Paying off Loans with Lump Sum Forum

[kiwi4president]

So I will be graduating next May and I'm trying to figure out how to pay off my loans properly. I will be graduating with ~$75,000 in debt. However, I have a recently deceased rich uncle who has given me $60,000 in trust for the day that I graduate. Obviously I would have rather financed law school with this money rather than taking out loans, but alas, that wasn't an option.

My question is how should I go about paying the loans? I have 4 different loans each with different interest rates. I was planning on using ~$50,000 in paying off the highest interest loans immediately after graduation and maybe saving ~$10,000 for myself for living expenses etc. Does this plan sound reasonable?

Also, should I prioritize the interest already accrued or just pay off the loans altogether? Finally, when does the interest already accrued merge into the principal, this may be important in deciding how to pay the loans?

I'm really bad with personal finance and I would really appreciate the wisdom of TLS on this one.

[DELG]

Do you have a job lined up?

[kiwi4president]

Nothing is in writing but I'll likely have a job at the firm i'm with currently making anywhere from $50,000-80,000. They tend to hire out of their law clerk pool. COL in my area is very low.

[DELG]

Assuming you get a job offer (wait until you pass the bar and for sure have it in the bag to do ANYTHING), are you sure you'd rather pay off all your loans rather than buy a house?

[kiwi4president]

I'd love to buy a house, I'm just not sure I want to be saddled with $75,000 of debt knowing that I could have dramatically reduced the future interest price by paying off a majority of the loans early on. Maybe there is some sort of balance to be made between using all of the money to pay off loans vs using say 30% of it.

Either way I'm glad I asked the question. I've been planning since I started school that I would use all of it immediately to pay off the loans. Maybe that isn't the right choice.

[NYSprague]

Go on IBR/PAYE and save the money. I wouldn't waste my only emergency cushion on repaying school loans.

[kenwash]

Put aside at least 3 months worth of an emergency fund, then use the rest to pay off your loans from the highest interest rates on down. Student loan debt is often considered the worst type of debt to have because it isn't dischargeable in bankruptcy (in most cases). Plus, I wouldn't want to deal with a student loan payment for the next 15-30 years if I knew I once had the option to pay the loans off. Save the money you would have used to pay down the debt each month for extra savings/home down payment/accelerating your remaining debt repayment. If you're interested in getting better with personal finance, listen to people like Dave Ramsey and Suze Orman.

[DELG]

Put aside at least 3 months worth of an emergency fund, then use the rest to pay off your loans from the highest interest rates on down. Student loan debt is often considered the worst type of debt to have because it isn't dischargeable in bankruptcy (in most cases). Plus, I wouldn't want to deal with a student loan payment for the next 15-30 years if I knew I once had the option to pay the loans off. Save the money you would have used to pay down the debt each month for extra savings/home down payment/accelerating your remaining debt repayment. If you're interested in getting better with personal finance, listen to people like Dave Ramsey and Suze Orman.

I dare you to recommend worse people to listen to

[kenwash]

Put aside at least 3 months worth of an emergency fund, then use the rest to pay off your loans from the highest interest rates on down. Student loan debt is often considered the worst type of debt to have because it isn't dischargeable in bankruptcy (in most cases). Plus, I wouldn't want to deal with a student loan payment for the next 15-30 years if I knew I once had the option to pay the loans off. Save the money you would have used to pay down the debt each month for extra savings/home down payment/accelerating your remaining debt repayment. If you're interested in getting better with personal finance, listen to people like Dave Ramsey and Suze Orman.

I dare you to recommend worse people to listen to

They're a great start for someone who doesn't know much about personal finance. Besides, they pretty much advocate living below your means and paying down debt aggressively. What's so wrong with that?

[bombaysippin]

Put aside at least 3 months worth of an emergency fund, then use the rest to pay off your loans from the highest interest rates on down. Student loan debt is often considered the worst type of debt to have because it isn't dischargeable in bankruptcy (in most cases). Plus, I wouldn't want to deal with a student loan payment for the next 15-30 years if I knew I once had the option to pay the loans off. Save the money you would have used to pay down the debt each month for extra savings/home down payment/accelerating your remaining debt repayment. If you're interested in getting better with personal finance, listen to people like Dave Ramsey and Suze Orman.

