Poll

Do student loans on ONE qualify as a debt emergency?

Yes
6 (50%)
No
6 (50%)

Total Members Voted: 12

Voting closed: May 19, 2017, 08:26:39 PM

Author Topic: IBR Student Loans--Case Study  (Read 1048 times)

Fochizzy

  • 5 O'Clock Shadow
  • *
  • Posts: 5
IBR Student Loans--Case Study
« on: April 19, 2017, 08:26:39 PM »
Hello,

So my husband has a truly enormous student loan debt.

He graduated from law school in 2011. We currently (and intend to continue) to file taxes separately.

He owes $270,000 at a 7.63%

Because we file our taxes separately his income based repayment only takes his income into account not mine. With the fairly recent student loan reform his student loan will be fully forgiven in 25 years or 2036.

I make 64,000 a year as a Social Work Supervisor in foster care (with annual 4% raises). He works in document review making about 55,000 a year, it is contract work so it is a bit of an estimate.

With our current salaries he pays $300 a month on Income-Based Repayment at the current rate he will only pay off 90,000 of the student loan before it is forgiven. There may end up be tax complications that year, but honestly the government doesn't even know how that will be handled, so neither do we.

So I know you think all debt is an emergency, and I am with you. But what about in this case? We are literally saving money by not paying it off, we avoid all interest this way.

So should we pay it off as a debt emergency or go with our plan? 

OneCoolCat

  • Bristles
  • ***
  • Posts: 364
  • Age: 30
  • Location: SoFla
Re: IBR Student Loans--Case Study
« Reply #1 on: April 19, 2017, 08:46:11 PM »
He should try to get any job eligible for PSLF and try to get it knocked out by 2028 and possibly have more potential to make more money.  Doc review doesn't lead to many options outside of doc review in the legal field and there are downward pressures of doc review pay (imminent automation, growing pool of JD's, talks of allowing non-lawyers do doc review).

I wouldn't pay the debt off, no way.  Save as much as you can and pay as little as possible on the debt.
I refinanced my student loans with Sofi from 6.8% to 3.805%.  Use my referral URL for a $100 welcome bonus if you refinance with Sofi:  https://www.sofi.com/refer/234/11233

Fochizzy

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: IBR Student Loans--Case Study
« Reply #2 on: April 19, 2017, 08:53:59 PM »
He doesn't see many public service jobs available and despite the fact that it considered low brow legal work he honestly enjoys it. So changing work isn't really the plan right now. The focus right now was the debt questions. It appears you agree with the pay the least amount possible working towards forgiveness. 😀

MDM

  • Walrus Stache
  • *******
  • Posts: 6434
Re: IBR Student Loans--Case Study
« Reply #3 on: April 19, 2017, 09:15:25 PM »
Can he get a lower interest rate through SOFI, etc.?

Even at 7.63%, it seems you could file jointly, pay it all in 10 years, and put $15K/yr into retirement funds, if you can live on $42,500/yr after all federal taxes.  Many people can and do live on that amount.

See snapshot guess below.

This can be a contentious issue, but this is one vote for "honor your commitments and pay the debt."

CategoryMonthly
Comments
Annual
Salary/Wages for earner #1$5,333$64,000
Salary/Wages for earner #2$4,583$55,000
Pretax Health Ins.$250$3,000
FICA base salary/wages$9,667$116,000
401(k) / 403(b) / TSP / etc.$1,250Room to increase?$15,000
Income subject to IRS tax$8,417$101,000
Federal Total Income$8,417$101,000
Federal tax$9092017 rates, MFJ, stand. ded., 2 exempt.$10,903
State/City tax$0Guess, using 0.00% * (AGI - Exempt'n)$0
Soc. Sec.$599Assumes 2 earners paying$7,192
Medicare$140$1,682
Total income taxes$1,648$19,777
Income before other expenses  $6,769$81,224
Monthly Average Expenses:
Loans:
Student Loan$3,223$38,680
Total Expense$3,223$38,680
Total for all other expenses$3,545$42,544



