Big Law PAYE-->Savings toward House? Forum

[uvheylaw]

Tell me if this plan is crazy:

Starting big law in the fall, non-NYC but market paying. $220K in law school loans. I want to do 3/4 years of big law max, then be a prosecutor in a smaller city. If I do PAYE I can save about $185K over 3 years of big law (will be married at that point, spouse will have some income). My future wife and I want to buy a house 3 or so years from now (in a non major market city) and that $185K would be a real nice down payment. My question is, is it advisable to do PAYE and save this money for a house as opposed to throwing it at my loans?

A similar question- nobody is going to deny me for a mortgage because I have $220K in law school loans if I'm slapping down a $185K downpayment and have otherwise great credit, will they?

And, the scariest question of all- if I can't afford the tax bomb 20 years from now, they couldn't take the house, could they?

I realize I could throw the $185K at the loans instead of the house, but then if I lateral to government three years after big law I won't be able to afford the rest of the loan payments anyway and I'll never save enough to get a nice house. Similarly, I could probably get close to paying it off in 4 years if I really went at it, but then I force my wife to live like shit for four years, and then we have $0 for a house. I (we) really want a house, it is important to us.

[twenty]

If you lateral to a government spot (i.e, prosecutor), your PAYE payments start counting towards PSLF, which is not only a ten year clock for forgiveness (instead of 20), there's also no tax bomb.

[magnum_law]

Exactly as the above poster stated.

3-4 of biglaw on PAYE (saving for down payment)
+
10 years of PSLF eligible job on PAYE

= solid scenario

[Johann]

Exactly as the above poster stated.

3-4 of biglaw on PAYE (saving for down payment)
+
10 years of PSLF eligible job on PAYE

= solid scenario

[uvheylaw]

Isn't the federal government's PSLF capped, or soon to be capped, at like $50K?

My school's PSLF only applies if you enter government work within two years of graduation

[Tiago Splitter]

Isn't the federal government's PSLF capped, or soon to be capped, at like $50K?

My school's PSLF only applies if you enter government work within two years of graduation

1. Not yet, and there isn't anything close to passage that would change this. Under Obama's proposal you'd only get 57.5k forgiven after ten years and the rest forgiven after 25. Worst case you just got a sweet 57.5k lopped off tax free and you use the cash you've saved to pay off the rest. But again nothing close to passage on this front.

2. I think you're referring to LRAP. Your school may not make your loan payments, but even so you can just pay 10% of discretionary income via PAYE until the debt is forgiven.

[uvheylaw]

Should I worry about my ability in 3/4 years to get a mortgage if I otherwise have great credit and am putting up a fat down payment?

[gazorpazorp]

If you lateral to a government spot (i.e, prosecutor), your PAYE payments start counting towards PSLF, which is not only a ten year clock for forgiveness (instead of 20), there's also no tax bomb.

Exactly as the above poster stated.

3-4 of biglaw on PAYE (saving for down payment)
+
10 years of PSLF eligible job on PAYE

= solid scenario

Forgive my ignorance guys, but I have a few questions about this scenario.

1) Once you switch from BigLaw to a PSLF-eligible job, do you keep paying the same % of your paycheck each month? Even though 10% of your PSLF paycheck would be extremely low, and not even in the ballpark of what you were paying while you were in BL?

2) Do you have to spend all 10 years in the same PSLF-eligible job? Do the 120 months of PSLF have to be consecutive? And does clerking for a judge count? (E.g. If you clerk for a year or work in gov't straight out of school, then you do BigLaw for a while, will you then only have to do NINE more years of PSLF work post-BigLaw in order to have loans forgiven?)

3) If you do BigLaw for 3-5 years making minimum payments, then lateral to PSLF-eligible work for 10 years, continue to make minimum payments throughout those 10 years, and have your debts forgiven... It's ALL forgiven? You face NO consequence for the fact that you were making bank those first 5 years while making minimum payments, or the fact that you continued to make minimum payments throughout your 10 years of PSLF work? No "tax bomb"-esque scenario at all?

4) Aren't they restructuring PAYE to "mitigate" the impact of the tax bomb? What the heck does this mean and would it change the recommended course for OP?

