V10 Corp owing 300k. PAYE make sense? Forum

[Anonymous User]

Owe ~300k with V10 lined up. Interest rates vary from 5% to 7.9%, with the bulk being 7.9% grad plus. Sticker at CLS/NYU + 30k UG debt. No pre-Oct 1 2007 loans.

Ideal career goal is to eventually transition into 9-6:30 in house for a f100 client after four or five years doing m&a.

Does it make sense to do 18 years of 10% discretionary income payments, because years 1 and 2 aren't much at all, as I understand, because AGI is calculated by summer earning (year 1) and stub-AGI (year two). Plus, I think you can deduct $21,500 from AGI each year as well (16.5k 401k plus 5k in a back-door roth).

Does paye make sense here? Or should I just suck it up, live with roommates/ outter Brooklyn and try to dent the principal as much as possible?

Looks like even at an income of 210k AGI (so really making 231k), payments on PAYE are only about $1500 a month, versus $3300 or so on the standard repayment plan.

[TigerDude]

you need PAYE at 230/yr?

smh

[JuTMSY4]

PAYE would give you the option, at least early on, to allocate more money to high interest rate loans, hence I believe it's the better option. Ultimately though, you'll go over the PAYE amount and be converted to the standard 10 year plan.

User was temporarily banned for anon abuse.

[Rahviveh]

PAYE would give you the option, at least early on, to allocate more money to high interest rate loans, hence I believe it's the better option. Ultimately though, you'll go over the PAYE amount and be converted to the standard 10 year plan.

He would need to make over $420,000 a year to pay the same amount as the 10-year plan

[hiima3L]

Sounds like this is a purely personal decision.

If I had that much debt, I would live like a monk and try to pay down as much as possible while preparing to be shown the door in 3-5 years.

If you're cool with paying $1500-2000/mo on student loans for decades, then pay the lowest required amount.

[thelawyler]

PAYE is only attractive if the tax bomb goes away at the end.

I suppose you could use it to pay less on your 5% interest loan and pay down those 7.9% ones, effectively getting a 3%~ return that way while paying the exact same amount as a 10 year plan.

[Murphy1022]

You're going to spend most of your time at your job anyway for the next 3-5 years, so I would get roommates and live as cheaply as possible and pay down that monster debt. But agree that this is a totally personal decision.

[drbarry987]

"Worst case" you make 420k and end up overpaying on what you would during 10yr plan.... But then you're making 420k and are fine.

Just paye and either live like a monk -> stack cash. Or do paye -> ball out.

User was temp banned for anon abuse.

[fanlinxun]

[quote="Anonymous User]

Does it make sense to do 18 years of 10% discretionary income payments, because years 1 and 2 aren't much at all, as I understand, because AGI is calculated by summer earning (year 1) and stub-AGI (year two). Plus, I think you can deduct $21,500 from AGI each year as well (16.5k 401k plus 5k in a back-door roth).
[/quote]

You should probably note that you will not likely get way with paying nothing your first two years. By the time you are eligible to apply (about 6 months after graduation) your v-10 job will likely have started and you have to report that as a significant change in income which becomes the basis of your PAYE payment. I'm sure many people don't follow this, but legally you are supposed to report it.

[Bronx Bum]

PAYYYYYYYYYYYYYE

[mbison]

I'd do PAYE. Keep in mind there is a good chance you won't last too long in biglaw and who knows what your income will be in the future? Let the taxpayers take all that debt on the chin.

[Anonymous User]

I'd do PAYE. Keep in mind there is a good chance you won't last too long in biglaw and who knows what your income will be in the future? Let the taxpayers take all that debt on the chin.

OP here. Should I just max 401k to reduce AGI and blow/save the rest? Don't have any real expenses but also don't feel l like treading water with the tyranny of 8% gradplus.

[09042014]

The big issue is the tax bomb. You'll pay 10% of your income for 20 years plus 28% of the debt wiped out in the end. You are probably better off just paying it off.

V10 Corp should look at SOFI.com

[rickgrimes69]

It is rank stupidity to rely on PAYE before (if) they sort out the tax bomb. Doubly so when you're making biglaw money and don't have to.

[rwilson15]

From a yolo perspective, won't you be married if/when the tax bomb hits. Plus inflation. Meaning money is more important while young and single?

[thelawyler]

The tax bomb would be like 400k or something ridiculous.

[09042014]

The tax bomb would be like 400k or something ridiculous.

In 20 years from now money.

[Old Gregg]

If you:

(1) Have $200k in debt.

and

(2) Are in biglaw

and

(3) Anticipate staying in a job that pays more than $120k or so a year (so, if you don't plan to enter the government or go into public interest)

SoFi's 10 year repayment plan is better than PAYE.

[Anonymous User]

The pro-PAYE argument for BIGLAW relies on making near-zero payments for your first two years due to the low Adjusted Gross Income on your tax return for your Summer Associate year and stub year, and then saving / investing that income to build up a nest egg. However, Question #8 on the application for PAYE and the annual renewal asks whether your last tax return does not "reasonably reflect" your current income.

