Student Loans: Payment Options and Numbers

[Kodokushiest]

Out of curiosity does anyone here get to write off student loan interest on their taxes? I don’t ― this is so totally unfair.

During the elections the politicians all said they understood the problem and promised to help. So far, zero.

Last year and (hopefully) this year.

[Johannes]

Graduated: 2015
Current debt: 175k
Other debt: 60k on my mortgage (355 per month).
Salary: 50k at a 501(c)(3) non-profit
Current plan: Minimum PAYE payments for PSLF, maxing out my tax-deferred 403(b) contribution of $18,500, I put the max of $2,600 into my flexible spending account, $1,800 a year for tax-exempt health insurance premiums. Drops my reported taxable income to a bit over 27k, I pay a small handful of change towards PAYE.

You’re doing it perfect. Thumbs up.

[Toni]

Out of curiosity does anyone here get to write off student loan interest on their taxes? I don’t ― this is so totally unfair.

During the elections the politicians all said they understood the problem and promised to help. So far, zero.

Why is it so unfair?

During the political campaigns the politicians said the grievance they constantly heard about regarded the high cost of college debt. If elected, they promised to help. Making tuition interest a legitimate write-off would have been a good start.

[necho2]

Out of curiosity does anyone here get to write off student loan interest on their taxes? I don’t ― this is so totally unfair.

During the elections the politicians all said they understood the problem and promised to help. So far, zero.

Why is it so unfair?

During the political campaigns the politicians said the grievance they constantly heard about regarded the high cost of college debt. If elected, they promised to help. Making tuition interest a legitimate write-off would have been a good start.

Wait are you talking about your college debt? Not law school stuff? B/c I'm not sure that anyone was talking to single lawyers making 80k+ or married lawyers making 160k+ when they mentioned that stuff...

[Toni]

Talking about law school debt (the politicians usually called it college debt). Politicians can’t force colleges to lower their tuition but they can make tuition debt interest a legitimate tax write-off.

[Nony]

It’s not remotely unfair that they didn’t though. Undesirable to you, but not unfair.

[Toni]

When the politicians continually promise to relieve the student debt problem and then do nothing, it can rightfully be stated as “unfair”….lying or dishonesty also fits. Legitimizing tuition interest as a write-off is a no-brainer. I do not know of any other tactic available for lawmakers to live up to their word of offering assistance.

[bk1]

Stop.

[Nebby]

Graduated: 2015
Current debt: 175k
Other debt: 60k on my mortgage (355 per month).
Salary: 50k at a 501(c)(3) non-profit
Current plan: Minimum PAYE payments for PSLF, maxing out my tax-deferred 403(b) contribution of $18,500, I put the max of $2,600 into my flexible spending account, $1,800 a year for tax-exempt health insurance premiums. Drops my reported taxable income to a bit over 27k, I pay a small handful of change towards PAYE.

Are you nontrad and live in Idaho?

[RespondeatInferior]

Graduated: 2015
Current debt: 175k
Other debt: 60k on my mortgage (355 per month).
Salary: 50k at a 501(c)(3) non-profit
Current plan: Minimum PAYE payments for PSLF, maxing out my tax-deferred 403(b) contribution of $18,500, I put the max of $2,600 into my flexible spending account, $1,800 a year for tax-exempt health insurance premiums. Drops my reported taxable income to a bit over 27k, I pay a small handful of change towards PAYE.

Are you nontrad and live in Idaho?

Portland, Oregon, but I bought my house in 2012, (prices were still rock bottom from the 2008-2009 crash) and put 30% down. I don't know enough about what constitutes the traditional student to determine whether I'm traditional/non-traditional, 2006 business admin undergrad, non-cpa accountant in the hospitality industry before lawschool, 27 when I started law school.

My job is pretty non-traditional, I'm the administrator of the health services unit for a mental health non-profit, which means I manage the psychiatrists and nurses in tandem with the medical director. Only a semi-legal position, the legal stuff includes keeping the company up to date on nursing OARs, residential treatment facility OARs, hipaa compliance, auditing our residential inpatient facilities' MARs and personnel files, county contract negotiations, other duties as assigned, etc. Standard 9-5 with very little take home work, though I do have to travel quite a bit because we have nearly 50 facilities which need yearly audits and about 12 or 13 of them are far outside of the Portland Metro area (some on the southwestern coast, some in Eastern Oregon, one in Seattle, one in Idaho, some in Eugene, some in Medford, so on and so forth).

[presh]

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.

It’s my understanding that the bolded is only true for undergraduate student debt. For grad students his plan is to extend it out to 30 years, which might change things for some people.

[Johannes]

Yep that is correct. I think I wrote that before his initial budget proposal. But if I did not, I didn’t fully understand his complete plan. You are correct though.

[northwood]

Yep that is correct. I think I wrote that before his initial budget proposal. But if I did not, I didn’t fully understand his complete plan. You are correct though.

You and trump both didn’t fully understand the plan

[Anon 3L]

Graduate: 2018
Current debt: $193k (114k self at avg of 6.2% + 79k spouse at avg 5.5%)
Other debt: none
Salary: $210k = 180k (biglaw) + $30k (spouse)
Savings: $15k that will probably be used to cover living expenses/bar trip between now and start of stub year
Current plan: unclear

I’ve gone through exit counseling and everything is very confusing. We plan on having kids in 4-5 years, so we need to save for that eventually.

When I start, the goal will be to max my 401(k) and reach the employer match max for my spouse. Does anyone have additional advice on choosing a payment plan vs. consolidation vs. refinancing asap?

