PSA: You should think about PAYE, even if you're in BigLaw Forum

[utahraptor]

can you still do paye later if you refinance just some of your higher interest loans?

Yes as long as your PAYE payment is less than your standard 10 year payment.

Wait, what? All of my loans were purely for law school, either Stafford or Grad PLUS. Can I do like a SoFi refinance or something of those loans and lower the interest rate, but still do PAYE if necessary? I thought they had to be maintained through the government in order to qualify for PAYE.

I ?think? the idea is that you could do a SoFi refinance on the Grad PLUS loans and leave the lower interest Stafford and remain PAYE eligible on the ones you didn't refinance? (Though, wouldn't that turn the lowest interest loans into the highest interest loans?)

[Tiago Splitter]

Yeah I meant you could refinance some of your loans and do PAYE on whatever stayed with the government.

[kalvano]

OK, but you can't use PAYE on the refinanced loans.

[A. Nony Mouse]

Also, I really miss not living in a community property state, where I could file singly and not have my husband's income count. Sigh. (Mostly because he hasn't been working steadily so the income we'll have when we file doesn't really reflect our financial situation very well.)

Question on this topic. My fiancee and I will be married when she begins her residency. Will my salary prevent her from going on IBR for her med school loans? If so, would it help to file taxes separately? I'm willing to pay more in taxes if it means we'll get more liquidity from her reduced minimum payments. Really don't want to be throwing 4-5K per month at both of our loan balances when only one of us is making enough money to cover the payments.

If you're married and file jointly, then your income will count toward her IBR calculation, yes. Whether it would kick her out of IBR depends on the total income/debt ratio. There are calculators online that will let you figure out how much her payment would be/whether she'll still qualify.

At the moment, if you file singly, her IBR will be based only on her income. There have been noises about removing this option, but I'm not sure if any of them have passed yet. (And at least some community property states will count your income toward her income regardless, so you'd be stuck.)

[JenDarby]

Also, I really miss not living in a community property state, where I could file singly and not have my husband's income count. Sigh. (Mostly because he hasn't been working steadily so the income we'll have when we file doesn't really reflect our financial situation very well.)

Question on this topic. My fiancee and I will be married when she begins her residency. Will my salary prevent her from going on IBR for her med school loans? If so, would it help to file taxes separately? I'm willing to pay more in taxes if it means we'll get more liquidity from her reduced minimum payments. Really don't want to be throwing 4-5K per month at both of our loan balances when only one of us is making enough money to cover the payments.

If you're married and file jointly, then your income will count toward her IBR calculation, yes. Whether it would kick her out of IBR depends on the total income/debt ratio. There are calculators online that will let you figure out how much her payment would be/whether she'll still qualify.

At the moment, if you file singly, her IBR will be based only on her income. There have been noises about removing this option, but I'm not sure if any of them have passed yet. (And at least some community property states will count your income toward her income regardless, so you'd be stuck.)

IIRC, one of the proposed changes to PAYE was removing the ability to avoid your spouse's income counting towards your payment calculation by filing separately. I am not sure if there was any movement on that or if it was planned to apply to IBR though.

[AVBucks4239]

2. Also.. for those thinking PAYE lowers the payment and will help when buying a home..
WRONG.

Your credit report will indicate the 10-year plan payment.
Your lender will go off of your credit report.
Period.

Gee, how do I know this....?

But.. but...but... I can show them a pattern of statements that indicate what my payment actually is and how it is calculated !!

Nope. They don't care.
Your credit report is King.
If someone has a different experience, I would like to talk to your lender.

This varies from lender to lender. I'm using Citi Private Bank for my mortgage (which I think pretty much any biglaw associate can get an account with), and they'll be fine with it if you write a letter of explanation. Heck, they didn't even pull my credit for my pre-approval.

But if you're using a retail lender like Wells, you're shit out of luck.

Don't confuse "qualifying" for a loan with what I said.
Depending on your income and your loan, you can still qualify with the 10 year payment calculated in.
It's just math.

If one can qualify to deal with Citi Private Bank, then, yes, this may be waived.
I am speaking for the rest of the world.
A lender can waive or accept whatever they want.

And, yes, I am certain there is interest on that tax payment plan money. But, it too will depend on term and factors.
I am not here to solve that, just to let people know that there is no fear of some massive ballon payment.

Onward !

Are you saying that if you use PAYE and plan on making the minimum payments over the course of 20 years (and thus willfully absorbing the tax bomb), a mortgage lender will use that against you in the mortgage application/approval process?

I'm also considering doing PAYE or IBR, mostly so I can shift money elsewhere (starting a Roth IRA, saving for a house, and also for the eventual tax bomb). It was my assumption that this was the very purpose of IBR/PAYE--so all of your discretionary income isn't going towards student loans.

Am I missing something?

[GOATlawman]

Are you saying that if you use PAYE and plan on making the minimum payments over the course of 20 years (and thus willfully absorbing the tax bomb), a mortgage lender will use that against you in the mortgage application/approval process?

