paying back loans Forum

[rayiner]

I don't disagree with your math, but I disagree with your premise that $10k is so much money that it should be determinative of your savings approach. In the grand scheme of things, $10k is a drop in the bucket.

Plan your savings based on your life plans. Do you want to buy a house? If so pay the minimum on your loans and save the extra for a down payment. You'll save more money in the long run by being able to put up a huge down payment then you'll loose in extra interest on your student loans. Do you intend to spend a few years in big law then take a low-paying public interest job? If so pay the minimum on your loans and take advantage of IBR. Do you intend to spend a few years in big law then go to a low paying private sector job? Then by all means pay off your loans as quickly as possible.

Also, re: "this market" remember we're talking about the next 3-5 years.

I think we're on the same page then. The point I'm just trying to drive home is that if you're choosing between a long term financial investment (bonds, stocks, etc.) and paying down your loans, you should only choose the former if you think you can earn greater than 9% (if stocks) and 10% (if bonds or other fixed income securities).

Yes, if you're putting money into long-term investments as an end in itself (as opposed to just a place to park your money) I agree that paying off your loans gives you a better return. My point is simply that if you've got other life goals, $10k isn't so much money that paying the IBR minimum and holding the cash is an unreasonable option. If you think you might leave big law and decide to start a business, go ahead and save the cash---even if you chicken out you won't be losing much.

[Sup Kid]

So some math for you all. Say you owe $225k at graduation, at 7.6% (mix of 7.9% PLUS and 6.8% Stafford).

Let's compare three payment plans. Assume you make $160k and have $5,000 to save per month.

Standard: pay $2690/month
Fast: pay $5,000/month
IBR: pay $1,800/month

Not to hijack this other discussion, but "income-based repayment" is now available to people making $160k? Wow.

[transferguy]

So some math for you all. Say you owe $225k at graduation, at 7.6% (mix of 7.9% PLUS and 6.8% Stafford).

Let's compare three payment plans. Assume you make $160k and have $5,000 to save per month.

Standard: pay $2690/month
Fast: pay $5,000/month
IBR: pay $1,800/month

Not to hijack this other discussion, but "income-based repayment" is now available to people making $160k? Wow.

You use your stub year to qualify for a year.

[Bronte]

I don't disagree with your math, but I disagree with your premise that $10k is so much money that it should be determinative of your savings approach. In the grand scheme of things, $10k is a drop in the bucket.

Plan your savings based on your life plans. Do you want to buy a house? If so pay the minimum on your loans and save the extra for a down payment. You'll save more money in the long run by being able to put up a huge down payment then you'll loose in extra interest on your student loans. Do you intend to spend a few years in big law then take a low-paying public interest job? If so pay the minimum on your loans and take advantage of IBR. Do you intend to spend a few years in big law then go to a low paying private sector job? Then by all means pay off your loans as quickly as possible.

Also, re: "this market" remember we're talking about the next 3-5 years.

I think we're on the same page then. The point I'm just trying to drive home is that if you're choosing between a long term financial investment (bonds, stocks, etc.) and paying down your loans, you should only choose the former if you think you can earn greater than 9% (if stocks) and 10% (if bonds or other fixed income securities).

Yes, if you're putting money into long-term investments as an end in itself (as opposed to just a place to park your money) I agree that paying off your loans gives you a better return. My point is simply that if you've got other life goals, $10k isn't so much money that paying the IBR minimum and holding the cash is an unreasonable option. If you think you might leave big law and decide to start a business, go ahead and save the cash---even if you chicken out you won't be losing much.

Check my new spreadsheet to see that it's more than $10,000 in the long term though: https://docs.google.com/spreadsheet/ccc ... li=1#gid=0.

[IAFG]

you need to bring down the security settings on the spreadsheets bro

[Bronte]

you need to bring down the security settings on the spreadsheets bro

Well we've experimented with that on TLS and it usually ends up in people breaking shit. Can you not see the formulas? You can download the spreadsheet. But whatever, I'll up it up all the way, just for you.

Edit: NVM, I see that it wasn't public.

[drdolittle]

Thanks young bachelor Bronte for the informative poasts ITT. And thanks other contributors too. This is a very useful discussion and not necessarily as obvious as it may seem.

[rayiner]

I don't disagree with your math, but I disagree with your premise that $10k is so much money that it should be determinative of your savings approach. In the grand scheme of things, $10k is a drop in the bucket.

