Damn RePAYE is a real Butt F to high millenials

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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 2:04 pm

Orlandipo wrote: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.

Your scenario is precisely what I was asking in my first post in this thread.

I think there is in fact a mathematical point where your debt is high enough that yes, investing the money instead of paying off your loans makes financial sense.

But, my amateur calculations tell me that if your loans are about $150,000 or less, I don't think it makes sense because the negative ramifications (filing separately, basing a large part of your financial strategy around paying the tax liability, etc.) outweigh the perceived benefit.

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

Postby Orlandipo » Fri May 08, 2015 2:44 pm

AVBucks4239 wrote:
Orlandipo wrote: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.

Your scenario is precisely what I was asking in my first post in this thread.

I think there is in fact a mathematical point where your debt is high enough that yes, investing the money instead of paying off your loans makes financial sense.

But, my amateur calculations tell me that if your loans are about $150,000 or less, I don't think it makes sense because the negative ramifications (filing separately, basing a large part of your financial strategy around paying the tax liability, etc.) outweigh the perceived benefit.

I'm okay with having two auto-withdrawal amounts from my checking account each month in exchange for about 160,000. It took a little bit of thinking at the beginning to set up but the last 10 months I've barely even thought about it.

Also jokes on you I'm going to die alone OR marry someone who plans on paying off their own student loans for 20 years so only my income is calc'd even filing jointly, with the added effect that she can't blame me for financially crippling our marriage.

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

Postby AVBucks4239 » Fri May 08, 2015 3:36 pm

Orlandipo wrote:I'm okay with having two auto-withdrawal amounts from my checking account each month in exchange for about 160,000. It took a little bit of thinking at the beginning to set up but the last 10 months I've barely even thought about it.

Also jokes on you I'm going to die alone OR marry someone who plans on paying off their own student loans for 20 years so only my income is calc'd even filing jointly, with the added effect that she can't blame me for financially crippling our marriage.

Go far enough back in my post history and my posts are identical to yours. "I'm on PAYE, I don't think about my loans, LOL at paying off your loans." Then I did the math and it just doesn't make any financial sense.

I'm also with Jen in that there's an emotional burden to carrying debt. Deny it if you want but after just six months on the PAYE gravy train I had enough. To each their own, though.

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

Postby Orlandipo » Fri May 08, 2015 3:47 pm

AVBucks4239 wrote:
Orlandipo wrote:I'm okay with having two auto-withdrawal amounts from my checking account each month in exchange for about 160,000. It took a little bit of thinking at the beginning to set up but the last 10 months I've barely even thought about it.

Also jokes on you I'm going to die alone OR marry someone who plans on paying off their own student loans for 20 years so only my income is calc'd even filing jointly, with the added effect that she can't blame me for financially crippling our marriage.

Go far enough back in my post history and my posts are identical to yours. "I'm on PAYE, I don't think about my loans, LOL at paying off your loans." Then I did the math and it just doesn't make any financial sense.

I'm also with Jen in that there's an emotional burden to carrying debt. Deny it if you want but after just six months on the PAYE gravy train I had enough. To each their own, though.

I mean it definitely does make financial sense for me, and I have yet to experience the emotional burden so, idk.

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

Postby lacrossebrother » Fri May 08, 2015 4:05 pm

Orlandipo wrote:
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.

It's just not a cost of PAYE though

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

Postby lacrossebrother » Fri May 08, 2015 4:10 pm

The only reason to include capital gains tax in that calculation would be if you were figuring out what you you would need to invest at year 0 In order to pay off he projected forgiveness. But he included the entire forgiven amount In there and then added a premium on top of it.

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

Postby JohannDeMann » Fri May 08, 2015 9:46 pm

JenDarby wrote: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.


well you also paye down 3% interest loans instead of getting 50% guaranteed return on your employer 401k match so yeahhhhhhhhhhhhh

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

Postby JenDarby » Sat May 09, 2015 9:54 am

JohannDeMann wrote:
JenDarby wrote: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.


well you also paye down 3% interest loans instead of getting 50% guaranteed return on your employer 401k match so yeahhhhhhhhhhhhh

As of now I am 33% vested in 50% returns that can top out at $9000. I pay the minimum payments on my refinanced loans which saves me just under $6,500 in interest this year. I have already put around $5,500 into my 401k and it's likely that by the end of the year I will actually hit that $18,000 to get the $9,000 matching. Of course, as makes financial sense, my $1,800 loan payments (which yes are higher than my PAYE pYments were) have priority: If I stick around until August I will be 66% vested so at that point it makes sense to up my % of contributions which I would be capable of doing. That being said it's not guaranteed that I will hit the point of being 100% vested to get the full 50% returns. OTOH there is a 100% chance I would pay my loans off in full before 20 years so saving $6,500 this year on interest, making my minimum payments, and attempting to max out my 401k matching is the best option for me. I might miss out on some matching in my 401k but I will not miss out on $6,500 in matching (my interest savings of this year alone).