Filing Status21=S, 2=MFJ, 3=HOH
# Exemptions2
Adult #1Adult #2
Age3030
# of earners2
Total Income$101,000
Std. Deduct.$12,700
Act. Deduct.$12,700
Exemption$8,100
SL int. (approx.)$2,500
AGI$98,500
MAGI$101,000
Taxable$77,700
1040 Tax$10,903
Tax after n-r credit$10,903
Net Tax$10,903
Monthly$909
Item. Deduct.$0
VersionV8.16

Loans:Orig. Prin.Orig. LengthCurr. Prin.Yrs leftRate
Student Loan$270,00010$270,000107.630%

Fochizzy

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: IBR Student Loans--Case Study
« Reply #4 on: April 19, 2017, 09:30:29 PM »
Hey,
Your math is interesting. However, we could not put that sum I  at this time because we are actually tackling credit card debt right now. It should be paid off in 18 months, yay! We could do that after that. However, we are planning on having a child after we don't have the credit card debt and live in NYC. Honoring your commitments although I respect that opinion, it it is not compelling enough of a reason for me. The $387,000 You are recommending going into the loans could go into purchasing a home.

SustainableStache

  • 5 O'Clock Shadow
  • *
  • Posts: 19
Re: IBR Student Loans--Case Study
« Reply #5 on: April 19, 2017, 09:39:05 PM »
I second OneCoolCat's view, but I definitely see the value in MDM's approach.

I've done document review in DC for one year. My wife has done doc review in DC for one year. If your husband "honestly enjoys" the line of work, then he'd enjoy doing just about any other job in the world. Doc review is a mind numbing job. So while changing jobs "isn't really the plan right now," we're suggesting that you think about it. Your focus is on debt, and we're giving suggestions on how to pay that debt off faster than your suggested plan of 25 years.

Two paths are more beneficial to your financial future than the path you're set on. The first is to pay the absolute minimum while getting after PSLF in 10 years, with tax free loan forgiveness. The second is to live on the median income (pretty easy) even when you make much more - loan payoff in 10 years.

Edited to add median income in NYC... https://project.wnyc.org/median-income-nabes/
« Last Edit: April 19, 2017, 09:41:10 PM by SustainableStache »

Another Reader

  • Magnum Stache
  • ******
  • Posts: 3896
Re: IBR Student Loans--Case Study
« Reply #6 on: April 19, 2017, 09:47:10 PM »
Your husband borrowed $270,000 to get a $55,000 contract job that is likely to disappear in a few years for the reasons cited above.  You apparently have acquired credit card debt as well - living beyond your means?  You want to purchase a home instead of paying your debt.  Your entitlement mentality is just unbelievable.   Your husband should do what's necessary to pay off the debt through one of the two paths suggested.  Buy a home when the debt is paid off and you can afford it.

MDM

  • Walrus Stache
  • *******
  • Posts: 6434
Re: IBR Student Loans--Case Study
« Reply #7 on: April 19, 2017, 09:51:37 PM »
Honoring your commitments although I respect that opinion, it it is not compelling enough of a reason for me.

Interesting perspective.  Don't understand the ethics, but this is a diverse country....

Lanthiriel

  • Pencil Stache
  • ****
  • Posts: 598
  • Location: Portlandia
Re: IBR Student Loans--Case Study
« Reply #8 on: April 19, 2017, 10:30:29 PM »
Your husband borrowed $270,000 to get a $55,000 contract job that is likely to disappear in a few years for the reasons cited above.  You apparently have acquired credit card debt as well - living beyond your means?  You want to purchase a home instead of paying your debt.  Your entitlement mentality is just unbelievable.   Your husband should do what's necessary to pay off the debt through one of the two paths suggested.  Buy a home when the debt is paid off and you can afford it.

I'm always amused when someone who clearly hasn't spent much time on this site stops by to make a post like this one. OP will no doubt be shocked by your response, but it's the right one.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 3688
  • Age: 32
  • Location: Seattle, WA
Re: IBR Student Loans--Case Study
« Reply #9 on: April 19, 2017, 11:35:49 PM »
Your husband seems like the type of person that IBR was designed for. He went to an expensive school, presumably with the idea that the education would propel him to a career that paid high enough to justify the cost. Unfortunately it hasn't (yet) worked out that way. This was part of the deal when you signed up for your student loans. If you and the lender both agree that the amount you're paying is fine, I don't see any immorality there.

