Student loan payments: get advice and actual numbers here Forum

[Anonymous User]

Have we talked about the allowances (exemptions?) stub-year associates should take to make sure we're not over-taxed during those months?

Just use the IRS withholding calculator. If you do this, don't forget to adjust it when the new year rolls around.

IRS calculator is TCR. I start in October and will be taking 17 allowances to per the IRS calculator to make sure I'm not over-taxed. ($40,000 income during stub year puts my federal taxes at ~$4,200).

just a word of warning. Your take home after the stub year will decrease by a ton when you adjust your allowances the following year or you will end up owing more at the end of your first full year if you forget to correct your allowances. this may seem stupid, but it kind of sucks to take a pay hit at the start of the first year when you are probably getting into full swing.

Also, my experience has been that the firm under withholds generally (AMT might kick in esp if you live in a high tax state because due to AMT you dont get to deduct all of your state/local taxes), so you may end up owing some or making estimated tax payments. This is especially true if you are married to another high-income earner. Some people zero out their fed income taxes and make quarterly tax payments. In any event, it's not a s simple as adjusting your allowances. Get an accountant!

[Desert Fox]

You aren't loaning the government all that much and you get it back pretty quick, assuming you file in early Feb.

[bk1]

Has anyone heard of biglaw firms offering some sort of student loan consolidation deal with a bank? I heard Latham offers it to its associates. Is this commonplace? If anyone has any knowledge of this, what interest rate is the consolidated loan?

Law firms do this in order to erode any shred of leverage the associate would have over it. Do you really want to be an employee AND debtor to a single firm?

sure, at that point the firm will actually have a vested interested in my career. I'd take that deal.

I doubt that's how any firm would structure it. More likely they'd just partner with a bank while the bank holds the actual debt, such as this program at Latham. On a side note w/r/t the Latham program, those rates seem pretty close to what First Republic normally offers so I'm not seeing what the benefits being at Latham is getting these people compared to everyone else who chooses to refi with First Republic.

[bk1]

You aren't loaning the government all that much and you get it back pretty quick, assuming you file in early Feb.

Agreed. It seems like a pain in the ass for relatively minimal benefit.

[Danger Zone]

You aren't loaning the government all that much and you get it back pretty quick, assuming you file in early Feb.

Agreed. It seems like a pain in the ass for relatively minimal benefit.

And you definitely don't need an accountant, or at least the vast majority of stub year associates do not.

[bk1]

You aren't loaning the government all that much and you get it back pretty quick, assuming you file in early Feb.

Agreed. It seems like a pain in the ass for relatively minimal benefit.

And you definitely don't need an accountant, or at least the vast majority of stub year associates do not.

I don't think almost any associate needs an accountant (or tax preparer, financial advisor, etc). If they did, it wouldn't be because they are an associate. Also, iirc, you can't file quarterly taxes as a W2 employee.

[bk1]

http://abovethelaw.com/2016/01/how-stud ... licy/?rf=1

Interesting note that all the refi-ers are borking the system where low risk grads are supposed to be subsidizing high risk grads.

[Anonymous User]

Are universities PSLF employers?

[PriyaRai]

$160K Federal debt @ 7.2% average
$125K Salary (Wife is $75K)
$25K Emergency Fund
770+ Credit Score

Contemplating a variable rate ReFi with private lender as part of a plan to aggressively pay down debt; the 9% cap offered by SoFi (maybe others?) isn't THAT much worse than my 7.2%. Of course, I'd be sacrificing the IBR safety net.

Would having my wife cosign result in a substantially better rate?

Any other general thoughts on my situation?

[Anonymous User]

$160K Federal debt @ 7.2% average
$125K Salary (Wife is $75K)
$25K Emergency Fund
770+ Credit Score

Contemplating a variable rate ReFi with private lender as part of a plan to aggressively pay down debt; the 9% cap offered by SoFi (maybe others?) isn't THAT much worse than my 7.2%. Of course, I'd be sacrificing the IBR safety net.

Would having my wife cosign result in a substantially better rate?

Any other general thoughts on my situation?

Does your wife have a similarly great credit score? If not, cosigning won't help. If so, it might (because DTI is a factor that some of these lenders use) -- there's no harm in asking. I suspect you'll get a pretty good rate regardless, though, and that having her cosign will probably not result in a substantially better tae.

