Student loan payments: get advice and actual numbers here Forum

[JenDarby]

I just paid 15k down on my debt and it was so anticlimactic. Debts still suffocating and cash on hand is diminished. Womp womp.

Did you consolidate/refi or do you still use the fedloan servicer? I'd feel better if I could just eliminate one of my higher interest loans.

I'm in the process of refinancing now. It all went to my highest interest loan, but hopefully they'll all be lower interest soon.

[Anonymous User]

Salary: 130k
Take home pay, $7,100
Total loan: about $24,000 at 5.5%
Monthly loan payment: $2,000
Monthly 401k contribution: $1,500

After student loan and 401k, I have $3,600 left each month to live on. Primary bread winner (engaged couple, no kids), and life is pretty good. We can't afford to constantly eat out or wear italian designer clothes, but we have a comfortable life. 2 bedroom apartment in the city in hip location. We keep cost down by cooking a lot and not having a car. Rent takes up most of my available money, as well as food and bills. After paying all expenses, I save about $300 - $400 each month.

[Anonymous User]

2nd year big law associate in NYC.
Salary: $170,000 + market bonus.

$215,000 debt at graduation
$3,000 total student loan monthly payment.

Refinanced $100,000 w/ SoFi. 10 year variable at 3.55%. Monthly payment: $1000
Remaining grad plus of $47,000 at 7.55%. Monthly payment: $1000
Remaining stafford of $63,000 at 6.55%. Monthly payment of $1000

I'm too risk averse to refi my entire debt load with SoFi. Obviously, any additional payments go to grad plus and stafford first. Before I pulled the trigger with SoFi I created a few amortization tables. Assuming I stay in biglaw with lockstep pay increases (and proportional increases to student loan payments), Grad plus will be paid off in 2018, stafford 6 months thereafter, SoFi in 2020 (not throwing extra money at it unless LIBOR sky rockets). My models do not include bonuses, so that money will be used in some combination of paying loans and diversifying.

Made minimum payments as a first year associate until I built up $10,000 in savings. Significant other just got a job, but my income will still support 85% of our expenses. We live a good life, but we have cheap interests. We spend much more on our gym membership every month than we do eating out or entertaining ourselves. We enjoy cooking, have a washer/dryer in our apartment, and use credit card miles to travel when we can. Only thing I'm not happy with is 401k contributions. Will be really trying to contribute 10k this year. Subjectively, I think we live better/are more secure than most late twenty something's.

[Anonymous User]

1st Year NYC Biglaw Associate
Salary: $160,000

- Refinanced $162,000 @ 7.9% with SOFI to a 10-year variable rate currently at 3.55% [$1,600/month]
- $86,000 remaining at a weighted average of 6.1% with regular student loans for 25 years [$590/month]

** Currently paying $3,000 a month for the variable rate loans. Trying to pay off in 3 years. If I see the eurozone really isnt getting stronger economically in a year and a half, i'll probably refinance the rest of my debt to a variable rate as well and try to pay everything off in 4 years.

I pretty much put $1,500 a month away straight into my savings account (have $25K in savings) and 8% into my 401K, the rest goes for loans, rent and living expenses. At the end of the day, I break even every month, but my savings account is always going up as is the 401K. I figure in 4-5 years when the debt is paid off I'll have around $100K in savings (some of which will be invested) and another $60-70K in my 401K.

[Old Gregg]

If I see the eurozone really isnt getting stronger economically in a year and a half,

How is this relevant?

[Anonymous User]

I'm too risk averse to refi my entire debt load with SoFi.

I followed your thinking until I actually sat down with my SoFi offer. I had a lot of debt too and thought about only financing a portion of my loans. The more I thought about it though, the less it made sense. In order to preserve any sort of "safety" net from IBR/PAYE, you need leave your high interest rate federal loans outstanding and pay down your lower rate SoFi loans first. If you don't you're still screwed if you lose your job because all of your loans are private (even though SoFi has a deferral program and some assistance if you lose your job).

The second prong of my reason to refinance basically all of my loans was that my rate cap from SoFi was 8.95%. That was less than 2% higher than the overall rate on my federal loans. Worst case I would wind up paying a few hundred bucks more a month than I would have to the feds. In reality though, it's extremely unlikely that I'll hit the rate cap anytime soon and in the meantime I get a net benefit of saving 3%+ in interest payments each month. That makes it easier to pay down the overall principal faster anyway, which minimizes my interest rate risk if rates do rise.

