The Money Mustache Community

Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: ReadySetMillionaire on February 26, 2015, 12:15:29 PM

Title: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 26, 2015, 12:15:29 PM
Hello all. First post here, so I hope this is in the right sub-forum.

I know, you read this title and likely thought I'm an idiot for incurring that much debt. I could go on and on about how I got myself into this position, but there's no more time for excuses or self pity: I'm sleeping in the bed I made, and I'm only looking forward now.

So I have $150,000 in student loan debt, mostly from law school. Despite having pretty good grades (top 30%) at the best law school in the state, I didn't have a job after passing the bar. However, I successfully obtained a grant from my school to work at a firm in my hometown. The grant only paid $2,000 to work there for three months, but since I was able to live with my mom, I made it work.

Lucky for me, this gig at a local firm turned into a full time associate position. I now make $47,500 per year and have great benefits (they pay 90% of healthcare costs, pay all my bar/CLE fees, and contribute 3% to my 401k, even if I don't match). I'm happy with the work/life balance here and can see myself being here for a long time.

But back to the elephant in the room: I have $150,000 of student loan debt. I actually just made my first huge payment towards my loans ($2,200) and got the principal balance down to $148,500. Small chunk, I know, but it's a start.

But now I'm looking for more advice as to what I can do to get out of debt as quickly as possible. It's the first step to the road of a Mustachian and I want to get there so, so, so bad.

My monthly budget is as follows:

Income (after taxes and 401k contributions): $2,550

Rent: $225 (living with girlfriend, renting from family friend, and managing the building to get a discount)
Car: 2007 Ford Focus, paid off, keeping it until the engine explodes.
Gas: $60 (above-described discounted rent crushes any auto savings I'd make by living closer to work).
Car Insurance: $86
Groceries: $200
Utilities: $81 (includes 50% paying of DirecTV...my girlfriend and I love sports and this is our one luxury).
Cell Phone: $75 (looking into Ting when my contract expires)
Mom's Life Insurance: $40 (mom has $450,000 whole life policy and each of us three kids pays $40/month to keep it current).
Social: $50-75 (probably 1/3 of what my friend's spend)

At the end of all this, I'm left with about $1,617 to do whatever. That's almost my ten year fixed payment, but...

I'd like to throw all of this towards my debt, but (a) I'm saving for an engagement ring/wedding, and (b) my GF is desperate to buy a house. She's been living in this small one bedroom loft for three years before I moved in. Things are tight and this is non-negotiable for her: she wants a house and she's going to save for the down payment no matter what I tell her.

Furthermore, and I think critically, she is going to help me pay off my loans when she is done paying off hers (she makes $67,500 and has about $35,000 left in student loans). In short, once she's done with her loans (3-4 years), I'm confident she'll be able to help me get out of my hole pretty quickly. And because of that, I feel obligated to help her save for a modest house.

Which leads me to my ultimate question regarding that $1617 at the end of each month. Right now my plan is as follows.

Save $100 for an engagement ring/wedding.
Save $400 for down payment on a house (she is matching).
Put the rest ($1,200 or so) towards student loans.

In the meantime, I'm also torn about maximizing income. Should I pour my heart and soul into law and hope that gets rewarded, or should I be cutting grass on the weekends and throwing that towards my loans?

Also, is my desire for balance between saving for a house and getting out of debt misguided? I can't tell whether I've rationalized this as an investment in my relationship with my girlfriend (giving her the happiness of buying a home and in return getting her to help me pay off my loans) or simply a bad choice, so I'd love to hear people's responses, no matter how harsh.

Any thoughts or comments on our plans? Is my compromise towards my debt okay? Any and all comments appreciated, no matter how harsh.

Thanks.

Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: crispy on February 26, 2015, 12:20:34 PM
Is there a reason why you are paying for life insurance for your mom?
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ShoulderThingThatGoesUp on February 26, 2015, 12:24:28 PM
I proposed with a $200 ring. In 2009. Rings have literally zero utility.

(My wife ended up throwing said $200 ring across the room in 2013 when she was pregnant and we both had food poisoning, because the pregnancy/dehydration made her fingers swell, it was hurting, and food poisoning is awful. Child and marriage are doing great.)
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 26, 2015, 12:27:17 PM
Is there a reason why you are paying for life insurance for your mom?
She can't afford it and was going to cancel the policy if we didn't start paying it.

If MMM ever met her, he'd punch her in the face. She's 57, has $120,000 left to go on her mortgage, constantly raids her 401k, has 3 dogs, bought a brand new car 3 years ago, and is using her tax return to pay the $6,000 credit card balance she's been carrying since December.

But, she thinks she's frugal because she buys clothes from the thrift store and buys tennis shoes used.

It kills me inside a little. I'm trying to really have her re-consider her expenses, but that's been very, very, very difficult thus far. I'll stay persistent.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 26, 2015, 12:29:00 PM
I proposed with a $200 ring. In 2009. Rings have literally zero utility.

(My wife ended up throwing said $200 ring across the room in 2013 when she was pregnant and we both had food poisoning, because the pregnancy/dehydration made her fingers swell, it was hurting, and food poisoning is awful. Child and marriage are doing great.)
I plan on spending somewhere between $500-1000. The saving is also for an eventual wedding as well.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: MishMash on February 26, 2015, 12:30:10 PM
I had 94k when I graduated, best day EVER was the day I sent in the last payment.

I'd suggest some side hustles to increase your debt payment, I worked 2-3 jobs during repayment.  Everyone needs lawyers, think about posting on elance or something.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: garion on February 26, 2015, 12:32:35 PM
Have you looked into some sort of government job? That seems to make the most sense with your level of debt unless you are planning on making the big bucks soon. Then you can just do  income-based repayment for 10 years and be done.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: midweststache on February 26, 2015, 12:39:49 PM
Is there a reason why you are paying for life insurance for your mom?
She can't afford it and was going to cancel the policy if we didn't start paying it.

Do she need whole life insurance? Are your siblings (who are paying $40/month for this) her dependents--anyone under 18 or disabled to the point where her death would leave them destitute/homeless? Between your and your siblings, could you not cover funeral costs? If the answer to these is no, cancel the policy.

House + Student Loans > Ring + Wedding - allow your financial distributions to reflect this accordingly.

What are the interest rate(s) on your student loans? Your GF's?
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 26, 2015, 12:47:11 PM
I had 94k when I graduated, best day EVER was the day I sent in the last payment.

I'd suggest some side hustles to increase your debt payment, I worked 2-3 jobs during repayment.  Everyone needs lawyers, think about posting on elance or something.
Being a firm environment (about 25 attorneys), It'd be extremely difficult to do any "freelance" work outside the firm. That's contrary to how the infrastructure of the firm works and I don't think the BOD would let it fly.

Also, in the long run, I'd be better off bringing those clients to my firm anyway. They'd need help down the line and a partner's income is largely determined by how much he/she brings to the firm.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 26, 2015, 12:49:41 PM
Is there a reason why you are paying for life insurance for your mom?
She can't afford it and was going to cancel the policy if we didn't start paying it.

Do she need whole life insurance? Are your siblings (who are paying $40/month for this) her dependents--anyone under 18 or disabled to the point where her death would leave them destitute/homeless? Between your and your siblings, could you not cover funeral costs? If the answer to these is no, cancel the policy.