How much the IBR safety net is worth to you is a personal question that depends, among other things, on your background. If you went to HYS, were on law review, did a fed clerkship, are in biglaw, and plan on eventually settling in midlaw or in-house, well, the IBR safety net isn't worth much (because you're almost certainly going to have jobs over the next 10-15 years that pay too much).

Similarly, variable versus fixed is a pretty personal decision. How much risk tolerance do you have? How quickly do you plan on paying off your debt? Variable obviously has both more upside and more downside than fixed. How good of a bet it is to do one versus the other depends in part on the rates that you get and how quickly you plan on paying off your debt. There are probably no possible variable rates that would convince me to do a 15- or 20-year variable payoff schedule, for example.

Personally, I had about $80k in debt, make about $125k/year, and chose to refi (from about 6.5% weighted average to about 4% weighted average). I went with all fixed interest loans, half of which were on a 5-year schedule and half of which were on a 10-year schedule. I'm trying to pay off all of my loans in five years, but like the flexibility that having half of my loans on a 10-year schedule gives me in case something happens with my job and I need to slow down. My decision is obviously built around balancing these risks and rewards.

[jess]

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[Anonymous User]

Are universities PSLF employers?

For the most part, yes. The vast majority are nonprofits (public and private).

Thought so--thanks!

[JenDarby]

$160K Federal debt @ 7.2% average
$125K Salary (Wife is $75K)
$25K Emergency Fund
770+ Credit Score

Contemplating a variable rate ReFi with private lender as part of a plan to aggressively pay down debt; the 9% cap offered by SoFi (maybe others?) isn't THAT much worse than my 7.2%. Of course, I'd be sacrificing the IBR safety net.

Would having my wife cosign result in a substantially better rate?

Any other general thoughts on my situation?

Does your wife have a similarly great credit score? If not, cosigning won't help. If so, it might (because DTI is a factor that some of these lenders use) -- there's no harm in asking. I suspect you'll get a pretty good rate regardless, though, and that having her cosign will probably not result in a substantially better tae.

How much the IBR safety net is worth to you is a personal question that depends, among other things, on your background. If you went to HYS, were on law review, did a fed clerkship, are in biglaw, and plan on eventually settling in midlaw or in-house, well, the IBR safety net isn't worth much (because you're almost certainly going to have jobs over the next 10-15 years that pay too much).

Similarly, variable versus fixed is a pretty personal decision. How much risk tolerance do you have? How quickly do you plan on paying off your debt? Variable obviously has both more upside and more downside than fixed. How good of a bet it is to do one versus the other depends in part on the rates that you get and how quickly you plan on paying off your debt. There are probably no possible variable rates that would convince me to do a 15- or 20-year variable payoff schedule, for example.

Personally, I had about $80k in debt, make about $125k/year, and chose to refi (from about 6.5% weighted average to about 4% weighted average). I went with all fixed interest loans, half of which were on a 5-year schedule and half of which were on a 10-year schedule. I'm trying to pay off all of my loans in five years, but like the flexibility that having half of my loans on a 10-year schedule gives me in case something happens with my job and I need to slow down. My decision is obviously built around balancing these risks and rewards.

My FICO is 800+ and my SOs credit score is not nearly as good, but his income is far higher than mine so they let him cosign. I relied on his cosigning with commonbond. Sofi flat out rejected me based on income

[Anonymous User]

Q here regarding the first republic/Latham refi- my firm also offers that with similar rates. I current am on PAYE doing big law in NYC (1st year, just started payments last month). Loans all fed - 240k. Wondering if I should refinance like 60k for 1.9% interest for 5 years from first republic and then continue on PAYE?
Anyone else have thoughts / thinking this?

[bk1]

Q here regarding the first republic/Latham refi- my firm also offers that with similar rates. I current am on PAYE doing big law in NYC (1st year, just started payments last month). Loans all fed - 240k. Wondering if I should refinance like 60k for 1.9% interest for 5 years from first republic and then continue on PAYE?
Anyone else have thoughts / thinking this?

I've seen some people consider this. You're saving ~8k in interest over 5 years compared to the 7.2% rate. I guess you are saving some money for minimal risk. But personally, I just don't see it as worthwhile to go half-way to save that amount when your loans are a quarter million dollars. I'd either go all in on PAYE or all in on refinancing based on your risk preferences.

