Student loan payments: get advice and actual numbers here Forum

[Nebby]

What is a bar loan and why do you need it?

Student loans end in May and job starts in the fall. What do you get during the summer? A bar loan!

Except don't. It's expensive. Find another way to finance your summer (no, not credit cards either).

I would use my leftover from COA loans to finance my bar related stuff.. I would have 10k left after paying tuition, rent, food, parking, car.

Yeah I did a combo of this and credit cards, and really regretted the latter (but did not regret the sweet Euro trip I got out of it).

Im planning to do the "public service loan forgiveness" for my loans. someone please tell me this is a good idea.

I used my leftover COA to finance bar related stuff. Definitely recommend if you're doing PAYE/PSLF. I also moved home for the summer to save money. My leftover COA covered all bar exam expenses, Themis (PI discount), flight and hotel for exam, rent and deposit on apartment for job. Just plan accordingly and you'll be fine

Now Im really confused.
Why would we need to pay for hotel and flight for the bar? It isn't at a place of your choosing like LSAT?

.... No. It's at whatever state you are seeking admission to. So if you live in the state already, it likely won't be where you live. What state will you seek admission to?

[A. Nony Mouse]

It depends where you live and where you're taking the bar. If you're taking (for instance) the NY bar you have to take it in NY, but if you don't start working till October, between graduation and the bar you might stay in your law school apartment or live with your parents, if it's cheaper, and that might not be anywhere near NY. Thankfully I lived in the same city where the bar was administered, but that's not the case for everyone.

Even under PSLF you pay back some percentage of your loans. The less money you get, the less you have to pay back. Also it assumes you'll be able to find a qualifying job and will want to stay in it for 10 years. So PSLF is a perfectly good plan, but it's not a reason to take out more loans than you can get away with.

(Edited to take out the brain fart where I was thinking of salary going up, not loan amounts.)

[Mr. Peanutbutter]

It depends where you live and where you're taking the bar. If you're taking the NY bar you have to take it in NY, but if you don't start working till October, between graduation and the bar you might stay in your law school apartment or live with your parents, if it's cheaper, and that might not be anywhere near NY.

Even under PSLF you pay back some percentage of your loans. The less money you get, the less you have to pay back. Also it assumes you'll be able to find a qualifying job and will want to stay in it for 10 years. So PSLF is a perfectly good plan, but it's not a reason to take out more loans than you can get away with.

Wait, but if your loan payments are capped at X% of your disposable income, then once you hit a point where the standard repayment is > X%, any extra you take out is irrelevant and will be forgiven, right?

[A. Nony Mouse]

It depends where you live and where you're taking the bar. If you're taking the NY bar you have to take it in NY, but if you don't start working till October, between graduation and the bar you might stay in your law school apartment or live with your parents, if it's cheaper, and that might not be anywhere near NY.

Even under PSLF you pay back some percentage of your loans. The less money you get, the less you have to pay back. Also it assumes you'll be able to find a qualifying job and will want to stay in it for 10 years. So PSLF is a perfectly good plan, but it's not a reason to take out more loans than you can get away with.

Wait, but if your loan payments are capped at X% of your disposable income, then once you hit a point where the standard repayment is > X%, any extra you take out is irrelevant and will be forgiven, right?

Sorry, forget I wrote that, I put it completely wrong. Yes, it's a percentage of your income. What I really meant to say (but completely screwed up) was that unless you stay at like $40k for the full 10 years, as your income goes up, you pay back more. Which is obviously how it's designed to work, and a lot is still going to get forgiven, but I would still rather have less debt and not be making these payments. It's just annoying that as your salary goes up, payments to something you're never going to pay off go up as well.

But yeah, once you hit a certain point it doesn't really matter whether you take out $100k or $150k or $200k, so I suppose go for it and take out as much as you want. I just brain-farted there for a moment.

[Nebby]

I have the privilege of being at the debt point where it doesn't matter

[Anonymous User]

.... No. It's at whatever state you are seeking admission to. So if you live in the state already, it likely won't be where you live. What state will you seek admission to?

CA
living in Los Angeles.

[Nebby]

CA
living in Los Angeles.

Ah well there should hopefully be a test site there. I lived at home for the summer to save money and study so I had to fly to my test site for a different state. That's what the hotel and flight costs were for.

[JenDarby]

I have the privilege of being at the debt point where it doesn't matter

that PSLF life

[Anonymous User]

I have the privilege of being at the debt point where it doesn't matter

that PSLF life

if only i could take out MORE

[zot1]

My monthly bill is ready to view.

[swampthang]

Should I still do the second refi if I've only been paying according to the plan since refinancing the first time (i.e., I haven't been paying it down above what is required)?