However your other comments are concerning. You have credit card debt (not great), are working to pay it off (good!), but where's the plan to start saving once that's done? All I see is plans to spend: spend on a home, spend on a child. That's not the path toward financial independence.
I made a blog! https://seattlecyclone.com/

The Roth IRA was named after William Roth, who represented Delaware in the US senate from 1971-2001. "Roth" is a name, not an acronym. There's no need to capitalize the final three letters.

Laura33

  • Pencil Stache
  • ****
  • Posts: 718
  • Location: Mid-Atlantic
Re: IBR Student Loans--Case Study
« Reply #10 on: April 20, 2017, 06:25:20 AM »
So do you want advice, or do you want us to affirm that what you've already decided to do is the right thing?

Assuming the former, the real question is do you want to retire in 30 years or less?  Your current plan has you retiring, basically, never.  Replace CC debt with mortgage debt, cut salary/add expenses to have children, after 25 years replace student loan debt with big tax debt.  And don't forget college!  Where does saving for retirement fit into this plan?  And how does it ever get to be more than dribs and drabs, secondary to whatever other more pressing need you have at the moment?

Look, you are a grown-ass human, and you can choose that path if you want to.  Most people do.  But you are asking advice from a community who views that life as a version of hell -- being stuck, forever, in a job that you may not like (or that may go away - ITA with OneCoolCat), to earn the money to buy more stuff that you don't actually need anyway (or, for most people, to pay off the debt from the stuff you have already bought).  So you shouldn't be surprised that people are responding with suggestions for how you can change things up to be free to do whatever the hell you want much, much sooner.  Because that's kind of what we do here.

FWIW, I don't have any problem with the morals/ethics of loan forgiveness; it's part of the deal, so do what you need to.  My problem is that it's twenty-five years of your life.  That's as long as I've been practicing -- and I have an awesome job that is about as good as it gets in this field, and I am still *so* ready to be done it's ridiculous.  The thought of only just now getting out from under the weight of those loans, having to deal with tax debt, having kids about to go to college, and having little to no retirement -- well, it literally nauseates me, makes me feel all claustrophobic and itchy inside. 

But, again, that's me, not you.  If that's what you want to sign up for, make your choice and own it, and good luck.
Just do yourself a favor and cut up the credit cards, and base your mortgage on what you can afford *after* maxing out your 401(k).
Laugh while you can, monkey-boy

rubybeth

  • Handlebar Stache
  • *****
  • Posts: 1083
  • Location: Minnesota
    • Money makes the world go 'round
Re: IBR Student Loans--Case Study
« Reply #11 on: April 20, 2017, 06:40:45 AM »
I don't have an ethical problem with the plan, but I think a better option is to look for a job that would potentially make him eligible for PSLF (I say "potentially" because rules can change), or a higher paying position. He could theoretically still do IBR but you could save more or pay off the credit card debt faster--18 months is a long time to be paying off credit card debt.

Have you already posted a case study? If not, I strongly suggest you do. Perhaps there are other ways to reduce the outflow so that the debt on the credit cards can be cleared sooner.
My financial blog: http://rubybeth.wordpress.com

"Done is the engine of more." - the Done Manifesto

FIREby35

  • Bristles
  • ***
  • Posts: 327
Re: IBR Student Loans--Case Study
« Reply #12 on: April 20, 2017, 06:46:06 AM »
I agree with Laura.

As an attorney here, it kind of boggles my mind that you can't envision making $270,000 in loan repayments sooner than 25 years. No, its not easy to create a career where you earn significant sums of money - like your husband must have thought when he took out his loans. But, it is possible. From my position as a small firm owner and entrepreneur, I wouldn't get on any income based payment plans, I would be thinking about how to position myself for a $270,000 payday. And, for the record, that does happen to attorneys with your husbands level of experience (i.e. me, 2010 law graduate).

