Michigan 2014 - 365K debt - What now? Forum

[DebtMuch]

Im about to graduate from Michigan with about 365K in debt (law school, undergrad, MBA, Masters). I will be starting at a V10 firm in Chicago in the fall.

Should I do IBR or Pay as you earn? I know conventional wisdom says pay off as much as possible but is there an amount of debt where it actually makes sense to just plan to have to make payments (about 1500 - 1800 per month at 160K salary) and wait out this 20-25 years?

Any thoughts would be greatly appreciated!

[silenttimer]

Im about to graduate from Michigan with about 365K in debt (law school, undergrad, MBA, Masters). I will be starting at a V10 firm in Chicago in the fall.

Should I do IBR or Pay as you earn? I know conventional wisdom says pay off as much as possible but is there an amount of debt where it actually makes sense to just plan to have to make payments (about 1500 - 1800 per month at 160K salary) and wait out this 20-25 years?

Any thoughts would be greatly appreciated!

Holycrap, are you serious!?!? This is really scary! In any event, I would sign up for IBR and put in more every month. This gives your flexibility to put in as much (or as little) as you want monthly.

Again, dude, how did you get into this much debt!?!?

[DebtMuch]

Ha, very carefully. Actually - first gen college with no financial help from parents. A few different career paths and always wanted to go to the "best" schools. It sucks and of course I think about making choices differently but I'm not really that freaked out.

Any reason to go IBR over Pay As You earn? it seems on Pay as you earn its forgiven after 20 years and the first year is basically a freebie at about 200 / month since the income used would be based on 3L income numbers?

[anyriotgirl]

Ha, very carefully. Actually - first gen college with no financial help from parents. A few different career paths and always wanted to go to the "best" schools. It sucks and of course I think about making choices differently but I'm not really that freaked out.

Any reason to go IBR over Pay As You earn? it seems on Pay as you earn its forgiven after 20 years and the first year is basically a freebie at about 200 / month since the income used would be based on 3L income numbers?

biggest drawback of PAYE is that since the payments are smaller, and over fewer years your tax bomb could be bigger (depends on how your interest rates are).

[patogordo]

PAYE for 20 years while putting money in a low-risk investment vehicle to save for the tax bomb

http://www.top-law-schools.com/forums/v ... 5#p7459809

[Tiago Splitter]

Ha, very carefully. Actually - first gen college with no financial help from parents. A few different career paths and always wanted to go to the "best" schools. It sucks and of course I think about making choices differently but I'm not really that freaked out.

Any reason to go IBR over Pay As You earn? it seems on Pay as you earn its forgiven after 20 years and the first year is basically a freebie at about 200 / month since the income used would be based on 3L income numbers?

biggest drawback of PAYE is that since the payments are smaller, and over fewer years your tax bomb could be bigger (depends on how your interest rates are).

You can always just pay more under PAYE if you are worried about the loan balance. There's no reason to use IBR instead of PAYE.

[A. Nony Mouse]

No, there's no reason to use IBR over PAYE. IBR was the first income-based program rolled out; PAYE was created a couple of years later, and is pretty much intended to be better version of IBR. The only reason not everyone uses PAYE is that not everyone's eligible for it, but they serve the same purpose.

[Paul Campos]

Keep in mind that as of now you're not eligible for PAYE if you took out any federal loans before October of 2007, which I assume you must have given your debt level. IMO a person in your position would usually be better off getting any halfway decent government job rather than working for a big law firm. You could easily save hundreds of thousands of dollars in loan liability if you funneled your debt through PSLF rather than IBR.

[DebtMuch]

All of my loans are eligible for PAYE according to the student loans servicing website and calculator. Loans I had before 10/2007 were all consolidated in 2010 to a direct loans. Therefore, I don't have any loans that originated before 2010 via the Direct Loans consolidation….

[patogordo]

All of my loans are eligible for PAYE according to the student loans servicing website and calculator. Loans I had before 10/2007 were all consolidated in 2010 to a direct loans. Therefore, I don't have any loans that originated before 2010 via the Direct Loans consolidation….

i don't think that counts. the repayment calculator is misleading as shit; you'll notice it says all your loans are PAYE-eligible and then there's an *except they might not be

i think the calculator is only taking the income limit into account

[90convoy]

MAKE PARTNER

[DebtMuch]

All of my loans are eligible for PAYE according to the student loans servicing website and calculator. Loans I had before 10/2007 were all consolidated in 2010 to a direct loans. Therefore, I don't have any loans that originated before 2010 via the Direct Loans consolidation….

i don't think that counts. the repayment calculator is misleading as shit; you'll notice it says all your loans are PAYE-eligible and then there's an *except they might not be

i think the calculator is only taking the income limit into account

Might be right. However, none of the loans are dated before 2010 (because of consolidation). Will be interesting to see if its accepted…otherwise its IBR.