TL;DR - I think it's worth refinancing all of your loans at a favorable rate (fixed or variable is up to you) rather than splitting the baby and only refinancing part of your federal loans.

[Anonymous User]

I'm too risk averse to refi my entire debt load with SoFi.

I followed your thinking until I actually sat down with my SoFi offer. I had a lot of debt too and thought about only financing a portion of my loans. The more I thought about it though, the less it made sense. In order to preserve any sort of "safety" net from IBR/PAYE, you need leave your high interest rate federal loans outstanding and pay down your lower rate SoFi loans first. If you don't you're still screwed if you lose your job because all of your loans are private (even though SoFi has a deferral program and some assistance if you lose your job).

The second prong of my reason to refinance basically all of my loans was that my rate cap from SoFi was 8.95%. That was less than 2% higher than the overall rate on my federal loans. Worst case I would wind up paying a few hundred bucks more a month than I would have to the feds. In reality though, it's extremely unlikely that I'll hit the rate cap anytime soon and in the meantime I get a net benefit of saving 3%+ in interest payments each month. That makes it easier to pay down the overall principal faster anyway, which minimizes my interest rate risk if rates do rise.

TL;DR - I think it's worth refinancing all of your loans at a favorable rate (fixed or variable is up to you) rather than splitting the baby and only refinancing part of your federal loans.

Quoted anon here: Yeah...I get it and I agree that I am potentially losing some upside by not refinancing all of my debt with SoFi. For me, thats okay. My analysis treated IBR/PAYE as insurance. The question was very much "how much insurance do I want to "buy" by not refinancing some of my loans?"

My decision was based on trying to balance a spectrum of risk marked by three "nodes" if you will. (i) On the very left side of the spectrum is the possibility of getting 2008/09 fucked and losing my job unexpectedly. If that happens, I am screwed if I have any SoFi loans outstanding (not considering their deferral program since its yet to be put through its paces). (ii) In the middle of the spectrum, economy is okay, growing but not "New York to 190" or anything crazy, and I get pushed out of or otherwise leave big law around year 4, 5 or 6. (iii) On the very right side of the spectrum, the economy flourishes and I end up staying at the firm for the next 20 years, making partner along the way and buying a house in Westchester. In this scenario, any of my loans not refinanced with SoFi are counted as a loss as I've left interest savings on the table and never really needed IBR/PAYE insurance anyway.

Now, I think that the second possibility is most likely. I don't know how likely, but for the sake of illustration, for me, perhaps 70% likely given the firm I am at, my appetite for big law, location of family, etc. I think the chance of "New York to 190" and/or making partner is less than 5% and the chance of being Lathamed, again given a variety of factors, including the economy, the firm I am at and their past behavior and current behavior, is 20%. So, just like buying insurance from Flo at Progressive, I thought about the possibilities and their relative likelihood, rounded risk and likelihood up a bit for the sake of being conservative, and decided to refinance $100k. The combination, I think, given my situation(s) and tolerance for risk, is a rational balance struck with the objective of balancing the gain of saved interest and the risk of lost IBR/PAYE safety net. If everything goes well in the next 5-7 years then I will lose money I would have otherwise saved by refinancing all of my loans....I am okay with that in exchange for the peace of mind that I am not completely fucked if I get laid off and have only SoFi's untested deferral program to rely on.

TL;DR: No right answer here for everybody. Refinance what makes you comfortable with the understanding that you may or may not be leaving money on the table. I overbuy car insurance too. Even if I'm never in a catastrophic car accident...I'm cool paying more and knowing that I'll be okay if I am ever so unfortunate.

[Anonymous User]

Salary: ~60k (Fed clerk)
Debt: ~150k at 2.74% (for now), 15-year variable
Monthly loan payment: ~1k

All the debt is from CCN with a decent scholarship. Refinanced with DRB around graduation. Credit rating was in the high 700s. Going to NYC BigLawl.

The optimist in me thinks I can pay it off in three years.

[Doritos]

Salary: ~60k (Fed clerk)
Debt: ~150k at 2.74% (for now), 15-year variable
Monthly loan payment: ~1k

All the debt is from CCN with a decent scholarship. Refinanced with DRB around graduation. Credit rating was in the high 700s. Going to NYC BigLawl.

The optimist in me thinks I can pay it off in three years.