ReadySetMillionaire

  • Pencil Stache
  • ****
  • Posts: 570
  • Location: The Buckeye State
Re: IBR Student Loans--Case Study
« Reply #13 on: April 20, 2017, 07:38:21 AM »
You should read this entire thread: https://forum.mrmoneymustache.com/ask-a-mustachian/gaming-repaye-and-the-student-loan-system-($148-000-debt)-to-achieve-fire-at-45/

That thread is obviously about REPAYE as opposed to IBR.  I haven't looked at the differences recently but my understanding of the huge factors are as follows:

(1) REPAYE payment is based on 10% of discretionary income (AGI - 150% of poverty level), while IBR requires 15% of discretionary income (AGI - 150% of poverty level).

(2) REPAYE bases payments on both incomes whether you file jointly or separately, while IBR allows you to file separately.

(3) Under REPAYE, 50% of unpaid interest is subsidized (i.e., forgiven) on a monthly basis.

I did the math on my own student loans and came to the conclusion that REPAYE was better. Your situation might be different.

But right off the top you are paying 5% less of your discretionary income under REPAYE.  That is a big sum of money over the course of a year and over the course of the repayment period.

More importantly, you are foregoing basically every deduction or exemption imaginable when you file separately, which actually increases your AGI, which in turn increases your payments. No student loan interest deduction ($2,500 per spouse per year), no standard marriage deduction, no child tax credit, no dependent care credit (if you hire a babysitter), etc. You can't even deduct contributions to a traditional IRA ($5,500 per spouse per year) or HSA ($6,500 family max).

So you guys make $110,000. I have no idea what your expenses are, but let's play with your AGI.

Income: $110,000
Max HSA: $6,500
Max IRAs: $11,000
Each contribute $10,000 to 401k: $20,000
Student loan interest deduction: $2,500

I'm not even getting into any other deductions, but with these deductions alone, your collective AGI is $70,000. Subtract 150% of the poverty line for a family of two ($23k) and your "discretionary income" for purposes of your student loan payment is $47,000.  Under REPAYE, you pay 10% of this for the year, or $4,700, which is $391 per month.

Note that if you were also able to max 401ks ($36,000 total), your AGI would have been $54,000, your "discretionary income" would be $31,000, your payments would total $3,100 for the year, and your payment would be $258 per month.

Also remember that as this is going on, your payments won't be covering interest, but REPAYE comes to the rescue by subsidizing 50% of unpaid interest. This is an enormous monetary benefit that will somewhat prevent your student loans from getting crazy high due to unpaid interest.

Conversely under IBR, the only deductions from above that your spouse can take would be his 401k. So say he maxes that ($18,000), making his AGI $37,000, his discretionary income $14,000, his yearly total payment equaling $2,100 (15% as opposed to 10% under REPAYE), and his payment would be $175. Yes the payment would be lower, but no subsidized unpaid interest, and no deductions.

The point of this exercise is to show you that no matter what you choose, if you are going to be on this path long term, you need to start knocking that AGI down as much as possible. Being on IBR and filing separately really inhibits your ability to do this because you basically can't make any deductions.  You need to extrapolate those deductions over the course of the repayment period to understand the consequences.
« Last Edit: April 20, 2017, 07:41:06 AM by ReadySetMillionaire »
No more zero days. Promise yourself that you will do one thing every day that takes you one step closer to your goal.

PepperPeter

  • 5 O'Clock Shadow
  • *
  • Posts: 39
Re: IBR Student Loans--Case Study
« Reply #14 on: April 20, 2017, 10:42:09 AM »
RSM, thank you so much for breaking this down.  My husband's loans are IBR and we've been filing taxes separately, and we have plans to sit down and run the numbers to see if it would be beneficial to switch over the REPAYE.  Your post is an excellent starting point!

Proud Foot

  • Pencil Stache
  • ****
  • Posts: 676
Re: IBR Student Loans--Case Study
« Reply #15 on: April 20, 2017, 12:49:36 PM »
Honoring your commitments although I respect that opinion, it it is not compelling enough of a reason for me.

Interesting perspective.  Don't understand the ethics, but this is a diverse country....

