Student loan payments: Actual numbers

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bern victim
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Re: Student loan payments: Actual numbers

Postby bern victim » Tue Jul 05, 2016 11:46 am

Danger Zone wrote:
bern victim wrote:
Old Gregg wrote:Very bad decision to bet your financial stability on the whims of the U.S. government. I think we're still waiting for the PAYE/IBR "tax bomb" to be overridden by legislation (hasn't happened yet and probably won't happen).

we're still a decade+ away from the first IBR loans being forgiven. it's not exactly a pressing concern.

Doesn't the first PSLF forgiveness happen in 2017 though?

PSLF is already tax-free

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Danger Zone
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Re: Student loan payments: Actual numbers

Postby Danger Zone » Tue Jul 05, 2016 11:46 am

Ty didn't know that

bern victim
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Re: Student loan payments: Actual numbers

Postby bern victim » Tue Jul 05, 2016 11:49 am

JenDarby wrote:
bern victim wrote:
Old Gregg wrote:Very bad decision to bet your financial stability on the whims of the U.S. government. I think we're still waiting for the PAYE/IBR "tax bomb" to be overridden by legislation (hasn't happened yet and probably won't happen).

we're still a decade+ away from the first IBR loans being forgiven. it's not exactly a pressing concern.

I don't disagree with this sentiment, but anon suggesting that after the election the Feds might bring PAYE rates down as low as refinancing rates is pretty silly. No reason to do that when you can punt the tax bomb issue

PSLF has no tax bomb so it doesn't change the timeframe

yeah I'm not counting on a rate reduction, although it has been talked about. I expect Clinton to take some action on student loans and rate reduction is a relatively easy target (and it was a big sanders talking point). but I wouldn't count on it.

tax bomb I'm confident will be gone by 2027 or whenever it actually matters. it makes zero sense to tax forgiveness of govt loans and defeats the entire purpose of the forgiveness scheme.

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bk1
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Re: Student loan payments: Actual numbers

Postby bk1 » Tue Jul 05, 2016 11:57 am

The first IBR was first enacted in, what, 2009? So the first forgivenesses won't happen till ~2034.

Who the fuck knows what's going to happen several decades from now. My completely wild guess is that it won't change since the IRS insolvency rules for cancelled debt should protect the average person (i.e., someone without significant assets) and ensure that there are no egregious cases of people being fucked. The only people who are "hurt" by the tax bomb are people who have significant assets such that they can't exclude much, if any, of the cancelled debt from their income.

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Old Gregg
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Re: Student loan payments: Actual numbers

Postby Old Gregg » Tue Jul 05, 2016 11:58 am

bern victim wrote:
Old Gregg wrote:Very bad decision to bet your financial stability on the whims of the U.S. government. I think we're still waiting for the PAYE/IBR "tax bomb" to be overridden by legislation (hasn't happened yet and probably won't happen).

we're still a decade+ away from the first IBR loans being forgiven. it's not exactly a pressing concern.


A decade is nothing in political terms.

Anonymous User
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Re: Student loan payments: Actual numbers

Postby Anonymous User » Tue Jul 05, 2016 12:02 pm

JenDarby wrote:
Anonymous User wrote:
smaug wrote:i also realize i have the least popular opinion on this cite in that i think that many to most should stay on gubmint loans but pay fairly aggressively

it's cheap insurance but you should operate assuming modal outcome

not refinancing but paying aggressively lets you hedge some risk while still getting a lot of the upside of refinancing. just don't be dumb about it.


Agreed. There is also the non-zero chance that following the election, there will be federal refinancing opportunities that will bring your PAYE rates as low as refinancing rates, or lower.

:lol: I would definitely be kicking myself for refinancing if the gov would have dropped my 7.2% average loans to sub 3%. Fortunately I feel confident the gov is not THAT generous



Eh, Clinton has already promised big changes to the student loan system and interest rate cuts for just about everyone. And if Trump wins, you probably don't want to be on the hook for $3,000 monthly payments when the economy takes a nose dive.

I also think you really are not talking about that much money when you look at the spread, which is 2-3%. Even on 200k, that's less than 5k a year, and it's money you may not even end up paying back if you get forgiveness. Small price to pay I think for the absolute backing of the federal government on a quarter million dollars of non-dischargable debt.

I think staying on fed loans is a good hedge against the economy going south, but it's also a good hedge against any future bailout. You don't want to finish paying down six figures of debt only to realize you could have saved a vast majority of that money and have the debt forgiven for what would be pennies on the dollar.

The Greyest Goose
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Re: Student loan payments: Actual numbers

Postby The Greyest Goose » Tue Jul 05, 2016 12:14 pm

JenDarby wrote:
bern victim wrote:
Old Gregg wrote:Very bad decision to bet your financial stability on the whims of the U.S. government. I think we're still waiting for the PAYE/IBR "tax bomb" to be overridden by legislation (hasn't happened yet and probably won't happen).

we're still a decade+ away from the first IBR loans being forgiven. it's not exactly a pressing concern.

