Student loans pre-tax Forum

[Anonymous User]

So I have around $175k in student loans (pre-interest; around $200 k now with interest) and will be starting major market big law this fall.

My problem is that my co-signer wants me to pay off my loans in 2 years which as far as I can tell is completely and absolutely impossible. He suggested that I contact HR at my firm to see if they would pay off my loans directly and deduct that from my compensation so that I don't have to pay taxes on the 160k+ but on whatever amount remains after insanely high student loans contributions every month (so around $80k).

I feel like that makes no sense (after all if it were a feasible option -- wouldn't everyone use it?) and might well be illegal -- what might be the consequences if I actually take his "advice" and approach HR with this question?
Is there a legal argument I can give my co-signer to indicate why asking my firm this would not be wise?

(I think if I am super aggressive and really pinch pennies I could pay off the loans in 3 years and then some (slightly above market pay) but 2 years is straight up impossible)

[sundontshine]

You must not be going into tax law. The reason nobody does that is because it wouldn't work. You'd still have to pay taxes on all $160k because it's all still income, including the amount used to satisfy your debts.

Tell your co-signer he should back off.

Oh, and this isn't legal advice. It's something that is easily googleable and taught on like day 2 of a tax law course.

[NinerFan]

So I have around $175k in student loans (pre-interest; around $200 k now with interest) and will be starting major market big law this fall.

My problem is that my co-signer wants me to pay off my loans in 2 years which as far as I can tell is completely and absolutely impossible. He suggested that I contact HR at my firm to see if they would pay off my loans directly and deduct that from my compensation so that I don't have to pay taxes on the 160k+ but on whatever amount remains after insanely high student loans contributions every month (so around $80k).

I feel like that makes no sense (after all if it were a feasible option -- wouldn't everyone use it?) and might well be illegal -- what might be the consequences if I actually take his "advice" and approach HR with this question?
Is there a legal argument I can give my co-signer to indicate why asking my firm this would not be wise?

(I think if I am super aggressive and really pinch pennies I could pay off the loans in 3 years and then some (slightly above market pay) but 2 years is straight up impossible)

Depending on what market you're in for tax and COL calculations, I'm skeptical you could pay that amount off in 3 unless you lived with a few roommates in a shitty apartment and spent on nothing outside of the necessities (never eat out, don't drink, never see a movie, etc). This is based just on looking at my finances and on what I spend on a monthly basis.

[dixiecupdrinking]

Your co-signor is a moron. The only consequences of asking HR about this will be that you will suffer several seconds of bewildered silence. You can't pay student loans with pre tax dollars. There's just no mechanism to do it. Is your firm supposed to cut your lender a check on your behalf every month? I mean, I don't want to pile on but this is just ludicrous. You might as well ask your firm if they'll buy you a car with pre tax dollars.

ETA: I guess the most charitable way to read this suggestion is that you ask HR to change your withholding to account for the large deductions you'll take for all your loan payments. Don't do that. Student loan interest is only deductible up to a certain salary cap which you'll exceed after your stub year (and only up to a certain dollar amount anyway). This can be a hard thing for boomers to understand because they can deduct their mortgage interest.

[sundontshine]

What you really should do is have your firm pay for your rent, groceries, alcohol, home furnishings, and a car, plus the student loans, all with pre-tax dollars. Then, have them put the rest into your savings account, pre-tax obviously.

You'll be left with zero taxable income and all your expenses paid!

[Anonymous User]

OP here -- thanks; I knew there was no way his suggestion made any sense whatsoever but I needed to figure out how to get him to back off

Doh on the student loan payments still counting as income point -- should stop to think when I'm stressed

And I doubt three years is realistic unless I want to be completely miserable (eating only rice and beans and firm-comped dinners; no going out; no travel; shitty apartment with roommates etc etc) but that is the absolute minimum amount of time I can imagine (with a miserable existence);

[dixiecupdrinking]

Here's an IRS overview of the deductibility of student loan interest. http://www.irs.gov/taxtopics/tc456.html

The upshot is it's laughably useless for a biglaw attorney.

