Student loan payments: get advice and actual numbers here Forum

[Johann]

He should consider investing, but if he doesn't want to then the refi process (especially the second time around and even more so with the same company) is really no big deal. I don't know why people make it out to be some massive pain, unless they have just never been through any actually admin heavy process in their life.

My credit score went down 5 points over a three month period after applying to all 3 of sofi, CommonBond and DRB.

I would re refi for a lower rate to save even a couple hundred dollars. Plus perhaps he would decide to pay over a longer period of time at some point post re refi after considering alternatives.

I'm not arguing about the refi - I'm arguing about paying it off in 6 months in a hurry. Even if you could have a robot do the refi for you with no hassle. you are losing money whether repaying at 3% or 2% if you pay it off within 6 months.

[Johann]

Nobody's getting sub 2%. My point is saviing a percent for somethin you are paying off in 6 months is dumb as fuck and pointless. You're being cheap and trying to save $300 bucks when you are losing like multiple thousands by being financially stupid about your debt.

Sofi and CommonBond are both down to 1.90% as the bottom end which is lower than it was a few months ago. I know people who got sub 2.5% with closer to 100k of debt, so he could land close.

I also don't think some free time at work filling out a form is "dumb as fuck and pointless" even if it only saved $300. Then again, I walked 40 blocks to work today to save $2.50 though...

If he wants to refi for a lower 5 year rate and payi t off over 5 years, that's a good plan. It's pointless though to refi for a lower rate and pay it off within 6 months. Just wanted to let someone know they were making a pretty dumb decision because of their bias and preference of being debt free. If anything else, it should be spelled out clearly so people in similar positions don't make this mistake. OP can piss away money if he wants.

1. It wouldn't be pointless - just wouldn't save that much money.

2. I really wouldn't be pissing away that much money. Think about it. How much money am I really losing by only failing to invest that money for 6 months? What if I begin investing as soon as im debt-free or near debt free? I'm only losing 6 months of opportunity to make invest. Granted I'm also losing the money I used to pay off the principal during that 6 months that I could have used to invest - but that has to be paid off eventually anyway. If I start tossing in $4000 a month into investments 6 months from now when I'm debt free I'm still going to make a lot of money, and I will have: (1) peace of mind over concern for getting laid off (2) generally more flexibility (switching jobs, buying a house, etc.). But it's true, and you're right, this is not the best way to maximize my chances of making money off of my money.

point 2 is wrong because if you can have a line of credit at 3% for 5 years of making avg 7% return that is better than having a line of credit for 3% for 6 months. Think about the arbitrage opportunity you are losing. I'm not going to calculate for someone who isn't even open minded but I'd guess it's $3k+

[sener212]

point 2 is wrong because if you can have a line of credit at 3% for 5 years of making avg 7% return that is better than having a line of credit for 3% for 6 months. Think about the arbitrage opportunity you are losing. I'm not going to calculate for someone who isn't even open minded but I'd guess it's $3k+[/quote]

2. I really wouldn't be pissing away that much money. Think about it. How much money am I really losing by only failing to invest that money for 6 months? What if I begin investing as soon as im debt-free or near debt free? I'm only losing 6 months of opportunity to make invest. Granted I'm also losing the money I used to pay off the principal during that 6 months that I could have used to invest - but that has to be paid off eventually anyway. If I start tossing in $4000 a month into investments 6 months from now when I'm debt free I'm still going to make a lot of money, and I will have: (1) peace of mind over concern for getting laid off (2) generally more flexibility (switching jobs, buying a house, etc.). But it's true, and you're right, this is not the best way to maximize my chances of making money off of my money

[sener212]

point 2 is wrong because if you can have a line of credit at 3% for 5 years of making avg 7% return that is better than having a line of credit for 3% for 6 months. Think about the arbitrage opportunity you are losing. I'm not going to calculate for someone who isn't even open minded but I'd guess it's $3k+

2. I really wouldn't be pissing away that much money. Think about it. How much money am I really losing by only failing to invest that money for 6 months? What if I begin investing as soon as im debt-free or near debt free? I'm only losing 6 months of opportunity to make invest. Granted I'm also losing the money I used to pay off the principal during that 6 months that I could have used to invest - but that has to be paid off eventually anyway. If I start tossing in $4000 a month into investments 6 months from now when I'm debt free I'm still going to make a lot of money, and I will have: (1) peace of mind over concern for getting laid off (2) generally more flexibility (switching jobs, buying a house, etc.). But it's true, and you're right, this is not the best way to maximize my chances of making money off of my money[/quote]

And, frankly, I think I do have an open mind. You're making me rethink this somewhat. Maybe I'll split the baby -- pay off my debt in 18-24 months, and begin investing now at a lower rate and then increase rate as my principal goes down.