Can one justify claiming that the Summer Associate year AGI of $30k reasonably reflects current income when one is starting BIGLAW and entering repayment? Could one justify answering "no" to the question when you've been in BIGLAW for a whole year, but the AGI on your last tax return is still your stub year income of $50k?

More importantly, what are the likely consequences if the loan servicer approves the PAYE application and calculates payments based on AGI, but then later realizes what happened and objects to it? Could they revoke / rescind your PAYE status? Could that happen 20 years down the line and you suddenly owe $400k that you expected to be forgiven? What would the state ethics committee think of a licensed attorney answering "no" to the question while making 6 figures?

IMO this is a big potential problem with the plan. And nobody (lenders, the DOE, the public) is going to have any sympathy for someone who made $100 a month payments on a salary of $160k+ for 2 years. I looked around on Google but I couldn't find anyone talking about this issue or any guidance about what Question #8 means.

[Tiago Splitter]

The pro-PAYE argument for BIGLAW relies on making near-zero payments for your first two years due to the low Adjusted Gross Income on your tax return for your Summer Associate year and stub year, and then saving / investing that income to build up a nest egg.

The PAYE payment on 160k is only like $1500/month which still gives you a lot more flexibility to build up savings than trying to pay it off quickly.

The tax bomb would be like 400k or something ridiculous.

No, because interest does not compound under PAYE.

It is rank stupidity to rely on PAYE before (if) they sort out the tax bomb. Doubly so when you're making biglaw money and don't have to.

Disagree. Just save the money rather than putting it towards loans. It will improve your quality of life and ability to peace out at anytime, and even with the tax bomb PAYE might be the better option. Who knows what inflation will look like 20 years from now.

I'm gonna PAYE it down myself and then if after 6-12 months I see that I'm in it for the long haul I'll probably switch to SoFi/DRB depending on what the rates look like at that point.

[dixiecupdrinking]

Sofi. Don't create a situation where you have half a million dollars hanging over your head til you're 50.

[Nomo]

When you start your biglaw job you have a substantial change in income. You are absolutely supposed to report that. Also, you aren't eligible for PAYE until your loans go into repayment, which should be sometime in November. When you fill out the application it will ask you if your income is substantially different than what's on your last tax return. If you check the box that says its the same, or substantially the same, you're basically committing fraud. When it comes time to apply for forgiveness they will likely catch this and you won't be getting forgiveness.

That said I do recommend going on PAYE. If for no other reason than to minimize payments on the low interest loan so you can pay extra money into the high interest loan.

[Anonymous User]

When you start your biglaw job you have a substantial change in income. You are absolutely supposed to report that.

Where are you getting a requirement to report a substantial change in income? I don't see any reporting obligations except when you file the annual application.

Personally, I'll be eligible to sign up for PAYE before my job starts, and it asks if "current" income is different than what's on your tax return. I think I would be truthful in saying no, given that my current income is 0 before work starts. But I wouldn't fill out the form next year based on my stub year tax return--that's blatant fraud.

[Nomo]

When you start your biglaw job you have a substantial change in income. You are absolutely supposed to report that.

Where are you getting a requirement to report a substantial change in income? I don't see any reporting obligations except when you file the annual application.

Personally, I'll be eligible to sign up for PAYE before my job starts, and it asks if "current" income is different than what's on your tax return. I think I would be truthful in saying no, given that my current income is 0 before work starts. But I wouldn't fill out the form next year based on my stub year tax return--that's blatant fraud.

You're not eligible for PAYE if you don't have a full-time job. So even if you enter repayment before your job starts, you still can't sign up for PAYE until your jobs starts.

I'm pretty sure, having gone through the PAYE process, that you are required to report any time your income changes. But I'm not going to search through all the documents to find that right now. I guess I could be wrong though. My memory is far from perfect.

[Anonymous User]

When you start your biglaw job you have a substantial change in income. You are absolutely supposed to report that.

Where are you getting a requirement to report a substantial change in income? I don't see any reporting obligations except when you file the annual application.

Personally, I'll be eligible to sign up for PAYE before my job starts, and it asks if "current" income is different than what's on your tax return. I think I would be truthful in saying no, given that my current income is 0 before work starts. But I wouldn't fill out the form next year based on my stub year tax return--that's blatant fraud.

You're not eligible for PAYE if you don't have a full-time job. So even if you enter repayment before your job starts, you still can't sign up for PAYE until your jobs starts.

I'm pretty sure, having gone through the PAYE process that you are required to report any time your income changes. But I'm not going to search through all the documents to find that right now. I guess I could be wrong though. My memory is far from perfect.

Fair enough. Personally I haven't found anything requiring updated income within 1 year or a requirement to have a full-time job when you sign up. The only full-time requirement I've seen is for Public Service Loan forgiveness (not for eligibility or 20 year forgiveness).