If you put $5,000/month on your loans at that interest rate you're looking at 2.5 years so you can do it. You'll have to do some budgeting because I'm not sure how much take-home pay you're looking at in NYC. 110k? 120k? Gotta live like you're making 50k-60k in NYC, which is totally doable but will require some lifestyle sacrifices. Good luck!

[gk101]

Salary: ~60k (Fed clerk)
Debt: ~150k at 2.74% (for now), 15-year variable
Monthly loan payment: ~1k

All the debt is from CCN with a decent scholarship. Refinanced with DRB around graduation. Credit rating was in the high 700s. Going to NYC BigLawl.

The optimist in me thinks I can pay it off in three years.

If you put $5,000/month on your loans at that interest rate you're looking at 2.5 years so you can do it. You'll have to do some budgeting because I'm not sure how much take-home pay you're looking at in NYC. 110k? 120k? Gotta live like you're making 50k-60k in NYC, which is totally doable but will require some lifestyle sacrifices. Good luck!

I know some people may have done it but its sorta unrealistic (and a bad financial decision) to pay 5k/month towards your loans which are at ~3%

[Anonymous User]

If I see the eurozone really isnt getting stronger economically in a year and a half,

How is this relevant?

Loans based on 1-month LIBOR

[Old Gregg]

If I see the eurozone really isnt getting stronger economically in a year and a half,

How is this relevant?

Loans based on 1-month LIBOR

Wait... so you think the ECB's decision to keep interest rates (for the Euro) at 0% will keep LIBOR low, despite the Fed probably raising interest rates on the USD mid-2015?

[Old Gregg]

Salary: ~60k (Fed clerk)
Debt: ~150k at 2.74% (for now), 15-year variable
Monthly loan payment: ~1k

All the debt is from CCN with a decent scholarship. Refinanced with DRB around graduation. Credit rating was in the high 700s. Going to NYC BigLawl.

The optimist in me thinks I can pay it off in three years.

If you put $5,000/month on your loans at that interest rate you're looking at 2.5 years so you can do it. You'll have to do some budgeting because I'm not sure how much take-home pay you're looking at in NYC. 110k? 120k? Gotta live like you're making 50k-60k in NYC, which is totally doable but will require some lifestyle sacrifices. Good luck!

I know some people may have done it but its sorta unrealistic (and a bad financial decision) to pay 5k/month towards your loans which are at ~3%

Bingo.

[Anonymous User]

Debt: T20 at sticker (principal $227k), currently $237k 1 year into repayment
Payments: about $250/month
Income: $54k
Plan: PAYE (PSLF-eligible)
Important info: Just over a year into my job. I'm a prosecutor, don't plan on jumping ship to a non-PSLF job until the loans are gone.

I survived the bar exam summer and the next four months of unemployment (including moving across the country) on credit cards (don't get me started, didn't have any other options). I'm down to about $13k in credit card debt, was about $17k when i got financially on my feet and started making some money. Trying to aggressively pay that off, but also contributing 6% to my 401k to get the max match. I have no savings and really need to start doing that, but I only have so much income to play with. I'm lucky I had a paid off vehicle and only pay about $600 rent. High commuting costs, about 60 miles round trip.

I also got a state LRAP grant of about $5k. The program is stupidly set up so that instead of crediting your actual payments due, it just lump summed into the account. It did knock down a bunch of interest, but didn't change my monthly bottom line at all.

FWIW I'm 30 and have no idea how I could have kids until the loans are gone.

[fats provolone]

why couldn't you have kids? 250/mo isn't that bad.

[Anonymous User]

It's not the $250 loan payment that's the problem, it's how not-far my salary goes in a high cost of living area. It would probably take 2/3 of my take-home pay to put a kid in day care (which isn't even a realistic option, because I'm in trial a ton, which means I'm stuck at work until a verdict comes in and can't go pick the kid up).

Once the loans are forgiven I'd have flexibility to either make way more money or do something more flexible or part-time, whatever I wanted at that time. All I know is in my current job it's not affordable and wouldn't work out.

[fats provolone]

oh well yea that makes sense.

[bk1]

It's not the $250 loan payment that's the problem, it's how not-far my salary goes in a high cost of living area. It would probably take 2/3 of my take-home pay to put a kid in day care (which isn't even a realistic option, because I'm in trial a ton, which means I'm stuck at work until a verdict comes in and can't go pick the kid up).