[UMich11]

So I have around $175k in student loans (pre-interest; around $200 k now with interest) and will be starting major market big law this fall.

My problem is that my co-signer wants me to pay off my loans in 2 years which as far as I can tell is completely and absolutely impossible. He suggested that I contact HR at my firm to see if they would pay off my loans directly and deduct that from my compensation so that I don't have to pay taxes on the 160k+ but on whatever amount remains after insanely high student loans contributions every month (so around $80k).

I feel like that makes no sense (after all if it were a feasible option -- wouldn't everyone use it?) and might well be illegal -- what might be the consequences if I actually take his "advice" and approach HR with this question?
Is there a legal argument I can give my co-signer to indicate why asking my firm this would not be wise?

(I think if I am super aggressive and really pinch pennies I could pay off the loans in 3 years and then some (slightly above market pay) but 2 years is straight up impossible)

If anything, talk with the HR at your firm, or even your manager, about setting up a simple post-tax deduction from your paycheck each pay period. 90%+ of the people joining your firm have loans, so i'm sure they've had this discussion before or some aspect of it. Set the amount so it will pay off all your loans according to a certain timeline - 3 years or so. then you're set. Let you cosigner bitch but unless you decided to refinance (which could also be a good idea if you can shave a few bps off the interest rate and save a couple thousand) there is no way they can get stuff done any sooner than what is humanly possible. Don't live like a pauper but don't splurge.

My goal is 2 years and i'll have ~130 (ug + LS) when i'm done. It's tough, but doable.

[dixiecupdrinking]

I don't see any reason to involve your employer in this issue. Just set up a monthly autopay from your own bank account to your lender. Doesn't that accomplish the same thing?

[Chrstgtr]

I don't see any reason to involve your employer in this issue. Just set up a monthly autopay from your own bank account to your lender. Doesn't that accomplish the same thing?

That won't work for the OP because the cosigner basically wants the law firm to assume the debt thereby allowing the cosigner off of all responsibility and making the firm to pay off this newly assumed debt with the OPs salary (which assumes that something terrible doesn't happen to the OP) -a whole other level of absurdity.

[UMich11]

I don't see any reason to involve your employer in this issue. Just set up a monthly autopay from your own bank account to your lender. Doesn't that accomplish the same thing?

That won't work for the OP because the cosigner basically wants the law firm to assume the debt thereby allowing the cosigner off of all responsibility and making the firm to pay off this newly assumed debt with the OPs salary (which assumes that something terrible doesn't happen to the OP) -a whole other level of absurdity.

never will nor would happen - by any employer. On caveat is if they send you to school with the condition you stay for x years.

Let this be a lesson so that no one cosigns anyone's loans, especially Law school

[Anonymous User]

Assuming these are federally backed and not private loans- now that he has an income he might be able to do a federal consolidation loan and get the co signer off. Anyone know if that's possible?

sorry for the anonymous- didn't mean to- westbayguy

[XxSpyKEx]

And I doubt three years is realistic unless I want to be completely miserable (eating only rice and beans and firm-comped dinners; no going out; no travel; shitty apartment with roommates etc etc) but that is the absolute minimum amount of time I can imagine (with a miserable existence);

It depends on the market. If it's NYC, then hell no lol. It's definitely doable in place like Chicago or Dallas, where cost of living is really cheap and state income taxes are a lot lower/non-existent. For example, in Chicago, $160k /year is like $105K after taxes. Take out $20k /year for cost of living (which is very doable in the burbs--rent is like $400 /month at a nice house with roommates), and you still have $85k /year left over that you could throw at your loans. You'd definitely have your loans paid off in less than 3 years with that. It's not living the life of a typical biglaw associate, and there will be degree of misery there (commuting, living frugally despite making a lot of money for the market, etc), but it can be done. 2 years is impossible in any market with $160k /year unless you're able to live for free (e.g. family or spouse covering your entire cost of living).

[09042014]

Assuming these are federally backed and not private loans- now that he has an income he might be able to do a federal consolidation loan and get the co signer off. Anyone know if that's possible?

sorry for the anonymous- didn't mean to- westbayguy

You might be able to do a private refi too.