I'm also considering doing PAYE or IBR, mostly so I can shift money elsewhere (starting a Roth IRA, saving for a house, and also for the eventual tax bomb). It was my assumption that this was the very purpose of IBR/PAYE--so all of your discretionary income isn't going towards student loans.

Am I missing something?

A massive outstanding loan will absolutely show up on your credit report as a liability. PAYE doesn't have any affect on your credit rating, other than insofar as it allows you to make below minimum payments and not be in default

Whether the bank chooses to ignore your credit report is up to them.

If you've paid off your entire liability, then there is no more liability.. just look at your own credit report for $10 if you still dont understand what's on it

The "very purpose" of PAYE/IBR is for the government to collect a tiny amount of $ from the debt saddled poverty pplz rather than them defaulting and paying nothing, not to save rich lawyers money

[AVBucks4239]

A massive outstanding loan will absolutely show up on your credit report as a liability. PAYE doesn't have any affect on your credit rating, other than insofar as it allows you to make below minimum payments and not be in default

Whether the bank chooses to ignore your credit report is up to them.

If you've paid off your entire liability, then there is no more liability.. just look at your own credit report for $10 if you still dont understand what's on it

The "very purpose" of PAYE/IBR is for the government to collect a tiny amount of $ from the debt saddled poverty pplz rather than them defaulting and paying nothing, not to save rich lawyers money

That makes sense.

I didn't land Big Law. I'm in six-figure debt and making around $50-60k (not complaining, I'm laying in the bed I made but I'm very thankful to have a job). The max non-income-based plan I can afford is extended graduated. If I did that plan, by the time I would apply for a mortgage (goal is within 5-6 years), the loan would still have an enormous outstanding balance. I'll actually barely be able to make a dent in the principle during that time span, even if I paid as aggressively as I could. Because of that, my thought process was:

Loan is going to have a huge balance come mortgage application anyway --> sign up for plan with lowest payments --> save money for down payment --> build credit through other means.

Dumb plan? Should I just suck it up and do extended graduated?

[kalvano]

I believe most lenders will look at the monthly payment in determining how much house you can buy. My loan company just has a "lender letter" button that generates a letter that gives the outstanding loan balance and the monthly payment amount.

[Old Gregg]

I believe most lenders will look at the monthly payment in determining how much house you can buy. My loan company just has a "lender letter" button that generates a letter that gives the outstanding loan balance and the monthly payment amount.

Yup. Doesn't matter how big the debt is, just what you are obligated to pay per month. Posters above are dumbasses for implying otherwise.

[kalvano]

I believe most lenders will look at the monthly payment in determining how much house you can buy. My loan company just has a "lender letter" button that generates a letter that gives the outstanding loan balance and the monthly payment amount.

Yup. Doesn't matter how big the debt is, just what you are obligated to pay per month. Posters above are dumbasses for implying otherwise.

Also, I believe the magic percentage is about 28% of total monthly obligation to total monthly income before the house, and then no more than 38% - 41% after the house is factored in. If you can get within that range, you should be good, even if you have $250,000 in student loans.

[Old Gregg]

I believe most lenders will look at the monthly payment in determining how much house you can buy. My loan company just has a "lender letter" button that generates a letter that gives the outstanding loan balance and the monthly payment amount.

Yup. Doesn't matter how big the debt is, just what you are obligated to pay per month. Posters above are dumbasses for implying otherwise.

Also, I believe the magic percentage is about 28% of total monthly obligation to total monthly income before the house, and then no more than 38% - 41% after the house is factored in. If you can get within that range, you should be good, even if you have $250,000 in student loans.

Yup, upper limit is 43% I've seen post-closing.

[AVBucks4239]

I believe most lenders will look at the monthly payment in determining how much house you can buy. My loan company just has a "lender letter" button that generates a letter that gives the outstanding loan balance and the monthly payment amount.

That's what I originally assumed. The balance would obviously be high, but I would be current, not in default, and would hopefully have established good credit via other means.

Onto specifics: these are my payment options for my undergrad and law school loans:



I was 99% going to do PAYE (all I had to do was make the phone call) until I read this thread and saw all this stuff about not being able to qualify for a mortgage.

So, with numbers provided, I should do PAYE, right?

[fats provolone]

no one really answered the question which is what payment does your bank use to calculate your DTI ratio: your standard repayment or your reduced PAYE payment?

[bk1]

I didn't land Big Law. I'm in six-figure debt and making around $50-60k (not complaining, I'm laying in the bed I made but I'm very thankful to have a job). The max non-income-based plan I can afford is extended graduated. If I did that plan, by the time I would apply for a mortgage (goal is within 5-6 years), the loan would still have an enormous outstanding balance. I'll actually barely be able to make a dent in the principle during that time span, even if I paid as aggressively as I could. Because of that, my thought process was:

Loan is going to have a huge balance come mortgage application anyway --> sign up for plan with lowest payments --> save money for down payment --> build credit through other means.

