Biglaw & Loan Repayment Forum

[Anonymous User]

You're a junior biglaw associate and have a full load of loans. You probably plan on sticking in big law for a total of a few years with a vague "and then something else" next step (partially because you're not sure what you want, partially because you're not sure what is realistic).

Are you on 10 year plan (and maybe a little on top) or are you on a repayment plan to extend the period of repayment?

The obvious question here is whether you hope/aim for a high income in all instances and just try to stamp the debt out as fast as possible to minimize overall cost.

The caveat is: what happens if you leave biglaw, by choice or by force, and end up with a job or career which will never allow you to pay off your loans (or you work non-profit or government). Then the high payments during biglaw years are essentially a waste.

As someone who is not really enticed by the carrot of partnership (partners don't seem to be particularly happy on the whole, despite their lucrative position), I worry that I may be throwing money into a loan I'll never end up paying off. Considering switching to a 25 year repayment and driving the extra $1k+ a month into savings/investment/retirement.

What is everyone else doing with this?

[Desert Fox]

[Anonymous User]

OP:

That's what I'm thinking, I just can't see myself sticking it out in biglaw, and if I do I'll have the means to readjust loan payments.

The chances are I'll either go with something that I enjoy but which doesn't pay much (tax bomb scenario) or to non-profit/gov't and never repay. In those scenarios, it just doesn't make sense to be on a 10 year plan.

Already paid a couple years at 10 year pace, now that I'm giving it really thought I'm pissed at myself that I did. But I guess I had to give myself a chance to see if this was something I'd continue to do.

[v5junior]

I had 264k and I refi'd with SOFI for 3.5% variable for ten years. I regret it.

Do PAYE and just pay the minimum. Start a savings account, max your 401k, and buy a house. After you buy a house, add 500 a month to a "tax bomb fund." You'll be set.

isn't the tax bomb going to wipe out your savings account and 401k? pretty sure the 500 a month will not cover the tax bomb.

[Desert Fox]

[Johann]

I had 264k and I refi'd with SOFI for 3.5% variable for ten years. I regret it.

Do PAYE and just pay the minimum. Start a savings account, max your 401k, and buy a house. After you buy a house, add 500 a month to a "tax bomb fund." You'll be set.

I am doing this and it's working beautifully.

[chuckbass]

So how big does the tax bomb end up being when you have DF level debt?

[orangecup]

I had 264k and I refi'd with SOFI for 3.5% variable for ten years. I regret it.

Do PAYE and just pay the minimum. Start a savings account, max your 401k, and buy a house. After you buy a house, add 500 a month to a "tax bomb fund." You'll be set.

I'll be sitting at 190k at repayment. Is this TCR for my load too? Or should I pay this shit down ASAP?

[Johann]

So how big does the tax bomb end up being when you have DF level debt?

Who cares it's 20 years from now. Time value of money means even if you pay 200k on a tax bomb of like 600k forgiven. That's like 50k in current dollars.

[dixiecupdrinking]

The way the numbers work out that's probably the better course, but I dunno, I have aggressively paid mine down while in biglaw and I don't regret it. There is a lot to be said for the psychic benefit of not having six figure debt hanging over you forever. If I go government afterwards, which is not unlikely, then it will have turned out to be something of a waste, but oh well. I started around $150k, so I guess the cost/benefit was a little different, too.

[Elston Gunn]

$240k and doing Biglaw eventually. PAYE to the end of the line, baby.

[First Offense]

I had 264k and I refi'd with SOFI for 3.5% variable for ten years. I regret it.

Do PAYE and just pay the minimum. Start a savings account, max your 401k, and buy a house. After you buy a house, add 500 a month to a "tax bomb fund." You'll be set.

This just seems... insane. Won't the PAYE at a certain level be the same/more than a normal PAYE repayment? Or is that when you're an 8th year/partner so by that time fuck it you have more money than you can count-type shit.

[Elston Gunn]

I had 264k and I refi'd with SOFI for 3.5% variable for ten years. I regret it.

Do PAYE and just pay the minimum. Start a savings account, max your 401k, and buy a house. After you buy a house, add 500 a month to a "tax bomb fund." You'll be set.

This just seems... insane. Won't the PAYE at a certain level be the same/more than a normal PAYE repayment? Or is that when you're an 8th year/partner so by that time fuck it you have more money than you can count-type shit.

If you've got that much debt IIRC you come out ahead unless you average significantly more than $250k/yr over those 20 years. It's totally possible to lose money doing it, but you're paying for flexibility + the possibility that you spend 10 of those years in government/501c3. And if you end up making what most people who exit lit to private practice make (let's say $150k or less), you come out ahead anyway.

[Anonymous User]

What about for a lower debt load?

I've got 70k and thinking about doing a SOFI 5-year variable @ 2.69%.

Payments are about $1200 a month for 5 years, which comes out to about $5k finance charge.

Start Biglaw 160k next month.

What do you guys think? It seems like PAYE may not be the best option for me but I also can't predict the future in terms of post-biglaw options.

