80k of debt (not including about 6k for a private bar loan). I have been clerking since graduation (1 year clerkship) and due to the modest paycheck, I’ve been on the pay as you earn plan.
Very fortunate to have accepted a public service loan forgiveness eligible position that will pay a comfortable amount (trying to stay as anon as possible here…the position pays between 80-100k). Do I: (1) continue on the PAYE plan, making minimal payments but aiming toward the goal of 9.5 more years on PAYE before the debt is wiped out; or (2) aggressively pay down the loans. Obviously, my ability to pay the loans aggressively will not compare to the ability of those making 160k and above. However, from what I have seen, 80k of debt seems to be below average, and given that my salary will be a bit higher than my debt load, I wonder if it makes sense to try and make a dent.
Background info: very excited about the position (my ideal legal career) and from what I understand if I do good work, low chance of suddenly losing the job (aka, better job security than biglaw). So, any thoughts, suggestions, or insight? What is the risk to being on PSLF and then leaving the job in a few years for some unknown reason, only to realize I never made a dent in the loans? On the other hand, is it foolish in my [lucky] situation to not take advantage of PSLF?
Sort of depends on whether you'll be married, which could change things if your spouse has a large salary. But, your latter suggestion is the right way of thinking unless that's the case (i.e. it is foolish not to take advantage of PSLF).
Even at 100k, by contributing a substantial amount to retirement savings, you can significantly reduce your AGI. You can contribute $18,000 a year to your 457(b) (401k equivalent) and another $5,500 to an IRA. At 100k/yr that would reduce your AGI under $80k. Subtract 150% of the FPL (which is $11,880x1.5=17,820) and your AGI is around 60k. So yearly payments of 6k is about 60k of payments over the next 10 years. Obviously at $80k/year, it makes even more sense.
If your loans average 6.5% interest, you'd pay $110k over the next 10 years on a standard repayment plan.
However, if you marry a high-earning person at some point in your repayment years, it could change the math. However, you can file separately still and the government won't count your spouse's income (although you sacrifice some meaningful tax credits). Interestingly, even if you file separately, you can still count your spouse (and any kids) as part of your household, thereby significantly increasing your federal poverty line reduction in determining your discretionary income.