Damn RePAYE is a real Butt F to high millenials

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FullRamboLSGrad
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Re: Damn RePAYE is a real Butt F to high millenials

Postby FullRamboLSGrad » Wed May 20, 2015 12:10 pm

What about us clean millenials?

I've been clean for MONTHS.

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JenDarby
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Re: Damn RePAYE is a real Butt F to high millenials

Postby JenDarby » Wed May 20, 2015 12:12 pm

PAYE is your best repayment program option if you aren't going to refinance, and you should apply now.

You should be aware of how accrued interest and capitalization works though, which isn't as simple as "interest doesn't capitalize":

In addition to a more manageable monthly payment, the PAYE plan also helps limit the interest paid on student loans. If the monthly payment amount under PAYE does not cover the interest that accrues on the loans each month, the government will pay the unpaid accrued interest on Direct Subsidized and on subsidized portions of Direct Consolidation Loans for up to three consecutive years from the date the borrower began repayment under PAYE. Additionally, while the borrower demonstrates partial financial hardship, interest accrued that is not covered by loan payments will not be capitalized, even if it accrues during deferment or forbearance. When a borrower no longer demonstrates partial financial hardship, unpaid interest continues to capitalize, but the total amount of capitalized interest is limited to 10% of the original principal balance when the borrower begins payment under PAYE.

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Re: Damn RePAYE is a real Butt F to high millenials

Postby Anonymous User » Wed May 20, 2015 12:25 pm

AVBucks4239 wrote:
Anonymous User wrote:I meant to say avalanche, not sure why snowball came to mind. I'm attacking my PAYE ineligible loans first - they aren't my highest rate loans, but they have shitty repayment terms.

When should I apply for PAYE? Just graduated, studying for the bar.

I could be wrong but I think the correct answer is ASAP so your balance doesn't capitalize.


Turns out you can't apply for repayment plans until you're 90 days away from the end of your 6-month grace period - at least according to Great Lakes.

Interesting. I guess that changes things...use that time to build my emergency fund? It'll definitely help with some of my unavoidable startup costs (a few suits from Jos A Banks).

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JohannDeMann
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Re: Damn RePAYE is a real Butt F to high millenials

Postby JohannDeMann » Wed May 20, 2015 12:54 pm

I agree with AV Bucks analysis for the most part. Very thorough. I will just reiterate - make sure you are maxing out any 401k matches or 50% matches and 5,500 for your IRA. Each of those have guaranteed returns of at least 25% and it's better to get that than pay down even 7.8% or whatever interest. Nobody likes debt, but you have to make these decisions rationally.

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Tiago Splitter
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Re: Damn RePAYE is a real Butt F to high millenials

Postby Tiago Splitter » Wed May 20, 2015 1:01 pm

JohannDeMann wrote:I agree with AV Bucks analysis for the most part. Very thorough. I will just reiterate - make sure you are maxing out any 401k matches or 50% matches and 5,500 for your IRA. Each of those have guaranteed returns of at least 25% and it's better to get that than pay down even 7.8% or whatever interest. Nobody likes debt, but you have to make these decisions rationally.

A lot of these people won't have anything left for loans if they put the full 24k into their 401k/IRA. Also if you're making 50k Roth is probably a better option. Might be at 150k too especially if you can only do pre-tax in your 401k.

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JohannDeMann
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Re: Damn RePAYE is a real Butt F to high millenials

Postby JohannDeMann » Wed May 20, 2015 1:15 pm

Yeah putting money into 401k that isn't being matched I don't care about. I'm just saying don't leave matches on the table.

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Tiago Splitter
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Re: Damn RePAYE is a real Butt F to high millenials

Postby Tiago Splitter » Wed May 20, 2015 1:21 pm

JohannDeMann wrote:Yeah putting money into 401k that isn't being matched I don't care about. I'm just saying don't leave matches on the table.

But the 25% guaranteed return (as you call it) for the IRA applies the same way to the 401k.

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JohannDeMann
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Re: Damn RePAYE is a real Butt F to high millenials

Postby JohannDeMann » Wed May 20, 2015 1:33 pm

Yea that is true re both not being in AGI and PAYE calculation. Good point. The only possible benefit of the IRA route is locking in a lower tax rate with the Roth than you would pay later in life. But yeah, def an error on my part.

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AVBucks4239
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Re: Damn RePAYE is a real Butt F to high millenials

Postby AVBucks4239 » Wed May 20, 2015 1:59 pm

JohannDeMann wrote:I agree with AV Bucks analysis for the most part. Very thorough. I will just reiterate - make sure you are maxing out any 401k matches or 50% matches and 5,500 for your IRA. Each of those have guaranteed returns of at least 25% and it's better to get that than pay down even 7.8% or whatever interest. Nobody likes debt, but you have to make these decisions rationally.