Not refinancing and rather putting a few thousand more into my 401k this year would NOT have been the better financial choice for me.

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

Postby AVBucks4239 » Sat May 09, 2015 10:20 am

JenDarby wrote:
JohannDeMann wrote:well you also paye down 3% interest loans instead of getting 50% guaranteed return on your employer 401k match so yeahhhhhhhhhhhhh

As of now I am 33% vested in 50% returns that can top out at $9000. I pay the minimum payments on my refinanced loans which saves me just under $6,500 in interest this year. I have already put around $5,500 into my 401k and it's likely that by the end of the year I will actually hit that $18,000 to get the $9,000 matching. Of course, as makes financial sense, my $1,800 loan payments (which yes are higher than my PAYE pYments were) have priority: If I stick around until August I will be 66% vested so at that point it makes sense to up my % of contributions which I would be capable of doing. That being said it's not guaranteed that I will hit the point of being 100% vested to get the full 50% returns. OTOH there is a 100% chance I would pay my loans off in full before 20 years so saving $6,500 this year on interest, making my minimum payments, and attempting to max out my 401k matching is the best option for me. I might miss out on some matching in my 401k but I will not miss out on $6,500 in matching (my interest savings of this year alone).

Not refinancing and rather putting a few thousand more into my 401k this year would NOT have been the better financial choice for me.

Ya, I'm not contributing as much as Jen (income is 1/3 of hers), but I'm also contributing to my 401k and putting some extra into my Roth (up to $1,000 this year, so about $200/month).

I feel like you guys have this dichotomy of (1) slave to my loans, no life, no fun, life will suck or (2) PAYE haha who cares about my loans. There's a middle ground that makes a lot of financial sense when you take into account all the variables/unknowns.

Also, like Orlandipo, my loans are set on auto-pay and I don't really stress about it. I set mine up for $500 bi-weekly auto-pay on a 7.65% loan through the end of the year. Once that 7.65% loan is paid off, then I'll set the auto-pays up to the other 7.65% loan. And then if I get bonuses or refunds, keep half and throw the rest at loans.

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

Postby JohannDeMann » Sat May 09, 2015 2:37 pm

JenDarby wrote:
JohannDeMann wrote:
JenDarby wrote: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.


well you also paye down 3% interest loans instead of getting 50% guaranteed return on your employer 401k match so yeahhhhhhhhhhhhh

As of now I am 33% vested in 50% returns that can top out at $9000. I pay the minimum payments on my refinanced loans which saves me just under $6,500 in interest this year. I have already put around $5,500 into my 401k and it's likely that by the end of the year I will actually hit that $18,000 to get the $9,000 matching. Of course, as makes financial sense, my $1,800 loan payments (which yes are higher than my PAYE pYments were) have priority: If I stick around until August I will be 66% vested so at that point it makes sense to up my % of contributions which I would be capable of doing. That being said it's not guaranteed that I will hit the point of being 100% vested to get the full 50% returns. OTOH there is a 100% chance I would pay my loans off in full before 20 years so saving $6,500 this year on interest, making my minimum payments, and attempting to max out my 401k matching is the best option for me. I might miss out on some matching in my 401k but I will not miss out on $6,500 in matching (my interest savings of this year alone).

Not refinancing and rather putting a few thousand more into my 401k this year would NOT have been the better financial choice for me.


Your "saving 6500" in interest is a fictional number you created. 3% interest is 3% interest. 33% of 50%> than paying down 3% loans. I hope you make the contribution amount, because there are 0% of situations where what you are doing is beneficial.

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

Postby JohannDeMann » Sat May 09, 2015 2:41 pm

AVBucks4239 wrote:
JenDarby wrote:
JohannDeMann wrote:well you also paye down 3% interest loans instead of getting 50% guaranteed return on your employer 401k match so yeahhhhhhhhhhhhh

As of now I am 33% vested in 50% returns that can top out at $9000. I pay the minimum payments on my refinanced loans which saves me just under $6,500 in interest this year. I have already put around $5,500 into my 401k and it's likely that by the end of the year I will actually hit that $18,000 to get the $9,000 matching. Of course, as makes financial sense, my $1,800 loan payments (which yes are higher than my PAYE pYments were) have priority: If I stick around until August I will be 66% vested so at that point it makes sense to up my % of contributions which I would be capable of doing. That being said it's not guaranteed that I will hit the point of being 100% vested to get the full 50% returns. OTOH there is a 100% chance I would pay my loans off in full before 20 years so saving $6,500 this year on interest, making my minimum payments, and attempting to max out my 401k matching is the best option for me. I might miss out on some matching in my 401k but I will not miss out on $6,500 in matching (my interest savings of this year alone).

