SOFI or PAYE? Forum

[Anonanonymous]

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[Johann]

Different for everyone depending on circumstances and risk tolerance. I'm in the same boat as you, and I'm riding out PAYE. Hoping to inflate the loans away or some sort of loan friendly legislation.

[Anonanonymous]

Different for everyone depending on circumstances and risk tolerance. I'm in the same boat as you, and I'm riding out PAYE. Hoping to inflate the loans away or some sort of loan friendly legislation.

Waiting for loan friendly legislation makes some sense; eliminating the tax-bomb or allowing refinancing of federal loans is plausible. But the interest rate on 6.X% loans won't allow you to inflate the loans away.

[Anonanonymous]

Bump for daytime crowd

[rayiner]

I'd much rather be in debt to uncle sam than to a private company.

[Anonanonymous]

It's hard for me to ignore this. The only thing making me question it is the tyranny of 8%. Basically the question is 4.5% in interest savings worth the safety net of federal loans + possibility of further loan friendly legislation. At 4.5% and 200,000, that's ballpark 20-30K in extra interest over a 5-7 year payment plan (assuming aggressive paydown).

[exitoptions]

It's hard for me to ignore this. The only thing making me question it is the tyranny of 8%. Basically the question is 4.5% in interest savings worth the safety net of federal loans + possibility of further loan friendly legislation. At 4.5% and 200,000, that's ballpark 20-30K in extra interest over a 5-7 year payment plan (assuming aggressive paydown).

But, since your payments are lower, you can be investing the extra money at 8% on average, or you could buy property that could appreciate. So the difference is probably less significant than 20-30k, plus you'd have a safety cushion if things go badly in biglaw (which would prevent you from running up high interest credit card debt).

[AllTheLawz]

Umm.. half the interest rate? I'd definitely refi. I know TLS is embracing pessimism these days but the majority of people, even in this economy, exiting top firms exit into something making low six figures or very close to it. If you aggressively pay down debt for 3 years in biglaw you shouldn't have a problem paying minimum payments on the remainder at a 90-125k salary level. Even if you accidentally end up in a situation where you exit into something that can't handle the min payments even on a reduced principal then you are probably in a situation where having some debt hanging over you probably only marginally decreases your QOL anyway.

The only situation where it makes since to avoid the refi is if you have some public interest/public service plans in your future and your law school doesn't have an LRAP that will cover the debt (Harvard and Yale's definitely cover even private debt, don't know about the rest)

[AllTheLawz]

It's hard for me to ignore this. The only thing making me question it is the tyranny of 8%. Basically the question is 4.5% in interest savings worth the safety net of federal loans + possibility of further loan friendly legislation. At 4.5% and 200,000, that's ballpark 20-30K in extra interest over a 5-7 year payment plan (assuming aggressive paydown).

But, since your payments are lower, you can be investing the extra money at 8% on average, or you could buy property that could appreciate. So the difference is probably less significant than 20-30k, plus you'd have a safety cushion if things go badly in biglaw (which would prevent you from running up high interest credit card debt).

Why on earth would you invest the money at an LOL 8% on average (good luck with that) when you can guarantee 7.9% by putting it towards payments?

[exitoptions]

It's hard for me to ignore this. The only thing making me question it is the tyranny of 8%. Basically the question is 4.5% in interest savings worth the safety net of federal loans + possibility of further loan friendly legislation. At 4.5% and 200,000, that's ballpark 20-30K in extra interest over a 5-7 year payment plan (assuming aggressive paydown).

But, since your payments are lower, you can be investing the extra money at 8% on average, or you could buy property that could appreciate. So the difference is probably less significant than 20-30k, plus you'd have a safety cushion if things go badly in biglaw (which would prevent you from running up high interest credit card debt).

Why on earth would you invest the money at an LOL 8% on average (good luck with that) when you can guarantee 7.9% by putting it towards payments?