House + Student Loans > Ring + Wedding - allow your financial distributions to reflect this accordingly.

What are the interest rate(s) on your student loans? Your GF's?

I've thought about the life insurance part and I disagree with your thinking. She's 57. Say she lives until 90 (really pushing it). That's $10,800 in contributions from me to receive $150,000. Am I missing something here?

As for the interest rates, they vary. Some are 7.55%, some are 5.16%. I'm keeping up on interest on all my loans (plus a little principal) and then throwing everything at the 7.55% loan until it's done.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 26, 2015, 12:51:15 PM
Have you looked into some sort of government job? That seems to make the most sense with your level of debt unless you are planning on making the big bucks soon. Then you can just do  income-based repayment for 10 years and be done.
Because pretty much every law school student graduates with enormous debt, government jobs are incredibly tough to come by. I looked and looked and wasn't able to find anything.

Thus, I've shifted to focusing on maximizing income and making the most of private practice. In the long run, that seems better than (kind of) intentionally suppressing my income by getting a government job just to pay off my loans.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: midweststache on February 26, 2015, 12:58:41 PM
Is there a reason why you are paying for life insurance for your mom?
She can't afford it and was going to cancel the policy if we didn't start paying it.

Do she need whole life insurance? Are your siblings (who are paying $40/month for this) her dependents--anyone under 18 or disabled to the point where her death would leave them destitute/homeless? Between your and your siblings, could you not cover funeral costs? If the answer to these is no, cancel the policy.

House + Student Loans > Ring + Wedding - allow your financial distributions to reflect this accordingly.

What are the interest rate(s) on your student loans? Your GF's?

I've thought about the life insurance part and I disagree with your thinking. She's 57. Say she lives until 90 (really pushing it). That's $10,800 in contributions from me to receive $150,000. Am I missing something here?

As for the interest rates, they vary. Some are 7.55%, some are 5.16%. I'm keeping up on interest on all my loans (plus a little principal) and then throwing everything at the 7.55% loan until it's done.

Fair enough on the life insurance. You're post read like you were focusing on immediate measures, so cutting that cost that seemed like an immediate fix. But I understand the long-term focus.

I'm also working on the "lots-of-student-loans-but-wants-a-house" with my partner. We've reached a compromise that works for us. As with all relationships, they're give and take.

If the amount of loans at 7.55% is comparatively low to the rest ($50,000 or less), could you compromise to pay those off first and then focus on buying a house? If it's more, that would be a tough bargain to make (many more years of waiting), but that interest rate ain't no joke...
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: 2ndTimer on February 26, 2015, 01:04:31 PM
First:  Good move minimizing your rent by managing the building.

Second:  Are you and your GF on the same page with regard to the engagement ring/wedding expense.  Sounds like she might prefer that money to go toward house savings.  But stretch that out as long as you can because... 

Third: When I got married I was making almost twice what the Hub made.  Now I am a slightly handicapped person who keeps house and we live on his income.  A friend of ours was diagnosed with leukemia in his 40's and they have been getting by on his wife's income for several years now while he recovers from the bone marrow transplant.  Suppose, you make all your decisions assuming the best possible financial outcome and  then one of you has a traffic accident and you have to get by on one income.  It happens.   
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: Guesl982374 on February 26, 2015, 01:04:34 PM
I had 94k when I graduated, best day EVER was the day I sent in the last payment.

I'd suggest some side hustles to increase your debt payment, I worked 2-3 jobs during repayment.  Everyone needs lawyers, think about posting on elance or something.

Income, income, income.

Look for ways to improve your skills to get a higher paying job. Look for side hustles and throw all money at the debt. I personally think you are crazy to be buying a ring and thinking about a downpayment in your situation, especially given the sweet rent deal.

As for the GF. Its personal and you need to make sure you are both on the same page financially (both want a similar kind of house, lifestyle expectations, split or shared finances, will she really help with your SL, etc.) Talk about it and write it down.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ZiziPB on February 26, 2015, 01:08:48 PM
Quote
She's 57. Say she lives until 90 (really pushing it). That's $10,800 in contributions from me to receive $150,000.

Keep in mind that that $150,000 will be worth at least 60% less in 30+ years (assuming average inflation of 3%).
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: garion on February 26, 2015, 01:10:35 PM
Have you looked into some sort of government job? That seems to make the most sense with your level of debt unless you are planning on making the big bucks soon. Then you can just do  income-based repayment for 10 years and be done.
Because pretty much every law school student graduates with enormous debt, government jobs are incredibly tough to come by. I looked and looked and wasn't able to find anything.

Thus, I've shifted to focusing on maximizing income and making the most of private practice. In the long run, that seems better than (kind of) intentionally suppressing my income by getting a government job just to pay off my loans.

Ah, okay, that makes sense. If you are sure you are never going to use a loan forgiveness program, it might be possible to refinance your loans at lower rates. I don't know a ton about that as I haven't done it (yet) myself, but some people on this forum talk about it.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: Field123 on February 26, 2015, 01:15:28 PM
I strongly disagree with all the advice regarding the student loans posted so far. Assuming your student loans are all federal, the best option is the "Pay as You Earn" repayment plan.

Use this link: https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action

You can sign into your own account using your student loan PIN number and enter your information for a breakdown of payment options. I promise you that pay as you earn is the way to go. With an income of 48k, I would expect your monthly payment to be in the ball park of $250. This will increase as your salary does, but in 20 years the balance will be forgiven. It will not stop you from getting a mortgage as the banks only look at the amount of your monthly payment, not total debt (speaking from experience on this one).

Pay as you earn really changes the dynamics of student loan debt, especially for potentially early retirees, and takes it from being a "bad debt" to a "good debt" if used properly.

Feel free to PM me with any questions.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: RexualChocolate on February 26, 2015, 01:20:31 PM
You can't really cut expenses. You live very frugally, your prior spending (school) is what's haunting you. You can only focus on income and preventing future spending. So to that effect:

Unless there's a lot of room for salary growth (IE, time to equity partner is low and guaranteed), you would benefit from looking for non legal jobs. That salary is less than a lot of corporate jobs pay people right out of undergrad. Since you went to a reasonable law school and got good grades, you're clearly more than competent enough for any of these, the problem is knowing someone. You did say you're happy there; you'll have to determine if that's worth making sub par wages.

A house is not a wise decision unless you're in a thriving area and play to stay >7 years and is cheaper than renting. 225 for rent per person dwarfs the cost of owning in almost anywhere- if its cheaper than 500/mo to own a house there, I'd reconsider buying anything at this stage in your career as you may have to move for work.

I'd let your GF buy it and finance it on her own without helping save for a deposit, you can pay her rent. I wouldn't co-mingle finances directly until marriage.

Where are you on the whole life policy as far as a surrender basis? 450k sounds like the life insurance policy death benefit. Depending on her age it may be a good deal, but its effectively ~115k of term you're carrying on her that you may not even receive depending on her will. May make more sense to cash it out if its worth anything and divide that now, again, depending on her age.

As for Tank_Esq, the only problem with IBR is the debt load continues to wrack up. What if they change the rules or you really start to make money? But agreed, I'd go this track as well. Stick it to the taxpayer instead. These law schools should really at least send us a thank you letter.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 26, 2015, 01:23:08 PM
I strongly disagree with all the advice regarding the student loans posted so far. Assuming your student loans are all federal, the best option is the "Pay as You Earn" repayment plan.

