Student Loan Payments - 1st Year

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phonepro
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Student Loan Payments - 1st Year

Postby phonepro » Mon Oct 28, 2013 11:21 am

I've heard from many people that you can use your salary from the year prior (aka very little) instead of using your current salary when doing payments based upon your salary. Is this true? At first I didn't think so - but the website does say you can find your salary information on a certain box on your tax returns, which obviously is last years. THOUGHTS?

Stinson
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Re: Student Loan Payments - 1st Year

Postby Stinson » Mon Oct 28, 2013 11:37 am

Have not done this as a lawyer, but I can tell you that medical school financial aid advisors will advise students exiting residency to do this, enabling them to make payments based on their $45,000 residency salary and not their new, usually six figure, salary.

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kalvano
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Re: Student Loan Payments - 1st Year

Postby kalvano » Mon Oct 28, 2013 11:43 am

PAYE and IBR are based off of last year's taxes. So yes, your first year is a pretty low payment.

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brotherdarkness
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Re: Student Loan Payments - 1st Year

Postby brotherdarkness » Mon Oct 28, 2013 12:35 pm

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Last edited by brotherdarkness on Fri Mar 28, 2014 2:52 pm, edited 1 time in total.

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kalvano
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Re: Student Loan Payments - 1st Year

Postby kalvano » Mon Oct 28, 2013 12:40 pm

I guess that depends on how much you owe and how much you can save.

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chem
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Re: Student Loan Payments - 1st Year

Postby chem » Mon Oct 28, 2013 1:04 pm

brotherdarkness wrote:Assuming that most of us won't be able to last much longer than 3-5 years in biglawl, wouldn't it be smart to pay off as much as possible as quickly as possible?


Not under PAYE. itll always adjust to 10% of your income. Since it will be forgiven eventually, better off using your biglaw years to build up equity/savings

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maxpayne
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Re: Student Loan Payments - 1st Year

Postby maxpayne » Mon Oct 28, 2013 2:59 pm

I think you can as long as your last year taxes "reasonably reflect your current income." I ended up and submitted my current salary because my taxes from last year showed hardly no income.

Anonymous Associate
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Re: Student Loan Payments - 1st Year

Postby Anonymous Associate » Mon Oct 28, 2013 3:37 pm

kalvano wrote:I guess that depends on how much you owe and how much you can save.


Yes, it is a balance between a lot of things. For example, (1) saving money to buy a home, (2) saving for retirement, (3) paying off loans, and (4) actually having/doing stuff you want. Also a factor to consider: if your investments earn a higher return than your interest rate on your loans, probably better to pay them off slower (unless debt makes you insane).
Last edited by Anonymous Associate on Mon Oct 28, 2013 4:25 pm, edited 1 time in total.

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kalvano
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Re: Student Loan Payments - 1st Year

Postby kalvano » Mon Oct 28, 2013 3:56 pm

maxpayne wrote:I think you can as long as your last year taxes "reasonably reflect your current income." I ended up and submitted my current salary because my taxes from last year showed hardly no income.


Mine showed almost none based off mine, but I didn't start work until October, so no way I'm going to let them screw me over for the year based off of money I just started earning.

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maxpayne
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Re: Student Loan Payments - 1st Year

Postby maxpayne » Mon Oct 28, 2013 4:00 pm

kalvano wrote:
maxpayne wrote:I think you can as long as your last year taxes "reasonably reflect your current income." I ended up and submitted my current salary because my taxes from last year showed hardly no income.


Mine showed almost none based off mine, but I didn't start work until October, so no way I'm going to let them screw me over for the year based off of money I just started earning.


Well, if I were making the big bucks like you, I wouldn't submit my new income either! Haha! I just used my base pay so hopefully I get approved for PAYE or IBR. If so, that takes my $1400 a month payment down to about $300.

TheGreatFish
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Re: Student Loan Payments - 1st Year

Postby TheGreatFish » Wed Oct 30, 2013 5:04 pm

brotherdarkness wrote:Assuming that most of us won't be able to last much longer than 3-5 years in biglawl, wouldn't it be smart to pay off as much as possible as quickly as possible?


Depends on a few things, like your interest rate. Generally it's a good idea to pay off any high interest loans early, but if you have some really low interest loans, it's usually better to make the minimum payment each month and save your extra money for investments.