[Johann]

I think that's smart. Having debt and investment is an overlooked diversification tool. People in general are irrationally averse to debt, which is kind of the reason I'm being such a stickler on this point with you because I think others would make the same mistake. I'm not saying your guaranteed some great return - I'm just saying over the course of 100 coin flips you come out ahead by a couple grand by not being so quick to pay down the debt.

To ease your mind about 30k of debt and get at your job concerns and economy concerns - you basically have a loan on a decent car. $30k isn't much and it's the type of loan you can pay off monthly even if the economy hiccups or you take a lower paying job - if the economy collapses, everyone's fucked anyways. Also, everyone our age irrationally is going to fear a collapsed economy because we experienced that shit in 2008. The facts are things are going very well right now and law firms have hired conservatively during this period (because of 2008) instead of speculatively like in 2006.

[Old Gregg]

I think johanndumbass is being a little optimistic here:

Also, everyone our age irrationally is going to fear a collapsed economy because we experienced that shit in 2008. The facts are things are going very well right now and law firms have hired conservatively during this period (because of 2008) instead of speculatively like in 2006.

I agree that an economic collapse of the kind we saw in 2008 is truly remarkable and singular, and unlikely to occur again in our careers, but recessions can and do recur on a regular basis. And the intervals between them suggest that we're due for another one.

But doubtful that such a recession will lead to the degree of job loss in the legal sector that the last one lead to. Law, as a field, is typically preferably to banking because of job stability. Our jobs tend to be resilient even in the face of tough economies.

But it is still possible and likely that there will be layoffs in some form in the next recession. And you shouldn't lose touch of the lessons you learned in the previous recessions. A bunch of firms have already been laying off associates left and right, and we're not even technically in a recession right now. I appreciate johanndumbass's estimation that law firms are hiring conservatively, but the results simply haven't been bearing this out. Hiring has definitely decreased, but law firms are still massively leveraged.

[Johann]

I'd rather not turn this into a thread about the economy but this is all I'll so I'll bite - It's not unprecedented to have 10-20 years of good growth. Check out the 90s. We are only in Year 5 of recovering from the biggest recession since the depression. Look at what happened to the American economy after the great depression. That's my big level theory picture. Re the specifics - the European problems that clouded and stressed our recession in 2008 still isn't solved, which I think presents more growth opportunities as they emerge from their troubles; tech just rebounded to where we were at in 2000 - I think there is a lot more room for tech growth; housing has been the best type of growth you can ask for - slow and steady/reliable. Is there a chance for a mini hiccup? Of course. There always is. But trying to guess and time the market loses a lot of the upside of investing. I'm not saying stick everyting you have in penny stocks - I'm saying diversify and have a little bit of confidence that this year will be average which on average is 7% growth in the S&P500.

I'm not gonna find it, but 6 months ago we had this same roundabout of you calling me a dumbass and me saying diversify and make a rational decision based on averages - since then the S&P500 is up 9% in 6 months.

[anonnymouse]

I think johanndumbass is being a little optimistic here:

Also, everyone our age irrationally is going to fear a collapsed economy because we experienced that shit in 2008. The facts are things are going very well right now and law firms have hired conservatively during this period (because of 2008) instead of speculatively like in 2006.

I agree that an economic collapse of the kind we saw in 2008 is truly remarkable and singular, and unlikely to occur again in our careers, but recessions can and do recur on a regular basis. And the intervals between them suggest that we're due for another one.

But doubtful that such a recession will lead to the degree of job loss in the legal sector that the last one lead to. Law, as a field, is typically preferably to banking because of job stability. Our jobs tend to be resilient even in the face of tough economies.

But it is still possible and likely that there will be layoffs in some form in the next recession. And you shouldn't lose touch of the lessons you learned in the previous recessions. A bunch of firms have already been laying off associates left and right, and we're not even technically in a recession right now. I appreciate johanndumbass's estimation that law firms are hiring conservatively, but the results simply haven't been bearing this out. Hiring has definitely decreased, but law firms are still massively leveraged.