[DebtMuch]

"You also must be a new borrower as of Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011. You are a new borrower if you had no outstanding balance on a Direct Loan or FFEL Program loan as of Oct. 1, 2007, or had no outstanding balance on a Direct Loan or FFEL Program loan when you received a new loan on or after Oct. 1, 2007. "

I also read this language to not completely preclude ANY loan before 2007. I guess my consolidation would apply to the part in bold. Who knows.

[patogordo]

haha yea who knows. still think tcr is paye or ibr while saving up for the tax bomb. the npv of any leftover tax payment 20 or 25 yrs down the road is just miniscule.

[NYstate]

All of my loans are eligible for PAYE according to the student loans servicing website and calculator. Loans I had before 10/2007 were all consolidated in 2010 to a direct loans. Therefore, I don't have any loans that originated before 2010 via the Direct Loans consolidation….

I thought the pre-existing debt had to be repaid not consolidated?
Are you considering PSLF because that could save your financial life.
Were any of the consolidated loans parent plus loans?

Edit: the issue is if you had money outstanding on that date, not the origination date. PAYE is for new borrowers . That was part of the fight in getting it passed.

[DebtMuch]

I'm not really sure. studentaid.ed.gov lists my oldest loan as my direct consolidation in 2010. It says I am eligible when I sign in but who knows how that will actually work when I sign up. At big law salary I also don't see a huge difference between PAYE and IBR but maybe I'm missing something.

I have thought about gov't for PSLF but:

1) I eventually want corporate in-house work AND

2) it seems IBR (though not necessarily created for big law attorneys) actually gives a decent way to put away a lot of cash for the "tax bomb"

3) Of course in private practice there is always the opportunity of partner or some other job that creates a financial jump that makes the entire conversation pointless b/c of a heightened ability to pay off loans….

[patogordo]

3) Of course in private practice there is always the opportunity of partner or some other job that creates a financial jump that makes the entire conversation pointless b/c of a heightened ability to pay off loans….

this is really the only risk (other than congress pulling the PAYE rug out). if your income goes up drastically you'll end up paying a little more interest. but that's a very unlikely, best-case scenario.

[NYstate]

I'm not really sure. studentaid.ed.gov lists my oldest loan as my direct consolidation in 2010. It says I am eligible when I sign in but who knows how that will actually work when I sign up. At big law salary I also don't see a huge difference between PAYE and IBR but maybe I'm missing something.

I have thought about gov't for PSLF but:

1) I eventually want corporate in-house work AND

2) it seems IBR (though not necessarily created for big law attorneys) actually gives a decent way to put away a lot of cash for the "tax bomb"

3) Of course in private practice there is always the opportunity of partner or some other job that creates a financial jump that makes the entire conversation pointless b/c of a heightened ability to pay off loans….

It may not matter given your enormous debt but PAYE can never be lost. IBR has income aspects where you can be out of the program. IBR is also.25 years vs 20. IBR payments are higher.

[A. Nony Mouse]

I'm not really sure. studentaid.ed.gov lists my oldest loan as my direct consolidation in 2010. It says I am eligible when I sign in but who knows how that will actually work when I sign up. At big law salary I also don't see a huge difference between PAYE and IBR but maybe I'm missing something.

I have thought about gov't for PSLF but:

1) I eventually want corporate in-house work AND

2) it seems IBR (though not necessarily created for big law attorneys) actually gives a decent way to put away a lot of cash for the "tax bomb"

3) Of course in private practice there is always the opportunity of partner or some other job that creates a financial jump that makes the entire conversation pointless b/c of a heightened ability to pay off loans….

It may not matter given your enormous debt but PAYE can never be lost. IBR has income aspects where you can be out of the program. IBR is also.25 years vs 20. IBR payments are higher.

I don't think you're ever kicked out of IBR, actually. If you income goes up enough, you pay more, up to the amount you'd pay under the regular 10 year plan, but that's the case with PAYE, too. The IBR FAQ pages says that once you qualify, even if you no longer have a partial financial hardship, you can still make payments on the plan.

[NYstate]

I'm not really sure. studentaid.ed.gov lists my oldest loan as my direct consolidation in 2010. It says I am eligible when I sign in but who knows how that will actually work when I sign up. At big law salary I also don't see a huge difference between PAYE and IBR but maybe I'm missing something.

I have thought about gov't for PSLF but:

1) I eventually want corporate in-house work AND

2) it seems IBR (though not necessarily created for big law attorneys) actually gives a decent way to put away a lot of cash for the "tax bomb"

3) Of course in private practice there is always the opportunity of partner or some other job that creates a financial jump that makes the entire conversation pointless b/c of a heightened ability to pay off loans….

It may not matter given your enormous debt but PAYE can never be lost. IBR has income aspects where you can be out of the program. IBR is also.25 years vs 20. IBR payments are higher.