I don't disagree with this sentiment, but anon suggesting that after the election the Feds might bring PAYE rates down as low as refinancing rates is pretty silly. No reason to do that when you can punt the tax bomb issue

PSLF has no tax bomb so it doesn't change the timeframe


Opps, didn't realize I was anon. Private financing rates really are not that low though, and it's really not a stretch to think that there will be an opportunity to refinance in the 5% range by 2018, which narrows the spread and means you save less and less for giving up fed protections. If you are heavily leveraged you want the government backing you, and I just pointing out it's a possibility the cost of that federal backing COULD drop, perhaps significantly, in the next 18 months.

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JohannDeMann
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Re: Student loan payments: Actual numbers

Postby JohannDeMann » Tue Jul 05, 2016 12:36 pm

so much cognitive dissonance in this thread so that the people who refi-ed don't feel terrible about their decision. every year since 2007 has just been more and more favorable to govt debt holders. no reason to think that's going to change once hillary gets in and continues obama's policies and democrats do better in the house and senate than they have in while.

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JenDarby
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Re: Student loan payments: Actual numbers

Postby JenDarby » Tue Jul 05, 2016 12:40 pm

JohannDeMann wrote:so much cognitive dissonance in this thread so that the people who refi-ed don't feel terrible about their decision. every year since 2007 has just been more and more favorable to govt debt holders. no reason to think that's going to change once hillary gets in and continues obama's policies and democrats do better in the house and senate than they have in while.

most people ITT that regularly post and have refi'd are very open to the possibility that it could have been better to stay on a Gov program in the long run. That doesn't mean it would have been better. You're generally the only poster ITT repeatedly justifying your decision and pushing it as the right decision

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Tiago Splitter
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Re: Student loan payments: Actual numbers

Postby Tiago Splitter » Tue Jul 05, 2016 12:43 pm

imalreadyamember? wrote:
Tiago Splitter wrote:
PepeSilvia wrote:Would it be financially irresponsible to just try to live like a pauper for the first year in biglaw and try to pay it all off?

Irresponsible might be too strong but biglaw is tough. If you want to leave early on (as many of us do) having some cash on hand to make the transition will help a lot. Remember that we're not telling you to blow all of your extra cash on fancy suits and sports cars. Just take what you would have put into loans and save it. You can always then pay off the loans ASAP if you want to down the road.

Also you only have a limited amount of tax-advantaged contributions available each year. At the very least take advantage of that and max out your 401k/IRA.


Sorry for the ignorance, but isn't there a max salary for IRA/Roth that biglaw exceeds by a lot? I just figured I'd never have any sort of tax advantage because most have a salary cap (no pun intended, congrats on KD btw).

If you're in a company retirement plan there is a cap on how much you can make and still deduct your ira contribution. There is also a limit on how much you can make while still contributing to a Roth ira. But there is nothing stopping almost anyone from making a non deductible ira contribution and then converting it to their roth ira.

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bk1
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Re: Student loan payments: Actual numbers

Postby bk1 » Tue Jul 05, 2016 1:39 pm

JenDarby wrote:most people ITT that regularly post and have refi'd are very open to the possibility that it could have been better to stay on a Gov program in the long run. That doesn't mean it would have been better.

+1

I also like the idea of being student loan debt free sooner (which I understand isn't completely financially rational).

bern victim
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Re: Student loan payments: Actual numbers

Postby bern victim » Tue Jul 05, 2016 1:43 pm

i prefer to have it hang over me like a dark cloud forever reminding me of my shameful decision to go to law school

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Nebby
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Re: Student loan payments: Actual numbers

Postby Nebby » Tue Jul 05, 2016 4:46 pm

Did any of y'all refi loans before you started working?

I have an offer letter with my start date and salary, and I was wondering if that was enough to refi or if I need an actual paystub before I can complete the process

The Greyest Goose
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Re: Student loan payments: Actual numbers

Postby The Greyest Goose » Tue Jul 05, 2016 4:47 pm

JenDarby wrote:
JohannDeMann wrote:so much cognitive dissonance in this thread so that the people who refi-ed don't feel terrible about their decision. every year since 2007 has just been more and more favorable to govt debt holders. no reason to think that's going to change once hillary gets in and continues obama's policies and democrats do better in the house and senate than they have in while.

most people ITT that regularly post and have refi'd are very open to the possibility that it could have been better to stay on a Gov program in the long run. That doesn't mean it would have been better. You're generally the only poster ITT repeatedly justifying your decision and pushing it as the right decision


I think the cost of being wrong is much much lower if you stay on PAYE. At worst, you are losing the 3% interest spread, and that's really only if you make enough to pay back your debt in a reasonable amount of time. Basically, if you end up being a high earner, you have cost yourself 10k-30k in the long run, which isn't nothing but it's not really life altering for someone who earns that much. It can never be ruinous because as worst its a 10% tax on your income.