Completely agree with MDM here.  I have no problem with PSLF, IBR PAYE, REPAYE, and any programs I may have missed that helps to alleviate student loans.  I do find it on the darker edge of the ethical gray area when you would deliberately chose a lower income for 25 years to qualify for the loan forgiveness. Not only does this plan keep the income lower for 25 years it also hinders your opportunities for retirement, home ownership, kids, kids college, etc.

Fochizzy

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: IBR Student Loans--Case Study
« Reply #16 on: April 20, 2017, 01:38:16 PM »
Thanks everyone for the comments.

We will have some decisions to make when we finish our credit card debt. We put right around 3,500 in debt a month right now and live on about 3,000. We made a lot of drastic cuts a few years ago, we live with 2 roommates, pack lunch, stopped ordering take out (my learning to cook was not an east thing, but I got there). I have ridden my bike to work for 3 years now, and my husband takes the subway.

Some of the earlier math shows that the 3,500 into the student loan would pay it off in 10 years, however since we have to finish credit card first that means we actually only finish 5 years earlier than originally planned and will have paid 10x.

I clearly don't see an ethical problem with taking advantage with IBR. I agree we are the type of people it is designed for. My husband is looking for a better more permanent position but right now he likes what he is doing, and when he worked as an attorney he was miserable. I like that this job makes him happy, happy husband is better for me.

It is interesting about the taxes our accountant says even if we didn't have the loans he would recommend we file separately right now because we make so close to the same he feels separately maximizes our return.

Do based on the feedback maybe the question is after we get out of credit card debt should we power through the student loans or should we stick with the IBR and invest the 3,200 a month with the loan forgiveness. Or put all 3,500 into student loans?

And if that is the case we will have to figure out what the plan is for housing. If we bought one of our roommates would come with us to lessen the mortgage. But if we don't but we will still need to move to have a place that has space for a baby. So our housing costs will double in two years because this roommate living situation is not permanent. We did it in response to how to deal with our credit card debt and the lease will be up in a year and a half and the girls we are living with are ready to go to the next chapters in their own lives.

So thoughts now?

specialkayme

  • 5 O'Clock Shadow
  • *
  • Posts: 72
Re: IBR Student Loans--Case Study
« Reply #17 on: April 20, 2017, 02:07:02 PM »
Overall, I enjoy this site. Probably why I keep reading. But I've never found a thread on student loan repayment actually helpful or enjoyable to read. The topic sparks images of riotous indignation, extreme budgeting, and moral justification, on both ends of the spectrum. Each side appears to get further entrenched in their position, while offering little real help.

All of that being said, I'll dare to speak anyway. Knowing I'm probably swaying no one in any direction. But that's probably what the internet is for anyway. Shouting into the abyss.

On the line of riotous indignation, I don't see any problem with IBR or any other type of similar repayment plan. Student loan companies took a risk when they loaned to students. That risk is evident in the higher than average interest rates. Plus, they get a number of advantages (no statute of limitations EVER, taxes don't even get that) that no other creditor receives. But the gamble that the student loan issuer took was you'd be able to graduate and repay the loans. Most can. Some can't. Life happens. The economy happens. Sometimes things don't plan out the way you think they will. If someone takes a $300k risk on buying a business or a building and it doesn't work out, they can file bankruptcy and start over. If you take that same risk with a student loan, you can't. You're stuck with it FOR LIFE. So why not look at putting yourself in as good of a position as you can.

Personally, I went to law school on the understanding that tuition would cost $27,000 a year, I could get a job to pay my living expenses ($25/hr first two years, $50/hr last year, 10 hrs wk during school year and 40 during summers). Bar passage rates were 80%. Average starting salary was $85,000 /yr, median attorney salary was $155,000 /yr. The loans make sense. Fast forward to my first year of law school. The market crashes. Big law fires 85% of their associates. They flood the market, removing most entry level jobs, then taking all paid internships. The part time job at $25/hr is gone. If you beg (and I mean beg) you might be able to get an unpaid job to put on your resume. Tuition increases from $27,000 to $36,000. Starting salary drops from $85,000 to $45,000. Bar passage drops from 80% to 60%. Projected ending loan balance jumps from ~$80k to $160k to account for loans for living expenses. Shit happens, but to say "sucks to be you, honor your commitment and hand over 70% of your pretax income to pay for your loans" (in the case of OP's husband) doesn't really seem right to me.  But hey, you're mileage may vary.

