Spend $50k paying off loans now?! Forum

[hds2388]

My original law school loan balance was $225k. Working my butt off in big law, I have paid down that balance to almost exactly $50k over about 7.5 years. Along the way, I refinanced my federally originated loans to SoFi. Wonderfully, I now have the $50k on savings to pay the balance to zero. I separately have an account with six months of emergency expenses.

While my plan had been to pay off my loans at the end of 2020 in an amazing end of year hoorah, I didn’t because there seemed to be some momentum for debt cancellation and I wanted to see how it shook out.

Given the below notes, what would you do? Pay off loans now or hang tight and wait for more clarity on cancellation from the Biden admin?

1. My loans are no longer federally held because I refinanced to SoFi, so executive debt cancellation by Biden may not reach my loans (hard to tell? Insights welcome).
2. There is nothing pressing me to pay them off now except that student loans suck really bad and I want them out of my life. I hate them with the fire of a burning sun. But, I have a good job and the monthly payment on my loans fits my lifestyle these days. Obviously paying them off would save me hundreds of dollars a month in interest.
3. I also don’t want to pay off my loans and then a week later have some loan cancellation mean that I wasted my money paying them off. (I want to feel proud, not foolish for having paid off my loans early).
4. If there is any sort of income or school quality cap on who gets loan forgiveness, I won’t get loan forgiveness. By the way, not forgiving people’s loans because they went to good schools is dumb!

Anyway, I am looking for any sort of opinions, whether they be well-reasoned or gut reactions. I think it’s highly unlikely I benefit from any forgiveness/cancellation, but I don’t want to be wrong and feel like I rushed repayment. What do you all think I should do?

[nixy]

The feds can't cancel debts held by private lenders, to my knowledge, so any government debt cancellation wouldn't help you.

[lolwutpar]

What's your interest rate?

If sub 3% I definitely wouldn't, if sub 4% I would strongly consider not. The cash can be put to better use elsewhere.

But, if you're about to burn out, there's something very mentally freeing about paying it off.

[hds2388]

Sadly, 6% (with a refinance in there!)

I am very burnt out on my loans.

[lolwutpar]

6%...fuck it, pay it off. Seems like you want to and you will not be getting any sort of loan forgiveness.

[burritotaco]

I'm fairly certain you're no longer qualified for debt cancelation of any kind by the federal government because you refinanced. I also don't think there is any expectation that the federal government will cancel privately held loans. I could of course be wrong because I haven't followed this stuff at a granular level.

Do you need the $50k for a down payment? Something else? If so, I would keep it and just aggressively pay off your loans for as long as you can.

I paid off mine as soon as I could by throwing almost all of my expendable income at my loans for a while and I don't regret it. But I will say that the psychological benefit you're going to feel about it will wear off. You just get used to it. Maybe you'll have a different experience, but the thrill of being debt-free was a bit fleeting for me. (I took a huge pay cut shortly after, so that probably has a lot to do with it.)

Do you want to get out of big law? If so, that is a great reason to pay off your loans entirely. It's unlikely you'll ever make more than you are now, so being debt-free may be necessary for your next (much lower-paying) job. That was a huge reason I paid off mine ASAP.

[hds2388]

Great thoughts, thanks.

Don’t need the money for a down payment or any other major expenditure (bought a house along the way). In a sad and ironic twist, much of the former loan money will just get redirected to my kids’ 529.

I am happy in big law right now (depending on the day). I am fine with the feeling of paying off loans being fleeting, and I am sure you’re right that it will be. But that first month with no payments will be a delight worth waiting eight years for. But either way, just looking forward to getting paid and being able to redirect so much more money to savings or things I am passionate about spending on, as opposed to my loan servicer.

[hds2388]

6%...fuck it, pay it off. Seems like you want to and you will not be getting any sort of loan forgiveness.

Your certainty is so bizarrely comforting. Thanks!

[hds2388]

I'm fairly certain you're no longer qualified for debt cancelation of any kind by the federal government because you refinanced. I also don't think there is any expectation that the federal government will cancel privately held loans. I could of course be wrong because I haven't followed this stuff at a granular level.

Do you need the $50k for a down payment? Something else? If so, I would keep it and just aggressively pay off your loans for as long as you can.

I paid off mine as soon as I could by throwing almost all of my expendable income at my loans for a while and I don't regret it. But I will say that the psychological benefit you're going to feel about it will wear off. You just get used to it. Maybe you'll have a different experience, but the thrill of being debt-free was a bit fleeting for me. (I took a huge pay cut shortly after, so that probably has a lot to do with it.)