Also, I have about $50k in savings right now. I think $25k is sufficient for an emergency fund under the circumstances. Should I just throw the remaining $25k at my wife's debt immediately, or wait until after we refinance that debt? Or does the timing not matter?

No, pre-paying isn't going to harm you at all. I second the First Republic option (assuming you're geographically eligible). Earnest would be my preferred refinancer otherwise. I've refinanced three times, it's really not a big deal at all: you just pick up your bags and go to the lower rate. In this case, 1.95% for a 5-year fixed, plus a 2% rebate if I pay it off in 4 years is pretty irresistible.

How many months' expenses is $25k? I'd recommend having at least 3; I personally shoot for 6. Also depends on your safety net (e.g., parents): you can go lower if you have more outside resources to fall back on. I'm not sure how the timing matters here other than refinancing to the lowest possible rate as early as possible. If you're sitting on $25k, are you maxing your 401(k)? That's worth $$$.

[Anonymous User]

Here's my story.

Graduated in 2013 with about 230k in debt from HYS, plus about 20k in other debt that I racked up irresponsibly. (Loved my school, but damn if I don't constantly regret turning down that MVP full-ride). SF/LA biglaw lit.

Refi'd almost immediately with SoFi to get everything down to about 4.5 percent.
Refi'd again with First Republic earlier this year to get everything down to the mid-2s.

Living pretty frugally, and throwing year-end bonuses and my clerkship bonus at my debt, I've managed to put aside $25,000 into an emergency fund and paid down my law school debt to just over $130,000. Other debt is also paid off.

SO and I are looking to relocate and buy a house. Anything I should be doing apart from maxing my 401(k) and making my regular payments on the student loan instead of aggressively paying down the student loan, given how good my locked-in rate is? Any reason to restart making aggressive payments after the house rather than putting that additional money into an investment account? Plan is to remain in biglaw for another 2 years or so.

[bk1]

With the First Republic refi, I see no reason to pay more than you have to on your loans unless you place a lot of value on the psychological benefit of having the debt gone. Any extra money you put into it you get a 2.5% return, but any decent savings account can give you a 1% return. Tax benefits make retirement contributions a better option than your loans, not to mention that your returns will (on average) likely be better than 2.5%.

[Good Guy Gaud]

Smart people:

If I'm going to take the long road to paying off my loans, should I refinance to get a lower interest rate? Does refinancing mean I'll be unable to pay it off early if I change my mind (prepayment penalties or something?). I really don't have any financial concerns except maybe children down the line so it's hard to find an incentive to pay it off early.

[bk1]

Smart people:

If I'm going to take the long road to paying off my loans, should I refinance to get a lower interest rate? Does refinancing mean I'll be unable to pay it off early if I change my mind (prepayment penalties or something?). I really don't have any financial concerns except maybe children down the line so it's hard to find an incentive to pay it off early.

If you are comfortable with losing government protections (assuming you have fed loans), then yes a refi is worth it for the lower rate.

My impression is that most (if not all) student refi offers do not have prepayment penalties, but you can look at the terms of their offers to make sure.

[Good Guy Gaud]

Smart people:

If I'm going to take the long road to paying off my loans, should I refinance to get a lower interest rate? Does refinancing mean I'll be unable to pay it off early if I change my mind (prepayment penalties or something?). I really don't have any financial concerns except maybe children down the line so it's hard to find an incentive to pay it off early.

If you are comfortable with losing government protections (assuming you have fed loans), then yes a refi is worth it for the lower rate.

My impression is that most (if not all) student refi offers do not have prepayment penalties, but you can look at the terms of their offers to make sure.

What government protections do I risk losing? The chance that they'll be forgiven? Serious question

[1styearlateral]

Smart people:

If I'm going to take the long road to paying off my loans, should I refinance to get a lower interest rate? Does refinancing mean I'll be unable to pay it off early if I change my mind (prepayment penalties or something?). I really don't have any financial concerns except maybe children down the line so it's hard to find an incentive to pay it off early.

If you are comfortable with losing government protections (assuming you have fed loans), then yes a refi is worth it for the lower rate.

My impression is that most (if not all) student refi offers do not have prepayment penalties, but you can look at the terms of their offers to make sure.

What government protections do I risk losing? The chance that they'll be forgiven? Serious question

Yes. Also, your balance will be forgiven at the end of the term (but you'll still pay the income tax). Private loans could go on forever, I suppose, or if you don't pay by the end of the term then I guess they could levy it against you.

[Good Guy Gaud]

Smart people:

If I'm going to take the long road to paying off my loans, should I refinance to get a lower interest rate? Does refinancing mean I'll be unable to pay it off early if I change my mind (prepayment penalties or something?). I really don't have any financial concerns except maybe children down the line so it's hard to find an incentive to pay it off early.