Plan your savings based on your life plans. Do you want to buy a house? If so pay the minimum on your loans and save the extra for a down payment. You'll save more money in the long run by being able to put up a huge down payment then you'll loose in extra interest on your student loans. Do you intend to spend a few years in big law then take a low-paying public interest job? If so pay the minimum on your loans and take advantage of IBR. Do you intend to spend a few years in big law then go to a low paying private sector job? Then by all means pay off your loans as quickly as possible.

Also, re: "this market" remember we're talking about the next 3-5 years.

I think we're on the same page then. The point I'm just trying to drive home is that if you're choosing between a long term financial investment (bonds, stocks, etc.) and paying down your loans, you should only choose the former if you think you can earn greater than 9% (if stocks) and 10% (if bonds or other fixed income securities).

Yes, if you're putting money into long-term investments as an end in itself (as opposed to just a place to park your money) I agree that paying off your loans gives you a better return. My point is simply that if you've got other life goals, $10k isn't so much money that paying the IBR minimum and holding the cash is an unreasonable option. If you think you might leave big law and decide to start a business, go ahead and save the cash---even if you chicken out you won't be losing much.

Check my new spreadsheet to see that it's more than $10,000 in the long term though: https://docs.google.com/spreadsheet/ccc ... li=1#gid=0.

Yes, it's more than $10k if you continue to put your money in something returning 3% instead of paying off your 7.5% loans over 10 years. Not really arguing that. I'm not necessarily advocating paying less than the minimum over the entire life of the loan. I'm saying that if you want to build up cash over a period of a few years, it'll cost you only $10k or so to have the extra flexibility.

[snailio]

Check my new spreadsheet to see that it's more than $10,000 in the long term though: https://docs.google.com/spreadsheet/ccc ... li=1#gid=0.

See Brontes spreadsheet link above.



Alex: I'll take Fast pay for 35k and 5 years peace of mind.

[Bronte]

Yes, it's more than $10k if you continue to put your money in something returning 3% instead of paying off your 7.5% loans over 10 years. Not really arguing that. I'm not necessarily advocating paying less than the minimum over the entire life of the loan. I'm saying that if you want to build up cash over a period of a few years, it'll cost you $10k or so to have the extra flexibility.

I'm with you. Ten thousand is a significant cost, but it can be worth it depending on your individual circumstances. Notice though that both investors have cash after three years. At the end of three years, investor one has $90,000 in cash plus the $10,000-15,000 he saved after 2L summer. Investor two only has $20,000 in cash plus the $10,000-15,000. But at the end of five years investor two has $100,000 compared to investor two's $220,000. Either has enough to make a down payment on a home and a solid emergency fund.

[IAFG]

Check my new spreadsheet to see that it's more than $10,000 in the long term though: https://docs.google.com/spreadsheet/ccc ... li=1#gid=0.



Alex: I'll take Fast pay for 35k and 5 years peace of mind.

See, and that's what it comes down to. If you're the sort of person who is afraid of their debt, the choice is clear for you. If you're the sort of person who is afraid of not having options and flexibility that come with having cash reserves, then something else makes sense for you. If you think there's a chance you will go into PI after a few years (and a lot of young female lawyers should at least consider the possibility) then they're going to want to pay less and take advantage of IBR (or, if they have a great one, LRAP).

Things also change over time, so I don't know why people announce, as law students, that they're going to pay off all their loans as quickly as possible or will pay the minimum. How could you know as a 2L what you will do with your money in 5 years?

[Bronte]

Check my new spreadsheet to see that it's more than $10,000 in the long term though: https://docs.google.com/spreadsheet/ccc ... li=1#gid=0.



Alex: I'll take Fast pay for 35k and 5 years peace of mind.

See, and that's what it comes down to. If you're the sort of person who is afraid of their debt, the choice is clear for you. If you're the sort of person who is afraid of not having options and flexibility that come with having cash reserves, then something else makes sense for you. If you think there's a chance you will go into PI after a few years (and a lot of young female lawyers should at least consider the possibility) then they're going to want to pay less and take advantage of IBR (or, if they have a great one, LRAP).

Things also change over time, so I don't know why people announce, as law students, that they're going to pay off all their loans as quickly as possible or will pay the minimum. How could you know as a 2L what you will do with your money in 5 years?

It's very true. If you have PI goals--although this means the very serious goal to work in PI for 10 years--the calculus is very different, because LRAP itself provides a huge return. However, both investors one and two have a cash reserve, investor two's is just bigger at first. But $100,000 after five years for investor one ain't exactly shabby.