Do you want to get out of big law? If so, that is a great reason to pay off your loans entirely. It's unlikely you'll ever make more than you are now, so being debt-free may be necessary for your next (much lower-paying) job. That was a huge reason I paid off mine ASAP.

Meant to quote you above. My response is a couple posts up.

[2013]

How is your interest rate 6% after refi? You must’ve had terrible rates from the government loans to think that was an acceptable refi rate.

[hds2388]

How is your interest rate 6% after refi? You must’ve had terrible rates from the government loans to think that was an acceptable refi rate.

I have great credit and shopped rates. For a $197k loan (which was my balance at the time), it was the best of the like three refi companies who will refi a student loan on that balance. Loans from gov. were 7.8%.

I could have gotten (if I recall correctly) 5% if I refinanced on a variable rate. But I was gunshy on that at the time (perhaps I should not have been).

[AlexFergusonLS]

Not sure why everyone is acting like you are stuck with 6%. Just refinance now! I just got 3% as a refinance for the private loans I took out during law school.

And no, Biden isn't going to wipe out debt for anyone but current federal borrowers (he likely won't do that either).

[Anonymous User]

This is really surprising to me - I refinanced with SoFi at a balance only a little below yours and my rate is about 1%. At 6%, I would absolutely pay it off. (I’m playing the market with this rate, even though the psychological benefit is so tempting.)

And in addition to what everyone else has said about private vs federal loan forgiveness, Biden has made comments about means testing the forgiveness anyway, like the COVID stimulus checks are treated. So that makes it even less likely that a lawyer with a good gig (and certainly a biglawyer) would fall within the ambit of the relief.

[hds2388]

This is really surprising to me - I refinanced with SoFi at a balance only a little below yours and my rate is about 1%. At 6%, I would absolutely pay it off. (I’m playing the market with this rate, even though the psychological benefit is so tempting.)

And in addition to what everyone else has said about private vs federal loan forgiveness, Biden has made comments about means testing the forgiveness anyway, like the COVID stimulus checks are treated. So that makes it even less likely that a lawyer with a good gig (and certainly a biglawyer) would fall within the ambit of the relief.

When did you refinance? What is the term of your loan?

[hds2388]

Not sure why everyone is acting like you are stuck with 6%. Just refinance now! I just got 3% as a refinance for the private loans I took out during law school.

And no, Biden isn't going to wipe out debt for anyone but current federal borrowers (he likely won't do that either).

I mean, it’s not a bad suggestion refinance now, but honestly, I just want to be done with loans. Gives me more options exiting big law (if and when I do), more flexibility month to month, etc.

[lolwutpar]

Alternatively, and hear me out, $50k down payment for a 911.

[hds2388]

Alternatively, and hear me out, $50k down payment for a 911.

It’s extremely tempting. Although I struggle to fit two kids car seats in our current cars. I’m not sure the 911 fits my suburban lifestyle anymore.

[Anonymous User]

This is really surprising to me - I refinanced with SoFi at a balance only a little below yours and my rate is about 1%. At 6%, I would absolutely pay it off. (I’m playing the market with this rate, even though the psychological benefit is so tempting.)

And in addition to what everyone else has said about private vs federal loan forgiveness, Biden has made comments about means testing the forgiveness anyway, like the COVID stimulus checks are treated. So that makes it even less likely that a lawyer with a good gig (and certainly a biglawyer) would fall within the ambit of the relief.

When did you refinance? What is the term of your loan?

5-year variable on 150k-ish, refi’d with SoFi in early 2020. Rate is sub 1%.

[showusyourtorts]

A bunch of random thoughts:

I've been following the debt-cancellation thing relatively closely, and I can say with confidence that pigs will fly before this administration (or any administration) cancels privately held debt.

Also, you should be able to refinance to WAY below %6. Each of the big companies (Earnest, First Republic, Splash, heck, even SoFi will let you re-refinance WITH THEM) will give you a soft quote in a few minutes that will show you your rate. If your credit score is like 725+ then you should be able to get anything from 2-3% fixed rate on a five-year plan relatively easily. If you do refinance, each of those companies is offering like a $250/$500/$750 sign-up bonus if you mention the website biglawinvestor.com lol (who has info on his site and partners with them, and it's honestly a great resource IMO).

If you do refinance and get a super low rate, and if you plan to invest with any extra cash, then I would say that you should ride those babies out and invest the difference. You can always decide to prepay at any point.

With that said, the psychological thrill of being debt-free is priceless. If it's weighing on you and making your tenure in biglaw less pleasant and more likely to cause you to leave earlier than otherwise, then it may even be financially prudent to pay them off early, just given the fact that the loans may be adding pressure that turns you off current job, and that your next job would probably pay significantly less than what you're making in biglaw.