Use this link: https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action

You can sign into your own account using your student loan PIN number and enter your information for a breakdown of payment options. I promise you that pay as you earn is the way to go. With an income of 48k, I would expect your monthly payment to be in the ball park of $250. This will increase as your salary does, but in 20 years the balance will be forgiven. It will not stop you from getting a mortgage as the banks only look at the amount of your monthly payment, not total debt (speaking from experience on this one).

Pay as you earn really changes the dynamics of student loan debt, especially for potentially early retirees, and takes it from being a "bad debt" to a "good debt" if used properly.

Feel free to PM me with any questions.
I've done a ton of research on IBR/PAYE, so much so that I almost wrote a book about it (seriously). I do not qualify for PAYE because of a loan from 2007, but I do qualify for IBR. Thus, my payment would be 15% of discretionary income (not 10%) and my forgiveness date is 25 years. On top of that, there are just too many cons to IBR:

1.   Any calculations on what you will pay in total are built upon a lot of assumptions that are indeterminable (payments depend entirely upon income, which is almost impossible to forecast).

2.   This instability could lead to an incredibly high tax burden, or having to pay back the loan in full after crossing a particular income threshold.

3.   Incentivizes me to make less gross income and reduce my adjusted gross income as much as possible.

4.   Almost certain to cost more over long term (than just paying it back in 12-15 years), especially if I eventually obtain a higher salary after letting interest balloon.

5.   Would require me to file taxes married but separately, thus forgoing substantial deductions annually until loans are paid off (student loan interest deduction; child and dependent care credit; married deduction; mortgage deduction; and several other big ones that amount to a ton of money in refunds each year).

6.   Would have to make plan to prepare for tax liability at year 25 (all of which are less efficient than just paying off the loan).

7. Government could change rules midway through (they pulled the rug out from veterans for God's sake; they could do it to borrowers if they needed the money).

In short, there's just a shitload of cons to IBR. In the short term it seems like the easy way out, but I'd rather maximize income, aggressively pay down these loans, and be done with them by the time I'm 37 (ten years) than base almost every financial decision on my student loans until I'm 52. I think I can accomplish this even while matching my 401k (3%; lame but better than nothing), making minimal contributions to a Roth ($1000 per year, maybe), saving for a down payment on a house, etc.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: bmcewan on February 26, 2015, 01:25:38 PM
Law office partnerships, like big three consulting firms, tend to be a bit of a Ponzi scheme - very few people make it to the partner level and end up killing themselves with 100 hour weeks for years and years, and still never make partner. All of the profits of this labor are concentrated at the top of the pyramid. If you know what your firm charges your clients, you should be able to figure out what I mean.

The best thing to do is to hang tight for a couple of years, and learn everything you can about your profession from the inside. If you're good at sales, start your own practice. Focus on expanding your income, rather than reducing your expenses. Your expenses seem pretty reasonable to me.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 26, 2015, 01:29:35 PM
Law office partnerships, like big three consulting firms, tend to be a bit of a Ponzi scheme - very few people make it to the partner level and end up killing themselves with 100 hour weeks for years and years, and still never make partner. All of the profits of this labor are concentrated at the top of the pyramid. If you know what your firm charges your clients, you should be able to figure out what I mean.

The best thing to do is to hang tight for a couple of years, and learn everything you can about your profession from the inside. If you're good at sales, start your own practice. Focus on expanding your income, rather than reducing your expenses. Your expenses seem pretty reasonable to me.
This is what I was saying about work/life balance at my firm. I'm in at 9:00, out at 6:00 (at the latest), and rarely do work on the weekends.

The firm has been around since 1872 and every associate ever has become partner after five years of service. This isn't a huge firm environment like the one you're describing.

As for starting a smaller firm, I've thought about it a lot. That's a bridge I'll cross after 3-4 years of crafting my skills and developing networks. But for now, I'm focused on doing good work here.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: tlars699 on February 26, 2015, 01:31:02 PM
I'm looking at your gf's numbers and I'm a bit thrown back- she only has 35K$ in school loans left, and she earns 63K$ a year.
If that 225 is your total rent, wtf is she spending her money on?

If you're going to marry this girl, you need to(right now) talk about the really shitty crap, too:

1. Early retirement, and how you're going to get there, including all of the debt you guys currently have now, and what ideally you would be doing if you retired right now or whenever. Consolidating bank accounts? Is it more prudent for her to max out savings accounts now? Helping each other with each other's debt or pay for what you want to get done?

2. Kids- everything about them, having them, what you're going to do if you have one a bit earlier than expected, what you think "discipline" means, what you want for them concerning education, college, sports, etc.

3. Wedding- does she have it all planned out? Seriously, so many nitpicky details.

4. What you want to do for your family should they need your help in setting up care, or finances(Nail crap about your mom down now- you don't want to become her bail money account, right?)

5. What you're arguing method should be, or how to clearly communicate with each other despite hard feelings at the time.

I'm all for you getting married, but if you're not a religious couple, you're missing out on the free counseling/mediation those couples seem to get from their pastors.
These topics listed above will hopefully open the door to some of those rough topics you may otherwise avoid.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: rujancified on February 26, 2015, 01:33:34 PM
I have lots of questions. You don't have to answer them here, just things to think about.

What is the price for a modest house in your area?
Will you try to do a 20% down payment?
What will you have to pay for a mortgage/ins/repairs
What do you think a wedding will cost? $50 at the courthouse? 3-5k party with some bells and whistles?
What's your GF paying monthly for SL?
What are raises/bonuses likely to be for you both over the next 3-5 years?

^
All of those questions will help you figure out how long you'll be in education debt. If you're comfortable with the timeline, keep doing what you're doing. If it gives you heartburn, you have to think about ways to speed it up (more income/fewer expenses).

Have you both discussed your financial & relationship goals together? Have you discussed timelines together? This is super important. Sounds like you're both focused on debt reduction and increasing short term savings, but do you agree on how best to accomplish? What happens after the house is purchased and the loans are paid off?

Do you like practicing law? If you do, sweet! You can stop reading this. I've been in legal technology for 15 years and have met more lawyers who hate law than those who like it. Many are tied to their jobs because of their student loan balances. If you're not super happy with the job, think about related industries. Finserv companies love lawyers for Audit, Project Management, Compliance roles.

Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 26, 2015, 01:43:44 PM
I'm looking at your gf's numbers and I'm a bit thrown back- she only has 35K$ in school loans left, and she earns 63K$ a year.
If that 225 is your total rent, wtf is she spending her money on?

If you're going to marry this girl, you need to(right now) talk about the really shitty crap, too:

1. Early retirement, and how you're going to get there, including all of the debt you guys currently have now, and what ideally you would be doing if you retired right now or whenever. Consolidating bank accounts? Is it more prudent for her to max out savings accounts now? Helping each other with each other's debt or pay for what you want to get done?

2. Kids- everything about them, having them, what you're going to do if you have one a bit earlier than expected, what you think "discipline" means, what you want for them concerning education, college, sports, etc.