I don't think you're ever kicked out of IBR, actually. If you income goes up enough, you pay more, up to the amount you'd pay under the regular 10 year plan, but that's the case with PAYE, too. The IBR FAQ pages says that once you qualify, even if you no longer have a partial financial hardship, you can still make payments on the plan.

I thought that once your income reached a level of the 10 year plan, you could not go back to reduced payments if you lost your job (under IBR) but PAYE changed that? Am I wrong?

[Tiago Splitter]

I don't think you're ever kicked out of IBR, actually. If you income goes up enough, you pay more, up to the amount you'd pay under the regular 10 year plan, but that's the case with PAYE, too. The IBR FAQ pages says that once you qualify, even if you no longer have a partial financial hardship, you can still make payments on the plan.

I think a big difference between PAYE and IBR is that while both will capitalize your interest when you no longer have a partial financial hardship, PAYE caps that at 10% of your original balance.

To the above post: You never get kicked out of IBR, even if your income puts you above what you'd have to pay under the 10 year plan. Your payments just get capped at the 10 year plan amount.

http://www.ibrinfo.org/faq.vp.html#increase

[DebtMuch]

Just for fun. The calculator states that if I took a 40K nonPSLF job on PAYE I would pay just over 80K in loan payments over 20 years and would be forgiven over 800K….WOW

[NYstate]

I don't think you're ever kicked out of IBR, actually. If you income goes up enough, you pay more, up to the amount you'd pay under the regular 10 year plan, but that's the case with PAYE, too. The IBR FAQ pages says that once you qualify, even if you no longer have a partial financial hardship, you can still make payments on the plan.

I think a big difference between PAYE and IBR is that while both will capitalize your interest when you no longer have a partial financial hardship, PAYE caps that at 10% of your original balance.

Maybe this is what I was thinking of. I can't find references to people who couldn't adjust IBR back.down if they lost jobs, but I recall this being discussed.

[A. Nony Mouse]

It may not matter given your enormous debt but PAYE can never be lost. IBR has income aspects where you can be out of the program. IBR is also.25 years vs 20. IBR payments are higher.

I don't think you're ever kicked out of IBR, actually. If you income goes up enough, you pay more, up to the amount you'd pay under the regular 10 year plan, but that's the case with PAYE, too. The IBR FAQ pages says that once you qualify, even if you no longer have a partial financial hardship, you can still make payments on the plan.

I thought that once your income reached a level of the 10 year plan, you could not go back to reduced payments if you lost your job (under IBR) but PAYE changed that? Am I wrong?

I don't think that's true. According to the repayment plan FAQs, you can change repayment plans at any time, and according to the IBR page, once you sign up for IBR, you're still under IBR even if your hardship ends (you're just paying what someone not on IBR would pay). So I don't see why if you re-incur the partial financial hardship (i.e. lose your job/take a big pay cut), you couldn't just recertify your income to reduce your payment amount again (or, if you actually were kicked off IBR, you couldn't just switch back to it).

Mind you, I'm pretty sure my school's fin aid people told us what you thought, back in 2011 when I was graduating, but we were literally the first class who could sign up for IBR, so I'm pretty sure they just got it wrong.

I think Tiago is right that the difference in treating capitalization of interest is what PAYE "fixed" compared to IBR.

(This is all reminding me that I have to call these fuckers tomorrow about recertifying my income...)

[NYstate]

It may not matter given your enormous debt but PAYE can never be lost. IBR has income aspects where you can be out of the program. IBR is also.25 years vs 20. IBR payments are higher.

I don't think you're ever kicked out of IBR, actually. If you income goes up enough, you pay more, up to the amount you'd pay under the regular 10 year plan, but that's the case with PAYE, too. The IBR FAQ pages says that once you qualify, even if you no longer have a partial financial hardship, you can still make payments on the plan.

I thought that once your income reached a level of the 10 year plan, you could not go back to reduced payments if you lost your job (under IBR) but PAYE changed that? Am I wrong?

I don't think that's true. According to the repayment plan FAQs, you can change repayment plans at any time, and according to the IBR page, once you sign up for IBR, you're still under IBR even if your hardship ends (you're just paying what someone not on IBR would pay). So I don't see why if you re-incur the partial financial hardship (i.e. lose your job/take a big pay cut), you couldn't just recertify your income to reduce your payment amount again (or, if you actually were kicked off IBR, you couldn't just switch back to it).

Mind you, I'm pretty sure my school's fin aid people told us what you thought, back in 2011 when I was graduating, but we were literally the first class who could sign up for IBR, so I'm pretty sure they just got it wrong.

I think Tiago is right that the difference in treating capitalization of interest is what PAYE "fixed" compared to IBR.

(This is all reminding me that I have to call these fuckers tomorrow about recertifying my income...)

Thanks. I knew I heard this somewhere. Sorry if I caused any confusion.