So, I'm starting to look at loan repayment stuff and PAYE looks great. I've accepted a full-time offer at my 2LSA firm and don't play to clerk as of now, so the money train will run on the usual associate schedule. My question is if people usually just make the minimum payment for the 20 years (maybe with the exception of dumping bonus money into it) or if people actually try to pay off the loans before the clock runs out.
I feel like my money would be better spent paying the minimum (~$1200/m to start), putting away $200/m for the tax bomb, and invest the other ~$1800 I save relative to standard repayment (property, mutual funds, etc). Maybe I'd use some of my bonus on the loans, since it does count against me in my adjusted gross income, but I feel that too is better spent on bottles/model (or, you know, more investments).
Am I on the right track?
PAYE. Would I be doing it correctly? Forum
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John_Luther1989
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Tiago Splitter
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Re: PAYE. Would I be doing it correctly?
The ultimate advantage of PAYE is that some of the debt will be forgiven after 20 years. If your PAYE payments cause you to pay off the whole thing after say 17 years then all you will have done is pay a lot of extra interest. In that case, you're better off just refinancing to a lower interest rate, at least as long as rates stay ridiculously low. In that case you may want to stick with PAYE for a little while to build up a savings cushion, but otherwise the refi is the way to go.
That said no one really knows what their financial situation will look like many years out. I'm doing PAYE with the thought that if I do end up accidentally paying it off it means I've done really well and I can live with that first world problem. A lot of this depends on where you think you'll end up; if you might go in to government, pay the absolute minimum and take advantage of PSLF. It also depends on your debt level. At 250k PAYE makes more sense than 100k because 100k debt is very likely to be extinguished before 20 years even on minimum payments.
If you do decide to go the PAYE route max out your 401k in order to reduce your AGI for the PAYE calculation. There's also no point in putting bonus money or anything else towards the loans unless you have horrible spending habits. Just save the extra money. You can always dump it into your loans later if your financial situation changes.
BTW you won't have to pay that $1200 until your second full year because you use the prior year AGI.
That said no one really knows what their financial situation will look like many years out. I'm doing PAYE with the thought that if I do end up accidentally paying it off it means I've done really well and I can live with that first world problem. A lot of this depends on where you think you'll end up; if you might go in to government, pay the absolute minimum and take advantage of PSLF. It also depends on your debt level. At 250k PAYE makes more sense than 100k because 100k debt is very likely to be extinguished before 20 years even on minimum payments.
If you do decide to go the PAYE route max out your 401k in order to reduce your AGI for the PAYE calculation. There's also no point in putting bonus money or anything else towards the loans unless you have horrible spending habits. Just save the extra money. You can always dump it into your loans later if your financial situation changes.
BTW you won't have to pay that $1200 until your second full year because you use the prior year AGI.