Who's paying 7.9%? Mine are closer to 6%. Reasons: 1) safety cushion -- I know people who ran up huge credit card debt during unemployment at ~20%. 2) home purchase - tax savings plus capital gains (tax free) can be a pretty good investment depending on where you live.

Edit: and a low fee index fund mirroring S&P would have gotten you ~9% per year over the last 20 years (and these have been an extremely volatile 20 years), so not sure why you're scoffing at the idea of 8%.

[AllTheLawz]

It's hard for me to ignore this. The only thing making me question it is the tyranny of 8%. Basically the question is 4.5% in interest savings worth the safety net of federal loans + possibility of further loan friendly legislation. At 4.5% and 200,000, that's ballpark 20-30K in extra interest over a 5-7 year payment plan (assuming aggressive paydown).

But, since your payments are lower, you can be investing the extra money at 8% on average, or you could buy property that could appreciate. So the difference is probably less significant than 20-30k, plus you'd have a safety cushion if things go badly in biglaw (which would prevent you from running up high interest credit card debt).

Why on earth would you invest the money at an LOL 8% on average (good luck with that) when you can guarantee 7.9% by putting it towards payments?

Who's paying 7.9%? Mine are closer to 6%. Reasons: 1) safety cushion -- I know people who ran up huge credit card debt during unemployment at ~20%. 2) home purchase - tax savings plus capital gains (tax free) can be a pretty good investment depending on where you live.

The OP says he has 7.9%, as does anyone who took out PLUS loans before last year.
1) You can save a safety cushion with SoFi, the 10-year min payment at a lower interest rate should actually be lower than the min payment on a 7.9% loan given the same repayment schedule. This rationale actually supports a refi.
2) Getting a good interest rate on a good home in any of the cities that pay $160k (outside of maybe Houston) requires a significant down-payment. Housing market is hot in pretty much all major cities right now is crazy hot and competition is fierce for areas you'd want to live in. Way better served just to pay down loans aggressively.

EDIT: Im scoffing at the idea of 8% b/c he is talking about a period of 4-5 years, not 20. I actually have funds invested right now and I'm getting more like 4% these last few years. Definitely not 8%.

[Anonanonymous]

Umm.. half the interest rate? I'd definitely refi. I know TLS is embracing pessimism these days but the majority of people, even in this economy, exiting top firms exit into something making low six figures or very close to it. If you aggressively pay down debt for 3 years in biglaw you shouldn't have a problem paying minimum payments on the remainder at a 90-125k salary level. Even if you accidentally end up in a situation where you exit into something that can't handle the min payments even on a reduced principal then you are probably in a situation where having some debt hanging over you probably only marginally decreases your QOL anyway.

The only situation where it makes since to avoid the refi is if you have some public interest/public service plans in your future and your law school doesn't have an LRAP that will cover the debt (Harvard and Yale's definitely cover even private debt, don't know about the rest)

Yeah, the logic here appears sound. If I can last at least 3 years, that should be around 120K towards loans. At 4.5% looking at around 100K in loans remaining over a 7 year period. That should be doable even if shown the door without finding something comparable salary wise, right?

[exitoptions]

EDIT: Im scoffing at the idea of 8% b/c he is talking about a period of 4-5 years, not 20. I actually have funds invested right now and I'm getting more like 4% these last few years. Definitely not 8%.

The S&P is up 113% since 2009... You may be doing something wrong. My index funds were up something like 20% every year for the last 3 years. And I bought a house in a major market that has increased in value (not to mention the tax savings of mortgage payments over rent). I'm telling you I've chosen paye and it ain't bad. As another poster said, it's way better to have nondischargable debt with the government than with a private lender. If the worst happens you have way more options with the Government, plus you'll have saved a decent chunk so you don't have to resort to food stamps if your firm lays you off. But I guess I'm more risk averse than a lot of people.

[Johann]

Plus the difference in the interest rates is 4.5%. In just the last 3 years, minimum payments went from 15% to 10% of disposable income and 25 to 20 years of repayment. 1 trillion plus of student loan debt. There are currently plans in the works to let you refinance with the govt at sub 5% interest rates.