That having been said, here are a few things to consider:

1. Look up the concept of filing MFS, getting a lower IBR payment, then waiting a year and amending to MFJ. You still get all the deductions, you just have to wait a year on getting the tax back. But after the first year it all rolls together. Risky, as it's unknown what's going to happen in the future, but may be worth it.

2. The biggest gamble with IBR is what do you think you're husband will earn in 10-15 years. If his salary will stay where it is now, you'll save big by staying in IBR, save money, invest it, and use it elsewhere. If his salary will triple or quadruple, the math becomes very different. You'll lose big by staying in IBR. But that's for you two to consider.

3. PSLF jobs don't exactly grow on trees. They are actually competitive. Plus, they often don't pay very well. I ran the math when I started my job, and it didn't make sense to go PSLF (or try, I didn't have a job offer to consider it really). Starting salary for legal aid was about $32,000 vs. $45,000 private. Year two legal aid would be $35,000 vs. $65,000 private. But at the end of year 10, you max out at your legal aid job at around $38,000, but there is no max in private. When you get out of legal aid, the stigma follows with you, and you usually aren't picking up $120k jobs. At least, that's what those that have left legal aid told me. You ended up making more than you're loan forgiveness by not going PSLF. Of course, that's a very broad generality. There are plenty of PSLF jobs that pay well. But again, competitive. Plus, I remember reading a while back about the first round of people that applied for PSLF forgiveness and they were denied. Something to do with being contracted by the government, rather than working for the government. I don't know if that was resolved or not, but man that would suck to work a PSLF job for 10 years, not get the forgiveness, AND get stuck with the lower pay.

4. I'd do a spreadsheet, and analyze the different options. Do one column where you assume 0% raises. Do another column where you assume 3%, 5% and 7% annual income growth. Then run repayment options based on either IBR, 10 year repayment, or another type of accelerated repayment. Then assume anything you aren't putting toward loans is saved, growing at 7% compound interest. Then compare. What route are you better off going if 0% raise? 5%? 7%? Which one do you think is more realistic? For me, if I got no raises from here till the end of my IBR, I'd end up paying more than the principal, but not by much. If my salary grows (annualized) greater than 5% per year, I pay more in IBR than I would if I just went with the straight 10 year repayment (from today), but your numbers may vary. Once you come up with your percent of no return (for lack of a better term) figure out if you actually can do the 10 year repayment option. If you realistically can't afford it, I'm not sure if it matters. Others on here won't agree, I know, but I don't see paying 70% of your pretax salary (his, not yours, not joint) as a viable option.

5. I know nothing about REPAYE. I should though. Thanks for keying me into something.

MDM

  • Walrus Stache
  • *******
  • Posts: 6434
Re: IBR Student Loans--Case Study
« Reply #18 on: April 20, 2017, 02:41:42 PM »
...I don't see any problem with IBR or any other type of similar repayment plan. Student loan companies took a risk when they loaned to students.
Are private loans eligible for IBR, or only federal loans?  In other words, is it a private company or taxpayers who eat defaults?

Fochizzy

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: IBR Student Loans--Case Study
« Reply #19 on: April 20, 2017, 03:25:53 PM »
...I don't see any problem with IBR or any other type of similar repayment plan. Student loan companies took a risk when they loaned to students.
Are private loans eligible for IBR, or only federal loans?  In other words, is it a private company or taxpayers who eat defaults?

Only government loans are eligible. Not helping my case. But felt worth answering.

specialkayme

  • 5 O'Clock Shadow
  • *
  • Posts: 72
Re: IBR Student Loans--Case Study
« Reply #20 on: April 20, 2017, 05:43:58 PM »
In other words, is it a private company or taxpayers who eat defaults?

First, I don't think I view it as "eating defaults." Many loans pay out significantly more than principal, but just don't pay out the loan in full with all accrued interest. Others pay out principal and interest. Others don't pay out anything (death, disability, ect.).

