Student Loans: Payment Options and Numbers

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Expand view Topic review: Student Loans: Payment Options and Numbers

Re: Student Loans: Payment Options and Numbers

by Anonnnnnn » Thu Mar 28, 2019 6:03 pm

Danger Zone wrote:
Wed Mar 27, 2019 8:14 am
Anonnnnn wrote:
Sat Mar 23, 2019 4:22 pm
Starting a. New job in the fall. Going to be jobless for like two months. Have 140k in loans. Should I take the max salary advance (20ish K) to pay down loans quicker? I could live and travel off of like 8 and then throw 10k on the loans automatically. Is there any downside to that?

If it helps the Q, the firm will deduct 2-3k a month from my paycheck and the rest from my year-end bonus.

Again, is there anything I’m missing here? Should I do this or should I not? Are there any tax implications I’m missing?
Do they charge interest? Would all of the advance have been earned in the same tax year regardless of your decision?
Anonnnnn here. It’s an interest free advance whereby 2k will come out of each paycheck (presumably 3-5paychecks between when I start and the end of the year), and if it’s not paid come bonus time, they’ll take the rest from my bonus. I’m not a first-year associate, and let’s say the bonus, even pro-rated and less tax, will definitely cover the outstanding balance, whatever that is.

Is there any reason to NOT take the advance? And are the advances usually taxed at disbursement?

Re: Student Loans: Payment Options and Numbers

by Danger Zone » Wed Mar 27, 2019 8:14 am

Anonnnnn wrote:
Sat Mar 23, 2019 4:22 pm
Starting a. New job in the fall. Going to be jobless for like two months. Have 140k in loans. Should I take the max salary advance (20ish K) to pay down loans quicker? I could live and travel off of like 8 and then throw 10k on the loans automatically. Is there any downside to that?

If it helps the Q, the firm will deduct 2-3k a month from my paycheck and the rest from my year-end bonus.

Again, is there anything I’m missing here? Should I do this or should I not? Are there any tax implications I’m missing?
Do they charge interest? Would all of the advance have been earned in the same tax year regardless of your decision?

Re: Student Loans: Payment Options and Numbers

by Anonnnnn » Sat Mar 23, 2019 4:22 pm

Starting a. New job in the fall. Going to be jobless for like two months. Have 140k in loans. Should I take the max salary advance (20ish K) to pay down loans quicker? I could live and travel off of like 8 and then throw 10k on the loans automatically. Is there any downside to that?

If it helps the Q, the firm will deduct 2-3k a month from my paycheck and the rest from my year-end bonus.

Again, is there anything I’m missing here? Should I do this or should I not? Are there any tax implications I’m missing?

Re: Student Loans: Payment Options and Numbers

by Johannes » Wed Feb 06, 2019 9:55 pm

Money in SPY averages a 9% annual return though. So yeah maximization is almost always risk preference based.

Re: Student Loans: Payment Options and Numbers

by necho2 » Tue Feb 05, 2019 4:32 pm

Yeah don't think I would qualify for any income-based plans. Disagree w/ maximization point to the extent that I have a deduction to max (since if you tack on 22% marginal or whatever to 5.5%, that makes the guaranteed benefit worth it to me regardless since that drives the interest to ~7%), but after that you're right about risk preferences being the real determination after that.

And yeah tentative plan upon return to Biglaw is to attempt to consolidate w/ SO's to a single low rate since even our combined burden is low enough that I'd pay it off under any income-based plan anyway...

Re: Student Loans: Payment Options and Numbers

by Johannes » Tue Feb 05, 2019 4:16 pm

The subsidized loans don’t accrue interest in interest fwiw on PAYE for 3 years. Not sure if that’s true under standard 10 year payment or whatever lrap pays, but worth looking into that. Might be a moot point.

Re: Student Loans: Payment Options and Numbers

by Johannes » Tue Feb 05, 2019 4:13 pm

Ah small debt load and see you have some biglaw later from op.

There’s no optimization here though. Just a risk preference. You can either get a guaranteed return on your loan balance or put the money in the market for an unguaranteed return or just buy shit you want and pretend it has a mark up on it.

(When you have loans, you should basically always pretended everything you buy unnecessarily is marked up x% for the opportunity cost)

Re: Student Loans: Payment Options and Numbers

by necho2 » Tue Feb 05, 2019 4:09 pm

Nah just for a year of clerking. Don't qualify for IBR b/c small debt load so no negative amortization worries either. Fully aware I'm analyzing this like it's a bigger deal than it is, but I like optimizing stuff.