But if you are wrong about the refi, you could be stuck with six figures of debt (quickly going into default) and no job or significant assets. Or worse, you could be stuck in Biglaw desperate for the opportunity to take a lower paying or more chill job, but you are shackled to your loans. The economy always works great until it doesn't, and then suddenly everyone is underwater. Refinancing is the same. Most would be better off refinancing until things unexpectedly go sideways and you are stuck trying to come up with 3k each month in a crashing economy.

I agree there is no explicit right or wrong answer to this, and whats best for each person depends on their circumstances. That said I think anyone with significant debt, 150k+, should at least give it a year in biglaw before refinancing. So many people start, immediately hate it and either leave or wish they could. Don't lock yourself into massive monthly payments that you can only afford with a biglaw job if you haven't spent a day in biglaw. None of us can predict how the economy will do or when the next crash will come, so guessing if the insurance of PAYE will pay off in those circumstances is a fools errand. But I can tell you PLENTY of people start in biglaw, hate it, and move to a more relaxed or interesting job that's pays less, go back to school, start a business, etc. It's not for everyone and if it's not for you then refinancing your loans could literally lead to years of misery stuck in biglaw, or financial ruin.

I only say all this because how you choose to deal with your debt will be one of the most significant financial decisions of your life, and could cost you hundreds of thousands of dollars or years working at a job you hate. Chasing the lowest interest rate could end up being a case of penny wise and pound foolish, so I just want an alternate viewpoint out there and to encourage people to think long and hard before making a decision that you cannot turn back from.

The Greyest Goose
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Re: Student loan payments: Actual numbers

Postby The Greyest Goose » Tue Jul 05, 2016 4:58 pm

bk1 wrote:
JenDarby wrote:most people ITT that regularly post and have refi'd are very open to the possibility that it could have been better to stay on a Gov program in the long run. That doesn't mean it would have been better.

+1

I also like the idea of being student loan debt free sooner (which I understand isn't completely financially rational).


I completely understand this, but you can pay back your loans ASAP on PAYE. If you are paying down aggressively then you will save money under PAYE by being able to throw money at the highest rate loans first. It's not much but it narrows the interest rate spread. The speed at which you can pay down your loans is almost completely unaffected by your choose to refinance or stay on PAYE.

The question is if the protections are worth 2-3% of your loan balance annually.

Anonymous User
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Re: Student loan payments: Actual numbers

Postby Anonymous User » Tue Jul 05, 2016 5:00 pm

^ Why not just refi part of your loans? I did that and it worked for me....I paid off my loans in biglaw and saved some money as well.

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UnfrozenCaveman
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Re: Student loan payments: Actual numbers

Postby UnfrozenCaveman » Tue Jul 05, 2016 5:18 pm

imalreadyamember? wrote:
Tiago Splitter wrote:
PepeSilvia wrote:Would it be financially irresponsible to just try to live like a pauper for the first year in biglaw and try to pay it all off?

Irresponsible might be too strong but biglaw is tough. If you want to leave early on (as many of us do) having some cash on hand to make the transition will help a lot. Remember that we're not telling you to blow all of your extra cash on fancy suits and sports cars. Just take what you would have put into loans and save it. You can always then pay off the loans ASAP if you want to down the road.

Also you only have a limited amount of tax-advantaged contributions available each year. At the very least take advantage of that and max out your 401k/IRA.


Sorry for the ignorance, but isn't there a max salary for IRA/Roth that biglaw exceeds by a lot? I just figured I'd never have any sort of tax advantage because most have a salary cap (no pun intended, congrats on KD btw).


IRA deductions phase out based on salary if you contribute to a 401k at all. Essentially, you can't do both when above a certain income level.

The Greyest Goose
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Re: Student loan payments: Actual numbers

Postby The Greyest Goose » Tue Jul 05, 2016 5:22 pm

Anonymous User wrote:^ Why not just refi part of your loans? I did that and it worked for me....I paid off my loans in biglaw and saved some money as well.


Yea, plan to do this soon

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Tiago Splitter
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Re: Student loan payments: Actual numbers

Postby Tiago Splitter » Tue Jul 05, 2016 6:26 pm

UnfrozenCaveman wrote:
imalreadyamember? wrote:
Tiago Splitter wrote:
PepeSilvia wrote:Would it be financially irresponsible to just try to live like a pauper for the first year in biglaw and try to pay it all off?