3. Wedding- does she have it all planned out? Seriously, so many nitpicky details.

4. What you want to do for your family should they need your help in setting up care, or finances(Nail crap about your mom down now- you don't want to become her bail money account, right?)

5. What you're arguing method should be, or how to clearly communicate with each other despite hard feelings at the time.

I'm all for you getting married, but if you're not a religious couple, you're missing out on the free counseling/mediation those couples seem to get from their pastors.
These topics listed above will hopefully open the door to some of those rough topics you may otherwise avoid.
Thanks for this post. I've looked at her budget and it's not as frugal as it can be, but it's not terrible. Her big mistake was buying a brand new Toyota Rav4 when she graduated. That's $378 per month. She also has a very high grocery bill ($300/month) because she is gluten free, had her gallbladder removed, and can't eat a lot of foods that are usually cheap (rice, beans, anything fatty, etc.).

But thanks to your post, I'm going to talk to her other spending. We talk about me and my loans a lot, but not so much hers. I'll change that after your post, so thanks.
I have lots of questions. You don't have to answer them here, just things to think about.

What is the price for a modest house in your area?
Will you try to do a 20% down payment?
What will you have to pay for a mortgage/ins/repairs
What do you think a wedding will cost? $50 at the courthouse? 3-5k party with some bells and whistles?
What's your GF paying monthly for SL?
What are raises/bonuses likely to be for you both over the next 3-5 years?

^
All of those questions will help you figure out how long you'll be in education debt. If you're comfortable with the timeline, keep doing what you're doing. If it gives you heartburn, you have to think about ways to speed it up (more income/fewer expenses).

Have you both discussed your financial & relationship goals together? Have you discussed timelines together? This is super important. Sounds like you're both focused on debt reduction and increasing short term savings, but do you agree on how best to accomplish? What happens after the house is purchased and the loans are paid off?

Do you like practicing law? If you do, sweet! You can stop reading this. I've been in legal technology for 15 years and have met more lawyers who hate law than those who like it. Many are tied to their jobs because of their student loan balances. If you're not super happy with the job, think about related industries. Finserv companies love lawyers for Audit, Project Management, Compliance roles.
What is the price for a modest house in your area?
$125,000-$150,000.

Will you try to do a 20% down payment?
Yes.

What will you have to pay for a mortgage/ins/repairs
30 year mortgage (looking to minimize the payment so we can focus on loans) is looking like somewhere between $550-650 per month. Repairs are indeterminable at the moment.

What do you think a wedding will cost? $50 at the courthouse? 3-5k party with some bells and whistles?
I'm unfortunately thinking the latter. I do think her parents will pick up a lot of the tab, though, based on hints they've dropped over the years.

What's your GF paying monthly for SL?
$790. It's her standard repayment (10 years). Her dad is a CPA and has constantly told her to just pay that amount because her parents are going to help her pay them off once her younger sister goes to college (junior in high school now).

What are raises/bonuses likely to be for you both over the next 3-5 years?
Only been here for about 7 months, so too scared to ask. I'm waiting for the right partner to talk to and the right time.

Have you both discussed your financial & relationship goals together? Have you discussed timelines together?
Yes, but usually the focus is on me, not her. This thread is making me realize this is a team goal (this had escaped me outside of saving for a house).

Do you like practicing law?
Fortunately yes. I like the skill involved and I like getting paid to solve other people's problems.

But yes, good point on getting our timelines together. That's something I'll have to talk about with her.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: YTProphet on February 26, 2015, 01:44:34 PM
Lawyer here who just finished paying off $165,000 in law school / house downpayment debt in 3.5 years. I also didn't have a job at graudation, but hung in there, changed jobs to increase my pay, and saved like crazy. It was tough but doable. I had a bigger shovel to dig out of debt than you have, but you should be able to increase your income.

What state are you in? Regardless of what state you're in, you can make more in the near future if you play your cards right.

Here's what I'd do - learn as much as you can in a practice area that large law firms have (corporate, real estate, environmental, etc). Try to avoid work like insurance defense or personal injury. Work hard and learn a lot. Learn to be able to communicate verbally what you do so that you can kill it in future interviews. Wait until you've been working for 2-3 years, get in touch with a good headhunter who the big firms use, and get a job with a large firm. The large law firms in most states pay $100k+ (more if you're in a big market like CA/NY/etc, but it sounds more like you're in Nebraska or something).
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 26, 2015, 01:49:54 PM
Lawyer here who just finished paying off $165,000 in law school / house downpayment debt in 3.5 years. I also didn't have a job at graudation, but hung in there, changed jobs to increase my pay, and saved like crazy. It was tough but doable. I had a bigger shovel to dig out of debt than you have, but you should be able to increase your income.

What state are you in? Regardless of what state you're in, you can make more in the near future if you play your cards right.

Here's what I'd do - learn as much as you can in a practice area that large law firms have (corporate, real estate, environmental, etc). Try to avoid work like insurance defense or personal injury. Work hard and learn a lot. Learn to be able to communicate verbally what you do so that you can kill it in future interviews. Wait until you've been working for 2-3 years, get in touch with a good headhunter who the big firms use, and get a job with a large firm. The large law firms in most states pay $100k+ (more if you're in a big market like CA/NY/etc, but it sounds more like you're in Nebraska or something).

Ha, Ohio, not Nebraska.

I know the income at a big firm is great (closest markets are Cleveland, Pittsburgh, Columbus), but I'm scared about the work/life balance. All the partners here don't make as much as the guys up in Cleveland at Jones Day, but they also leave at 5:00, go to all their kids' sporting events, and do a bunch of stuff with their families.

In other words, this would be a perfect firm if I were 10 years out of school and had a couple kids. But I got hired here out of the gate, and if I leave for a bigger firm, I'm not sure if I'll get a chance to be back at a firm like this.

I also don't know if I can stomach moving--both our families are here and will be of huge help if/when we have kids. And by that time, hopefully I'll be a partner and doing okay for myself.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: MishMash on February 26, 2015, 01:50:19 PM
I had 94k when I graduated, best day EVER was the day I sent in the last payment.

I'd suggest some side hustles to increase your debt payment, I worked 2-3 jobs during repayment.  Everyone needs lawyers, think about posting on elance or something.
Being a firm environment (about 25 attorneys), It'd be extremely difficult to do any "freelance" work outside the firm. That's contrary to how the infrastructure of the firm works and I don't think the BOD would let it fly.

Also, in the long run, I'd be better off bringing those clients to my firm anyway. They'd need help down the line and a partner's income is largely determined by how much he/she brings to the firm.

Freelancing can allow you to work with individuals that would never be potential "firm" material, these are people that are looking more for advice, or one time assistance versus on going issues.  My father is a retired DA, to keep himself sharp be turned to the internet and writes posts for a number of sites, essentially people pay a flat fee for an answer to a single question, he advises, teh site sends him a check monthly for all the answers he's provided.  It's not a ton of money, he mainly does it so he's not bored, but it's something that you can do that is easy, can be done on nights and weekends, and doesn't involve long term clients.   The most common questions relate to child support, small business litigation, wrongful termination.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: Field123 on February 26, 2015, 01:55:40 PM
I strongly disagree with all the advice regarding the student loans posted so far. Assuming your student loans are all federal, the best option is the "Pay as You Earn" repayment plan.