[bk1]

I don't think so. it appears to be a straight 90/10 but they don't have a ton of information available. My understanding with the 80/10/10 was that the interest rates on the 10% are usually pretty high thereby negating any benefit of avoiding PMI

Yea the interest rate usually is higher so it's not straight up saving, but I think people probably do at least save some money going that route (how much on average, I'm not sure). You're right that a lot of SoFi's terms are annoyingly closed off on their site if you don't actually go through the application process.

Adding to this, it looks like Sofi's mortgage offering started out as a physician's mortgage which makes sense why there's no PMI. See this article and SoFi URL in it that now redirects to SoFi's mortgage page.

[Desert Fox]

I think going halfway is a bad idea too.

If I had PAYE I'd pay the absolute minimum, max 401k and IRA and health spending (if you are going to spend it). Then create a 50k savings. Then start building a loan payoff account. If your payoff account gets to enough to kill a huge chunk of your loans, you can reassess.

But over 20 years--you should do better in the stockmarket than whatever your tax bomb is. Plus they may fix tax bomb. Especially since interest doesn't capitalize on PAYE. Since you are only paying 25-33% of the amount during the TAX BOMB, your true interest rate is a lot lower than 7.2%.

[gk101]

I don't think so. it appears to be a straight 90/10 but they don't have a ton of information available. My understanding with the 80/10/10 was that the interest rates on the 10% are usually pretty high thereby negating any benefit of avoiding PMI

Yea the interest rate usually is higher so it's not straight up saving, but I think people probably do at least save some money going that route (how much on average, I'm not sure). You're right that a lot of SoFi's terms are annoyingly closed off on their site if you don't actually go through the application process.

Adding to this, it looks like Sofi's mortgage offering started out as a physician's mortgage which makes sense why there's no PMI. See this article and SoFi URL in it that now redirects to SoFi's mortgage page.

That makes a lot of sense. Although the rates I got from SoFi for a 90/10 loan weren't that far off from a regular 80/20 loan (I only got a pre-qual from SoFi and not a pre-approval so the final rates may be higher). The article suggested a difference of almost 0.8% when I was quoted about 0.25% higher than a regular 80/20 loan.

FWIW, I spoke with the lender for my local bank, and the rates they suggested for a 80/10/10 loan worked out better over 15 years than the 90/10 loan if I aggressively paid off the 10%. Both were better than paying PMI and obviously a regular 80/20 was the best.

We are now considering buying a plot of land and building a house from the ground up so this is all moot for now

[Betharl]

At what interest rate would you pay loans instead of investing extra money? So, say you refinance with Sofi (or wherever) and get interest rate x, where is the cut off for x such that you would pay the Sofi loans more aggressively vs. invest (likely in the stock market). I know the relevant measure is expected after tax return on investment vs. after tax cost of debt, but otherwise I don't know how to figure this out. From a tax standpoint, assume biglaw tax bracket.

[bk1]

At what interest rate would you pay loans instead of investing extra money? So, say you refinance with Sofi (or wherever) and get interest rate x, where is the cut off for x such that you would pay the Sofi loans more aggressively vs. invest (likely in the stock market). I know the relevant measure is expected after tax return on investment vs. after tax cost of debt, but otherwise I don't know how to figure this out. From a tax standpoint, assume biglaw tax bracket.

It's personal preference since you're pretty much guessing whether the risk-adjusted rate of return for the market will beat the interest rate on your loans. Personally I'd pay off debt higher than ~5% and invest rather than pay off debt lower than ~4%. But that's because I prefer minimizing debt. Others value having more liquidity and will err towards investing over paying off debt.

[Anonymous User]

I'm a current 2L and I have sort of a weird but good situation I would like some advice on. I have about $40k in debt right now $30k law school, $10k UG which is subsidized. This fall I was hired as a TA by an undergraduate department, and was rehired again this term. The department paid my tuition, and I got most of my scholarship disbursed to me for cost of living by the law school. I was also paid about $4400 by the department for each term, in monthly installments.

My income for 2015 was about $22k. I will be working as a summer associate this summer, and expect to make about 30k. The wrinkle is I am not sure if I will be rehired by my department. I won't know until the last minute, probably late August, since the department's hiring needs depend on enrollment, and how many of their own graduate students need TA jobs that particular semester. If I am rehired, my income for 2016 will be about $58k. I suspect that I am likely to be rehired, since the department employs two 3Ls, so if there is an open spot, I'm first in line for fall 2016.

