JohannDeMann wrote:It may or may not cost less in overall dollars. But its absolutely going to cost less for you in inflation adjusted dollars.Your tax deduction calculation is wrong because it's only worth your effective tax rate - so 25% of that. The tax bomb is also only paid to the extent you have the assets. Its basically like this would you rather have at least 90% but prolly 95% of your money for you over 20 years and then maybe pay 33% tax bomb of debt forgiven. Or pay like 50% of your after tax income for 9 years. you are fucked in scenario 2 should anything happen to your job. Plus like non capitalizing interest isnt really a big deal especially cause you are prolly barely paying more than interest right now. If you get a salary increase your money is just in savings, so then refinance and use your savings to pay off some of the loans, If your If your salary stays the same, youre paying like 40k over the life of your loan for forgiveness plus some possible tax bomb on 160k or something which is another 50k.
But it sti
: I get the whole TVM argument and it's probably the most persuasive of your points. But it's hard to compare the TVM of saving by not paying your loans to not even having to pay loans for 12 years. Deductions
: I was doing 25%. For example, the student loan interest deduction is $2,500 per year. Multiply that by two because my GF would need it too. That's $5,000 per year and we'd likely qualify for about 10 years (assuming the cap continues to get adjusted for inflation). So $5,000 credit x 10 years x .25 = $12,500. Child care dependent credit is $750 refund per year. Married credit is $2,000 per year in refunds. On and on and on...multiply them all out by the entire 20 year period and you're quickly in the $90-100k ballpark, easy. Tax bomb
: of course
you would have to pay the entire tax liability. The whole point of doing PAYE is to save on your loans short term so you can invest the extra money in a house or investment account for 20 years. Your assets will clear your liabilities and you'll have to pay the entire tax liability.Unknown Future
: what about getting a high paying job in, say, year 8 or 9? By this time your interest has ballooned (e.g., in my case, doing minimum PAYE payments would mean by balance would be up to $200,000 after 8 years). What if I lateraled to a bigger firm in Cleveland, Pittsburgh or Columbus that is paying $225k to a mid-level? PAYE estimates my payment to be $1575, or enough to pay off the loan before any forgiveness kicks in.
lacrossebrother wrote:I don't get how you'd pay capital gains tax on paye?
If you did PAYE for 20 years and saved for the tax liability, then your only resort is a traditional investment account because none of the tax-advantaged accounts make sense. You couldn't do a 401k because you'd pay regular income taxes on that withdrawal and then pay the 10% early withdrawal penalty. You couldn't pull from a Traditional IRA for the same reason. And you couldn't do a conventional Roth because you can't have a Roth if you file separately. I've discussed with Tiago ways to "back door" into a Roth, but I can't rely on that loophole existing for 20 years to cover my tax liability.
So you'd have to pull from a traditional brokerage account and pay capital gains on whatever you pulled to cover your tax liability. Or I guess you could do a HELOC but I haven't considered that too much.
lacrossebrother wrote:I also don't get how you could pay off $150k of loans at all making $28/hr without paye.
I've posted this before, but I'm in a lucky spot. Low COL area, car already paid off, etc. I live pretty comfortably while paying $1,000/month towards my loans. Any extra side income (help friend flip houses on weekends, bonuses, tax refunds) go to my loans. Give it time and I'll have them paid off in eight years without really being a "slave" to them as so many in here fear.
Again, I'm open to your logic, and I get that I'm making an oversimplified calculation ($190,000 < $325,000 so pay them off...duh). I know it's not that simple, but I researched this for 7-8 months before deciding to pay them off, and I just don't think PAYE is a wise decision considering all the variables.
PS: I'm enrolled in PAYE. My minimum payment is $78. So $922 goes to my highest interest rate loan every month. And I will continue to avalanche these until they are paid off.