Use this link: https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action

You can sign into your own account using your student loan PIN number and enter your information for a breakdown of payment options. I promise you that pay as you earn is the way to go. With an income of 48k, I would expect your monthly payment to be in the ball park of $250. This will increase as your salary does, but in 20 years the balance will be forgiven. It will not stop you from getting a mortgage as the banks only look at the amount of your monthly payment, not total debt (speaking from experience on this one).

Pay as you earn really changes the dynamics of student loan debt, especially for potentially early retirees, and takes it from being a "bad debt" to a "good debt" if used properly.

Feel free to PM me with any questions.
I've done a ton of research on IBR/PAYE, so much so that I almost wrote a book about it (seriously). I do not qualify for PAYE because of a loan from 2007, but I do qualify for IBR. Thus, my payment would be 15% of discretionary income (not 10%) and my forgiveness date is 25 years. On top of that, there are just too many cons to IBR:

1.   Any calculations on what you will pay in total are built upon a lot of assumptions that are indeterminable (payments depend entirely upon income, which is almost impossible to forecast).

2.   This instability could lead to an incredibly high tax burden, or having to pay back the loan in full after crossing a particular income threshold.

3.   Incentivizes me to make less gross income and reduce my adjusted gross income as much as possible.

4.   Almost certain to cost more over long term (than just paying it back in 12-15 years), especially if I eventually obtain a higher salary after letting interest balloon.

5.   Would require me to file taxes married but separately, thus forgoing substantial deductions annually until loans are paid off (student loan interest deduction; child and dependent care credit; married deduction; mortgage deduction; and several other big ones that amount to a ton of money in refunds each year).

6.   Would have to make plan to prepare for tax liability at year 25 (all of which are less efficient than just paying off the loan).

7. Government could change rules midway through (they pulled the rug out from veterans for God's sake; they could do it to borrowers if they needed the money).

In short, there's just a shitload of cons to IBR. In the short term it seems like the easy way out, but I'd rather maximize income, aggressively pay down these loans, and be done with them by the time I'm 37 (ten years) than base almost every financial decision on my student loans until I'm 52. I think I can accomplish this even while matching my 401k (3%; lame but better than nothing), making minimal contributions to a Roth ($1000 per year, maybe), saving for a down payment on a house, etc.

You should double check that you aren't eligible for PAYE -- they just passed legislation expanding it to people with loans from before 2010 (or whenever the original cutoff was).

Even if you are ineligible, I would still argue that IBR is your best bet. In fact, I wholeheartedly disagree with every point you made above. Well, there MAY be some merit to your point about the tax burden, but probably not because 1) nobody will have loan forgiveness for at least another 15 years. Most people who analyze this program agree that it is likely congress will make the forgiveness tax free once we get closer to that date. Bills have already been introduced to this effect. Even if there is still a large tax burden, it's really not that big of a deal. It's 20-25 years away which gives you plenty of time to prepare for it and of course you won't owe the total balance, just the taxable income amount. Since you're on this board, hopefully you'll be retired by then and have a low tax rate. Again, the most important thing is that you should have tons of savings in 20-25 years, so you should be able to afford the tax bill.

As to your other points, there is NO INCENTIVE not to make as much money as you can. Yes, the more you make, the more you pay under IBR. However, since it's about 15% of your income, for every extra dollar you make, you keep $.85. So I cannot see any incentive not to make as much money as you can.

It does incentive you to keep your AGI as low as possible. This is different than not making as much money as you can, rather, you should maximize all pre tax accounts possible, which incentives you to save money. Another good thing.

Government cannot change the rules midway through. The terms of IBR were in the student loan contract you signed at student loans.gov with the promissory note... go read it again.

Depending how much you make and when you make it, it is possible to cost you more over the long run. But in that case your biggest problem is making too much money..... is that really a problem? No. And remember, the maximum monthly payment is capped at the standard 10 year repayment amount, so even if you start making $1,000,000 per year in year 18, you're still in good shape.

Basically, based on the facts provided and reasons stated, I could not disagree more with your approach here. I would recommend you re-research IBR and Pay as You Earn before you make another payment toward the loan principle.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: YTProphet on February 26, 2015, 01:57:16 PM
Lawyer here who just finished paying off $165,000 in law school / house downpayment debt in 3.5 years. I also didn't have a job at graudation, but hung in there, changed jobs to increase my pay, and saved like crazy. It was tough but doable. I had a bigger shovel to dig out of debt than you have, but you should be able to increase your income.

What state are you in? Regardless of what state you're in, you can make more in the near future if you play your cards right.

Here's what I'd do - learn as much as you can in a practice area that large law firms have (corporate, real estate, environmental, etc). Try to avoid work like insurance defense or personal injury. Work hard and learn a lot. Learn to be able to communicate verbally what you do so that you can kill it in future interviews. Wait until you've been working for 2-3 years, get in touch with a good headhunter who the big firms use, and get a job with a large firm. The large law firms in most states pay $100k+ (more if you're in a big market like CA/NY/etc, but it sounds more like you're in Nebraska or something).

Ha, Ohio, not Nebraska.

I know the income at a big firm is great (closest markets are Cleveland, Pittsburgh, Columbus), but I'm scared about the work/life balance. All the partners here don't make as much as the guys up in Cleveland at Jones Day, but they also leave at 5:00, go to all their kids' sporting events, and do a bunch of stuff with their families.

In other words, this would be a perfect firm if I were 10 years out of school and had a couple kids. But I got hired here out of the gate, and if I leave for a bigger firm, I'm not sure if I'll get a chance to be back at a firm like this.

I also don't know if I can stomach moving--both our families are here and will be of huge help if/when we have kids. And by that time, hopefully I'll be a partner and doing okay for myself.

That's great that you landed on your feet. That's by far the most important step. However, $47,500 is brutally underpaid for Ohio.

I actually worked for a medium sized firm (100+ attorneys) not far from Ohio and made $100,000 as a first year associate. I worked 8-6 most days and the occassional late night or weekend when necessary. Working at Jones Day is different from working at a place like Thompson Hine or Taft Stettinius. It'll be bad at Jones Day. At Thompson Hine or Taft, your work/life balance isn't going to be as great as an average corporate employee, but work/life balance isn't generally great for anyone making six-figures. And it won't be great even if you make partner at your 25 person firm. Being a partner at any firm is demanding.

Also, I'd totally disagree with about going back to your firm. You think if they needed someone they'd turn down their nose at a former associate who left after 2 years to get 5 years of experience at a place like Thompson Hine? Doubtful. They'd be all over you to come back.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 26, 2015, 02:03:53 PM
Freelancing can allow you to work with individuals that would never be potential "firm" material, these are people that are looking more for advice, or one time assistance versus on going issues.  My father is a retired DA, to keep himself sharp be turned to the internet and writes posts for a number of sites, essentially people pay a flat fee for an answer to a single question, he advises, teh site sends him a check monthly for all the answers he's provided.  It's not a ton of money, he mainly does it so he's not bored, but it's something that you can do that is easy, can be done on nights and weekends, and doesn't involve long term clients.   The most common questions relate to child support, small business litigation, wrongful termination.
Interesting. Can you PM me a link of places that you did remote side work?
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: tlars699 on February 26, 2015, 02:04:06 PM
I'm looking at your gf's numbers and I'm a bit thrown back- she only has 35K$ in school loans left, and she earns 63K$ a year.
If that 225 is your total rent, wtf is she spending her money on?