[Johann]

If you lateral to a government spot (i.e, prosecutor), your PAYE payments start counting towards PSLF, which is not only a ten year clock for forgiveness (instead of 20), there's also no tax bomb.

Exactly as the above poster stated.

3-4 of biglaw on PAYE (saving for down payment)
+
10 years of PSLF eligible job on PAYE

= solid scenario

Forgive my ignorance guys, but I have a few questions about this scenario.

1) Once you switch from BigLaw to a PSLF-eligible job, do you keep paying the same % of your paycheck each month? Yes. Even though 10% of your PSLF paycheck would be extremely low, and not even in the ballpark of what you were paying while you were in BL?

2) Do you have to spend all 10 years in the same PSLF-eligible job? No.Do the 120 months of PSLF have to be consecutive? No.And does clerking for a judge count? (E.g. If you clerk for a year or work in gov't straight out of school, then you do BigLaw for a while, will you then only have to do NINE more years of PSLF work post-BigLaw in order to have loans forgiven?)

3) If you do BigLaw for 3-5 years making minimum payments, then lateral to PSLF-eligible work for 10 years, continue to make minimum payments throughout those 10 years, and have your debts forgiven... It's ALL forgiven? You face NO consequence for the fact that you were making bank those first 5 years while making minimum payments, or the fact that you continued to make minimum payments throughout your 10 years of PSLF work? No "tax bomb"-esque scenario at all?Correct.

4) Aren't they restructuring PAYE to "mitigate" the impact of the tax bomb? What the heck does this mean and would it change the recommended course for OP?

If democrats win, likely. If Bernie wins, 100% yes.

[twenty]

mighta missed this one, but:

And does clerking for a judge count? (E.g. If you clerk for a year or work in gov't straight out of school, then you do BigLaw for a while, will you then only have to do NINE more years of PSLF work post-BigLaw in order to have loans forgiven?)

Clerking for a judge does count for PSLF, yes. However, your school's LRAP will almost certainly not give you IBR money if you go from a clerkship -> biglaw.

[gazorpazorp]

If you lateral to a government spot (i.e, prosecutor), your PAYE payments start counting towards PSLF, which is not only a ten year clock for forgiveness (instead of 20), there's also no tax bomb.

Exactly as the above poster stated.

3-4 of biglaw on PAYE (saving for down payment)
+
10 years of PSLF eligible job on PAYE

= solid scenario

Forgive my ignorance guys, but I have a few questions about this scenario.

1) Once you switch from BigLaw to a PSLF-eligible job, do you keep paying the same % of your paycheck each month? Yes. Even though 10% of your PSLF paycheck would be extremely low, and not even in the ballpark of what you were paying while you were in BL?

2) Do you have to spend all 10 years in the same PSLF-eligible job? No.Do the 120 months of PSLF have to be consecutive? No.And does clerking for a judge count? (E.g. If you clerk for a year or work in gov't straight out of school, then you do BigLaw for a while, will you then only have to do NINE more years of PSLF work post-BigLaw in order to have loans forgiven?)

3) If you do BigLaw for 3-5 years making minimum payments, then lateral to PSLF-eligible work for 10 years, continue to make minimum payments throughout those 10 years, and have your debts forgiven... It's ALL forgiven? You face NO consequence for the fact that you were making bank those first 5 years while making minimum payments, or the fact that you continued to make minimum payments throughout your 10 years of PSLF work? No "tax bomb"-esque scenario at all?Correct.

4) Aren't they restructuring PAYE to "mitigate" the impact of the tax bomb? What the heck does this mean and would it change the recommended course for OP?

If democrats win, likely. If Bernie wins, 100% yes.

Looking at this from my own self-centered perspective as a 0L who will soon be in six-figure debt... Cool!

Looking at the big economic picture... Jesus Christ what a ridiculous, broken and unsustainable system.

[twenty]

unsustainable system.

That's the fear - that they'll change the rules and fuck over a bunch of PSLF people.

I would think long and hard about taking out a bunch of debt under the pretext that the government is going to wipe it all out in a decade.