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

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Br3v
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Re: PSA: You should probably do PAYE, even if you're in BigLaw

Postby Br3v » Sat Nov 22, 2014 9:37 pm

For someone who is and at math (asking for a friend) is PAYE even more attractive the lower your exit salary is? In other words, is PAYE more attractive to someone exiting at 50K compared to 100K?

GOATlawman
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Re: PSA: You should probably do PAYE, even if you're in BigLaw

Postby GOATlawman » Sat Nov 22, 2014 10:01 pm

Br3v wrote:For someone who is and at math (asking for a friend) is PAYE even more attractive the lower your exit salary is? In other words, is PAYE more attractive to someone exiting at 50K compared to 100K?


The less you make over the next 25 years the better

PMan99
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Re: PSA: You should probably do PAYE, even if you're in BigLaw

Postby PMan99 » Sat Nov 22, 2014 11:02 pm

sinfiery wrote:If they have already been thinking about capping PSLF, I see the jump to include a cap on PAYE in an attempt to "fight rising tuition costs" as not far off. It's in line with the rhetoric, at least. Likely not retroactive though.


Numerically, yeah, it makes sense. Not substantially so though when factoring in Sofi/aggresive repayment plans.

The greatest benefit seems to be you can always leave biglaw/the legal field if you hate it, but, as far as I am aware, can you not just go on PAYE if/when that happens and still retain that benefit? It may be worse financially speaking at that point, as the repayment amounts for 10 year vs PAYE while in biglaw seems to be 2k a month vs 1k a month thus a lower nest egg when you leave, (Though the tax bomb hit would be a bit less) but you can still leave and survive.

The biggest deal that will likely stop me from taking this route is just buying into a new program like PAYE with a life cycle of 25 years where there is so much potential variance (both positive and negative to your situation) for a somewhat small financial gain.


If you think you will do a govt stint though, I'd definitely recommend this


Since you can pay your loans down early in paye, there are really only two options: paye or refinancing.

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rickgrimes69
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Re: PSA: You should probably do PAYE, even if you're in BigLaw

Postby rickgrimes69 » Sun Nov 23, 2014 2:56 pm

swampman wrote:
Elston Gunn wrote:More seriously, because it's going to be bad optics for the IRS to tax someone who's been making $35k for 20 years on $500k of "income."

First, the tax bomb has an insolvency exception, so if you have 200k in assets and 500k in loans, you will only be taxed on 200k of the the forgiveness. Second, the IRS can and will negotiate will people who, even after the insolvency exception, still can't afford to pay the tax bomb.


Do you have a source for that? I'd like to read more about it.

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Elston Gunn
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Re: PSA: You should probably do PAYE, even if you're in BigLaw

Postby Elston Gunn » Sun Nov 23, 2014 3:07 pm

zweitbester wrote:
Elston Gunn wrote:
zweitbester wrote:A lot of misplaced faith ITT on our political system to get rid of the tax bomb.

It's mostly just hope, but it's actually only a big deal in the case where you either have really huge debt (like $300k) or you exit to a roughly sub-$150k non-government job. And even in that case you're already coming out way ahead by doing PAYE the whole time, even assuming tax bomb.

Honestly, though, hasn't it been put forward in a number of go-nowhere proposals, including Obama's? People freaked out when he tried to cap PSLF, but hasn't the tax bomb "fix" gotten just as much play? That it's in the discussion at least makes me think it's possible.


I think the math works out in favor of SoFi/DRBank when you include the tax bomb.

And yes it's been put forward, but LOL at anything getting through a Republican-controlled congress, especially valuable tax revenue that assumes dicking over millenials.

And when you realize all of this, it sort of makes the whole PSA concept unnecessary.

The math does indeed work out for SoFi etc. It's just not that huge, especially as I suspect those of us still in school won't be able to get the amazing rates people were able to get in the last 6 months/year, and there are non-financial/math benefits to keeping the flexibility of PAYE. Also, the Republicans aren't going to control Congress for the next 20 years.

You're right that the PSA concept is probably unnecessary. All I mean is: this is an option many should think about + here's a calculator that makes it really easy to run the numbers.
Last edited by Elston Gunn on Sun Nov 23, 2014 3:09 pm, edited 1 time in total.

