Student Loans: Payment Options and Numbers

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Johannes
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Re: Student Loans: Payment Options and Numbers

Post by Johannes » Tue Apr 17, 2018 12:45 am

I disagree re psychology if you can reassure yourself you are doing the right thing and get comfortable enough to not have reoccurring panic attacks, but yeah, if you suck with money/budgeting, i agree just dump that money so it doesn't burn a hole in your pocket.

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bk1
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Re: Student Loans: Payment Options and Numbers

Post by bk1 » Tue Apr 17, 2018 12:21 pm

"I disagree re psychology if you are able to control your psychology."

mkay

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Dr Nefario
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Re: Student Loans: Payment Options and Numbers

Post by Dr Nefario » Tue Apr 17, 2018 3:45 pm

Johannes wrote:
Tue Apr 10, 2018 11:41 pm
Anon 3L wrote:
Tue Apr 10, 2018 5:27 pm
Is there a full post somewhere with your 2 option advice?
Johannes wrote:
Fri Apr 06, 2018 1:29 am
Yea I’d repaye for 2 years and reassess. You got niceling into the second option of my 2 option advice. Your wife’s salary is too low for me to think refinancing is a good idea. With 90% of your income on you, you’d be looking at a 100kish salary cut if things went south in biglaw (through no fault of your own). Govt only covers half of your unpaid interest though just FYI.


(2) do you want to eventually pay down your loan and are throwing tons of cash but don’t want to lose fed gov protections in case you get biglaw canned? REPAYE: file for repaye with stub year income. Your monthly payment should be like $350ish (I think, ballpark). HALF of Your monthly interest accrued above your payment (350) will be paid by the fed gov. Eg you accrue 1k interest per month on 200k of debt (6%), that means 650 of accrued interest is not paid. Gov knocks your interest down 325. You make a payment beyond your loan requirement to whatever your hearts desire in addition. Over the course of the year, your 12k in interest (6%) has been subsidized by the fed gov to the tune of $3900 (1.95%) making your effective interest rate (4.05%). Now what does FRB really have on you?!
nope that's the extent of it. what questions you got? you can't do that forever because you only get a couple years of gov't subsidy on the interest subsidy. but its a damn near bulletproof plan for multiple reasons: (1) see if biglaw is for you over the ocurse of 2 years; (2) ride out these higher interest rates/sshop for the best rate; (3) max cash flow for max flexibility early in your career so you can get in the type of "investments" you want asap whether that be owning a home, stock investment or crypto.
Stealing this thread to ask if there's a REPAYE min payment calculator?

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SmokeytheBear
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Re: Student Loans: Payment Options and Numbers

Post by SmokeytheBear » Tue Apr 17, 2018 8:44 pm

FRB mafia needs some business.

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Johannes
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Re: Student Loans: Payment Options and Numbers

Post by Johannes » Wed Apr 18, 2018 12:18 am

Dr Nefario wrote:
Tue Apr 17, 2018 3:45 pm
Johannes wrote:
Tue Apr 10, 2018 11:41 pm
Anon 3L wrote:
Tue Apr 10, 2018 5:27 pm
Is there a full post somewhere with your 2 option advice?
Johannes wrote:
Fri Apr 06, 2018 1:29 am
Yea I’d repaye for 2 years and reassess. You got niceling into the second option of my 2 option advice. Your wife’s salary is too low for me to think refinancing is a good idea. With 90% of your income on you, you’d be looking at a 100kish salary cut if things went south in biglaw (through no fault of your own). Govt only covers half of your unpaid interest though just FYI.


(2) do you want to eventually pay down your loan and are throwing tons of cash but don’t want to lose fed gov protections in case you get biglaw canned? REPAYE: file for repaye with stub year income. Your monthly payment should be like $350ish (I think, ballpark). HALF of Your monthly interest accrued above your payment (350) will be paid by the fed gov. Eg you accrue 1k interest per month on 200k of debt (6%), that means 650 of accrued interest is not paid. Gov knocks your interest down 325. You make a payment beyond your loan requirement to whatever your hearts desire in addition. Over the course of the year, your 12k in interest (6%) has been subsidized by the fed gov to the tune of $3900 (1.95%) making your effective interest rate (4.05%). Now what does FRB really have on you?!
nope that's the extent of it. what questions you got? you can't do that forever because you only get a couple years of gov't subsidy on the interest subsidy. but its a damn near bulletproof plan for multiple reasons: (1) see if biglaw is for you over the ocurse of 2 years; (2) ride out these higher interest rates/sshop for the best rate; (3) max cash flow for max flexibility early in your career so you can get in the type of "investments" you want asap whether that be owning a home, stock investment or crypto.
Stealing this thread to ask if there's a REPAYE min payment calculator?
Not sure what you mean by “min calculator”. But it likely doesn’t exist. This stuff isn’t black and white with a one fit approach. It depends on your future goals/salary/debt/risk tolerance/market you work in/market time period you work etc.