[hds2388]

This is really surprising to me - I refinanced with SoFi at a balance only a little below yours and my rate is about 1%. At 6%, I would absolutely pay it off. (I’m playing the market with this rate, even though the psychological benefit is so tempting.)

And in addition to what everyone else has said about private vs federal loan forgiveness, Biden has made comments about means testing the forgiveness anyway, like the COVID stimulus checks are treated. So that makes it even less likely that a lawyer with a good gig (and certainly a biglawyer) would fall within the ambit of the relief.

When did you refinance? What is the term of your loan?

5-year variable on 150k-ish, refi’d with SoFi in early 2020. Rate is sub 1%.

That’s an awesome rate, and if I wanted to keep my loans around for a little while I would refi to get a rate like yours. I refinanced in 2015 to a 15 yr fixed loan, so that may be the difference.

[hds2388]

A bunch of random thoughts:

I've been following the debt-cancellation thing relatively closely, and I can say with confidence that pigs will fly before this administration (or any administration) cancels privately held debt.

Also, you should be able to refinance to WAY below %6. Each of the big companies (Earnest, First Republic, Splash, heck, even SoFi will let you re-refinance WITH THEM) will give you a soft quote in a few minutes that will show you your rate. If your credit score is like 725+ then you should be able to get anything from 2-3% fixed rate on a five-year plan relatively easily. If you do refinance, each of those companies is offering like a $250/$500/$750 sign-up bonus if you mention the website biglawinvestor.com lol (who has info on his site and partners with them, and it's honestly a great resource IMO).

If you do refinance and get a super low rate, and if you plan to invest with any extra cash, then I would say that you should ride those babies out and invest the difference. You can always decide to prepay at any point.

With that said, the psychological thrill of being debt-free is priceless. If it's weighing on you and making your tenure in biglaw less pleasant and more likely to cause you to leave earlier than otherwise, then it may even be financially prudent to pay them off early, just given the fact that the loans may be adding pressure that turns you off current job, and that your next job would probably pay significantly less than what you're making in biglaw.

This is really helpful. To be honest, I had not considered refinancing until it was brought up here. Because I am excited to pay these suckers off, I was about to dismiss your good idea and err on the side of no debt, even if it meant foregoing some cash. Then I ran the numbers of investing the $50k and paying down the refinanced debt at 2%. Even assuming I got a mere 4% in the market, it is still sort of a compelling case to refinance. (Especially given I am on here asking about what could be, even in a rosy scenario for me, only $10k of debt cancellation.)

I think I may still pay off. My personal savings/investment rate is always highest when my finances are simpler. I may leave my job in the next two years for whatever reason and having monthly expenses low would help. But you have made me want to stop and think about it more from this angle—I appreciate it. Either way, I can’t think for too long because it’s apparent at a minimum I need to get out of this 6% rate yesterday.

[CanadianWolf]

Since it will not cause you any hardship, pay off your loans now before life gets in the way.

[hds2388]

Since it will not cause you any hardship, pay off your loans now before life gets in the way.

I hear ya. I feel like life has already gotten in the way to a degree (2 kids, mortgage, etc.). But, after crunching the numbers, the best (and cheapest) decision was to refinance to a significantly lower rate.

Will mean that I get to look at my loans for another five years (yuck), but at a significantly lower payment. It will allow me to invest the 50k in the meantime. If things go south, I can always pay off my loans.

[glitched]

I had this same exact dilemma when I was at $50k loans, and I had less than 6 months of saving. I said fuck it and paid it all off. Felt so good. Assuming the market doesn't tank like crazy and biglaw doesn't start shrinking, it'll be okay. My rate was 4% after refinancing. At 6%, yeah it's a no brainer. Over the year on average, market won't beat 6% at this point for this year I don't think. Even if it does, you'd have to be doing 8% plus for it to really be worth it. At $50k, it comes down to whether it's worth it to pay $3,000 every year ($50k*0.06) for the chance to be making net $850 [(($50k*0.08)-($3000))*(1-0.15 capital gains tax)). This is of course simplified like crazy and assumes you sell at the end of the year but you get the point.

It could also be worth waiting if there's another huge wave of COVID and shutdown across the country, causing another dip to bite on. But with vaccinations coming along, I don't see that happening. Hopefully things go over okay in Texas.

In short, I'd pay that ball and chain off.

Edit: just read your latest post. Refinancing works as well!

[CanadianWolf]

If still conflicted, then consider paying off just a portion of the loan if that will not have an adverse effect on the terms of your refinancing agreement (if, for example, you need to refinance at least $50,000 in order to get a lower rate of interest).

Consider paying down the loan by at least $10,000 & invest the rest.