I dare you to recommend worse people to listen to

Do you have anyone better to recommend? Interested in this.

[Kronk]

It'd be pretty stupid financially to pay it off lump-sum, but I wouldn't fault you for it for a second. It's stressful having debt. If I was given enough to pay off my loans, I would probably do it. Peace of mind w/r/t something you can't discharge in bankruptcy? = priceless.

[guano]

Put aside at least 3 months worth of an emergency fund, then use the rest to pay off your loans from the highest interest rates on down. Student loan debt is often considered the worst type of debt to have because it isn't dischargeable in bankruptcy (in most cases). Plus, I wouldn't want to deal with a student loan payment for the next 15-30 years if I knew I once had the option to pay the loans off. Save the money you would have used to pay down the debt each month for extra savings/home down payment/accelerating your remaining debt repayment. If you're interested in getting better with personal finance, listen to people like Dave Ramsey and Suze Orman.

I dare you to recommend worse people to listen to

They're a great start for someone who doesn't know much about personal finance. Besides, they pretty much advocate living below your means and paying down debt aggressively. What's so wrong with that?

I don't know who Dave Ramsey is, but Suze Orman has gotten in a lot of hot water for conflict of interest shit.

There's pros and cons to spending most of it on school loans. Yes, student loan interst is much higher than, say, a mortgage, but the PMI on a mortgage if you have less than 20% down can be brutal as well. Without discussing long-term goals, and knowing specifics, we shouldn't give hard answers

[Mick Haller]

I would be concerned that an immediate pay down might raise red flags at your law school financial aid office. I'm sure you received some kind of financial aid package, which requires you to disclose all assets and family contributions. Even if your inheritance vested the day of graduation, I'd still be cautious.

That said, I'd pay the loans off one at a time every 6 months or so.

[guano]

I would be concerned that an immediate pay down might raise red flags at your law school financial aid office. I'm sure you received some kind of financial aid package, which requires you to disclose all assets and family contributions. Even if your inheritance vested the day of graduation, I'd still be cautious.

That said, I'd pay the loans off one at a time every 6 months or so.

that's making some odd assumptions.

[Mick Haller]

Have no idea whether Sallie Mae and school's finaid offices communicate on such matters. But depending on how much need based aid OP received, the school would likely want to claim a share of that inheritance if it can.

[Mick Haller]

I borrowed 62k from Sallie Mae and had about 9k in capitalized interest that was tacked on the day I started repayment. So OP is probably looking at about 85-90k balance on day 1.

I'd pay off any private/higher interest loans first. Second I'd pay off the direct federal loans which are not eligible for extended (30 year) repayment. Pay off Staffords last as they can be extended to 30 years if an emergency arises.

[staysha]

Have no idea whether Sallie Mae and school's finaid offices communicate on such matters. But depending on how much need based aid OP received, the school would likely want to claim a share of that inheritance if it can.

Lol

[jdx2014]

Depends on your income. You may need that money for food and stuff if you qualify for IBR.

[09042014]

I would be concerned that an immediate pay down might raise red flags at your law school financial aid office. I'm sure you received some kind of financial aid package, which requires you to disclose all assets and family contributions. Even if your inheritance vested the day of graduation, I'd still be cautious.

That said, I'd pay the loans off one at a time every 6 months or so.

that's making some odd assumptions.

Yea lol. The school doesn't know you paid your loans. Second, nobody gets financial aid anyway.

[dowu]

Pay that shit off asap. Grab an interest calculator and do some math. You'll quickly see that holding on to those loans will fuck you in the end.

[foundingfather]

Put aside at least 3 months worth of an emergency fund, then use the rest to pay off your loans from the highest interest rates on down. Student loan debt is often considered the worst type of debt to have because it isn't dischargeable in bankruptcy (in most cases). Plus, I wouldn't want to deal with a student loan payment for the next 15-30 years if I knew I once had the option to pay the loans off. Save the money you would have used to pay down the debt each month for extra savings/home down payment/accelerating your remaining debt repayment. If you're interested in getting better with personal finance, listen to people like Dave Ramsey and Suze Orman.