Gotta ask specific questions to get good advice.

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presh
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Re: Student Loans: Payment Options and Numbers

Post by presh » Wed Apr 18, 2018 12:30 am

Johannes wrote:
Wed Apr 18, 2018 12:18 am
Dr Nefario wrote:
Tue Apr 17, 2018 3:45 pm
Johannes wrote:
Tue Apr 10, 2018 11:41 pm
Anon 3L wrote:
Tue Apr 10, 2018 5:27 pm
Is there a full post somewhere with your 2 option advice?
Johannes wrote:
Fri Apr 06, 2018 1:29 am
Yea I’d repaye for 2 years and reassess. You got niceling into the second option of my 2 option advice. Your wife’s salary is too low for me to think refinancing is a good idea. With 90% of your income on you, you’d be looking at a 100kish salary cut if things went south in biglaw (through no fault of your own). Govt only covers half of your unpaid interest though just FYI.


(2) do you want to eventually pay down your loan and are throwing tons of cash but don’t want to lose fed gov protections in case you get biglaw canned? REPAYE: file for repaye with stub year income. Your monthly payment should be like $350ish (I think, ballpark). HALF of Your monthly interest accrued above your payment (350) will be paid by the fed gov. Eg you accrue 1k interest per month on 200k of debt (6%), that means 650 of accrued interest is not paid. Gov knocks your interest down 325. You make a payment beyond your loan requirement to whatever your hearts desire in addition. Over the course of the year, your 12k in interest (6%) has been subsidized by the fed gov to the tune of $3900 (1.95%) making your effective interest rate (4.05%). Now what does FRB really have on you?!
nope that's the extent of it. what questions you got? you can't do that forever because you only get a couple years of gov't subsidy on the interest subsidy. but its a damn near bulletproof plan for multiple reasons: (1) see if biglaw is for you over the ocurse of 2 years; (2) ride out these higher interest rates/sshop for the best rate; (3) max cash flow for max flexibility early in your career so you can get in the type of "investments" you want asap whether that be owning a home, stock investment or crypto.
Stealing this thread to ask if there's a REPAYE min payment calculator?
Not sure what you mean by “min calculator”. But it likely doesn’t exist. This stuff isn’t black and white with a one fit approach. It depends on your future goals/salary/debt/risk tolerance/market you work in/market time period you work etc.

Gotta ask specific questions to get good advice.
He means a calculator to tell you what your payment is if you input your salary.


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Johannes
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Re: Student Loans: Payment Options and Numbers

Post by Johannes » Wed Apr 18, 2018 11:50 pm

Those calculators are garbage. They don’t factor in:
1) AGI and deferred income mechanisms
2) discount rate and value of backloaded payments
3) ability to ask for a 3 month deferment almost no questions asked on your loan payments
4) increased cash flow and ability to buy house sooner /invest ie alternative investments that could easily return amounts 2x higher than your loan interest rate (every year but 1 over the last decade has been at least 13% return on SP500 basic investment compared to even an astronomically high 6.5% loan rate)
5) again, for example, my SO and I have paid something like 20k (cumulative) on loans in total on a >500k balance in roughly a half decade.

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Nony
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Re: Student Loans: Payment Options and Numbers

Post by Nony » Thu Apr 19, 2018 9:03 am

I mean, the calculators aren’t pretending to give financial advice, just giving you the numbers so you can figure the above out yourself.

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Nebby
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Re: Student Loans: Payment Options and Numbers

Post by Nebby » Thu Apr 19, 2018 4:53 pm

Those calculators are garbage at doing what they were never meant or advertised to do. Fucking fucks

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SmokeytheBear
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Re: Student Loans: Payment Options and Numbers

Post by SmokeytheBear » Thu Apr 19, 2018 9:56 pm

Nebby wrote:
Thu Apr 19, 2018 4:53 pm
Those calculators are garbage at doing what they were never meant or advertised to do. Fucking fucks
#thanksobama

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Johannes
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Re: Student Loans: Payment Options and Numbers

Post by Johannes » Fri Apr 20, 2018 12:03 am

Hence why I’m cautioning against using them for anything. I got higher hopes for this thread - ie actual financial advice.

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Nony
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Re: Student Loans: Payment Options and Numbers

Post by Nony » Fri Apr 20, 2018 7:20 am

You kind of need to know how much your payments will be before you can move into the real financial advice, though.