The only way I'd go SOFI is if I knew I was about to stop paying, because the government can get money out of you a lot easier than a private company.

[AllTheLawz]

EDIT: Im scoffing at the idea of 8% b/c he is talking about a period of 4-5 years, not 20. I actually have funds invested right now and I'm getting more like 4% these last few years. Definitely not 8%.

The S&P is up 113% since 2009... You may be doing something wrong. My index funds were up something like 20% every year for the last 3 years. And I bought a house in a major market that has increased in value (not to mention the tax savings of mortgage payments over rent). I'm telling you I've chosen paye and it ain't bad. As another poster said, it's way better to have nondischargable debt with the government than with a private lender. If the worst happens you have way more options with the Government, plus you'll have saved a decent chunk so you don't have to resort to food stamps if your firm lays you off. But I guess I'm more risk averse than a lot of people.

Ehh you are right, I clicked the wrong tab, Ive been up on average more than 8% the last three years.. from 07-09 I got killed though so in terms of CAGR its way less than 8%.

I guess if risk aversion is your deal avoid the refi but that's being risk averse to an extreme degree. I didn't realize SoFi rates went that low, I'm definitely take the refi. There is a ~80% or so chance it saves me ~10-15k over 4 years for basically doing nothing. Also, they apparently offer their own version of forbearance.

[Johann]

EDIT: Im scoffing at the idea of 8% b/c he is talking about a period of 4-5 years, not 20. I actually have funds invested right now and I'm getting more like 4% these last few years. Definitely not 8%.

The S&P is up 113% since 2009... You may be doing something wrong. My index funds were up something like 20% every year for the last 3 years. And I bought a house in a major market that has increased in value (not to mention the tax savings of mortgage payments over rent). I'm telling you I've chosen paye and it ain't bad. As another poster said, it's way better to have nondischargable debt with the government than with a private lender. If the worst happens you have way more options with the Government, plus you'll have saved a decent chunk so you don't have to resort to food stamps if your firm lays you off. But I guess I'm more risk averse than a lot of people.

Ehh you are right, I clicked the wrong tab, Ive been up on average more than 8% the last three years.. from 07-09 I got killed though so in terms of CAGR its way less than 8%.

I guess if risk aversion is your deal avoid the refi but that's being risk averse to an extreme degree. I didn't realize SoFi rates went that low, I'm definitely take the refi. There is a ~80% or so chance it saves me ~10-15k over 4 years for basically doing nothing. Also, they apparently offer their own version of forbearance.

Your position of paying down debt aggressively is risk averse. It's a guaranteed 4.5% return. The risky position that takes balls is investing your money at an uncertain return, betting on legislation that is uncertain, betting on inflation that is uncertain, etc.

[exitoptions]

Your position of paying down debt aggressively is risk averse. It's a guaranteed 4.5% return. The risky position that takes balls is investing your money at an uncertain return, betting on legislation that is uncertain, betting on inflation that is uncertain, etc.

I guess we're just averse to different risks. I'm more concerned with liquidity, and you're more concerned with long-term solvency. My point is that if you become insolvent in that you can't afford to pay you federal loans, you don't pay your federal loans. If you have no cash or equivalents, you don't eat.

[Johann]

Your position of paying down debt aggressively is risk averse. It's a guaranteed 4.5% return. The risky position that takes balls is investing your money at an uncertain return, betting on legislation that is uncertain, betting on inflation that is uncertain, etc.

I guess we're just averse to different risks. I'm more concerned with liquidity, and you're more concerned with long-term solvency. My point is that if you become insolvent in that you can't afford to pay you federal loans, you don't pay your federal loans. If you have no cash or equivalents, you don't eat.

I think we are on the same side - pro PAYE

[Tiago Splitter]

For better or worse I'll be using PAYE. If things go well I can just dump my savings into the loans after a few years and call it good.