If you are comfortable with losing government protections (assuming you have fed loans), then yes a refi is worth it for the lower rate.

My impression is that most (if not all) student refi offers do not have prepayment penalties, but you can look at the terms of their offers to make sure.

What government protections do I risk losing? The chance that they'll be forgiven? Serious question

Yes. Also, your balance will be forgiven at the end of the term (but you'll still pay the income tax). Private loans could go on forever, I suppose, or if you don't pay by the end of the term then I guess they could levy it against you.

Got it. Thank you both!

[Anonymous User]

Question re: REPAYE vs. Refinancing.

I graduated with sizable debt (215k), and recently switched to REPAYE. Right now I'm making a decent 6 figure salary, but below biglaw market. With REPAYE's 50% interest payment, the 7.4% interest of my consolidated loan effectively becomes 3.7%. My thoughts right now are that refinancing can lower that interest amount, but then I risk not benefitting from any potential changes in the law to further grant borrowers relief from student loans. I would feel like a fool refinancing my government loans to private loans only to see some serious debt relief legislation in the next few years.

I've also contemplated paying off my debt aggressively while on REPAYE while taking advantage of the interest payments from the government, but I'm having the same hesitation because of potential changes in the law. I'd feel silly paying $2500/m only to have some better repayment system rolled out after I've dumped thousands into loans instead of savings.

For you smart financial people, what should I do here?

[Anonymous User]

Biglaw 4th year associate in major metropolitan city. Graduated with ~$220,000.

Down to $130,000, refi'd @ 15/yr 3.5% fixed.

Also bought a multi-family and receive rental income. Other than student loans and mortgage, have no other loans.

Effective total budget is $2000/mo (total expenses minus rental income). So can comfortably live on $24,000/year.

I have $40,000 in savings and $36,000 in 401(k). I'm going to keep $24,000 in savings (1-year's expenses) and use the rest to return to aggressively paying down debt.

I hope to pay off the rest of my student loans within the next few years (maybe sooner if I stick it out in biglaw long enough), and get my budget down to $1400/mo. Then aim to buy another rental and build up that passive income to cover the rest of my monthly expenses.

[bk1]

What government protections do I risk losing? The chance that they'll be forgiven? Serious question

1. The ability to get forgiveness from an income-based plan (though if your debt isn't high enough compared to your income, then this is moot because you would pay off your loans before the 20-25 year forgiveness mark).
2. The real thing is the flexibility in changing your payment plan in the event you take a lower paying job or face an unexpected emergency. If those things happen, federal loans can have the payment plan changed easily so that you are making lower payments. If you refi and want to pay less, you'll have to refi again (though I will note that some student loan refis do have unemployment protections).

[bk1]

Question re: REPAYE vs. Refinancing.

I graduated with sizable debt (215k), and recently switched to REPAYE. Right now I'm making a decent 6 figure salary, but below biglaw market. With REPAYE's 50% interest payment, the 7.4% interest of my consolidated loan effectively becomes 3.7%. My thoughts right now are that refinancing can lower that interest amount, but then I risk not benefitting from any potential changes in the law to further grant borrowers relief from student loans. I would feel like a fool refinancing my government loans to private loans only to see some serious debt relief legislation in the next few years.

I've also contemplated paying off my debt aggressively while on REPAYE while taking advantage of the interest payments from the government, but I'm having the same hesitation because of potential changes in the law. I'd feel silly paying $2500/m only to have some better repayment system rolled out after I've dumped thousands into loans instead of savings.

For you smart financial people, what should I do here?

The REPAYE interest subsidy only applies to interest that is not covered by your monthly payment. See https://www.gpo.gov/fdsys/pkg/FR-2015-0 ... -16623.pdf:

• Limit the amount of interest charged to the borrower of a subsidized loan to 50 percent of the remaining accrued interest when the borrower’s monthly payment is not sufficient to pay the accrued interest (resulting in negative amortization). This limitation applies after the consecutive three-year period during which the Secretary does not charge the interest that accrues on subsidized loans during periods of negative amortization.
• Limit the amount of interest charged to the borrower of an unsubsidized loan to 50 percent of the remaining accrued interest when the borrower’s monthly payment is not sufficient to pay the accrued interest (resulting in negative amortization).

So if you're paying more than the interest is accruing, then you're not benefiting from the interest subsidy.

Whether you should err on the side of the government offering some form of student debt relief or not is really up to you. There's no "smart" decision because nobody here has a crystal ball. Each option comes with its own risks (if refinance-->not benefiting from legislation, if REPAYE-->paying more if there is no legislation) and benefits. You've identified a middle ground (aggressive repayment of gov loans), but that comes with risks as well. You could also refinance some but not all of your loans, but again it has similar risks/benefits.