The bolded is really important. Personal finance is personal. You can make some slightly irrational decisions (see my post about paying a smaller balance with a lower interest rate just to get rid of the loan), but your overall gameplan should be rational rather than emotional.

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Re: Damn RePAYE is a real Butt F to high millenials

Postby Anonymous User » Wed May 20, 2015 2:12 pm

XxSpyKEx wrote:
Anonymous User wrote:Does having done a year of PAYE make a big difference in calculating whether to continue PAYE or just refi? My current balance is ~260k. Currently clerking set to start biglaw in the fall. Been paying about ~370/month under PAYE since I entered repayment. Spouse makes middle 5 figures with no debt. I'm thinking of refinancing once I start as an associate.

When I ran the numbers before graduating it seemed like PAYE vs refi ended up being a wash financially. Does the year of PAYE under my belt change this all that much? The general benefits of PAYE seem to be that even if your job situation gets fucked up that you will be okay (whether that's because I lose my job or I just can't stand working grueling hours anymore), and having more spare cash up front in case of emergencies. The benefits of refi seem to me just peace of mind of having that shit gone and not having to deal with the hassle of preparing for the tax bomb. It may not be completely rational, but I heavily prefer the idea of just getting that shit done with via an aggressive refi even if it entails higher risk.


Your question doesn't make much sense. The only thing spending a year on PAYE did was increase your total debt since your payments weren't even covering your yearly interest for the year that you clerked. It's really just a matter of whether you're comfortable/want to refinance $260k in debt with a private lender, and your personal priorities. It sounds like paying off your debt is your priority and that you actually plan to repay it in its entirety (as oppose to doing PAYE + tax bomb/PSLF), so you might as well just refinance. There's obviously a good deal of risk there (especially with that much debt and not having actually worked as an associate in biglaw yet), but it sounds like you've already considered that and decided that you want to pay off your debt ASAP, rather than building emergency cushion, saving towards retirement, etc., and don't think there's much likelihood you'll work in government after biglaw. In that case, you might as well refinance so you can get a lower interest rate.


Thanks, this makes sense. With regards to the bolded: my logic was that my best case scenario as a clerk was that I would be able to pay off approximately all the accruing interest (~$18k) during my clerkship. In that case I would make little to no dent in the principal. With PAYE the interest doesn't capitalize while you're in PAYE so not paying the entire amount of interest doesn't actually cost you anything, assuming you pay off the interest before it does capitalize when you leave PAYE. So I figured it's better to just save the extra money I could have put into my loans (above and beyond the PAYE amount) and earn at least some interest on it, and then make a big payment right before leaving PAYE (assuming that's what I end up doing).

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XxSpyKEx
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Re: Damn RePAYE is a real Butt F to high millenials

Postby XxSpyKEx » Wed May 20, 2015 2:25 pm

Anonymous User wrote:
Thank you for taking the time to write such a thoughtful response.

I actually paid $10 for an excellent Excel spreadsheet that helps to automatically calculate this kind of "snowball" repayment strategy - I don't like the feeling of all this debt hanging over me, and I'd rather attack it now. If that's my plan, is there any drawback to making interest payments (i.e., ~$650) rather than minimum PAYE payments (~$250)? Are you saying that you let interest accrue on your other loans while putting that extra $750 towards your highest interest loans?


I agree with the previous posters re: nobody liking debt, but needing to make these decisions rationally. I'd add that I felt similar to you when I graduated from law school (really just wanting to get rid of my debt), and went into "repayment" during my clerkship. You'd be surprised how incredibly chill federal student debt is relative to "real debt" (credits cards, car loan, mortgage, etc). I mean you can literally call up the loan servicer and simply say you can't afford repayment, and they'll give you as much forbearance as you need with barely any questions. This is speculation on my part, but I bet you could probably get away with doing forbearance and forbearance payments (which can be as little as $5 per month) for the rest of your life, and pay less than 10% of the loan across a lifetime. I haven't been brazen enough to push this, but it's not even clear to me that the loan servicers are on their game enough to get wage garnishments from you (assuming you don't work for fed govt.) I've read in the WSJ about people who took out student debt to go to school, completely forgot about it for years, and finally, after they retired, the federal government started garnishing their social security checks (until they contacted the loan servicer and agreed on paying them something). I'm not saying that you shouldn't attempt to repay your loans, but just saying it's not like "real debt" by any means, and you might as well not let it bother you in the way that "real debt" bothers most people.




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