Dumb plan? Should I just suck it up and do extended graduated?

Extended graduated assumes that you will have certain income raises to meet the increasing debt payments. It also takes 25 years. I would definitely do PAYE.

[06102016]

..

[kalvano]

no one really answered the question which is what payment does your bank use to calculate your DTI ratio: your standard repayment or your reduced PAYE payment?

That will likely be up to the bank itself, as PAYE is a variable payment that can be as low as $0 or as high as the standard 10-year payment.

[AVBucks4239]

One important thing to add that I wasn't factoring in earlier: if things continue on their current trajectory, I'll hopefully be married within the next 2-3 years. My girlfriend makes a pretty decent living and, from what I understand, PAYE adjusts your payments based on your joint adjusted gross income.

And if that happens, my repayment estimator shows extremely high loan payments and absolutely no loan forgiveness.

So, if I plan on getting married within 2-3 years, is there any point to doing PAYE?

[Elston Gunn]

One important thing to add that I wasn't factoring in earlier: if things continue on their current trajectory, I'll hopefully be married within the next 2-3 years. My girlfriend makes a pretty decent living and, from what I understand, PAYE adjusts your payments based on your joint adjusted gross income.

And if that happens, my repayment estimator shows extremely high loan payments and absolutely no loan forgiveness.

So, if I plan on getting married within 2-3 years, is there any point to doing PAYE?

You could consider not getting legally married, but I wouldn't want to go that route, I don't think.

[bk1]

One important thing to add that I wasn't factoring in earlier: if things continue on their current trajectory, I'll hopefully be married within the next 2-3 years. My girlfriend makes a pretty decent living and, from what I understand, PAYE adjusts your payments based on your joint adjusted gross income.

And if that happens, my repayment estimator shows extremely high loan payments and absolutely no loan forgiveness.

So, if I plan on getting married within 2-3 years, is there any point to doing PAYE?

Read what nony posted above. TLDR: it depends on whether you file separately or jointly, what state you are in, and whether Congress decides to change things up.

[AVBucks4239]

One important thing to add that I wasn't factoring in earlier: if things continue on their current trajectory, I'll hopefully be married within the next 2-3 years. My girlfriend makes a pretty decent living and, from what I understand, PAYE adjusts your payments based on your joint adjusted gross income.

And if that happens, my repayment estimator shows extremely high loan payments and absolutely no loan forgiveness.

So, if I plan on getting married within 2-3 years, is there any point to doing PAYE?

You could consider not getting legally married, but I probably wouldn't do that.

The thought crossed my mind, but I can't see it being a possibility.

Read what nony posted above. TLDR: it depends on whether you file separately or jointly, what state you are in, and whether Congress decides to change things up.

Forgot about those posts.

I guess this is just going to lead to a really uncomfortable discussion with my GF.

[Elston Gunn]

One important thing to add that I wasn't factoring in earlier: if things continue on their current trajectory, I'll hopefully be married within the next 2-3 years. My girlfriend makes a pretty decent living and, from what I understand, PAYE adjusts your payments based on your joint adjusted gross income.

And if that happens, my repayment estimator shows extremely high loan payments and absolutely no loan forgiveness.

So, if I plan on getting married within 2-3 years, is there any point to doing PAYE?

Read what nony posted above. TLDR: it depends on whether you file separately or jointly, what state you are in, and whether Congress decides to change things up.

Filing separately really fucks your taxes though, so there's also that to consider.

[Elston Gunn]

What I'd say is, unless you're talking you're about to be engaged and are just planning to have a long engagement together, being 2-3 years away from marriage sounds like a lot to me, and not enough of a guarantee that I'd assume your finances will change in that way.

[fats provolone]

no one really answered the question which is what payment does your bank use to calculate your DTI ratio: your standard repayment or your reduced PAYE payment?

That will likely be up to the bank itself, as PAYE is a variable payment that can be as low as $0 or as high as the standard 10-year payment.

yea i was wondering if anyone has bought a house on PAYE. calling godspeed.

[AVBucks4239]

What I'd say is, unless you're talking you're about to be engaged and are just planning to have a long engagement together, being 2-3 years away from marriage sounds like a lot to me, and not enough of a guarantee that I'd assume your finances will change in that way.

I can say with almost 100% certainty that we'll get married. We've been dating a while, she's hinted at me proposing a few times, and I definitely enjoy dating her. (*Gets off soap box*).

As of right now, if I tighten things up, I can afford standard repayment, but barely. If I did that, I would throw any and all bonuses and raises into saving for a house.

However, if I did PAYE, the Repayment Estimator shows that I would be paying about $30,000 more in interest and for about three more years. In other words, the period before I would be married would simply delay making standard payments and then I would just be paying more over a bit longer of a period.

TL;DR: figuring out that I'm boned live on TLS. Oh well.