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Tiago Splitter
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Re: Student Loan Payments - 1st Year

Postby Tiago Splitter » Wed Oct 30, 2013 5:16 pm

chem wrote:
brotherdarkness wrote:Assuming that most of us won't be able to last much longer than 3-5 years in biglawl, wouldn't it be smart to pay off as much as possible as quickly as possible?


Not under PAYE. itll always adjust to 10% of your income. Since it will be forgiven eventually, better off using your biglaw years to build up equity/savings

You only want to make minimum PAYE payments if you actually need to. If you have a biglaw salary for a while and make the minimum payments under PAYE you'll often have the loan paid off before forgiveness kicks and and will just end up paying a lot more interest. If you end up switching to a lower paying job and still have a balance after 20 years this balance is taxable, so you'll still be out some money. If you have the ability, you're definitely better off paying off the loans.

delusional
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Re: Student Loan Payments - 1st Year

Postby delusional » Wed Oct 30, 2013 6:48 pm

Tiago Splitter wrote:
chem wrote:
brotherdarkness wrote:Assuming that most of us won't be able to last much longer than 3-5 years in biglawl, wouldn't it be smart to pay off as much as possible as quickly as possible?


Not under PAYE. itll always adjust to 10% of your income. Since it will be forgiven eventually, better off using your biglaw years to build up equity/savings

You only want to make minimum PAYE payments if you actually need to. If you have a biglaw salary for a while and make the minimum payments under PAYE you'll often have the loan paid off before forgiveness kicks and and will just end up paying a lot more interest. If you end up switching to a lower paying job and still have a balance after 20 years this balance is taxable, so you'll still be out some money. If you have the ability, you're definitely better off paying off the loans.
The solution is to set aside the money and invest it in something like the S&P, while only paying the minimum PAYE. You hope to get a higher return than your interest rate, but even if you don't you have control, you can pay the tax bomb if it's still there, or you can pay a lump sum if you get a raise that threatens to result in super high payments.

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chem
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Re: Student Loan Payments - 1st Year

Postby chem » Wed Oct 30, 2013 7:16 pm

delusional wrote:
Tiago Splitter wrote:
chem wrote:
brotherdarkness wrote:Assuming that most of us won't be able to last much longer than 3-5 years in biglawl, wouldn't it be smart to pay off as much as possible as quickly as possible?


Not under PAYE. itll always adjust to 10% of your income. Since it will be forgiven eventually, better off using your biglaw years to build up equity/savings

You only want to make minimum PAYE payments if you actually need to. If you have a biglaw salary for a while and make the minimum payments under PAYE you'll often have the loan paid off before forgiveness kicks and and will just end up paying a lot more interest. If you end up switching to a lower paying job and still have a balance after 20 years this balance is taxable, so you'll still be out some money. If you have the ability, you're definitely better off paying off the loans.
The solution is to set aside the money and invest it in something like the S&P, while only paying the minimum PAYE. You hope to get a higher return than your interest rate, but even if you don't you have control, you can pay the tax bomb if it's still there, or you can pay a lump sum if you get a raise that threatens to result in super high payments.


This thread breaks it down pretty well

http://www.top-law-schools.com/forums/v ... 5&t=209465

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Tiago Splitter
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Re: Student Loan Payments - 1st Year

Postby Tiago Splitter » Wed Oct 30, 2013 7:42 pm

chem wrote:
delusional wrote:The solution is to set aside the money and invest it in something like the S&P, while only paying the minimum PAYE. You hope to get a higher return than your interest rate, but even if you don't you have control, you can pay the tax bomb if it's still there, or you can pay a lump sum if you get a raise that threatens to result in super high payments.


This thread breaks it down pretty well

http://www.top-law-schools.com/forums/v ... 5&t=209465


I dont think that thread came to any kind of consensus. I'm a fan of building up savings rather than going all in after loans, but you're getting 7%+ risk free and tax free by paying loans which is better than what one can expect something like the S&P to provide. One time to definitely not pay more than the minimum is if you know you'll be switching to a PSLF-qualifying position. And if the tax bomb goes away then all bets are off.

kaspar
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Re: Student Loan Payments - 1st Year

Postby kaspar » Wed Oct 30, 2013 8:00 pm

brotherdarkness wrote:Assuming that most of us won't be able to last much longer than 3-5 years in biglawl, wouldn't it be smart to pay off as much as possible as quickly as possible?

But that's beside the point. You want to use the lowest income possible in calculating the minimum payments because that affects how much you MUST pay and how much of the subsidized interest continues to be subsidized. You can always pay more than the minimum payment if you choose.




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