If you're going to marry this girl, you need to(right now) talk about the really shitty crap, too:

1. Early retirement, and how you're going to get there, including all of the debt you guys currently have now, and what ideally you would be doing if you retired right now or whenever. Consolidating bank accounts? Is it more prudent for her to max out savings accounts now? Helping each other with each other's debt or pay for what you want to get done?

2. Kids- everything about them, having them, what you're going to do if you have one a bit earlier than expected, what you think "discipline" means, what you want for them concerning education, college, sports, etc.

3. Wedding- does she have it all planned out? Seriously, so many nitpicky details.

4. What you want to do for your family should they need your help in setting up care, or finances(Nail crap about your mom down now- you don't want to become her bail money account, right?)

5. What you're arguing method should be, or how to clearly communicate with each other despite hard feelings at the time.

I'm all for you getting married, but if you're not a religious couple, you're missing out on the free counseling/mediation those couples seem to get from their pastors.
These topics listed above will hopefully open the door to some of those rough topics you may otherwise avoid.
Thanks for this post. I've looked at her budget and it's not as frugal as it can be, but it's not terrible. Her big mistake was buying a brand new Toyota Rav4 when she graduated. That's $378 per month. She also has a very high grocery bill ($300/month) because she is gluten free, had her gallbladder removed, and can't eat a lot of foods that are usually cheap (rice, beans, anything fatty, etc.).

But thanks to your post, I'm going to talk to her other spending. We talk about me and my loans a lot, but not so much hers. I'll change that after your post, so thanks.
I have lots of questions. You don't have to answer them here, just things to think about.

What is the price for a modest house in your area?
Will you try to do a 20% down payment?
What will you have to pay for a mortgage/ins/repairs
What do you think a wedding will cost? $50 at the courthouse? 3-5k party with some bells and whistles?
What's your GF paying monthly for SL?
What are raises/bonuses likely to be for you both over the next 3-5 years?

^
All of those questions will help you figure out how long you'll be in education debt. If you're comfortable with the timeline, keep doing what you're doing. If it gives you heartburn, you have to think about ways to speed it up (more income/fewer expenses).

Have you both discussed your financial & relationship goals together? Have you discussed timelines together? This is super important. Sounds like you're both focused on debt reduction and increasing short term savings, but do you agree on how best to accomplish? What happens after the house is purchased and the loans are paid off?

Do you like practicing law? If you do, sweet! You can stop reading this. I've been in legal technology for 15 years and have met more lawyers who hate law than those who like it. Many are tied to their jobs because of their student loan balances. If you're not super happy with the job, think about related industries. Finserv companies love lawyers for Audit, Project Management, Compliance roles.
What is the price for a modest house in your area?
$125,000-$150,000.

Will you try to do a 20% down payment?
Yes.

What will you have to pay for a mortgage/ins/repairs
30 year mortgage (looking to minimize the payment so we can focus on loans) is looking like somewhere between $550-650 per month. Repairs are indeterminable at the moment.

What do you think a wedding will cost? $50 at the courthouse? 3-5k party with some bells and whistles?
I'm unfortunately thinking the latter. I do think her parents will pick up a lot of the tab, though, based on hints they've dropped over the years.

What's your GF paying monthly for SL?
$790. It's her standard repayment (10 years). Her dad is a CPA and has constantly told her to just pay that amount because her parents are going to help her pay them off once her younger sister goes to college (junior in high school now).

What are raises/bonuses likely to be for you both over the next 3-5 years?
Only been here for about 7 months, so too scared to ask. I'm waiting for the right partner to talk to and the right time.

Have you both discussed your financial & relationship goals together? Have you discussed timelines together?
Yes, but usually the focus is on me, not her. This thread is making me realize this is a team goal (this had escaped me outside of saving for a house).

Do you like practicing law?
Fortunately yes. I like the skill involved and I like getting paid to solve other people's problems.

But yes, good point on getting our timelines together. That's something I'll have to talk about with her.

I've also had my gall bladder removed and while the first few months were rough while my body readjusted to the way it processed fats vs. grains, it did readjust after about a year.
I can't go crazy out to eat with gutbuster burgers or things with no grain value that are high in fat (aka McDonalds), but I can eat beans, rice, cheese, and baked potatoes with no ill effects whatsoever.
If your GF can't eat certain foods without blowing up the bathroom over a year after her surgery, you should really have her go back to the doctor, and have that checked out.
As for the gluten free, you should still browse stores like Aldi's for options. They have significantly cheaper veggies, fruit, and dairy, and occasionally bring in gluten free options for other items.
Otherwise, congratulations on finding someone you want to spend your life with!
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: SeniorLibertarian on February 26, 2015, 02:05:39 PM
I had 94k when I graduated, best day EVER was the day I sent in the last payment.

I'd suggest some side hustles to increase your debt payment, I worked 2-3 jobs during repayment.  Everyone needs lawyers, think about posting on elance or something.
Being a firm environment (about 25 attorneys), It'd be extremely difficult to do any "freelance" work outside the firm. That's contrary to how the infrastructure of the firm works and I don't think the BOD would let it fly.

Also, in the long run, I'd be better off bringing those clients to my firm anyway. They'd need help down the line and a partner's income is largely determined by how much he/she brings to the firm.

Freelancing can allow you to work with individuals that would never be potential "firm" material, these are people that are looking more for advice, or one time assistance versus on going issues.  My father is a retired DA, to keep himself sharp be turned to the internet and writes posts for a number of sites, essentially people pay a flat fee for an answer to a single question, he advises, teh site sends him a check monthly for all the answers he's provided.  It's not a ton of money, he mainly does it so he's not bored, but it's something that you can do that is easy, can be done on nights and weekends, and doesn't involve long term clients.   The most common questions relate to child support, small business litigation, wrongful termination.

I disagree with the suggestion that a lawyer in a firm be encouraged to "freelance" by taking on clients outside of the firm. The suggestion above may work because the referenced lawyer was retired. OP is not retired. If OP were to take on legal work as a "side hustle" outside of his firm, I'd expect his employment at the firm to be short-lived. I'd also expect the situation to attract negative attention from the relevant state Bar -- to wit, conflicts of interest, ethics, fiduciary duties, malpractice, and on and on and on.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: rujancified on February 26, 2015, 02:06:58 PM

What is the price for a modest house in your area?
$125,000-$150,000.

Will you try to do a 20% down payment?
Yes.

What will you have to pay for a mortgage/ins/repairs
30 year mortgage (looking to minimize the payment so we can focus on loans) is looking like somewhere between $550-650 per month. Repairs are indeterminable at the moment.

What do you think a wedding will cost? $50 at the courthouse? 3-5k party with some bells and whistles?
I'm unfortunately thinking the latter. I do think her parents will pick up a lot of the tab, though, based on hints they've dropped over the years.

What's your GF paying monthly for SL?
$790. It's her standard repayment (10 years). Her dad is a CPA and has constantly told her to just pay that amount because her parents are going to help her pay them off once her younger sister goes to college (junior in high school now).

What are raises/bonuses likely to be for you both over the next 3-5 years?
Only been here for about 7 months, so too scared to ask. I'm waiting for the right partner to talk to and the right time.