But, that part aside, the fact that they are government backed is even more of a reason to find student loans ridiculous. In a normal debtor-creditor relationship, there's risk of non payment and the weighing of time value of money which conceptually creates the interest rate. In theory, smaller risk (or chance of non payment) or shorter repayment period (less weight of time value of money) equates to smaller interest rate. I can go on Lending Club, get a private loan equal to a hundred thousand dollars at 5.5% over 60 months and there's a risk I won't pay it back, which justifies the interest rate. But student loans (federally backed) are GUARANTEED to be paid back. First, you can't declare bankruptcy to discharge them. Second, there's no statute of limitations. Third, they have special collection powers (on defaulted loans they can access tax refunds, which in many states is something only the fed, state, and student loans can do). Fourth, if you default they can get you fired from certain private jobs (something very few other creditors can do, including most state revenue offices). And last, if all that doesn't work, and the company still doesn't get paid, taxpayer money pays out the difference. So where's the risk? What justifies the interest rate?

MDM

  • Walrus Stache
  • *******
  • Posts: 6434
Re: IBR Student Loans--Case Study
« Reply #21 on: April 20, 2017, 06:50:30 PM »
What justifies the interest rate?
One isn't required to take out loans at that rate, correct?  If the government-set rate seems too high, just go elsewhere....

See Interest Rates and Fees | Federal Student Aid for more.

ct183919

  • 5 O'Clock Shadow
  • *
  • Posts: 1
Re: IBR Student Loans--Case Study
« Reply #22 on: April 21, 2017, 04:26:00 PM »
I have always been a "lurker" on this website but wanted to write about my perspective.  In 2009 I graduated with around $120,000 in law school debt.  I worked throughout law school to keep the costs down.  I graduated from a State school.  I surely could have spent less for living expenses while at school, but I was not familiar with the Mustachian concepts at that time.  2009 was one of the worst years to graduate from law school given tough employment prospects.  I resisted IBR or other type plans and made paying off my loans a top priority.  I worked for a few years in low-paying jobs (making the same or even less than the doc review your husband now makes at times) and eventually started my own small practice.  This paid a little better because I worked 7 days a week and took any client or matter I reasonably and ethically could. I later joined a firm and for the past couple of years have earned a decent low-six figure salary.  I paid off my loans this year.  I have been able to start saving for retirement.  Although I do not have much of an emergency fund, I do have no debt other than a small mortgage.  I live in a high cost of living area.  In my opinion the biggest problems here are your being comfortable with debt and going hand-in-hand with that, being comfortable with earning less than you can. The other path is harder but does have a light at the end of the tunnel.  Even in the bad times I was owning my situation and doing my best.  I do feel a sense of pride in that decision.  I forced myself to increase my work ethic and make the best of what could have been a terrible situation.  Working many hours only gets harder with children. I do feel a sense of pride in my decisions.  I know it's not for everyone.   

GetItRight

  • Pencil Stache
  • ****
  • Posts: 539
Re: IBR Student Loans--Case Study
« Reply #23 on: April 22, 2017, 05:10:28 PM »
$270k student loans and only paying $300/mo? That's insane! I had half that and my minimum payments were in the $1300-$1600/mo range until I paid down a large chunk and refinanced. Even then, I was paying north of $2k/mo as it was a hair on fire emergency, and since I started using Mint in 2014 I've averaged $1500/mo even paying minimums for the past year building up a war chest of cash reserves, which in another month will serve it's purpose and the remainder be put toward student loans in a lump sum.

7.xx% isn't terrible, but I would refi and you can probably cut that in half. Interest is huge on $270k. You have a hair on fire debt emergency that will ruin the rest of your lives if you don't get serious about it. Live like you're poor, because you are. Everything goes toward debt. Stop this crazy talk about having a child, it's not in the cards until that debt is gone. Unless your SO gets a job paying decent money (relative to his debt), children are not in the cards for you... That ship sailed when he decided to rack up that debt. The crazy talk about him liking where he's at and settling for the pay is also absurd. You can't afford comfort until this debt is gone or at least down to a manageable amount. You need to be worried about maximizing income while maintaining job security.