Not refinancing and rather putting a few thousand more into my 401k this year would NOT have been the better financial choice for me.

Ya, I'm not contributing as much as Jen (income is 1/3 of hers), but I'm also contributing to my 401k and putting some extra into my Roth (up to $1,000 this year, so about $200/month).

I feel like you guys have this dichotomy of (1) slave to my loans, no life, no fun, life will suck or (2) PAYE haha who cares about my loans. There's a middle ground that makes a lot of financial sense when you take into account all the variables/unknowns.

Also, like Orlandipo, my loans are set on auto-pay and I don't really stress about it. I set mine up for $500 bi-weekly auto-pay on a 7.65% loan through the end of the year. Once that 7.65% loan is paid off, then I'll set the auto-pays up to the other 7.65% loan. And then if I get bonuses or refunds, keep half and throw the rest at loans.


You and JD are lost causes but its crazy the amount of moeny you both are pissing away by not maxing out employer matched 401ks or IRAs. You should be maxing out your IRA. It reduces your taxable income for lower PAYE and you get a 20% or something return based on tax savings. We're way off the REPAYE topic at this point, so I'm done, but both of you are fucking yourselves if you end up leaving IRAs or matched 401ks on the table.

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

Postby JenDarby » Sat May 09, 2015 3:03 pm

JohannDeMann wrote: Your "saving 6500" in interest is a fictional number you created. 3% interest is 3% interest. 33% of 50%> than paying down 3% loans. I hope you make the contribution amount, because there are 0% of situations where what you are doing is beneficial.

Are you really this dense. My non refinanced average interest rate was 7.2%. I'm saving just under $6,500 in interest for the year after refinancing. I have to make my minimum payments on my refinanced loan, which are $1,800 a month. After I make those then everything goes to my 401k. This year I might miss out on around $2,000 or so in employer matching (maybe). But if I didn't refinance then it would have cost me more this year and in the long run.

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

Postby Geaux12 » Sat May 09, 2015 3:11 pm

The discussions in this thread are fucking terrifying for the comparatively financially illiterate.

I need an accountant or something.

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

Postby twenty » Sat May 09, 2015 3:49 pm

The 57.5k cap is stupid, and the way they're phrasing it makes it clear that no one's actually put much thought into this. Like anyone who's on REPAYE with less than 57k debt is going to care whether they get forgiveness in 20 years or 25.

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

Postby AVBucks4239 » Sat May 09, 2015 4:36 pm

JohannDeMann wrote:
AVBucks4239 wrote:
JenDarby wrote:
JohannDeMann wrote:well you also paye down 3% interest loans instead of getting 50% guaranteed return on your employer 401k match so yeahhhhhhhhhhhhh

As of now I am 33% vested in 50% returns that can top out at $9000. I pay the minimum payments on my refinanced loans which saves me just under $6,500 in interest this year. I have already put around $5,500 into my 401k and it's likely that by the end of the year I will actually hit that $18,000 to get the $9,000 matching. Of course, as makes financial sense, my $1,800 loan payments (which yes are higher than my PAYE pYments were) have priority: If I stick around until August I will be 66% vested so at that point it makes sense to up my % of contributions which I would be capable of doing. That being said it's not guaranteed that I will hit the point of being 100% vested to get the full 50% returns. OTOH there is a 100% chance I would pay my loans off in full before 20 years so saving $6,500 this year on interest, making my minimum payments, and attempting to max out my 401k matching is the best option for me. I might miss out on some matching in my 401k but I will not miss out on $6,500 in matching (my interest savings of this year alone).

Not refinancing and rather putting a few thousand more into my 401k this year would NOT have been the better financial choice for me.

Ya, I'm not contributing as much as Jen (income is 1/3 of hers), but I'm also contributing to my 401k and putting some extra into my Roth (up to $1,000 this year, so about $200/month).

I feel like you guys have this dichotomy of (1) slave to my loans, no life, no fun, life will suck or (2) PAYE haha who cares about my loans. There's a middle ground that makes a lot of financial sense when you take into account all the variables/unknowns.

Also, like Orlandipo, my loans are set on auto-pay and I don't really stress about it. I set mine up for $500 bi-weekly auto-pay on a 7.65% loan through the end of the year. Once that 7.65% loan is paid off, then I'll set the auto-pays up to the other 7.65% loan. And then if I get bonuses or refunds, keep half and throw the rest at loans.


You and JD are lost causes but its crazy the amount of moeny you both are pissing away by not maxing out employer matched 401ks or IRAs. You should be maxing out your IRA. It reduces your taxable income for lower PAYE and you get a 20% or something return based on tax savings. We're way off the REPAYE topic at this point, so I'm done, but both of you are fucking yourselves if you end up leaving IRAs or matched 401ks on the table.