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Elston Gunn
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Re: PSA: You should probably do PAYE, even if you're in BigLaw

Postby Elston Gunn » Sun Nov 23, 2014 3:09 pm

PMan99 wrote:
sinfiery wrote:If they have already been thinking about capping PSLF, I see the jump to include a cap on PAYE in an attempt to "fight rising tuition costs" as not far off. It's in line with the rhetoric, at least. Likely not retroactive though.


Numerically, yeah, it makes sense. Not substantially so though when factoring in Sofi/aggresive repayment plans.

The greatest benefit seems to be you can always leave biglaw/the legal field if you hate it, but, as far as I am aware, can you not just go on PAYE if/when that happens and still retain that benefit? It may be worse financially speaking at that point, as the repayment amounts for 10 year vs PAYE while in biglaw seems to be 2k a month vs 1k a month thus a lower nest egg when you leave, (Though the tax bomb hit would be a bit less) but you can still leave and survive.

The biggest deal that will likely stop me from taking this route is just buying into a new program like PAYE with a life cycle of 25 years where there is so much potential variance (both positive and negative to your situation) for a somewhat small financial gain.


If you think you will do a govt stint though, I'd definitely recommend this


Since you can pay your loans down early in paye, there are really only two options: paye or refinancing.

Right, but we're talking about making minimum PAYE payments vs. paying back aggressively.

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Old Gregg
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Re: PSA: You think about PAYE, even if you're in BigLaw

Postby Old Gregg » Sun Nov 23, 2014 3:11 pm

All I mean is: this is an option many should think about + here's a calculator that makes it really easy to run the numbers.


Willing to wager that this thread didn't inform even one person about PAYE who didn't already know about it.

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B.B. Homemaker
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Re: PSA: You think about PAYE, even if you're in BigLaw

Postby B.B. Homemaker » Sun Nov 23, 2014 3:12 pm

wait what is paye?

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Elston Gunn
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Re: PSA: You think about PAYE, even if you're in BigLaw

Postby Elston Gunn » Sun Nov 23, 2014 3:14 pm

zweitbester wrote:
All I mean is: this is an option many should think about + here's a calculator that makes it really easy to run the numbers.


Willing to wager that this thread didn't inform even one person about PAYE who didn't already know about it.

I obviously don't mean informing that PAYE exists as a program. There's lots of not-fully-formed debate about when and whether Biglaw people should do it on the site, and people asking if anyone has run the numbers. But anyway, I'm sorry for wasting your time or whatever.

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Old Gregg
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Re: PSA: You think about PAYE, even if you're in BigLaw

Postby Old Gregg » Sun Nov 23, 2014 3:20 pm

B.B. Homemaker wrote:wait what is paye?


PSA you should definitely use it. It definitely maybe saves you money because the tax bomb will definitely probably be removed by congress at some point in the next 20 years.

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2807
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Re: PSA: You should think about PAYE, even if you're in BigLaw

Postby 2807 » Sun Nov 23, 2014 3:20 pm

A few things I learned about PAYE:

1. You will not have a balloon payment "tax bomb"
You will/may owe income tax, but you will get a payment plan if needed.

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.

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Old Gregg
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Re: PSA: You should think about PAYE, even if you're in BigLaw

Postby Old Gregg » Sun Nov 23, 2014 3:50 pm

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.

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Old Gregg
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Re: PSA: You should think about PAYE, even if you're in BigLaw

Postby Old Gregg » Sun Nov 23, 2014 3:50 pm

You will/may owe income tax, but you will get a payment plan if needed.


Also, are IRS payment plans interest free? I've heard they're pretty draconian.

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2807
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Re: PSA: You should think about PAYE, even if you're in BigLaw

Postby 2807 » Sun Nov 23, 2014 4:07 pm

zweitbester wrote:
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 !

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Old Gregg
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Re: PSA: You should think about PAYE, even if you're in BigLaw

Postby Old Gregg » Sun Nov 23, 2014 4:11 pm

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.


I mean, we're on top-law-schools.com and this thread is directed at people in biglaw, so kind of a meaningless distinction re: what the rest of the world can get.

And aside from pre-qualification, Citi is fine lending whatever despite the payment obligations on your credit report if you can write a letter supporting your position. I had a high 0% interest credit card payment because of a loss I took this year, but Citi was fine not including my min payments toward it because I properly explained how the loss would be taken care of on its own by the time I close on the mortgage.