[swampthang]

With the First Republic refi, I see no reason to pay more than you have to on your loans unless you place a lot of value on the psychological benefit of having the debt gone. Any extra money you put into it you get a 2.5% return, but any decent savings account can give you a 1% return. Tax benefits make retirement contributions a better option than your loans, not to mention that your returns will (on average) likely be better than 2.5%.

This, plus any mortgage will almost certainly have a higher interest rate than the 2.5% you're paying on your loans, so mathematically, you'd want to prepay that (even more so if you're of the opinion that the value of your equity will increase over your ownership of the house). If you're good with cash, you may consider shortening your term with 1RB and locking in their 1.95% 5-year. Depending where you are in repayment, this may increase your monthly payments slightly, but even less of that would be going to interest. But definitely no prepaying the fixed-rate student loan once you have a higher interest mortgage.

[swampthang]

Smart people:

If I'm going to take the long road to paying off my loans, should I refinance to get a lower interest rate? Does refinancing mean I'll be unable to pay it off early if I change my mind (prepayment penalties or something?). I really don't have any financial concerns except maybe children down the line so it's hard to find an incentive to pay it off early.

If you are comfortable with losing government protections (assuming you have fed loans), then yes a refi is worth it for the lower rate.

My impression is that most (if not all) student refi offers do not have prepayment penalties, but you can look at the terms of their offers to make sure.

What government protections do I risk losing? The chance that they'll be forgiven? Serious question

Yes. Also, your balance will be forgiven at the end of the term (but you'll still pay the income tax). Private loans could go on forever, I suppose, or if you don't pay by the end of the term then I guess they could levy it against you.

Prepayment penalties on student loans are illegal. Basically your tradeoff is the lower interest rate vs. the downside protection government loans offer, as described above (PAYE, IBR, forebearance, deferral). If you haven't started looking at refi options, I would recommend Earnest or First Republic Bank, depending on where you live. I've refi'd thrice, and those have been the best. SoFi, meh. DRB, terrible peripheral product, plus no longer the cheapest game in town.

[Thirteen]

Question re: REPAYE vs. Refinancing.

I graduated with sizable debt (215k), and recently switched to REPAYE. Right now I'm making a decent 6 figure salary, but below biglaw market. With REPAYE's 50% interest payment, the 7.4% interest of my consolidated loan effectively becomes 3.7%. My thoughts right now are that refinancing can lower that interest amount, but then I risk not benefitting from any potential changes in the law to further grant borrowers relief from student loans. I would feel like a fool refinancing my government loans to private loans only to see some serious debt relief legislation in the next few years.

I've also contemplated paying off my debt aggressively while on REPAYE while taking advantage of the interest payments from the government, but I'm having the same hesitation because of potential changes in the law. I'd feel silly paying $2500/m only to have some better repayment system rolled out after I've dumped thousands into loans instead of savings.

For you smart financial people, what should I do here?

The REPAYE interest subsidy only applies to interest that is not covered by your monthly payment. See https://www.gpo.gov/fdsys/pkg/FR-2015-0 ... -16623.pdf:

• Limit the amount of interest charged to the borrower of a subsidized loan to 50 percent of the remaining accrued interest when the borrower’s monthly payment is not sufficient to pay the accrued interest (resulting in negative amortization). This limitation applies after the consecutive three-year period during which the Secretary does not charge the interest that accrues on subsidized loans during periods of negative amortization.
• Limit the amount of interest charged to the borrower of an unsubsidized loan to 50 percent of the remaining accrued interest when the borrower’s monthly payment is not sufficient to pay the accrued interest (resulting in negative amortization).

So if you're paying more than the interest is accruing, then you're not benefiting from the interest subsidy.

Whether you should err on the side of the government offering some form of student debt relief or not is really up to you. There's no "smart" decision because nobody here has a crystal ball. Each option comes with its own risks (if refinance-->not benefiting from legislation, if REPAYE-->paying more if there is no legislation) and benefits. You've identified a middle ground (aggressive repayment of gov loans), but that comes with risks as well. You could also refinance some but not all of your loans, but again it has similar risks/benefits.

Per these threads on reddit (https://www.reddit.com/r/StudentLoans/c ... t_subsidy/ ; https://www.reddit.com/r/StudentLoans/c ... _question/), it looks like the subsidy is based on the amount due, not the amount paid. So if his payment is set at a lower number than the accruing interest, he can still take advantage of the subsidy while making $2,500/mo payments.

(And if you were saying the same thing I just said, sorry for repeating. The wording was just a little vague.)