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presh
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Re: Student Loans: Payment Options and Numbers

Post by presh » Fri Apr 20, 2018 2:09 pm

If you know how much money you’ll be making and how much you plan to put away in tax deferred retirement vehicles, you can use that to come up with AGI and get a good estimate of what your payments will look like. Then you can start figuring out the other stuff.

Why are you being so aggro about this? There’s no reason why knowing an estimated payment would prevent any of the things you mention.

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Johannes
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Re: Student Loans: Payment Options and Numbers

Post by Johannes » Fri Aug 17, 2018 6:31 pm

Bumping this thread for anyone that wants to throw out their personal numbers since there should be some graduates looking into this soon.

1) with refi rates on the rise, REPAYE becomes more attractive bc the govt pays half your unpaid interest each month which effectively reduces your rate

2) with lots of people feeling like we’re in a bubble or top of market, PAYE and REPAYE are great vehicles for risk aversion in case you get shitcanned (I don’t share the economy negativity but I’m just providing options for people who are pessimistic about the economy)

3) increased standard deductions under trump bill makes PAYE and REPAYE effectively less as well


It’s a great time to be on govt ibrs and kick the can for a year or so. If you have specific questions for your circumstances happy to spitball options

Guest

Re: Student Loans: Payment Options and Numbers

Post by Guest » Fri Aug 17, 2018 10:19 pm

Thanks for taking questions.

Just graduated and have 80k in federal loans. Starting big law soon. I don't think I have more than two years of big law in me.

Is it misguided to spend my first year paying off this 80k as aggressively as possible (hopefully in a little over 1 year), and spend the rest of year two saving money?

riot
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Re: Student Loans: Payment Options and Numbers

Post by riot » Fri Aug 17, 2018 10:56 pm

Guest wrote:
Fri Aug 17, 2018 10:19 pm
Thanks for taking questions.

Just graduated and have 80k in federal loans. Starting big law soon. I don't think I have more than two years of big law in me.

Is it misguided to spend my first year paying off this 80k as aggressively as possible (hopefully in a little over 1 year), and spend the rest of year two saving money?
Yes. Hoarded money is more useful when you flame out than a lower loan balance that you can’t eat/spend on rent

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Johannes
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Re: Student Loans: Payment Options and Numbers

Post by Johannes » Sat Aug 18, 2018 1:33 pm

Guest wrote:
Fri Aug 17, 2018 10:19 pm
Thanks for taking questions.

Just graduated and have 80k in federal loans. Starting big law soon. I don't think I have more than two years of big law in me.

Is it misguided to spend my first year paying off this 80k as aggressively as possible (hopefully in a little over 1 year), and spend the rest of year two saving money?
80k is a very reasonable balance (it's all relative) when you consider that it's payable on most biglaw exit options. because you did a good job keeping your debt low-ish, i think you have a few options:
(1) I think a refi to a modest 5/7/10 year payment is probably the recommended route if you think youll pursue in house options or higher paying fed gov options after biglaw rather than non profit.
(2) however, if you are unsure about lasting 2 years in biglaw, you might only last 6 months, and in that case i think a REPAYE plan for the first year is fine also. personal anecdote - i thought i could last 2 years in a biglaw job with the goal of going in house after, and i only made it 6 months before calling it quits and reassessing.

Under REPAYE, the fed gov pays half of any accrued itnerest you dont pay, and your first year of payments will be based on your 2017 earnings you filed in april 2018. because of that, you can have a very low monthly payment up front that will allow you to stock pile that cash and build a nest egg for flexibility in the future. id guess your monthly payment would be like $100/month based on summer associate earnings, so you could maybe save 50k in cash per year depending on your city and COL. (if you have any questions about the PAYE/REPAYE mechanics, shoot)

if your future is UNCERTAIN, i really can't recommend govt repayment plans enough. your debt is manageable on modest salaries, but it would be a total bummer to aggressively repay 80k loan balance and have a perfect job opportunity with a nonprofit or govt and not be able to take it because you are cash poor in the moment. id try to avoid that situation. but riding out REPAYE for a couple years also means you have to be okay with "neglecting" your debt for a little while in pursuit of alternative assets.

the best part of refis are the CERTAINTY they provide. again, your debt load is low enough that none of these are disastrous choices and more of a personal choice for what helps you sleep at night. if you did refi, id get a 7 or 10 year term and just make the monthly payment without aggressively paying the debt. i dont think aggressively paying down debt really ever makes financial sense by the numbers, it just makes people feel warm and cozy inside. so yes, it's financially (key word here - this is divorced from psychology and your preferences) misguided to spend your first year repaying the debt aggressively rather than keeping that cash on hand and building up some savings.