Have you both discussed your financial & relationship goals together? Have you discussed timelines together?
Yes, but usually the focus is on me, not her. This thread is making me realize this is a team goal (this had escaped me outside of saving for a house).

Do you like practicing law?
Fortunately yes. I like the skill involved and I like getting paid to solve other people's problems.

But yes, good point on getting our timelines together. That's something I'll have to talk about with her.

You guys are going to be such frugal badasses that paying off a 100 or even 150k house is going to be a cake walk! The people around here have said to estimate 1-3% of purchase price of a house for repairs annually. I've owned for 8 years and that's probably accurate overall (some years it's high, some years it's low).

I will say that reading about millenial SL debt makes me want to pick you all up and hug you. The interest rates make my brain hurt! I'm so very lucky to be closer to 40 than 30 - My rates were never above 2 or 3%!

That's great that you love your work! Sounds like you just need to put in a few years and then evaluate next steps.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 26, 2015, 02:10:43 PM
You should double check that you aren't eligible for PAYE -- they just passed legislation expanding it to people with loans from before 2010 (or whenever the original cutoff was).

Even if you are ineligible, I would still argue that IBR is your best bet. In fact, I wholeheartedly disagree with every point you made above. Well, there MAY be some merit to your point about the tax burden, but probably not because 1) nobody will have loan forgiveness for at least another 15 years. Most people who analyze this program agree that it is likely congress will make the forgiveness tax free once we get closer to that date. Bills have already been introduced to this effect. Even if there is still a large tax burden, it's really not that big of a deal. It's 20-25 years away which gives you plenty of time to prepare for it and of course you won't owe the total balance, just the taxable income amount. Since you're on this board, hopefully you'll be retired by then and have a low tax rate. Again, the most important thing is that you should have tons of savings in 20-25 years, so you should be able to afford the tax bill.

As to your other points, there is NO INCENTIVE not to make as much money as you can. Yes, the more you make, the more you pay under IBR. However, since it's about 15% of your income, for every extra dollar you make, you keep $.85. So I cannot see any incentive not to make as much money as you can.

It does incentive you to keep your AGI as low as possible. This is different than not making as much money as you can, rather, you should maximize all pre tax accounts possible, which incentives you to save money. Another good thing.

Government cannot change the rules midway through. The terms of IBR were in the student loan contract you signed at student loans.gov with the promissory note... go read it again.

Depending how much you make and when you make it, it is possible to cost you more over the long run. But in that case your biggest problem is making too much money..... is that really a problem? No. And remember, the maximum monthly payment is capped at the standard 10 year repayment amount, so even if you start making $1,000,000 per year in year 18, you're still in good shape.

Basically, based on the facts provided and reasons stated, I could not disagree more with your approach here. I would recommend you re-research IBR and Pay as You Earn before you make another payment toward the loan principle.

Man, you're giving me financial planning whiplash here. I am in the OP in this post on a law school forum: http://top-law-schools.com/forums/viewtopic.php?f=15&t=242595

I was all over the IBR train until I talked with a couple people, my girlfriend's dad (a very-well respected CPA) and my college roommate, who has risen up the ladder at Vanguard in just five years.

Both ran the numbers and concluded that I'd pay almost all of my loan balance anyway. In short, so long as I begin to see substantial pay increases (as I expect, which the other attorney here can show), then my payment will be above my 25 year fixed payment. And that means I'll end up paying this over 25 years, regardless.

Thus, I'm now in the position that I've indicated in this thread: maximize income, pay down this SOB of a loan, and then when I'm making money, I'll be on the road to paying off my house and retiring early.

But you've made some terrific points. I think it can go either way and it's a matter of preference. If you have some numbers you'd like to discuss, feel free to PM me.

PS: I don't qualify for PAYE. It extends only back to 2008 (I think) and I have a loan from 2007.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: MishMash on February 26, 2015, 02:27:58 PM
I had 94k when I graduated, best day EVER was the day I sent in the last payment.

I'd suggest some side hustles to increase your debt payment, I worked 2-3 jobs during repayment.  Everyone needs lawyers, think about posting on elance or something.
Being a firm environment (about 25 attorneys), It'd be extremely difficult to do any "freelance" work outside the firm. That's contrary to how the infrastructure of the firm works and I don't think the BOD would let it fly.

Also, in the long run, I'd be better off bringing those clients to my firm anyway. They'd need help down the line and a partner's income is largely determined by how much he/she brings to the firm.

Freelancing can allow you to work with individuals that would never be potential "firm" material, these are people that are looking more for advice, or one time assistance versus on going issues.  My father is a retired DA, to keep himself sharp be turned to the internet and writes posts for a number of sites, essentially people pay a flat fee for an answer to a single question, he advises, teh site sends him a check monthly for all the answers he's provided.  It's not a ton of money, he mainly does it so he's not bored, but it's something that you can do that is easy, can be done on nights and weekends, and doesn't involve long term clients.   The most common questions relate to child support, small business litigation, wrongful termination.

I disagree with the suggestion that a lawyer in a firm be encouraged to "freelance" by taking on clients outside of the firm. The suggestion above may work because the referenced lawyer was retired. OP is not retired. If OP were to take on legal work as a "side hustle" outside of his firm, I'd expect his employment at the firm to be short-lived. I'd also expect the situation to attract negative attention from the relevant state Bar -- to wit, conflicts of interest, ethics, fiduciary duties, malpractice, and on and on and on.

So simple solution, ASK YOUR BOSS, I do a ton of side hustle work as an engineer, and I'm under contract that all my work is the property of my company.  I sat my boss down and said look...I'm trying to pay off my loans.  Do  you mind if I do side work, outside of work hours....they said nope, I got a signed document from them saying that my side products weren't their property, and off I went. 
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: Blonde Lawyer on February 26, 2015, 02:30:36 PM
If you are interested in refinancing your loans, check out my sig.  As others said though, make sure you aren't going to go into public interest work where you would qualify for 10 year forgiveness or otherwise require IBR.  If you are trying to pay standard, those rates can go much lower.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: TheOldestYoungMan on February 26, 2015, 02:30:59 PM
From a philosophical standpoint, I believe that progressive taxation discourages increases in marginal work.  But from a practical standpoint, I try to make as much as I possibly can.  As it turns out, paying the higher taxes actually just provides incentive to figure out how to stash money where I avoid taxes.  :)

Buying my first house was a traumatic experience.  It felt like a financial colonoscopy.  I still have nightmares.  I very much believe, apart from people who really have their financial shit together, that it is a mistake 100% of the time.  It starts to feel like everyone along the way is trying to convince you it's a good idea because they also made the mistake and misery loves company.  Buying a house is a luxury, a hugely expensive luxury.  It is fine to do that if you are comfortable spending the money.

I do own a house now, but I waited until I could afford it in addition to all my other savings goals, bought a small house, and rent out all the space I'm not using.

Everyone I know who did or tried to buy a house with a [significant other not yet married] regretted it.  That's not a statistically significant sentiment, but reference the traumatic comment above.  It's stressful is what I'm saying.  It will cause stress.

