How to pay off my loans. 150K principal w/ biglaw Forum

[WhatOurBodiesAreFor]

All in the title. Would greatly appreciate any advice. Feel free to just direct me to a TLS guide if I missed it. (I looked but couldn't find one.)

Current 2L. Have a firm job lined up this summer paying market. I take out about 45-50K a year, so my debt principal should be 150K at graduation, not including any money I put towards it after my SA.

Is the following math correct? 1L: 50K + 3.5K in interest. 2L: 103K + 7K in interest. 3L: 160K + 11K in interest. Will I be around 171K in debt at graduation?

However much I have, what's the best way to start paying off this amount of debt during my 2L SA? Should I use any money I save to pay off interest or should I just borrow less?

In the longer term, when I (hopefully) start after graduation at my firm, is there any specific strategy I should follow? Particularly in terms of timing. For example, when does capitalization occur, as soon as I start my job? My general approach to paying off my loans will be as quickly as possible, if that changes anything.

Question about salary. I assume the money I make next summer will be taxed at a pretty low rate, correct? Then, when I start after graduation, will those last few months of 2016 be taxed at a similarly low rate?

What is the tax bomb and will it occur to me?

Lastly, can I employ any tax deductions?

Thank you everyone. Lots of questions, but I think others could find this useful too

[Tiago Splitter]

However much I have, what's the best way to start paying off this amount of debt during my 2L SA? Should I use any money I save to pay off interest or should I just borrow less?

Borrow less to avoid the 4% Gradplus fee.

Question about salary. I assume the money I make next summer will be taxed at a pretty low rate, correct? Then, when I start after graduation, will those last few months of 2016 be taxed at a similarly low rate?

Yes, you'll make 30-35k this summer so you'll pay the same taxes as anyone else who makes 30-35k in a year. You may want to adjust your tax withholding so that you aren't having money withheld as if you're making 160k, but even if you don't you'll just get a big tax refund. The same thing applies to your stub year.

What is the tax bomb and will it occur to me?

The tax bomb is what happens when the feds forgive loans after 20 (PAYE) or 25 (IBR) years. You'll likely pay off your loans much faster than that so you won't have anything forgiven. For people who do have debt forgiven under those programs the amount forgiven is treated as ordinary income subject to a caveat or two.

Lastly, can I employ any tax deductions?

Might want to talk to a tax professional for that. You won't be eligible to contribute to your firm's 401k this summer but once you start full time you can make 401k contributions which reduce your taxable income for the year.

When you graduate you should look into refinancing your loans to get the interest rate reduced unless you are planning to switch into government or non-profit work that would be eligible for full federal loan forgiveness after ten years. Otherwise, there isn't much of a secret here; live below your means and save and you'll be fine.

[WhatOurBodiesAreFor]

Thanks, Tiago.

One last thing. When does capitalization occur? Would I have time to put any money I make after graduation towards paying off my interest?

[englawyer]

However much I have, what's the best way to start paying off this amount of debt during my 2L SA? Should I use any money I save to pay off interest or should I just borrow less?

Borrow less to avoid the 4% Gradplus fee.

If confident you are going biglaw after graduation and confident you will not use PAYE, you can also take out private loans for 3L. Usually, private loans will give you a lower rate if you have a good credit score and do not have the 4% fee.

One last thing. When does capitalization occur? Would I have time to put any money I make after graduation towards paying off my interest?

Capitalization occurs roughly 6 months after graduation, so about November after you start. You will have a couple months to make payments toward eliminating the interest that will capitalize from law school. However, not sure this matters as much as you seem to think, as the economics are the same. Since the capitalized interest also accrues interest before you officially need to start paying, there is no difference between the two scenarios.

The primary difference is that post-capitalization, you are in repayment and are required to make a standard monthly payment. pre-capitalization you can pay any amount you want. But in terms of how much of a dent you can put into your loans, it does not matter whether you are in repayment or not.

[WhatOurBodiesAreFor]

Thanks, englawyer.

However much I have, what's the best way to start paying off this amount of debt during my 2L SA? Should I use any money I save to pay off interest or should I just borrow less?

Borrow less to avoid the 4% Gradplus fee.

If confident you are going biglaw after graduation and confident you will not use PAYE, you can also take out private loans for 3L. Usually, private loans will give you a lower rate if you have a good credit score and do not have the 4% fee.

Interesting. How common is it to do this? Or perhaps to take out a private loan to pay off your student loans? Seems complicated, but is there a significant benefit in doing this? Again, though life happens, I intend to live as frugally as possible and pay off my loans as quickly as possible.

One last thing. When does capitalization occur? Would I have time to put any money I make after graduation towards paying off my interest?

Capitalization occurs roughly 6 months after graduation, so about November after you start. You will have a couple months to make payments toward eliminating the interest that will capitalize from law school. However, not sure this matters as much as you seem to think, as the economics are the same. Since the capitalized interest also accrues interest before you officially need to start paying, there is no difference between the two scenarios.

The primary difference is that post-capitalization, you are in repayment and are required to make a standard monthly payment. pre-capitalization you can pay any amount you want. But in terms of how much of a dent you can put into your loans, it does not matter whether you are in repayment or not.

Thanks for this. I guess it really doesn't matter then unless I plan to make minimum payments, which I don't.