Re: Student Loans: Payment Options and Numbers

by Johannes » Tue Feb 05, 2019 4:08 pm

Wait you’re planning to ride out lrap?! Don’t make any payments if going lrap or Pslf

Re: Student Loans: Payment Options and Numbers

by necho2 » Tue Feb 05, 2019 2:27 pm

Yeah not sacrificing anything- just eyeballed our collective W-2s and am expecting a big refund that could either basically wipe out accrued interest, or get spent/invested on stuff that we actually need going forward. If the calculation is really just "pay down debt at 5.5% guaranteed" or investing, that's a closer question to the extent that we're not getting a tax deduction for those payments.

Re: Student Loans: Payment Options and Numbers

by Danger Zone » Tue Feb 05, 2019 2:13 pm

Also do you need liquidity for any reason? Do you already have an adequate cash reserve for emergencies?

Re: Student Loans: Payment Options and Numbers

by necho2 » Tue Feb 05, 2019 1:18 pm

LoganCouture wrote:
Sat Feb 02, 2019 3:39 pm
Nah no slam dunk benefit. Just a matter of a guaranteed 5.5% ROI for paying it now (but if you refi it would be lower) vs. whatever other return if you invest instead
Yeah I think since my SO and I are gonna pay 1.5k in student loan interest on her plan, and the max (unfairly) is 2.5k even if you're MFJ, the first 1k of interest payoffs is still a slam-dunk since I'll get a deduction for it too, but was hoping there was an easier way to justify paying off as much as possible.

Other consideration is I'll have either a year or 9 months of LRAP payments, so I guess investing rather than paying down that portion of the loan balance would result in a slightly higher payment being covered? But that would be like a 2-2.5k difference at most, so not sure it's large enough to justify...

Re: Student Loans: Payment Options and Numbers

by LoganCouture » Sat Feb 02, 2019 3:39 pm

Nah no slam dunk benefit. Just a matter of a guaranteed 5.5% ROI for paying it now (but if you refi it would be lower) vs. whatever other return if you invest instead

Re: Student Loans: Payment Options and Numbers

by necho2 » Fri Feb 01, 2019 1:10 pm

LoganCouture wrote:
Wed Jan 30, 2019 7:49 pm
isn't the obvious reason that it saves you $ in the long run to pay it now? bc once it's capitalized it's added to principal and accrues interest of its own
Yeah but it's luckily Stafford so we're talking like a 5.5% blended rate so that's not super scary? Trying to figure out if the calculation is really just "should I pay this down right now, or have to pay slightly more interest going forward?" if I have a lump sum to either extinguish it or invest... Knee-jerk reaction is to pay down the debt a little but it would be easier if there was an obvious slam-dunk benefit to doing that v. investing.

Re: Student Loans: Payment Options and Numbers

by LoganCouture » Wed Jan 30, 2019 7:49 pm

isn't the obvious reason that it saves you $ in the long run to pay it now? bc once it's capitalized it's added to principal and accrues interest of its own

Re: Student Loans: Payment Options and Numbers

by necho2 » Wed Jan 30, 2019 11:36 am

necho2 wrote:
Wed Jan 30, 2019 11:29 am
While people are paying attention to the tax thread- is there any scenario where it makes sense to not pay off uncapitalized loan interest before leaving LS? I heard that frequently before going to school, and now I'm in a position to pay it off (roughly 2.5k) before it gets added to the principle. The problem is that I'm MFJ and we'll probably pay 1.5k or so towards her loans this year, so the fact that the interest deduction doesn't double w/ 2 people hurts us. I also only think I have 1 year before I get phased out by BigLaw.

I know MFS would let us both get the full benefit, but I think since I'd lose out on about $800-1k of Lifetime Learning Credit value for next year, things would work out to a wash (1.5k overflow in 12% bracket ~=1k at 20% credit). Is there an obvious reason to just pay off the interest before it capitalizes that makes this a much easier decision?
Reposting here b/c wound up looking more like a loans questions after I wrote it out...

Re: Student Loans: Payment Options and Numbers

by Nebby » Tue Jan 29, 2019 4:41 pm

LRAPTax wrote:
Wed Jan 23, 2019 10:55 am
If I'm in a LRAP program that pays my loans for me, can I still take the student loan interest deduction?
Yes, if LRAP sends you the money and then you then use that money to pay the loan. The question is more murky if your LRAP provider directly pays your loan for you (although I don't think any do this anymore).

