Damn RePAYE is a real Butt F to high millenials

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

Postby JohannDeMann » Thu May 07, 2015 11:41 pm

Br3v wrote:Wait, what does this mean for a current 2L who took out their first loan after 2007? Can I still qualify for the old PAYE?


under current rules you're fine. question is whether obama or the next pres/congress is gonna renege on the old rules.

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

Postby JohannDeMann » Thu May 07, 2015 11:53 pm

AVBucks4239 wrote:
JohannDeMann wrote:I've already showed you how much of a dummy you are for paying down your debt when your PAYE would be like 200 bucks. You are crazy. This analysis is so biased its laghable.

Forgive me for being dense, but I'm just not good at math and I honestly can't recall you responding to me about this in a previous thread. I've posted my scenario on so many different forums (Reddit, TLS, handful of others) that I can't keep track of all of them. Also, I'm on my cell phone and the search function isn't great.

Can you link me to your analysis? I'm only six months into this so I'm not "pot-committed" to paying these off and am certainly open to ideas.

For the record, TLS remains the only place that pretty much calls me an idiot for not doing PAYE. But I'm open to your rationale/numbers.

Edit: I did find a thread in the Financial Aid section where you talk about paying the minimum, putting money in stocks for five years, give yourself some security, and then see what happens.

I get that, but I still have yet to see someone show me that, over the long term (20 years) doing PAYE will cost less than just paying it off in 8 years (deductions included). Where am I going wrong?


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

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

Postby lacrossebrother » Fri May 08, 2015 2:26 am

I don't get how you'd pay capital gains tax on paye?

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

Postby lacrossebrother » Fri May 08, 2015 2:32 am

I also don't get how you could pay off $150k of loans at all making $28/hr without paye.

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

Postby Orlandipo » Fri May 08, 2015 9:43 am

lacrossebrother wrote:I don't get how you'd pay capital gains tax on paye?

Think they mean if you sell investments to pay off your CODI income, you're also going to pay tax on the gain from that income so you need to gross up the amount you'll need to have when your loans are forgiven. But I think they're just assuming you have zero basis in those investments, and also LTCG can go up to 23.8% if you make good money, so IDK.

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

Postby Orlandipo » Fri May 08, 2015 9:45 am

Also, as someone who's looking to have about 220k forgiven eventually under PAYE, I'm totally okay with Barack's proposed amendment that loan interest not be deductible in exchange for the cancellation of debt being tax free.

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

Postby Tiago Splitter » Fri May 08, 2015 10:09 am

Orlandipo wrote:Also, as someone who's looking to have about 220k forgiven eventually under PAYE, I'm totally okay with Barack's proposed amendment that loan interest not be deductible in exchange for the cancellation of debt being tax free.

This is the NY to 190 of PAYE.

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

Postby Orlandipo » Fri May 08, 2015 10:11 am

Tiago Splitter wrote:
Orlandipo wrote:Also, as someone who's looking to have about 220k forgiven eventually under PAYE, I'm totally okay with Barack's proposed amendment that loan interest not be deductible in exchange for the cancellation of debt being tax free.

This is the NY to 190 of PAYE.

Can we not destroy the last bit of hope I have for living a decent life?

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

Postby Tiago Splitter » Fri May 08, 2015 10:13 am

I don't think either NY to 190 or defusing of the tax bomb are impossibilities. Just keep talking about them like they're about to happen and maybe we can make it so.

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

Postby wildhaggis » Fri May 08, 2015 10:14 am

Orlandipo wrote:Also, as someone who's looking to have about 220k forgiven eventually under PAYE, I'm totally okay with Barack's proposed amendment that loan interest not be deductible in exchange for the cancellation of debt being tax free.


Shit, I love this idea. First I've ever heard of it, though. Is it basically an empty proposal?

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

Postby AVBucks4239 » Fri May 08, 2015 11:07 am

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

TVM: 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.

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

Postby lacrossebrother » Fri May 08, 2015 11:26 am

Dude you can't count taxes as extra on stuff you'd have paid anyways. But for the tax bomb, you'd still pay tax on your gainz

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

Postby AVBucks4239 » Fri May 08, 2015 11:43 am

lacrossebrother wrote:Dude you can't count taxes as extra on stuff you'd have paid anyways. But for the tax bomb, you'd still pay tax on your gainz

Not being a smartass here, but why can't you consider lost deductions? I feel like filing separately one of the biggest (if not the biggest) consequence of IBR/PAYE.

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

Postby lacrossebrother » Fri May 08, 2015 11:45 am

I'm so confused. I was talking about the money you said you were saving to pay off your tax bomb that you included 16% on.

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

Postby AVBucks4239 » Fri May 08, 2015 12:04 pm

lacrossebrother wrote:I'm so confused. I was talking about the money you said you were saving to pay off your tax bomb that you included 16% on.

Then I'm equally confused.

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

Postby lacrossebrother » Fri May 08, 2015 12:08 pm

You're going to have to pay tax on that to convert it to spendable money at some point, right?

