Paying Back Loans Forum

[Anonymous User]

Hi all, I apologize if this has been mentioned in a previous post, but perhaps this might be useful to synthesize all the information from you finance savants...

For those of us with a SHIZLOAD of law skewl debt, but are fortunate to have locked up the hellhole that is a BigLawl position (twisted world we live in), is it better to live off the bare minimum and pay off all your loans immediately (so the interest doesn't accrue) or is it better to do those loan forgiveness programs/ pay 10% of your income for 10 years? Or is there a third option that is more fiscally responsible?

I'm asking because one of my friends is in investment banking and making 180k+ and he's doing the loan forgiveness program...

I was thinking about suffering through the 2-3 years it will take to pay off my loans all at once, but then again, if I can just pay 10% for ten years, and I can spend the other 90% on booze, it would prob make biglaw more doable...

[BarbellDreams]

I personally would pay them off asap. I would live on 40-50k/year and dump everything else into loans. Once loans aren't at issue, you open up lateral options to ANYTHING, including low level 9-5's with good work conditions and ample vacation time (gov work basically). Would I take a 60k gov job over biglaw with 200k in debt? No. Would I take it with 0 loans? Hell yes.

[raptors_delight]

is it better to do those loan forgiveness programs/ pay 10% of your income for 10 years?

Ten-year loan forgiveness is only for people in the Public Service Loan Forgiveness program. You have to be working in a "public interest" job, which means working for the government or working for a 501(c)(3) nonprofit. You can't qualify if you're working in Biglaw. You can, however, possibly qualify for an income-driven repayment plan that requires you to pay either 10% or 15% of your AGI toward your loans for 20 or 25 years. So if you decide to stay in Biglaw, the decision is not between paying off the loans as quickly as possible or paying 10% of AGI over 10 years; the decision is between paying off the loans as quickly as possible or paying 10% or 15% of AGI over 20 or 25 years.

[Anonymous User]

OP here, thanks for the tips!

So if I chose to do the 10% over 20 or 25 years, when factoring in the interest v. the present value of dat cash $, do you think it's worth it? I assume I'd have to pay the entire 20 years even if I always have a job paying over 100k simply due to that interest..

Also is it typically hard to qualify for that 20-25 year thing?

[jkpolk]

OP here, thanks for the tips!

So if I chose to do the 10% over 20 or 25 years, when factoring in the interest v. the present value of dat cash $, do you think it's worth it? I assume I'd have to pay the entire 20 years even if I always have a job paying over 100k simply due to that interest..

Also is it typically hard to qualify for that 20-25 year thing?

That question about whether a certain plan vs. another plan is "worth it" is a normative question. Trying to make it a spreadsheet exercise is one way to do it, and you should definitely model out how much you'd pay under the different options, but it's also possible that you value having money to play with earlier in life (even though it "costs" more in the long term) or that you really want to be free of the mental baggage of debt or have one of a million other idiosyncratic preferences. Just something to think about.

[Anonymous User]

OP here, thanks for the tips!

So if I chose to do the 10% over 20 or 25 years, when factoring in the interest v. the present value of dat cash $, do you think it's worth it? I assume I'd have to pay the entire 20 years even if I always have a job paying over 100k simply due to that interest..

Also is it typically hard to qualify for that 20-25 year thing?

That question about whether a certain plan vs. another plan is "worth it" is a normative question. Trying to make it a spreadsheet exercise is one way to do it, and should definitely model out how much you'd pay under the different options, but it's also possible you value having money to play with earlier in life even though it "costs" more in the long term or really want to be free of the mental baggage or have one of a million other idiosyncratic preferences. Just something to think about.

This is true, OP, I also wonder whether you could get a loan from a bank with a lower interest rate

[A. Nony Mouse]

There's a lot of discussion of these exact issues here: http://top-law-schools.com/forums/viewt ... 4#p9210554

[Tls2016]

Hi all, I apologize if this has been mentioned in a previous post, but perhaps this might be useful to synthesize all the information from you finance savants...

For those of us with a SHIZLOAD of law skewl debt, but are fortunate to have locked up the hellhole that is a BigLawl position (twisted world we live in), is it better to live off the bare minimum and pay off all your loans immediately (so the interest doesn't accrue) or is it better to do those loan forgiveness programs/ pay 10% of your income for 10 years? Or is there a third option that is more fiscally responsible?

I'm asking because one of my friends is in investment banking and making 180k+ and he's doing the loan forgiveness program...

I was thinking about suffering through the 2-3 years it will take to pay off my loans all at once, but then again, if I can just pay 10% for ten years, and I can spend the other 90% on booze, it would prob make biglaw more doable...

Do you mean PAYE? Where your debt is forgiven but you get taxed at the end?
There is no pay 10% for 10 years and have debt forgiven plan.
You seem to be mixing different plans together.

[Tiago Splitter]

I would do (and am doing) PAYE so you can leave biglaw as quickly as you'd like. If you don't build up meaningful savings until after your debt is paid off you're committing up front to several years of biglaw.