Re: Student Loans: Payment Options and Numbers

by shredlife » Tue Jan 29, 2019 4:31 pm

so my stupid ass bank did some shit where they changed my account number and routing number (they merged with a different bank or something), and my auto-debit payment to FedLoanServicing didn't go through. I've been on PAYE/REPAYE for a few years now

Just get letters from FedLoanServicing that my Forbearance Request was approved (automatic I guess, I didn't apply for or need this), and that I have to pay my unpaid interest or it capitalizes (several thousand $)

I also recall, from somewhere or other, that I've been getting like a 0.25% rate discount for auto paying, but if you miss pone, that goes away. Can't quite recall where I read this, but iirc this is the standard deal.

I had plenty of $, but this would suck really, really, really fucking hard to have my rate increase, and many thousands of $ of interest to capitalize and/or empty out my investment account $ to pay this shit that the gov't would otherwise be subsidizing indefinitely



Anyone had this happen? How fucked am I? I'm gonna give them a call, but not thrilled to fight this fight...

Re: Student Loans: Payment Options and Numbers

by Johannes » Thu Jan 24, 2019 4:10 pm

ymmv wrote:
Tue Jan 22, 2019 5:22 pm
Johannes wrote:
Sun Dec 30, 2018 12:26 pm
For REPAYE, you have to file jointly.
AFAIK this is wrong. You can file separately but your REPAYE payments are based on adjusted gross income (combined) regardless.
Filing jointly is probably going to make more sense for most couples but it’s not a requirement.
Correct thanks. I don’t think it will generally make sense to file separately under repaye (ie PAYE would be preferred) but yes it’s possible.

Re: Student Loans: Payment Options and Numbers

by LRAPTax » Wed Jan 23, 2019 10:55 am

If I'm in a LRAP program that pays my loans for me, can I still take the student loan interest deduction?

Re: Student Loans: Payment Options and Numbers

by necho2 » Wed Jan 23, 2019 9:09 am

Yeah I assumed married b/c of joint income, but somehow missed their actual bracket... So yeah it'll be somewhere south of $300 total, assuming you're still in the 3 year window.

Re: Student Loans: Payment Options and Numbers

by shredlife » Wed Jan 23, 2019 8:49 am

necho2 wrote:
Tue Jan 22, 2019 9:01 pm
Anonquestioninglife wrote:
Tue Jan 22, 2019 5:18 pm
I realized I paid student loan interest two years during law school on my SO’s loans and never claimed the deduction. Is it worth amending a tax return for <1k interest payments each year when joint income was <60k?
What was your marginal rate at the time? If you paid bc you had an SA and you're in like the 15%, that could be less than a hundred bucks per year, but if you were in like the 25% it might be up to $500.
also its only 3 tax yrs back u can get an old refund. if you're within that.. 2yrs*$1000/yr*15% (for mfj making 60k)=$300.. need to file 1040x via snail mail for every year amended.. if you had carryovers and stuff like that you'll probably need to amend any years since, too. eeehhhhh.....

also, that's assuming married, but wasn't totally sure since you say "SO's" loan, but then "joint income"... if you meant joint just as in combined and you weren't married, I'm *pretty sure* on this, but someone plz correct me if I'm wrong, but I believe that a student loan payment made for someone else counts as a payment from the borrower, and not from the actual payor. B/c the payment basically flows through that person to their loan. Unless the payor is also a borrower on the loan (married or wtv). So if like you had an SA and he/she didn't that year, and you're not married, ya it's gonna be tinyyyyyy

Re: Student Loans: Payment Options and Numbers

by Taxo » Wed Jan 23, 2019 4:01 am

Danger Zone wrote:
Fri Jan 26, 2018 12:49 pm
In for the misery 👍

ok!

Re: Student Loans: Payment Options and Numbers

by necho2 » Tue Jan 22, 2019 9:01 pm

Anonquestioninglife wrote:
Tue Jan 22, 2019 5:18 pm
I realized I paid student loan interest two years during law school on my SO’s loans and never claimed the deduction. Is it worth amending a tax return for <1k interest payments each year when joint income was <60k?
What was your marginal rate at the time? If you paid bc you had an SA and you're in like the 15%, that could be less than a hundred bucks per year, but if you were in like the 25% it might be up to $500.

Re: Student Loans: Payment Options and Numbers

by ymmv » Tue Jan 22, 2019 5:22 pm

Johannes wrote:
Sun Dec 30, 2018 12:26 pm
For REPAYE, you have to file jointly.
AFAIK this is wrong. You can file separately but your REPAYE payments are based on adjusted gross income (combined) regardless.
Filing jointly is probably going to make more sense for most couples but it’s not a requirement.

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