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Dr Nefario
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Re: Student Loans: Payment Options and Numbers

Post by Dr Nefario » Tue Aug 21, 2018 10:22 am

Trying to decide if I should try to pay the accrued interest on my loans before it capitalizes in a couple months. Are the pros/cons I might not be thinking about for this? Similarly, are there pros/cons to going ahead and taking the loans out of deferment early or making early payments?

riot
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Re: Student Loans: Payment Options and Numbers

Post by riot » Tue Aug 21, 2018 10:34 am

Dr Nefario wrote:
Tue Aug 21, 2018 10:22 am
Trying to decide if I should try to pay the accrued interest on my loans before it capitalizes in a couple months. Are the pros/cons I might not be thinking about for this? Similarly, are there pros/cons to going ahead and taking the loans out of deferment early or making early payments?
If you’re eligible for the tax deduction this year (if that still exists? Not sure) I would pay the $2500 that you can deduct but that’s just me

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Johannes
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Re: Student Loans: Payment Options and Numbers

Post by Johannes » Wed Aug 22, 2018 11:06 pm

Dr Nefario wrote:
Tue Aug 21, 2018 10:22 am
Trying to decide if I should try to pay the accrued interest on my loans before it capitalizes in a couple months. Are the pros/cons I might not be thinking about for this? Similarly, are there pros/cons to going ahead and taking the loans out of deferment early or making early payments?
Entirely dependent on debt load and your goals/ability to pay down the debt.

If you are thinking of riding out a PAYE/REPAYE/pslf, I don’t think there’s a point in paying anything early.

Student loan interest deduction is still a thing and it’s above the line which makes it a lot more valuable in the trump tax cut era. So if you are trying to pay your loans down, pretty good way to get a nice 10-15% (or whatever your 2018 marginal rate is) return in addition.

Also whether or not capitalizing is awful depends on your interest rate you have. I’m assuming it’s nothing special, but if it’s low may be worth letting hang around.


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Nony
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Re: Student Loans: Payment Options and Numbers

Post by Nony » Wed Aug 29, 2018 5:26 pm

Ughhhhh. I haven’t had any real issues personally yet (knock on wood), but that article is terrifying. (Especially because I was looking at my loan balance today which is substantially larger than it was when I graduated. I have 10 loans and only on the three smallest does my monthly payment even touch the principal.)

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Johannes
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Re: Student Loans: Payment Options and Numbers

Post by Johannes » Wed Aug 29, 2018 6:21 pm

HUGE private letter ruling issued by the IRS (not amounting to precedent but is a blessing) that companies can set up 401ks for employees to go to student loan payments.

Next step is for congress to authorize a higher 401k amount (tbd obviously) but if so, people on RE/PAYE will be able to defer income (thus keeping their monthly payment down) and pay towards their loan balances. Also huge because employers can make contributions directly into those accounts for employees that counts as deferred/non AGi comp.

precipitate
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Re: Student Loans: Payment Options and Numbers

Post by precipitate » Mon Oct 15, 2018 11:07 am

Johannes wrote:
Sat Feb 03, 2018 11:53 pm
Just trying to build out some knowledge and discussion here because I'm not interested in discussing the pros and cons of policy here except to the extent it focuses on the chances of PAYE/IBR changing. Any momentum to changing PAYE/IBR should def be monitored in here as very relevant, but those articles have been around for a long time without leading to any change. Also remember, Trump is for a shorter forgiveness period (15 years) and only slightly higher rate (12.5), so again, this is an issue, like healthcare and unlike taxes, where there is no R or D consensus. Most importantly, getting the numbers to work, is very hard also like healthcare, which is why I think the inertia is in place to just let it be and I don't believe anyone really wants to touch this right now.

Just a reminder that Taxx Cuts and Jobs Act is pro-friendly to PAYE and IBR. Max 401k contributions went up in 2018 to 18.5k. the increase in the standard deduction also helps those on IBR by reducing someones AGI even further even if their income remained the same. Finally, federal poverty level rose in 2018 and will rise again in 2019, which is what discretionary income is based. All of these changes will mean if your income remained stagnant, you should be making lower monthly IBR payments.

Finally, this does not even consider the lower tax rate of TCJA, which means people have more effective income with the same salary and can thus defer more income by contribute more to their 401k/HSAs. This creates a nice little positive reinforcement feedback loop for those who were not maxing 401k/HSA. Ie, With the same income, because you pay less money to tax, you can defer that money you would have paid to tax in 2017 in your 2018 401k and thus lower your monthly IBR bill, which creates more money for you that you don't need that you can defer in your 401k/HSA.

Nice topic,thank you.

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