You know you can't deduct Traditional IRA contributions if you're married filing separately, right? So you'd pay taxes when you contribute and taxes when you take distributions. So no, your position makes absolutely zero sense for anybody who is or plans to get married.

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

Postby Tiago Splitter » Sat May 09, 2015 4:39 pm

AVBucks4239 wrote:You know you can't deduct Traditional IRA contributions if you're married filing separately, right? So you'd pay taxes when you contribute and taxes when you take distributions. So no, your position makes absolutely zero sense for anybody who is or plans to get married.

You won't pay taxes when you distribute on money that you couldn't deduct when it went in. But you're right otherwise.

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

Postby JohannDeMann » Sat May 09, 2015 5:26 pm

I haven't gone down the rabbit hole too much because I'm not married (though it's coming sometime in the not too distant future when I can look at it) but you can use other proof of incomes than taxes. I don't see why filing taxes jointly should preclude PAYE. I rode out PAYE for a year based on a letter from my employer that my salary was X.

It's also weird to me to be worried about the PAYE joint filings hurting you when you are voluntarily paying above the PAYE threshold anyways. Like the concern for joint filing is it factors in your spouses income and makes your payment go up, but if you voluntarily pay more, then theres no real downside to PAYE based on joint income.

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

Postby JohannDeMann » Sat May 09, 2015 5:28 pm

you could also just get domestic partnership and have a "wedding" celebration still and then the tax implicatons are moot.

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

Postby AVBucks4239 » Sat May 09, 2015 10:15 pm

JohannDeMann wrote:I haven't gone down the rabbit hole too much because I'm not married (though it's coming sometime in the not too distant future when I can look at it) but you can use other proof of incomes than taxes. I don't see why filing taxes jointly should preclude PAYE. I rode out PAYE for a year based on a letter from my employer that my salary was X.

It's also weird to me to be worried about the PAYE joint filings hurting you when you are voluntarily paying above the PAYE threshold anyways. Like the concern for joint filing is it factors in your spouses income and makes your payment go up, but if you voluntarily pay more, then theres no real downside to PAYE based on joint income.

My income plus my girlfriend's income gives me a payment in the $1100 range, or enough to pay this off in like 20 years. Add some raises (we both have a lot of room for increases) and our payments will go up to enough to pay this off even sooner.

In other words, I'm going to have to pay this off anyway. And this isn't choosing between paying off a low interest mortgage and investing, it's paying towards a 6.75% loan. And the general rule is that unless it's a 3-4% debt, you should pay off the debt instead of invest.

I mean, I'd totally do PAYE if I was single. Given your scenario it seems like you're making the right decision. But I'm in a different situation (so is JD), I've run the numbers, and I'm pretty sure I'm making the correct decision.

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

Postby AVBucks4239 » Sat May 09, 2015 10:25 pm

JohannDeMann wrote:you could also just get domestic partnership and have a "wedding" celebration still and then the tax implicatons are moot.

Go read the gay marriage briefs to see why this is silly.

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

Postby Geaux12 » Mon May 11, 2015 4:06 pm

So the general consensus (there's no 1-size fits all solution, of course) is:

1a. Emergency fund

1b. Pay up to the amount of your employer matching in retirement accounts

2. Loans (highest interest -> lowest interest, disadvantageous to consolidate federal loans)


...right?

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

Postby PrizeFighter » Mon May 11, 2015 5:11 pm

Geaux12 wrote:The discussions in this thread are fucking terrifying for the comparatively financially illiterate.

I need an accountant or something.

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

Postby JohannDeMann » Mon May 11, 2015 5:16 pm

Geaux12 wrote:So the general consensus (there's no 1-size fits all solution, of course) is:

1a. Emergency fund

1b. Pay up to the amount of your employer matching in retirement accounts

2. Loans (highest interest -> lowest interest, disadvantageous to consolidate federal loans)


...right?


Go find the thread on loan repayments in legal employment. Theres like 20x the amount of back and forth in there. Your plan sounds good to me though.

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DFTHREAD

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

Postby JohannDeMann » Tue May 12, 2015 2:13 am

Desert Fox wrote:401K vs. Loans is very complicated.

If you had a SAFE job. Cop dat 20 year SOFI/CommunityBond rate and then max your 401k (not just matching, I'm talking about the whole 17k)

But 250k in debt also presents a cash flow issue in case you lose your jerb.

I'm going to pay down til I hit 100k and then refi for 20 years.


I mean with PAYE and REPAYE I think that argues even more in favor of building assets instead of paying down debt. What's the cash flow problem if I lose my job? I call the government and tell them I lost my job and income is 0 hooke me up on no payments.




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