-it is mid-2007
-johnn is first year
-four year bull run and S&P500 bouncing around 1500 -- these things last 10-20 years (90s, duh)
-only illiterates pay down debt
-gotta cop dat sweet 12% GUARANTEED cagr equity return
-it is 2009
-johnn taxable brokerage acct is shark week, every week
-loan balance is 95% of mid-2007 balance
-LATHAMED
-johnn: i've never heard of sharpe ratios but i'm an investment masterman

also, lol at having debt and investing being a "diversification strategy" -- it's called leverage, lil johann breh. also, if an investment lies above the security market line, YOU MAKE THAT INVESTMENT. capm 101. paying down student loans at any rate above 3% is well, well above the sml. qed.

[Johann]

so let's update the story
100k invested in 2007 at the peak before the collapse would be 140k today.
100k in loans in 2007 at 3% would be 127k.


oh yeah, that's not including divs. reinvested divs would be 160k+

[lacrossebrother]

so let's update the story
100k invested in 2007 at the peak before the collapse would be 140k today.
100k in loans in 2007 at 3% would be 127k.


oh yeah, that's not including divs. reinvested divs would be 160k+

Minus 15% tax

[XxSpyKEx]

so let's update the story
100k invested in 2007 at the peak before the collapse would be 140k today.
100k in loans in 2007 at 3% would be 127k.


oh yeah, that's not including divs. reinvested divs would be 160k+

Minus 15% tax

So... $151k /with divs reinvested versus $127k on the loans...

[IrwinM.Fletcher]

I'm sure everyone would have just stuck it out after watching that 100k initial investment drop to 45k while the loan total lurched north toward $110k.

JUST GOTTA HAVE FAITH

[Johann]

I'm sure everyone would have just stuck it out after watching that 100k initial investment drop to 45k while the loan total lurched north toward $110k.

JUST GOTTA HAVE FAITH

can we rename this thread "Johann's hand holding thread: for those too scared to make savvy financial decisions"

jokes aside - this is the point of this thread. people often do not act rationally when it comes to their own finances due to risk aversion of having loans hanging over your head. this thread is about being a community and using people who are agnostic emotionally to the situation to make sure you are considering all these rational factors.

so hopefully when someone comes in and says hey i have a shitload of debt and i'm going to pay every penny of my money to debt, the thread can calm them down and remind them about the big picture and to continue saving some money for investing in stocks.
if the market crashes, hopefully that person comes back and says you dumb motherfucker johann you lost me 65K and i can bring up the history of the S&P explain some sunk costs concept and then ask them if they are sitting on any cash so that they can invest even more in the market.

[Old Gregg]

johan you're a moron. get the fuck out of this thread. you are a net disservice to everyone here.

[anonnymouse]

johan ... you are a net disservice to everyone here.

[JenDarby]

I saw on the news last night that our generation was putting 5% into retirement funds. We start saving around 22 (the previous generation started at 27… they said boomers started at 35). The associates I know who have with no tuition debt are plowing +10% into their retirement (be it 401k, stocks or something else). I have some debt (and I am not particularly frugal) so I am at 7.5%.

After tuition and everything else called life, are most folks here at 5% (or more/less)?

I'm at 8% but still have loans. Once those are paid off I plan on putting more like 40-50% into retirement/investments. Basically continue to live off the same amount I current am even after paying back the loans. Maximize the compounding interest and prevent too much lifestyle creep.

I recently switched from 9% to 11%. My company will match 50% of your contributions (up to a total of 9k) so I am trying to maximize that to the best of my financial capabilities. My company also makes a bonus contribution that is 3-5% of your salary (depending on your age) at the end of each year. Overall its pretty great, so if I ever pay of my loans I MIGHT be able to retire at some point.

[Johann]

JD - I hope you are maxing out your employer contribution. That's a 50% return you are leaving on the table if not.

[JenDarby]

JD - I hope you are maxing out your employer contribution. That's a 50% return you are leaving on the table if not.

I do my best, but I also have to avoid defaulting on my loans, and 18k a year in 401k contributions isn't quite feasible at this point.

I will definitely be paying off my entire loan balance, and refinancing saves me around $500/mo in interest at this point. Even with the 50% return rate, refinancing and the higher payments still makes more economical sense.