[dixiecupdrinking]

What about for a lower debt load?

I've got 70k and thinking about doing a SOFI 5-year variable @ 2.69%.

Payments are about $1200 a month for 5 years, which comes out to about $5k finance charge.

Start Biglaw 160k next month.

What do you guys think? It seems like PAYE may not be the best option for me but I also can't predict the future in terms of post-biglaw options.

At that amount just pay it off. You'll be done in 1.5-2 years if you're smart.

[Tiago Splitter]

What about for a lower debt load?

I've got 70k and thinking about doing a SOFI 5-year variable @ 2.69%.

Payments are about $1200 a month for 5 years, which comes out to about $5k finance charge.

Start Biglaw 160k next month.

What do you guys think? It seems like PAYE may not be the best option for me but I also can't predict the future in terms of post-biglaw options.

At that amount just pay it off. You'll be done in 1.5-2 years if you're smart.

Yeah you'd have to make a pretty low salary for most of the next 20 years to even have anything left to forgive. Although down below 3-4% I'd at least take the full term to pay it off and build up savings elsewhere.

[Johann]

The way the numbers work out that's probably the better course, but I dunno, I have aggressively paid mine down while in biglaw and I don't regret it. There is a lot to be said for the psychic benefit of not having six figure debt hanging over you forever. If I go government afterwards, which is not unlikely, then it will have turned out to be something of a waste, but oh well. I started around $150k, so I guess the cost/benefit was a little different, too.

At 150k you def did the right thing.

[v5junior]

I had 264k and I refi'd with SOFI for 3.5% variable for ten years. I regret it.

Do PAYE and just pay the minimum. Start a savings account, max your 401k, and buy a house. After you buy a house, add 500 a month to a "tax bomb fund." You'll be set.

This just seems... insane. Won't the PAYE at a certain level be the same/more than a normal PAYE repayment? Or is that when you're an 8th year/partner so by that time fuck it you have more money than you can count-type shit.

If you've got that much debt IIRC you come out ahead unless you average significantly more than $250k/yr over those 20 years. It's totally possible to lose money doing it, but you're paying for flexibility + the possibility that you spend 10 of those years in government/501c3. And if you end up making what most people who exit lit to private practice make (let's say $150k or less), you come out ahead anyway.

the numbers vary wildly based on your projected future earnings + the discount rate you use, and it's easy to come up with plausible scenarios for $265k in debt that come out either way.

I guess this strategy isn't completely nuts if you're doing litigation, but in corporate given (a) higher expected career earnings and (b) low likelihood of entering a PSLF eligible job, I would not do this as a corporate associate.

[Desert Fox]

[Johann]

Think of payE as hedging your risk. It makes bad outcomes way better and makes good outcomes a little worse. You aren't going to care about an extra 50k in interest if you make over 200k for 20 straight years.

You can even sort of do both. Get on payE for 3 years paying almost nothing. Save as much as you can. If you make it that long and have good edit options with good pay then you refi with sofi. You dump that over 100k saved into the loans and keep paying it off. You pay some extra interest.

The real fear is that Silicon Valley shits the bed the market spooks and we have another credit crunch. Firms lay people off. It takes you a year to find a job that pays 90k. And are stuck with 2500 a month sofi payments.

And honestly if you are just investing your money in SPY, historically on average you're savings are better off there than paying down even like 7.5% loans. So it's really even questionable if you are worse off. You will have to pay more interest certainly, but it is pretty likely you may have more money to pay the more interest.

I think refinancing before 1 full year in biglaw is a pretty big no-no for people with over 200k debt. The closer you are to 300, refi before year 3 is still pretty cut and dry imo. The questionable period for someone 300k in debt comes about at year 3. I'm going the 20 year term though. I've paid less than $2,000 to my loans since graduating multiple years ago.

[Anonymous User]

What is this tax bomb?

[Elston Gunn]

What is this tax bomb?

When your loans get forgiven, the IRS considers you to have extra income that year equal to the amount forgiven. So you have to pay taxes on the forgiven amount.

[Anonymous User]

What is this tax bomb?

When your loans get forgiven, the IRS considers you to have extra income that year equal to the amount forgiven. So you have to pay taxes on the forgiven amount.

Wow, great to know. Thanks

[WheatThins]

What is this tax bomb?

When your loans get forgiven, the IRS considers you to have extra income that year equal to the amount forgiven. So you have to pay taxes on the forgiven amount.

Wow, great to know. Thanks

Cancellation of debt is considered income. I don't know how "they'd get rid of it".

[Elston Gunn]

What is this tax bomb?

When your loans get forgiven, the IRS considers you to have extra income that year equal to the amount forgiven. So you have to pay taxes on the forgiven amount.

Wow, great to know. Thanks

Cancellation of debt is considered income. I don't know how "they'd get rid of it".

Um, by passing a law saying we're going to deduct it from income as with any other tax deduction? Or whatever they did with the forgiven PSLF debt? Just spitballin'.