[star fox]

I personally would pay them off asap. I would live on 40-50k/year and dump everything else into loans. Once loans aren't at issue, you open up lateral options to ANYTHING, including low level 9-5's with good work conditions and ample vacation time (gov work basically). Would I take a 60k gov job over biglaw with 200k in debt? No. Would I take it with 0 loans? Hell yes.

Why not still live on 40-50k and invest the rest so in 5 years you'll have quite a bit of money at your disposal? If you get fired its a million times better to have lots of money lots of debt then no money no debt.

[whysoseriousbiglaw]

I think paying off loans makes more sense now given the tax bomb and high interest rates on fed loans. Also the stock market is doing SHIT (so the argument that you can invest and make more money in the market now doesn't really apply at the moment), and frankly average stock market returns for years past (not just looking at 2012/2013 which were anomalies) don't beat high interest rates on fed loans.

[Tiago Splitter]

I think paying off loans makes more sense now given the tax bomb and high interest rates on fed loans. Also the stock market is doing SHIT (so the argument that you can invest and make more money in the market now doesn't really apply at the moment), and I think that the US is going to have another Great Depression in our lifetime....probably some time in the next 20-30 years.

You don't have to invest the money and no one is arguing that you should use PAYE in order to make more money via the market. I don't understand why people who hate biglaw so much say you should put everything into loans so that you're forced to stay in biglaw much longer than you'd have to if you just sock away some cash.

[whysoseriousbiglaw]

I think paying off loans makes more sense now given the tax bomb and high interest rates on fed loans. Also the stock market is doing SHIT (so the argument that you can invest and make more money in the market now doesn't really apply at the moment), and I think that the US is going to have another Great Depression in our lifetime....probably some time in the next 20-30 years.

You don't have to invest the money and no one is arguing that you should use PAYE in order to make more money via the market. I don't understand why people who hate biglaw so much say you should put everything into loans so that you're forced to stay in biglaw much longer than you'd have to if you just sock away some cash.

Because you can easily live like a pauper, accrue some savings (not as much as you would if you weren't paying off loans) and still pay off loans quickly within like a 3 year period....I would just save like 20k liquid as an emergency fund, max 401k (which people should do regardless since your odds of making this kind of money again is slim), and then throw everything else into loans. If you live cheaply (and most biglawyers don't...) you can pay off the vast, vast majority of your loans within 3 years. And if you can't last 3 years in biglaw, then you're probably already fucked for life anyway since you took out max loans.

When you have a small loan amount, you can take whatever job you want (and leave the law for a low paying job too) without having to deal with the ramifications of having a high debt amount and having to deal with that shit for years.

[Tiago Splitter]

I think paying off loans makes more sense now given the tax bomb and high interest rates on fed loans. Also the stock market is doing SHIT (so the argument that you can invest and make more money in the market now doesn't really apply at the moment), and I think that the US is going to have another Great Depression in our lifetime....probably some time in the next 20-30 years.

You don't have to invest the money and no one is arguing that you should use PAYE in order to make more money via the market. I don't understand why people who hate biglaw so much say you should put everything into loans so that you're forced to stay in biglaw much longer than you'd have to if you just sock away some cash.

Because you can easily live like a pauper, accrue some savings (not as much as you would if you weren't paying off loans) and still pay off loans quickly within like a 3 year period....I would just save like 20k liquid as an emergency fund, max 401k (which people should do regardless since your odds of making this kind of money again is slim), and then throw everything else into loans. If you live cheaply (and most biglawyers don't...) you can pay off the vast, vast majority of your loans within 3 years. And if you can't last 3 years in biglaw, then you're probably already fucked for life anyway since you took out max loans.

Ok so just save 40k and then start paying loans? I thought we were disagreeing. Not sure how you pay off the vast, vast majority of 250k+ loans like this in just three years though.

[whysoseriousbiglaw]

I think paying off loans makes more sense now given the tax bomb and high interest rates on fed loans. Also the stock market is doing SHIT (so the argument that you can invest and make more money in the market now doesn't really apply at the moment), and I think that the US is going to have another Great Depression in our lifetime....probably some time in the next 20-30 years.

You don't have to invest the money and no one is arguing that you should use PAYE in order to make more money via the market. I don't understand why people who hate biglaw so much say you should put everything into loans so that you're forced to stay in biglaw much longer than you'd have to if you just sock away some cash.

Because you can easily live like a pauper, accrue some savings (not as much as you would if you weren't paying off loans) and still pay off loans quickly within like a 3 year period....I would just save like 20k liquid as an emergency fund, max 401k (which people should do regardless since your odds of making this kind of money again is slim), and then throw everything else into loans. If you live cheaply (and most biglawyers don't...) you can pay off the vast, vast majority of your loans within 3 years. And if you can't last 3 years in biglaw, then you're probably already fucked for life anyway since you took out max loans.

Ok so just save 40k and then start paying loans? I thought we were disagreeing. Not sure how you pay off the vast, vast majority of 250k+ loans like this in just three years though.

