Paying interest

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rayiner
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Paying interest

Postby rayiner » Fri Jul 01, 2011 11:14 am

So interest on federal loans capitalizes at the end of the deferral period. During the in-school deferral period, if I make any money, does it make any difference whether I use that to pay off accrued interest before it capitalizes verses using it to offset additional loans I'd otherwise need to take?

Accountants in the audience?

bdubs
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Re: Paying interest

Postby bdubs » Fri Jul 01, 2011 11:30 am

If you will pay down the same amount either way you are better reducing your principal balance for semester 5 (assuming that you will earn money 2L summer and immediately reduce your borrowing).

It becomes trickier if the amount that you are reducing your borrowing by will switch you from GradPlus into Stafford territory.
Last edited by bdubs on Fri Jul 01, 2011 11:32 am, edited 1 time in total.

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D-hops
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Re: Paying interest

Postby D-hops » Fri Jul 01, 2011 11:31 am

Aren't interest payments on education loans tax deductible? Is so, there could be some benefit to paying down the interest.

bdubs
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Re: Paying interest

Postby bdubs » Fri Jul 01, 2011 11:32 am

D-hops wrote:Aren't interest payments on education loans tax deductible? Is so, there could be some benefit to paying down the interest.


Not if you make a BigLaw salary, but this is credited if your earnings this year are below the threshold ($75k)

albanach
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Re: Paying interest

Postby albanach » Fri Jul 01, 2011 11:34 am

bdubs wrote:If you will pay down the same amount either way you are better reducing your principal balance for semester 5 (assuming that you will earn money 2L summer and immediately reduce your borrowing).


Assuming you are entering BigLaw, what's the typical timescale like before you start work and get your first paycheck? As a 0L it's not of immediate concern to me, but I was curious as to whether that 2L summer income is often necessary to tide you over before you start work, at least for those students who don't have the option of moving back in with their parents for weeks or months.

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rayiner
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Re: Paying interest

Postby rayiner » Fri Jul 01, 2011 12:43 pm

albanach wrote:
bdubs wrote:If you will pay down the same amount either way you are better reducing your principal balance for semester 5 (assuming that you will earn money 2L summer and immediately reduce your borrowing).


Assuming you are entering BigLaw, what's the typical timescale like before you start work and get your first paycheck? As a 0L it's not of immediate concern to me, but I was curious as to whether that 2L summer income is often necessary to tide you over before you start work, at least for those students who don't have the option of moving back in with their parents for weeks or months.


Depends who you work for and where you work. Chicago firms generally give a bar stipend (Kirkland gives $10,000) that'll tide you over for the summer. NYC firms generally give you a salary advance in the $5-10k range. Note that in NYC you might need to front a ton of cash to rent an apartment, so plan accordingly.

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thesealocust
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Re: Paying interest

Postby thesealocust » Sat Jul 02, 2011 10:20 pm

rayiner wrote:
albanach wrote:
bdubs wrote:If you will pay down the same amount either way you are better reducing your principal balance for semester 5 (assuming that you will earn money 2L summer and immediately reduce your borrowing).


Assuming you are entering BigLaw, what's the typical timescale like before you start work and get your first paycheck? As a 0L it's not of immediate concern to me, but I was curious as to whether that 2L summer income is often necessary to tide you over before you start work, at least for those students who don't have the option of moving back in with their parents for weeks or months.


Depends who you work for and where you work. Chicago firms generally give a bar stipend (Kirkland gives $10,000) that'll tide you over for the summer. NYC firms generally give you a salary advance in the $5-10k range. Note that in NYC you might need to front a ton of cash to rent an apartment, so plan accordingly.


Also note that historically NYC firms would give wickle stub year bonuses to first-quarter-years and a salary advance while non-NYC firms would often not give the stub bonus but give straight stipends for bar studying. This likely changed during financial Armageddon, but I believe the system was in rough parity back in the day.

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smokyroom26
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Re: Paying interest

Postby smokyroom26 » Sun Jul 03, 2011 11:53 am

bdubs wrote:
D-hops wrote:Aren't interest payments on education loans tax deductible? Is so, there could be some benefit to paying down the interest.


Not if you make a BigLaw salary, but this is credited if your earnings this year are below the threshold ($75k)


Indeed - but if I remember correctly, they are only deductible up to $3K. Helpful to be aware of that if you have a lot of debt and are counting/budgeting every dollar.




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