Inspiration for New Grads with Big Debt Forum

[totesTheGoat]

I'll also say that the math doesn't take risk into account. I'd much rather have an empty 401k and a paid off student loan if I lost my job. Overall, these thrifty blogger types tend to be very risk averse.

Even without PAYE this makes no sense but with PAYE it's absolutely insane.

What does a full 401k do for you if you lose your job???

1) A ton of people (including the girl in the blog) refi their loans to get a better rate. Good luck getting your private lender to offer up something like PAYE.
2) Between taxes and penalties, you're going to end up paying 35%+ to FedGov if you need that 401k money to pay your bills
3) It's a lot easier to take a shit job for 3 months while getting back on your feet when you don't have $1k or more per month tied up in paying student loans. It makes you more financially flexible in a downturn.
4) Since student loans are non-dischargeable in bankruptcy, it's better to get rid of them prior to rough financial times in case you need to file bankruptcy. Nothing gets you going as a repeat bankruptcy filer like a ton of non-dischargeable debt.

But I'm sure you're right... paying your loans off early is "absolutely insane"

[Tiago Splitter]

I'll also say that the math doesn't take risk into account. I'd much rather have an empty 401k and a paid off student loan if I lost my job. Overall, these thrifty blogger types tend to be very risk averse.

Even without PAYE this makes no sense but with PAYE it's absolutely insane.

What does a full 401k do for you if you lose your job???

1) A ton of people (including the girl in the blog) refi their loans to get a better rate. Good luck getting your private lender to offer up something like PAYE.
2) Between taxes and penalties, you're going to end up paying 35%+ to FedGov if you need that 401k money to pay your bills
3) It's a lot easier to take a shit job for 3 months while getting back on your feet when you don't have $1k or more per month tied up in paying student loans. It makes you more financially flexible in a downturn.
4) Since student loans are non-dischargeable in bankruptcy, it's better to get rid of them prior to rough financial times in case you need to file bankruptcy. Nothing gets you going as a repeat bankruptcy filer like a ton of non-dischargeable debt.

But I'm sure you're right... paying your loans off early is "absolutely insane"

Nice strawman. To be clear you're saying that you'd prefer to not have a dime to your name when you lose your job rather than at least having the option of taking some money from a retirement account. To your points:

1) Yes, but the lower the interest rate the less it makes sense to pay everything off ASAP. Private refi lenders these days also generally offer forbearance periods.
2) Not if you have no income for a while. And you got a tax deduction for the contribution on the front end. Alternatively you can put it into a roth account and not have taxes or penalties on your contributions. You could also literally just stuff some cash under the mattress. In any case it'd be nice to at least have something to pay your rent with.
3) This is true, but it works the other way too. Having zero money in the bank and zero student loans won't allow you to hang around waiting for a better job for long. Having 40k of each would allow you to do that.
4) Again, true, but losing your job without a dime to your name, even without student loans, is also a good way to end up bankrupt. The whole point is that you want to have something in the event the tough times hit.

[NoBladesNoBows]

[totesTheGoat]

To be clear you're saying that you'd prefer to not have a dime to your name when you lose your job rather than at least having the option of taking some money from a retirement account.

No, that's ridiculous... I'm saying that I find it better to pay the loan off fast (with a standard 3-6 month emergency fund in place) than to stuff it all into a retirement account. It's absolutely moronic not to have an emergency fund in place.

You can't take out a loan to pay the rent, whereas you can use money that you're not using to pay off student loan debt to pay the rent. Therefore if unemployed, $40k in bank and $40k in loan debt is far superior to $0 in bank and $0 in loan debt.

My point isn't to go to the extreme and put every penny into loan payment... As I mentioned above, an emergency fund is priority #1.

My point is merely that If you have a $10k emergency fund, it lasts longer when you don't have $2k/month in student loans to pay. If you're disciplined enough to put the extra loan payment money away into a Roth or even under the mattress, great. You'll have plenty of extra money in case of a long-term crisis. However, I'd personally rather reduce outflows in a crisis rather than attempt to increase income. If I can keep my expenses lower in the long-term, it frees up more money to invest in riskier endeavors since I don't need the principal in case of emergency.

There are multiple ways to skin a cat depending on what you are more concerned with. I think that saving the extra money is best if you're concerned with wringing every penny out of your income and keeping your lifestyle up during a small crisis. I think that paying down the loan is best if you're concerned about your self-discipline and establishing a lifestyle that is sustainable through crises.

No matter what, these are both better options (IMO) than blowing all the money because you don't want to "live poor" (as was suggested up thread).

Filing for bankruptcy should not be a contingency plan, filing for bankruptcy should be an absolute last-resort contingency-plan-failed move.

Agreed.

Also I might have been misinterpreting what you said, but paying off loans early is actually the most risk averse move. So if you were claiming that choosing not to is more risk averse (you might not have been claiming that, I frankly didn't read that carefully), then you're just wrong.

We're on the same page.

[NoBladesNoBows]

[totesTheGoat]

No worries, I didn't get any "asshole" vibe.

[jrass]

It's conceivable to do big law, and not have any expenses other than rent. Food, transportation, etc. is all free, and electricity bills are lower than any other time in your life.