Irresponsible might be too strong but biglaw is tough. If you want to leave early on (as many of us do) having some cash on hand to make the transition will help a lot. Remember that we're not telling you to blow all of your extra cash on fancy suits and sports cars. Just take what you would have put into loans and save it. You can always then pay off the loans ASAP if you want to down the road.

Also you only have a limited amount of tax-advantaged contributions available each year. At the very least take advantage of that and max out your 401k/IRA.


Sorry for the ignorance, but isn't there a max salary for IRA/Roth that biglaw exceeds by a lot? I just figured I'd never have any sort of tax advantage because most have a salary cap (no pun intended, congrats on KD btw).


IRA deductions phase out based on salary if you contribute to a 401k at all. Essentially, you can't do both when above a certain income level.

Yes, deductions do phase out if you or your spouse contribute to a retirement plan through your job. That's why you make a non-deductible contribution then move it to the Roth. No deduction gets taken.

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bk1
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Re: Student loan payments: Actual numbers

Postby bk1 » Tue Jul 05, 2016 7:32 pm

The Greyest Goose wrote:I completely understand this, but you can pay back your loans ASAP on PAYE. If you are paying down aggressively then you will save money under PAYE by being able to throw money at the highest rate loans first. It's not much but it narrows the interest rate spread. The speed at which you can pay down your loans is almost completely unaffected by your choose to refinance or stay on PAYE.

The question is if the protections are worth 2-3% of your loan balance annually.

I fully understand that (and the rate spread on my loans was minimal as they were all very high) and you're right that that is the question in relation to refinancing (which I chose to sacrifice those protections to save thousands each year). The speed at which you pay down loans is affected by refinance vs PAYE for a couple reasons: (1) you are accruing less interest so you can pay down principle faster, and (2) if you are doing PAYE properly, you are reducing your AGI as much as you can (e.g., maxing out your 401k, using prior year's income, etc) which isn't what you'd be doing if you were aggressively paying down debt.
Anonymous User wrote:^ Why not just refi part of your loans? I did that and it worked for me....I paid off my loans in biglaw and saved some money as well.

You can do this. Obviously refinancing all of it will save you more money. The question is what your risk tolerance and circumstances are.

imalreadyamember?
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Re: Student loan payments: Actual numbers

Postby imalreadyamember? » Wed Jul 06, 2016 12:07 am

Tiago Splitter wrote:
UnfrozenCaveman wrote:
imalreadyamember? wrote:
Tiago Splitter wrote:
PepeSilvia wrote:Would it be financially irresponsible to just try to live like a pauper for the first year in biglaw and try to pay it all off?

Irresponsible might be too strong but biglaw is tough. If you want to leave early on (as many of us do) having some cash on hand to make the transition will help a lot. Remember that we're not telling you to blow all of your extra cash on fancy suits and sports cars. Just take what you would have put into loans and save it. You can always then pay off the loans ASAP if you want to down the road.

Also you only have a limited amount of tax-advantaged contributions available each year. At the very least take advantage of that and max out your 401k/IRA.


Sorry for the ignorance, but isn't there a max salary for IRA/Roth that biglaw exceeds by a lot? I just figured I'd never have any sort of tax advantage because most have a salary cap (no pun intended, congrats on KD btw).


IRA deductions phase out based on salary if you contribute to a 401k at all. Essentially, you can't do both when above a certain income level.

Yes, deductions do phase out if you or your spouse contribute to a retirement plan through your job. That's why you make a non-deductible contribution then move it to the Roth. No deduction gets taken.


What's the best course of action then? Max 401k and max your backdoor Roth IRA? Why is the backdoor Roth better than just keeping it in your regular IRA?

bern victim
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Re: Student loan payments: Actual numbers

Postby bern victim » Wed Jul 06, 2016 12:11 am

if you can't deduct it you may as well get the tax advantaged growth of roth!

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JenDarby
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Re: Student loan payments: Actual numbers

Postby JenDarby » Wed Jul 06, 2016 12:16 am

The serious lectures that my sophomore year AP teacher gave us on Roth IRAs are even MORE exciting.

imalreadyamember?
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Re: Student loan payments: Actual numbers

Postby imalreadyamember? » Wed Jul 06, 2016 8:45 pm

bern victim wrote:if you can't deduct it you may as well get the tax advantaged growth of roth!


Ahh it all makes sense now. Right, no tax on the gains. I'm a dumb-dumb. Gracias. Also heh, backdoor.

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jessuf
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Re: Student loan payments: Actual numbers

Postby jessuf » Sat Jul 09, 2016 3:35 pm

Apparently I was switched to REPAYE a month ago but never got a letter in the mail or an e-mail about a new message in my electronic inbox. I didn't find out until a bill was generated yesterday, due two weeks from now. Now I missed a month of LRAP.




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