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

Postby utahraptor » Sun Nov 23, 2014 4:17 pm

I've appreciated the thread. I've been trying to decide between PAYE and SoFi/other refinancing for a while, and I'm still not sure where I end up/which is the better option. I'm not sure that this answered anything new, but it's nice to read through others pondering the same thing.

iliketurtles123
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Re: PSA: You should think about PAYE, even if you're in BigLaw

Postby iliketurtles123 » Sun Nov 23, 2014 7:17 pm

I don't get why people are saying the tax bomb won't hit.

First of all, getting rid of the tax bomb would cost the government millions of dollars. I doubt they are willing to forego that.

Second, the IR Code already has provisions that will mitigate the effects of the tax bomb to a certain extent (up to your solvency). It means nobody is going to be completely, utterly, screwed... but rather just completely screwed. The tax bomb is not as ridiculous as everyone here thinks it is (ie: if your 400k loans are forgiven and you only have 50k of assets, you most likely won't be forced to pay ALL the taxes on the 400k. It will be mitigated to a certain extent).

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Elston Gunn
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Re: PSA: You should think about PAYE, even if you're in BigLaw

Postby Elston Gunn » Sun Nov 23, 2014 7:20 pm

iliketurtles123 wrote:I don't get why people are saying the tax bomb won't hit.

First of all, getting rid of the tax bomb would cost the government millions of dollars. I doubt they are willing to forego that.

Second, the IR Code already has provisions that will mitigate the effects of the tax bomb to a certain extent (up to your solvency). It means nobody is going to be completely, utterly, screwed... but rather just completely screwed. The tax bomb is not as ridiculous as everyone here thinks it is (ie: if your 400k loans are forgiven and you only have 50k of assets, you most likely won't be forced to pay ALL the taxes on the 400k. It will be mitigated to a certain extent).

I don't think anyone has said anything more than that it's possible. It's been in several proposed reforms to student loans so it's not out of the realm of possibility. But, sure, I agree that the most likely thing is the tax bomb will still exist, and all the attempts at math assume it does.

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Tiago Splitter
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Re: PSA: You should think about PAYE, even if you're in BigLaw

Postby Tiago Splitter » Sun Nov 23, 2014 9:29 pm

iliketurtles123 wrote: The tax bomb is not as ridiculous as everyone here thinks it is

Everyone except everyone who posts in every thread about this who states that you are only taxed on forgiven debt to the point of solvency.

As Elston said, the tax bomb going away is not necessary for PAYE to still be preferable for many people. In the end, there isn't any simple math we can apply to this, so no one can be right or wrong. It's just a bunch of probabilities you have to figure for yourself; the probability you will or won't go into government/public interest, the probability you'll stay in a high paying private sector career, the probability interest rates will rise, etc.

For people like me and Elston who are just 3L's it's especially tough because we don't really know the answers to these questions, but our window to refinance before rates go up isn't very long.

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

Postby kalvano » Mon Nov 24, 2014 12:17 am

I qualify for PAYE but my payments have gone up to the 10-year plan payment because married filing jointly means her income is included. Can I / should I just switch over to the extended repayment plan, take the lower payment, and overpay when I can? I do alright, ,but I don't make $160K.

Can I switch back to PAYE if I end up taking a different job with less money?

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A. Nony Mouse
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Re: PSA: You should think about PAYE, even if you're in BigLaw

Postby A. Nony Mouse » Mon Nov 24, 2014 1:35 am

At the federal student aid website:
Although you may select or be assigned a repayment plan when you first begin repaying your student loan, you can change repayment plans at any time.

You'd still have to qualify for PAYE of course (have a financial hardship), but as long as you're eligible you can change back whenever you like.

(not meant as a "LMGTFY" moment, just explaining where I got that.)

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.)

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

Postby BuckinghamB » Mon Nov 24, 2014 12:35 pm

A. Nony Mouse wrote: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.

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

Postby glitched » Mon Nov 24, 2014 12:38 pm

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

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Tiago Splitter
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Re: PSA: You should think about PAYE, even if you're in BigLaw

Postby Tiago Splitter » Mon Nov 24, 2014 12:49 pm

glitched wrote: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.

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

Postby kalvano » Mon Nov 24, 2014 1:57 pm

Tiago Splitter wrote:
glitched wrote: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.




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