[snailio]

Check my new spreadsheet to see that it's more than $10,000 in the long term though: https://docs.google.com/spreadsheet/ccc ... li=1#gid=0.



Alex: I'll take Fast pay for 35k and 5 years peace of mind.

See, and that's what it comes down to. If you're the sort of person who is afraid of their debt, the choice is clear for you. If you're the sort of person who is afraid of not having options and flexibility that come with having cash reserves, then something else makes sense for you. If you think there's a chance you will go into PI after a few years (and a lot of young female lawyers should at least consider the possibility) then they're going to want to pay less and take advantage of IBR (or, if they have a great one, LRAP).

Things also change over time, so I don't know why people announce, as law students, that they're going to pay off all their loans as quickly as possible or will pay the minimum. How could you know as a 2L what you will do with your money in 5 years?

It's very true. If you have PI goals--although this means the very serious goal to work in PI for 10 years--the calculus is very different, because LRAP itself provides a huge return. However, both investors one and two have a cash reserve, investor two's is just bigger at first. But $100,000 after five years for investor one ain't exactly shabby.

Wait! I've changed my mind

[Hawkeye Pierce]

The first spreadsheet I made was using imaginary numbers to show the principle. Here's a spreadsheet showing two big law investors who exit into a job paying $80,000 after five years. One's on a 10-year plan, the other is on a 5-year plan. The disparity is huge. I made it quickly, so the numbers may be fucked up. But when you take into account the salary increases of a big law associate in the first five year, he's putting a very large amount of money into a higher earning asset than his peer who's investing in the market. He ends up making way more.

https://docs.google.com/spreadsheet/ccc ... li=1#gid=0

This latest spreadsheet is very illuminating

Is the 80k figure merely used as an illustrative example? It seems like a conservative estimate for someone who transitions to an in house counsel position or even federal government position after 5 years experience in biglaw.

[Bronte]

The first spreadsheet I made was using imaginary numbers to show the principle. Here's a spreadsheet showing two big law investors who exit into a job paying $80,000 after five years. One's on a 10-year plan, the other is on a 5-year plan. The disparity is huge. I made it quickly, so the numbers may be fucked up. But when you take into account the salary increases of a big law associate in the first five year, he's putting a very large amount of money into a higher earning asset than his peer who's investing in the market. He ends up making way more.

https://docs.google.com/spreadsheet/ccc ... li=1#gid=0

This latest spreadsheet is very illuminating

Is the 80k figure merely used as an illustrative example? It seems like a conservative estimate for someone who transitions to an in house counsel position or even federal government position after 5 years experience in biglaw.

It's used for illustrative purposes, yeah. I don't know that it's that conservative. As far as I know, that's around what you'll get in house or in the federal government. But it doesn't really make a difference because both investors make the same salary. If you up the salary, it only helps investor two. I'll up it to $100,000 and let's see what happens.

[birdlaw117]

The first spreadsheet I made was using imaginary numbers to show the principle. Here's a spreadsheet showing two big law investors who exit into a job paying $80,000 after five years. One's on a 10-year plan, the other is on a 5-year plan. The disparity is huge. I made it quickly, so the numbers may be fucked up. But when you take into account the salary increases of a big law associate in the first five year, he's putting a very large amount of money into a higher earning asset than his peer who's investing in the market. He ends up making way more.

https://docs.google.com/spreadsheet/ccc ... li=1#gid=0

This latest spreadsheet is very illuminating

Is the 80k figure merely used as an illustrative example? It seems like a conservative estimate for someone who transitions to an in house counsel position or even federal government position after 5 years experience in biglaw.

It doesn't actually matter what the post-biglaw salary is. The difference will always be $35,695.

[Hawkeye Pierce]

The first spreadsheet I made was using imaginary numbers to show the principle. Here's a spreadsheet showing two big law investors who exit into a job paying $80,000 after five years. One's on a 10-year plan, the other is on a 5-year plan. The disparity is huge. I made it quickly, so the numbers may be fucked up. But when you take into account the salary increases of a big law associate in the first five year, he's putting a very large amount of money into a higher earning asset than his peer who's investing in the market. He ends up making way more.

https://docs.google.com/spreadsheet/ccc ... li=1#gid=0

This latest spreadsheet is very illuminating

Is the 80k figure merely used as an illustrative example? It seems like a conservative estimate for someone who transitions to an in house counsel position or even federal government position after 5 years experience in biglaw.