[Anonymous User]

JD--

I would refinance to the longest possible term that you can find and pay the minimum. Then, I'd put every spare cent you have towards getting to 18k in retirement contributions. Sure, you'll end up paying more interest on your loans (because a longer term repayment = a higher interest rate + more time to accumulate interest), but that # is dwarfed by the automatic 50% returns you get from your retirement (which then starts earning its own interest). Frankly, I'm incredibly jealous. My employer doesn't match and "only" kicks in 2-4% of my base salary/year into retirement as sort of a bonus at the end of the year -- and I thought that was solid.

[Johann]

JD - I hope you are maxing out your employer contribution. That's a 50% return you are leaving on the table if not.

I do my best, but I also have to avoid defaulting on my loans, and 18k a year in 401k contributions isn't quite feasible at this point.

I will definitely be paying off my entire loan balance, and refinancing saves me around $500/mo in interest at this point. Even with the 50% return rate, refinancing and the higher payments still makes more economical sense.

For future reference to those on this board it may be applicable to - this is a situation where staying in PAYE is a good deal because your payments is based on your AGI which does not count deferred income. It's a win-win on two fronts. PAYE gives you a lower monthly payment which lets you afford to defer more of your income, which in turn lowers your monthly payment again. The beauty of that too is that your 401k can act as an emergency fund if you are laid off.

JD - you need to refinance to extend your loan payment longer. You're losing (9k-whatever you currently receive from employer contribution) a year. Something else to consider if your company lets you defer a lot of money is that you can maybe get your income into the amount where you can deduct student loan interest.

[JenDarby]

JD - I hope you are maxing out your employer contribution. That's a 50% return you are leaving on the table if not.

I do my best, but I also have to avoid defaulting on my loans, and 18k a year in 401k contributions isn't quite feasible at this point.

I will definitely be paying off my entire loan balance, and refinancing saves me around $500/mo in interest at this point. Even with the 50% return rate, refinancing and the higher payments still makes more economical sense.

For future reference to those on this board it may be applicable to - this is a situation where staying in PAYE is a good deal because your payments is based on your AGI which does not count deferred income. It's a win-win on two fronts. PAYE gives you a lower monthly payment which lets you afford to defer more of your income, which in turn lowers your monthly payment again. The beauty of that too is that your 401k can act as an emergency fund if you are laid off.

JD - you need to refinance to extend your loan payment longer. You're losing (9k-whatever you currently receive from employer contribution) a year. Something else to consider if your company lets you defer a lot of money is that you can maybe get your income into the amount where you can deduct student loan interest.

This is entirely wrong in my situation. My payments are higher but I save $500 a month on interest. Every year I will save around $6,000 (will go down but payments will go down and hopefully I can dedicate more to payments) interest and I plan to re refi when possible. I have higher payments but there was never going to be a scenario where I ride out 180k in loans through PAYE. My interest savings trump what I could have matched in 401k.

[sener212]

I would enjoy a more robust conversation on aggressively paying down loans to save on interest payments vs. investing and paying down loans more slowly.

I am planning to talk with a financial adviser in the near future. I'll be interested to hear his/her thoughts. Obviously it comes down to whether you can make a higher return on your investments than the interest rate on your loans... the issue just becomes what is the reasonable amount of risk one should be willing to incur to make that happen (since it's obviously very possible to make this type of return when compared to low-interest refinanced loans).

[IrwinM.Fletcher]

Really excited for the knowledge about to be dropped in here.

[BiglawAssociate]

My student loan payments: ZERO DOLLARS BECAUSE I FINISHED PAYING THOSE SUCKERS OFF AND NEVER TOOK AS MUCH DEBT AS YOU

I will say that biglaw doesn't pay enough for what it requires. It's like I've been digging a fucking trench for years and haven't anything to show for it.

[iVi]

I would enjoy a more robust conversation on aggressively paying down loans to save on interest payments vs. investing and paying down loans more slowly.

I am planning to talk with a financial adviser in the near future. I'll be interested to hear his/her thoughts. Obviously it comes down to whether you can make a higher return on your investments than the interest rate on your loans... the issue just becomes what is the reasonable amount of risk one should be willing to incur to make that happen (since it's obviously very possible to make this type of return when compared to low-interest refinanced loans).

+1 Keen to hear ppl's thoughts on this. Let us know what s/he advises, sener.