I dare you to recommend worse people to listen to

Do you have anyone better to recommend? Interested in this.

+1

[Pokemon]

Put aside at least 3 months worth of an emergency fund, then use the rest to pay off your loans from the highest interest rates on down. Student loan debt is often considered the worst type of debt to have because it isn't dischargeable in bankruptcy (in most cases). Plus, I wouldn't want to deal with a student loan payment for the next 15-30 years if I knew I once had the option to pay the loans off. Save the money you would have used to pay down the debt each month for extra savings/home down payment/accelerating your remaining debt repayment. If you're interested in getting better with personal finance, listen to people like Dave Ramsey and Suze Orman.

First of all, I am assuming that you get the job. You cannot make a decision until you resolve that question.

Second, I think this is terrible advice. First, there is value to having money in your pocket because you never know what opportunity or issue might.

Assume for example that you make a lump sum payment and then you get fired 3 months into your job. I bet you wish you would want to have some of that 60k.

Also, OP does not have to deal with loans for 15-30. He can very comfortable pay them in 4-5 years. And students loans are not some of the worse loans because you cannot discharge them on bk. While that is negative, the positive side of student loans is that if you lose income, you can IBR it and pay $0. In home loans or credit card loans, you do not get that benefit.

In your position OP, I would set a comfortable goal of yearly/monthly payments... let's say 25k a year. This will also depend on how much exactly you will make. Then continue from that point.

[DELG]

Put aside at least 3 months worth of an emergency fund, then use the rest to pay off your loans from the highest interest rates on down. Student loan debt is often considered the worst type of debt to have because it isn't dischargeable in bankruptcy (in most cases). Plus, I wouldn't want to deal with a student loan payment for the next 15-30 years if I knew I once had the option to pay the loans off. Save the money you would have used to pay down the debt each month for extra savings/home down payment/accelerating your remaining debt repayment. If you're interested in getting better with personal finance, listen to people like Dave Ramsey and Suze Orman.

I dare you to recommend worse people to listen to

Do you have anyone better to recommend? Interested in this.

+1

No pop financial advisor is going to be a good source of advice for people attending top law schools. Not to inflate anyone's ego, but you're mostly the exception rather than the rule. Call/write one of these people and see what they think of taking out $100k in debt to attend University of Chicago.

[suzige]

I'd pay that shit down asap. That's my personal take on it, but I'm very debt-phobic and would want as clean a slate as I could get coming out of school to get a move one with the rest of my life. Some on here will tell you otherwise and that's fine. However, even the folks I know who have something crazy like 2% interest on their school loans from way back when still bitch about not paying down their stuff faster before they bought a house and had kids. Ya, it's less than inflation and yada yada but it's annoying as hell to have a good chunk of your check each week going to school debt when you finished the degree however many years ago. Just my two cents.

[ymmv]

Put aside at least 3 months worth of an emergency fund, then use the rest to pay off your loans from the highest interest rates on down. Student loan debt is often considered the worst type of debt to have because it isn't dischargeable in bankruptcy (in most cases). Plus, I wouldn't want to deal with a student loan payment for the next 15-30 years if I knew I once had the option to pay the loans off. Save the money you would have used to pay down the debt each month for extra savings/home down payment/accelerating your remaining debt repayment. If you're interested in getting better with personal finance, listen to people like Dave Ramsey and Suze Orman.

I dare you to recommend worse people to listen to

They're a great start for someone who doesn't know much about personal finance. Besides, they pretty much advocate living below your means and paying down debt aggressively. What's so wrong with that?

I don't know who Dave Ramsey is, but Suze Orman has gotten in a lot of hot water for conflict of interest shit.

He's a debt-is-immoral and Jesus-will-teach-you-good-financing type very popular among fundamentalist Christians. I have never listened to him for more than a few seconds on the radio so can't comment on his advice but have not been impressed with results for those I know who worship his program.