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

Postby lacrossebrother » Fri May 08, 2015 12:09 pm

And the 16% is on the gainz not the deposits

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

Postby Orlandipo » Fri May 08, 2015 12:15 pm

And it'll most definitely be 23.8% in the year you get your 1099 for the CODI.

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

Postby AVBucks4239 » Fri May 08, 2015 12:17 pm

lacrossebrother wrote:You're going to have to pay tax on that to convert it to spendable money at some point, right?

That's true. My point was more about the withdrawal penalty. And I'm really not even sure you could borrow from a 401k to pay something like a student loan tax liability.

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

Postby Tiago Splitter » Fri May 08, 2015 12:18 pm

AVBucks4239 wrote:
lacrossebrother wrote:I'm so confused. I was talking about the money you said you were saving to pay off your tax bomb that you included 16% on.

Then I'm equally confused.

He's saying you can't count capital gains taxes as an expense of doing PAYE, because eventually you were going to sell those securities and pay those capital gains taxes anyway, whether you do PAYE or not.

AVBucks4239 wrote:
lacrossebrother wrote:You're going to have to pay tax on that to convert it to spendable money at some point, right?

That's true. My point was more about the withdrawal penalty. And I'm really not even sure you could borrow from a 401k to pay something like a student loan tax liability.

You can borrow from a 401k for any reason but the max is only 50k.

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

Postby AVBucks4239 » Fri May 08, 2015 12:21 pm

Tiago Splitter wrote:
AVBucks4239 wrote:
lacrossebrother wrote:I'm so confused. I was talking about the money you said you were saving to pay off your tax bomb that you included 16% on.

Then I'm equally confused.

He's saying you can't count capital gains taxes as an expense of doing PAYE, because eventually you were going to sell those securities and pay those capital gains taxes anyway, whether you do PAYE or not.

AVBucks4239 wrote:
lacrossebrother wrote:You're going to have to pay tax on that to convert it to spendable money at some point, right?

That's true. My point was more about the withdrawal penalty. And I'm really not even sure you could borrow from a 401k to pay something like a student loan tax liability.

You can borrow from a 401k for any reason but the max is only 50k.

Makes sense. But I can't think of any scenario where borrowing from your 401k is a good idea.

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

Postby Orlandipo » Fri May 08, 2015 12:43 pm

Tiago Splitter wrote:
AVBucks4239 wrote:
lacrossebrother wrote:I'm so confused. I was talking about the money you said you were saving to pay off your tax bomb that you included 16% on.

Then I'm equally confused.

He's saying you can't count capital gains taxes as an expense of doing PAYE, because eventually you were going to sell those securities and pay those capital gains taxes anyway, whether you do PAYE or not.

Well I think the idea is that you would invest that cash instead of using it for student loan payments, so I actually agree that you probably need to look at how much it's going to be worth post-tax to determine how much you're going to need to have at the end to offset ur tax bomb.


FWIW I have a spreadsheet I'm kindof basing my plan off of right now. My options are:

1. Pay off student loans at 25 year standard repayment plan, where total payments will be about $360,000 over 25 years.

2. Make PAYE payments. Assuming 7% increase in income for PAYE calc's. Also contribute $400 a month in some generic non-dividend paying investment portfolio for the next 20 years. Total combined payments for those two items over 20 years: $235,000. Additionally the investment account should be worth about $30,000 more than the tax from CODI assuming a 4.5% geometric return.

So overall I'm saving about 160k and on a five-year shorter timeline than standard repayment.

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

Postby lacrossebrother » Fri May 08, 2015 12:45 pm

Just no man. The alternative is you pay straight cash homie into your loans. Capital gains tax reduces your gainz

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

Postby Orlandipo » Fri May 08, 2015 12:53 pm

lacrossebrother wrote:Just no man. The alternative is you pay straight cash homie into your loans. Capital gains tax reduces your gainz

That's what I'm saying too.

Instead of paying 100k to loans, invest 100k. 100k grows to 180k over life of investment. Recognize 80k in CG. Assuming you're above the NIIT threshold you're conservatively calculating at the top bracket at 23.8% for LTCG and 43.8% for STCG. Let's call it 25k in CG tax. You should be estimating you'll have 155k saved for CODI tax.

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

Postby JenDarby » Fri May 08, 2015 1:41 pm

I'm with AVBucks on this. I considered a lot of more complicated scnearios when I made the choice to refinance, but even when simplified I still think that refinancing was my best option.

When I pay off my loans in their entirety I will have paid around a total of $215k (maybe less if I pay off sooner).

My PAYE payments were $725 a month before refinancing. They will definitely go up since this was based off my part time 3L work income, and probably go further up due to salary increases. Let's say that they didn't. If I paid $725/month for 20 years then I would pay $174,000 and LIKELY have a tax bomb. Also, I would have TWENTY YEARS of ballooning debt that would certainly weigh on me.




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