Once the loans are forgiven I'd have flexibility to either make way more money or do something more flexible or part-time, whatever I wanted at that time. All I know is in my current job it's not affordable and wouldn't work out.

Wouldn't a SO to help shoulder the burden either financially or by staying at home part of the time go a long way?

[Anonymous User]

Salary: ~60k (Fed clerk)
Debt: ~150k at 2.74% (for now), 15-year variable
Monthly loan payment: ~1k

All the debt is from CCN with a decent scholarship. Refinanced with DRB around graduation. Credit rating was in the high 700s. Going to NYC BigLawl.

The optimist in me thinks I can pay it off in three years.

I know some people may have done it but its sorta unrealistic (and a bad financial decision) to pay 5k/month towards your loans which are at ~3%

Bingo.

Good point. I meant "have enough accumulated in three years to pay it off." If rates go up enough, then I'd pay them off. At ~3%, I would be making minimum payments and investing the rest.

[Anonymous User]

At this point I have a similar debt load and if I receive a bonus I'm sinking the whole thing into my loans. Sure, you could get a better return than 4.3% but how much better?

Depends. Stocks have netted some SERIOUS gains the past couple years (like 6-8 times your 4.3% interest rate in 2013, depending on where you invested). But it's probably safe to say that you missed that boat; I highly doubt 2015 will post double digit returns. I'd be surprised if you didn't do better than 4.3% , though (unless you're retarded and invest in bonds or something stupid like that)

Down years happen in secular bull markets though, and we're def entering the dumb-money-is-chasing phase of this one. The yardstick is also more like 6% pre-tax.

I don't think there's a wrong answer to paying down low-interest debt or investing but I also think telling inexperienced investors they can expect superior returns might not be great advice.

In what world is exceeding 4.3% "superior returns"? Average inflation across the past 30 years has been at 3%, so 4.3% is 1.3% above the average inflation rate (which isn't say that we're actually going to see 3% inflation next year). If an inflation adjusted return of 1.3% is a "superior return" in your portfolio, you should really consider rebalancing that portfolio.

EDIT- my previous post was intended to suggest that the anon poster should invest the money, but just giving him an idea of "how much better" than 4.3% he could see in a really good year (like 2013). It's obviously all a pretty personal decision depending on adverseness to risk, long-term career goals, etc.

I'm the anon. Thanks for your insight.

[Old Gregg]

Salary: ~60k (Fed clerk)
Debt: ~150k at 2.74% (for now), 15-year variable
Monthly loan payment: ~1k

All the debt is from CCN with a decent scholarship. Refinanced with DRB around graduation. Credit rating was in the high 700s. Going to NYC BigLawl.

The optimist in me thinks I can pay it off in three years.

I know some people may have done it but its sorta unrealistic (and a bad financial decision) to pay 5k/month towards your loans which are at ~3%

Bingo.

Good point. I meant "have enough accumulated in three years to pay it off." If rates go up enough, then I'd pay them off. At ~3%, I would be making minimum payments and investing the rest.

Much better.

[Anonymous User]

Debt: 145k
Income: $160k + 15k bonus
Refinanced entirely to SoFi, fixed rate of 3.99%
5 year repayment plan
Monthly payments: $2900/month

[Anonymous User]

Currently clerking, so making ~$65k. Will be doing big law next year. I have pretty good credit... $175k in loans all at over 6%. Does it make sense to refinance now, or will I get a much better refinance rate if I wait until I start big law? Am I wrong in assuming salary is a factor considered by SoFi and the like when setting our interest rate? TIA.

[Old Gregg]

Currently clerking, so making ~$65k. Will be doing big law next year. I have pretty good credit... $175k in loans all at over 6%. Does it make sense to refinance now, or will I get a much better refinance rate if I wait until I start big law? Am I wrong in assuming salary is a factor considered by SoFi and the like when setting our interest rate? TIA.

Refinance now and again when you move to biglaw. Why waste money?

[bk1]

Currently clerking, so making ~$65k. Will be doing big law next year. I have pretty good credit... $175k in loans all at over 6%. Does it make sense to refinance now, or will I get a much better refinance rate if I wait until I start big law? Am I wrong in assuming salary is a factor considered by SoFi and the like when setting our interest rate? TIA.

Salary may impact your ability to refinance in the sense that you might need a cosigner to refinance at all.