Based on the reading I’ve done from here, old TLS threads, and biglaw investor, it seems like there’s potential to do something such as REPAYE for a couple years with a minimum payment and the government paying the remaining interest accruing over that period, followed by a consolidation or refinance at that point.

[Johannes]

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?!

[presh]

Graduated: 2012
Debt at graduation: 98k (at average interest rate of 7.5)
Debt after approximately five years of payments: 91k
Irritation level: extremely high
Salary: 121k, likelihood of being fired - low
Refi with FRB: 81k (paid off 10k at time of refi), interest rate 2.55, monthly payment ~1k per month, 7 year term with no prepayment penalty
Maxing out retirement at 18.5k, have six month emergency fund, saving for a wedding.

Would I go to law school again - maybe. I realize I have taken a slightly different path than many would since I would qualify for PSLF, but I did the math and I would be paying close to the same over the course of the loan, just with way more going to interest (plus having to rely on the gov to not fuck me over later).

[Anon 3L]

Is there a full post somewhere with your 2 option advice?

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?!

[throwaway056890]

Graduated: 2016
Debt at graduation: $250k
Current debt: $160k
Refinanced with FRB at 2.95%/15 years
Maxed out 401(k)
Savings: $25k
Income: $190k (second year big law associate)

As you can see, I have aggressively paid down my loans since I started working. I'm wondering whether to slow down my payments, considering that (1) I refinanced to much more favorable terms with FRB, and (2) I'm getting married this fall to a fellow lawyer. He graduated with no debt, worked at a market-paying firm for a few years, and went in-house last year. His current net worth is $200k+ (savings, investments, 401(k), etc.) that he accumulated since he started working.

Should I keep aggressively making payments for peace of mind, or are there any other alternatives? We aren't planning to buy a house anytime soon and also aren't planning to have kids for another 3-4 years.

[SmokeytheBear]

Graduated: 2016
Debt at graduation: $250k
Current debt: $160k
Refinanced with FRB at 2.95%/15 years
Maxed out 401(k)
Savings: $25k
Income: $190k (second year big law associate)

As you can see, I have aggressively paid down my loans since I started working. I'm wondering whether to slow down my payments, considering that (1) I refinanced to much more favorable terms with FRB, and (2) I'm getting married this fall to a fellow lawyer. He graduated with no debt, worked at a market-paying firm for a few years, and went in-house last year. His current net worth is $200k+ (savings, investments, 401(k), etc.) that he accumulated since he started working.

Should I keep aggressively making payments for peace of mind, or are there any other alternatives? We aren't planning to buy a house anytime soon and also aren't planning to have kids for another 3-4 years.

I think this is mostly a personal question. I would build up more savings, but still try to hit the 4 year repayment so you can get the bonus from FRB.

[Danger Zone]

I'd skip the bonus. That interest rate is so low, just take the full 15 years to pay it down. It's practically free money.

[SmokeytheBear]

I'd skip the bonus. That interest rate is so low, just take the full 15 years to pay it down. It's practically free money.

I think it's borderline. It's certainly lower than one will get for a mortgage, but it's not free.

I, for example, have a small sliver of loans that I didnt refinance that are at like 1.8%. Emotionally I want to pay them off so I can dust my hands of this mess, but in reality I know that I should ride those as far into the sunset as I can.

[Johannes]

Is there a full post somewhere with your 2 option advice?

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.

[Johannes]

I'd skip the bonus. That interest rate is so low, just take the full 15 years to pay it down. It's practically free money.

I think it's borderline. It's certainly lower than one will get for a mortgage, but it's not free.

I, for example, have a small sliver of loans that I didnt refinance that are at like 1.8%. Emotionally I want to pay them off so I can dust my hands of this mess, but in reality I know that I should ride those as far into the sunset as I can.

yeah that actually is free money when you factor in the weighted average cost of capital. even the most conservative IRRs for lump sums of like 150k dont dip below 3%. fuck your bonus and let your money work for you.

[presh]

I have been thinking a lot about the idea of paying off loans early at low interest rates, and I think there is one thing everyone should consider that we do haven't talked about here - how you are with money.

If you have a low interest rate loan and you can be responsible enough to take the extra money you are saving and invest it for decent returns, you are better off investing for say a 6% return than paying off a loan at 2-3%. However, some people feel an urgency about paying off debt that they don't necessarily feel about investing.

It is really important to ask yourself whether you will take the extra money (say $500 a month?) and invest it or whether you will just end up adding it to your discretionary spending and be honest. You are better off paying off loans, even at low interest, if the alternative is just spending that money.

If you struggle with this, an auto transfer to an investment account might be another way to tackle the problem.

[bk1]

I have been thinking a lot about the idea of paying off loans early at low interest rates, and I think there is one thing everyone should consider that we do haven't talked about here - how you are with money.

If you have a low interest rate loan and you can be responsible enough to take the extra money you are saving and invest it for decent returns, you are better off investing for say a 6% return than paying off a loan at 2-3%. However, some people feel an urgency about paying off debt that they don't necessarily feel about investing.

It is really important to ask yourself whether you will take the extra money (say $500 a month?) and invest it or whether you will just end up adding it to your discretionary spending and be honest. You are better off paying off loans, even at low interest, if the alternative is just spending that money.

If you struggle with this, an auto transfer to an investment account might be another way to tackle the problem.

This is a good point about money in general. Even if something has a lower theoretical EV, it may still be better for you if it helps you exert control or helps you psychologically (e.g., snowball vs avalanche, paying off debt so it's gone, etc).