It doesn't actually matter what the post-biglaw salary is. The difference will always be $35,695.

Oh yeah, you're right. Duh!

[Bronte]

The first spreadsheet I made was using imaginary numbers to show the principle. Here's a spreadsheet showing two big law investors who exit into a job paying $80,000 after five years. One's on a 10-year plan, the other is on a 5-year plan. The disparity is huge. I made it quickly, so the numbers may be fucked up. But when you take into account the salary increases of a big law associate in the first five year, he's putting a very large amount of money into a higher earning asset than his peer who's investing in the market. He ends up making way more.

https://docs.google.com/spreadsheet/ccc ... li=1#gid=0

This latest spreadsheet is very illuminating

Is the 80k figure merely used as an illustrative example? It seems like a conservative estimate for someone who transitions to an in house counsel position or even federal government position after 5 years experience in biglaw.

It doesn't actually matter what the post-biglaw salary is. The difference will always be $35,695.

Yeah. So I was wrong to say "it only helps investor two." It actually doesn't make any difference at that point because the earnings difference is behind them.

[rayiner]

The first spreadsheet I made was using imaginary numbers to show the principle. Here's a spreadsheet showing two big law investors who exit into a job paying $80,000 after five years. One's on a 10-year plan, the other is on a 5-year plan. The disparity is huge. I made it quickly, so the numbers may be fucked up. But when you take into account the salary increases of a big law associate in the first five year, he's putting a very large amount of money into a higher earning asset than his peer who's investing in the market. He ends up making way more.

https://docs.google.com/spreadsheet/ccc ... li=1#gid=0

This latest spreadsheet is very illuminating

Is the 80k figure merely used as an illustrative example? It seems like a conservative estimate for someone who transitions to an in house counsel position or even federal government position after 5 years experience in biglaw.

It's used for illustrative purposes, yeah. I don't know that it's that conservative. As far as I know, that's around what you'll get in house or in the federal government. But it doesn't really make a difference because both investors make the same salary. If you up the salary, it only helps investor two. I'll up it to $100,000 and let's see what happens.

It's very conservative for an associate who laterals as a 5th year. $80k is around what the lowest rungs of in-house positions pay, for people who transition in the first few years: http://www.inhouseblog.com/2011/10/inho ... aries.html, http://s3.amazonaws.com/DBM/M3/2011/Dow ... e_2012.pdf (page 13). As far as federal government, GS-12 in a big city is around $80k, and people with just one year's clerking experience get that. A fifth year litigator is going to come in at well over six figures: http://www.fda.gov/AboutFDA/WorkingatFD ... 112708.htm.

[Bronte]

It's very conservative for an associate who laterals as a 5th year. $80k is around what the lowest rungs of in-house positions pay, for people who transition in the first few years: http://www.inhouseblog.com/2011/10/inho ... aries.html, http://s3.amazonaws.com/DBM/M3/2011/Dow ... e_2012.pdf (page 13). As far as federal government, GS-12 in a big city is around $80k, and people with just one year's clerking experience get that. A fifth year litigator is going to come in at well over six figures: http://www.fda.gov/AboutFDA/WorkingatFD ... 112708.htm.

Good info thanks. Doesn't change the calculus, but it's good to know.

[IAFG]

It's very true. If you have PI goals--although this means the very serious goal to work in PI for 10 years--the calculus is very different, because LRAP itself provides a huge return. However, both investors one and two have a cash reserve, investor two's is just bigger at first. But $100,000 after five years for investor one ain't exactly shabby.

I think, for me, it will come out somewhere in the middle. I strongly prefer to have cash reserves. That's what helps me sleep at night. The debt really doesn't bug me. But if, say, my genius chef cousin wants to open a restaurant in Seattle, or my dream home is up as a short sale, or my baby brother gets into Harvard, or two of those things happened at the same time, I would rather have the cash.

But it's definitely a factor that I am a woman. I don't know when or if I will have babies, or if, when babies come, I will be eyeing PI jobs, but the possibility I will end up there is a consideration. That, combined with my liquidity preference, is enough to make me want to pay down my loans a little slower and sock away the rest.

It reminds me a lot of when the new NLJ250 stats come out, and people start freaking out because a school ranked 11th has 2% more grads placed in NLJ250 firms than a school ranked 8th. When we're quibbling over narrow margins, there's room for personal preference and comfort.