No, I would probably start paying heavily down after 10-15k liquid saved, but just always max 401k. Not wait until you have 40k in the bank. Live in Jersey with roommates for like 400 bucks a month rent....that's one solution. Throw your bonuses into loan repayment. I think it's doable to pay down the majority within 3 years. Most people spend too much on rent.

[jkpolk]

No, I would probably start paying heavily down after 10-15k liquid saved, but just always max 401k. Not wait until you have 40k in the bank. Live in Jersey with roommates for like 400 bucks a month rent....that's one solution. Throw your bonuses into loan repayment. I think it's doable to pay down the majority within 3 years. Most people spend too much on rent.

Drop me a line when you find anything under 1500/mo. within an hour commute

[PMan99]

If you have a lot of debt (like clearing 200k) the answer is always PAYE. It is foolish to assume 1) you'll last more than 2 years in biglaw 2) you'll hit your bonus each year 3) you won't run into anything in the next 3-5 years that will cause you to spend more than a minimal amount each year. You also just spend less money under PAYE than under actual repayment once you discount, and it usually isn't close.

[Anonymous User]

No, I would probably start paying heavily down after 10-15k liquid saved, but just always max 401k. Not wait until you have 40k in the bank. Live in Jersey with roommates for like 400 bucks a month rent....that's one solution. Throw your bonuses into loan repayment. I think it's doable to pay down the majority within 3 years. Most people spend too much on rent.

Drop me a line when you find anything under 1500/mo. within an hour commute

I live in the Bronx for 500/month. 40 min commute to midtown. Or were you talking specifically about Jersey?

[Johann]

Go to the link nony mouse posted above. Pay as you earn is the payment plan for you.

[whysoseriousbiglaw]

No, I would probably start paying heavily down after 10-15k liquid saved, but just always max 401k. Not wait until you have 40k in the bank. Live in Jersey with roommates for like 400 bucks a month rent....that's one solution. Throw your bonuses into loan repayment. I think it's doable to pay down the majority within 3 years. Most people spend too much on rent.

Drop me a line when you find anything under 1500/mo. within an hour commute

I live in the Bronx for 500/month. 40 min commute to midtown. Or were you talking specifically about Jersey?

Journal Square in Jersey City is super cheap - also under an hour to midtown/fidi (like under 500 dollar range for a room)

You can easily get a room in a nice building in jersey city by exchange place/water front for under 1500 (more like 1000-1100 a month)...possibly even a studio

most people don't realize how much cheaper jersey/outer boroughs are compared to Manhattan...it's like 2k difference

[skers]

Living like a pauper in Jersey seems like such a depressing option.

[Anonymous User]

OP here,

So assuming 180k in debt, with an income of 100k after taxes (the forum's I've browsed say this is a pretty fair number from 160k after everything), PAYE is the credited move? Then you'd be paying $15,000 for the 2-3 years of biglaw, and then since moving in house would result in less $, so like say 80,000 after taxes, and therefore you'd be paying $12,000 a year for 25 years (or until all your loans are paid off?) that seems a little steep..

But I mean if that's the only option aside from spending the remaining 4 hours you get off from your biglaw job in a tiny cramped studio apartment with no windows, I guess it's worth it no?

[Tiago Splitter]

OP here,

So assuming 180k in debt, with an income of 100k after taxes (the forum's I've browsed say this is a pretty fair number from 160k after everything), PAYE is the credited move? Then you'd be paying $15,000 for the 2-3 years of biglaw, and then since moving in house would result in less $, so like say 80,000 after taxes, and therefore you'd be paying $12,000 a year for 25 years (or until all your loans are paid off?) that seems a little steep..

But I mean if that's the only option aside from spending the remaining 4 hours you get off from your biglaw job in a tiny cramped studio apartment with no windows, I guess it's worth it no?

At 180k you can go either way. Just live well below your means and you'll be fine.

[muskies970]

OP here,

So assuming 180k in debt, with an income of 100k after taxes (the forum's I've browsed say this is a pretty fair number from 160k after everything), PAYE is the credited move? Then you'd be paying $15,000 for the 2-3 years of biglaw, and then since moving in house would result in less $, so like say 80,000 after taxes, and therefore you'd be paying $12,000 a year for 25 years (or until all your loans are paid off?) that seems a little steep..

But I mean if that's the only option aside from spending the remaining 4 hours you get off from your biglaw job in a tiny cramped studio apartment with no windows, I guess it's worth it no?

Quick Bad Math.

15k * 3 = 45k
12k * 22 = 264k
== ~ 310k, probably a little more if your salary goes up throughout your career? Maybe more costs

If paying 180k debt over 3-5 years, you'll probably pay a little over 200k after interest.

Someone smarter than me would have to do the time value of money stuff. Idk depends on how you want to live up front/throughout your career. If you end up making bank later in your career you can always switch from PAYE and pay off your debt. If you end up not going in house and making a smaller income, even better.

[skers]

Yeah, depends on what you can handle. I'm going w/ the sofi and pay down aggressively route, which is probably still a good idea at $180k.