I have about $15k cash in my savings account right now. After accounting for living expenses until my SA starts, and allowing for a cushion, I have about $5k to play with. Does it make sense to open an IRA? Or some other kind of account? I don't think it's a particularly great idea to throw it at my loans, but the loans do have about $2k in outstanding interest, so maybe it makes sense to get the deduction while I'm still eligible for it in 2016 and 2017.

I will be able to get the lifetime learning credit for 2015, since I paid tuition for the spring 2015 semester, but I will not be able to get it for 2016 if I am rehired.

[bk1]

It depends how much of an emergency fund you are comfortable with. The student loan interest deduction is not on top of the standard deduction, iirc, so it's probably irrelevant. On one hand, you are never going to get that tax advantaged space for 2015 back if you don't use it. On the other, having a fully funded emergency fund is generally a priority over retirement contributions.

[Johann]

Student loan interest is on top of standard. "The student loan interest deduction is claimed as an adjustment to income. This means you can claim this deduction even if you don't itemize deductions on Schedule A (Form 1040)."

https://www.irs.gov/publications/p970/ch04.html

So 22k of income for 2015 really isn't worth getting the 5k deduction in my opinion because your tax rate is only 15% (so amounts to less than a $800 tax refund). It's almost a 100% certainty that you will be paying more than 15% in tax when you are withdrawing your retirement funds and paying tax (traditional IRAs are pre tax money and you pay tax at withdrawal; ROth IRAs are funded by post-tax dollars and you withdraw the proceeds tax free). This rules out a traditional ira at least in comparing roth ira vs traditional ira imo (let me know if you agree Tiago).

If you don't have any money in the market, I'd get a roth IRA because a) stock market is low right now; b) it's a solid tax investment vehicle to diversify with since you may never have this type of sweet offer again (essentially you are investing $6,325 (you paid $800 of tax on that $5,500 youll deposit) for what should amount to about $30k after 25 years based on the history of the stock market (SP500 index). Not having to pay tax on that 30k would be sweet as hell.

Just investing the money means you are gonna lose about 1/3 of that 30k to taxes so 20k after 25 years. I'd rule that option out completely too.

As a biglawyer or SA person, you can get a 25k credit card limit with ease, so 5k to your nest egg just sitting there is way too conservative imo given your education background and how young you are should anything happen. Also, with at least another year of school, way too early to be setting aside nest eggs and losing money just on time value of money. Also, if you are in a big city, the 5k isnt really going to do much towards a house or something that can provide a return (avoiding rent) because downpayments are a lot bigger and so that's just a drop in the bucket (5% or less of just the down payment).

THe last option then is using the money to pay down a student loan. YOur loans are so low that I think you are going to pay them regardless of your career path and especially if biglaw. You lost out on the student interest deduction for 2015 though because that had to paid in calendar year 2015 (IRAs have that extra incentive allowing one to contribute to a 2015 IRA until April 15 2016). I would actually probably take a dent out of your student loans at some point in the not too distant future given your soon to be income in 2016 (or not borrow loans is preferable but not sure if you already have something covering that tuition since your debt is so low).

I think this comes down to 2015 Roth IRA vs 2016 student loan money. I lean 2015 IRA because it's very low investment even factoring in pretax dollars and paying student loans now at this point gets you your student loan interest deduction in a year whereas paying your student loans later this year gets you closer in time to the deduction. It's a little more aggressive, hard to quantify how much more so because the return is up in the air whereas student loan is a set return. The safer bet is student loans and locks in a return of whatever your interest rate is plus some refund for student loan interest deduction. If your student loans are less than 5%, I'd def do the IRA. If over 7% its probably a lean to the student loans. 5-7% rate is a lot closer toss up.

[bk1]

Student loan interest is on top of standard. "The student loan interest deduction is claimed as an adjustment to income. This means you can claim this deduction even if you don't itemize deductions on Schedule A (Form 1040)."

https://www.irs.gov/publications/p970/ch04.html

My mistake, thanks for clarifying.

[Tiago Splitter]

I think whatever you do you should also max out your Roth IRA for 2015 before April 15. You've got $15,000 cash just sitting there, so slide $5,500 of that over to your Roth. $9,500 in an emergency fund is still a lot, and A) you don't have to put the Roth money into investments and B) Roth contributions can be taken out tax and penalty-free at any time.