You said something about tossing some money in a roth IRA.  http://www.madfientist.com/traditional-ira-vs-roth-ira/

Side jobs for extra money are great.  But I'd try to go for more tradesman type stuff.  In my experience getting paid $300 for a weekend of painting once a month was better for my sanity than delivering pizzas after work.  Walter White seemed to prefer weekend chemistry to everyday carwash cashier, is what I'm saying.  Moonlighting should be avoided unless you get 100% approval from your current job.  I would highly recommend any regular working outside the company be disclosed as well.  Better they know what you are up to and why then find out on their own and guess.  The guesses will always be gambling or drugs.  They will always find out.  Nothing quite like serving drinks on the party boat in your knickers to...your regular job supervisor.

While I know I am not typical, debt felt like a lead weight dragging me down.  And it mattered who I owed.  Paying interest to a bank was like, I can't even describe it.  I know I'd be better off if I leveraged my whatever to pit returns against interest but oh my god it's nice not to owe.  I mean it is nice.  I'd be doing that first.  I don't currently love someone who needs jewelry though, so it's easy to say.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 26, 2015, 02:46:48 PM
If you are interested in refinancing your loans, check out my sig.  As others said though, make sure you aren't going to go into public interest work where you would qualify for 10 year forgiveness or otherwise require IBR.  If you are trying to pay standard, those rates can go much lower.

Thanks for the link. The advertised rate from Charter One was 5.19% and I have a meeting with a local branch this weekend to discuss refinancing. If my rate would in fact be 5.19% I think I could really start making a dent in these loans.

Of course, the advertised rate isn't exactly what I'll get. If SoFi gives me a comparable rate I'll check it out. Thanks again.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: Field123 on February 26, 2015, 02:53:42 PM
You should double check that you aren't eligible for PAYE -- they just passed legislation expanding it to people with loans from before 2010 (or whenever the original cutoff was).

Even if you are ineligible, I would still argue that IBR is your best bet. In fact, I wholeheartedly disagree with every point you made above. Well, there MAY be some merit to your point about the tax burden, but probably not because 1) nobody will have loan forgiveness for at least another 15 years. Most people who analyze this program agree that it is likely congress will make the forgiveness tax free once we get closer to that date. Bills have already been introduced to this effect. Even if there is still a large tax burden, it's really not that big of a deal. It's 20-25 years away which gives you plenty of time to prepare for it and of course you won't owe the total balance, just the taxable income amount. Since you're on this board, hopefully you'll be retired by then and have a low tax rate. Again, the most important thing is that you should have tons of savings in 20-25 years, so you should be able to afford the tax bill.

As to your other points, there is NO INCENTIVE not to make as much money as you can. Yes, the more you make, the more you pay under IBR. However, since it's about 15% of your income, for every extra dollar you make, you keep $.85. So I cannot see any incentive not to make as much money as you can.

It does incentive you to keep your AGI as low as possible. This is different than not making as much money as you can, rather, you should maximize all pre tax accounts possible, which incentives you to save money. Another good thing.

Government cannot change the rules midway through. The terms of IBR were in the student loan contract you signed at student loans.gov with the promissory note... go read it again.

Depending how much you make and when you make it, it is possible to cost you more over the long run. But in that case your biggest problem is making too much money..... is that really a problem? No. And remember, the maximum monthly payment is capped at the standard 10 year repayment amount, so even if you start making $1,000,000 per year in year 18, you're still in good shape.

Basically, based on the facts provided and reasons stated, I could not disagree more with your approach here. I would recommend you re-research IBR and Pay as You Earn before you make another payment toward the loan principle.

Man, you're giving me financial planning whiplash here. I am in the OP in this post on a law school forum: http://top-law-schools.com/forums/viewtopic.php?f=15&t=242595

I was all over the IBR train until I talked with a couple people, my girlfriend's dad (a very-well respected CPA) and my college roommate, who has risen up the ladder at Vanguard in just five years.

Both ran the numbers and concluded that I'd pay almost all of my loan balance anyway. In short, so long as I begin to see substantial pay increases (as I expect, which the other attorney here can show), then my payment will be above my 25 year fixed payment. And that means I'll end up paying this over 25 years, regardless.

Thus, I'm now in the position that I've indicated in this thread: maximize income, pay down this SOB of a loan, and then when I'm making money, I'll be on the road to paying off my house and retiring early.

But you've made some terrific points. I think it can go either way and it's a matter of preference. If you have some numbers you'd like to discuss, feel free to PM me.

PS: I don't qualify for PAYE. It extends only back to 2008 (I think) and I have a loan from 2007.

You've clearly thought this out so I guess it is a matter of personal preference. No doubt PAYE is much more beneficial than IBR, so I wonder if you would change your mind if you were eligible for that program?

Regardless, even if the math is close, or even if the expected value of IBR is lower than paying the loans back asap, I still prefer IBR. The reason is that it is a hedge. If something happens and my situation changes and I make $0, then I don't have to pay anything. As long as paying my student loans is tied to my income and as long as I'm making more money because I am a lawyer rather than a guy with a BA in Political Science, I figure the debt is good debt and I'm coming out ahead. Like I said before, if you can create a circumstance where the worst thing that can happen is you're making too much money... well I count that a win.

Someday I'll start a thread on my own situation to get the general feedback, I think it would be a good case study. Basically I have ALOT of student debt, but I also have a very high income and a very high savings rate (thanks to PAYE). I figure that I will be FIRE in 10-12 years. So I'm paying ~10% of my income towards student loans now (doesn't even come close to covering the interest), but I'm also investing all that money that I would otherwise be paying toward the loans which will result in the ability to retire early if I so choose. At least in my situation it seems like a no brainer and while you have less debt than me and a lower income, I think you could make it work for you as well if early retirement is the goal.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 26, 2015, 03:43:38 PM
You've clearly thought this out so I guess it is a matter of personal preference. No doubt PAYE is much more beneficial than IBR, so I wonder if you would change your mind if you were eligible for that program?

Regardless, even if the math is close, or even if the expected value of IBR is lower than paying the loans back asap, I still prefer IBR. The reason is that it is a hedge. If something happens and my situation changes and I make $0, then I don't have to pay anything. As long as paying my student loans is tied to my income and as long as I'm making more money because I am a lawyer rather than a guy with a BA in Political Science, I figure the debt is good debt and I'm coming out ahead. Like I said before, if you can create a circumstance where the worst thing that can happen is you're making too much money... well I count that a win.

Someday I'll start a thread on my own situation to get the general feedback, I think it would be a good case study. Basically I have ALOT of student debt, but I also have a very high income and a very high savings rate (thanks to PAYE). I figure that I will be FIRE in 10-12 years. So I'm paying ~10% of my income towards student loans now (doesn't even come close to covering the interest), but I'm also investing all that money that I would otherwise be paying toward the loans which will result in the ability to retire early if I so choose. At least in my situation it seems like a no brainer and while you have less debt than me and a lower income, I think you could make it work for you as well if early retirement is the goal.

You're making enough sense for me to question my strategy of paying down my debt as quickly as possible, so that's a start. Two really important questions, though:

1. What are you going to do about filing taxes separately? If I file jointly, my girlfriend's income would push my payment to an amount that would pay off the loan in 18 years or so; thus, I'd have to file separately. This is a huge loss in deductions and limits investment vehicles. If you're in the same boat, how are you rationalizing that?

2. How would you report income once you retired? Would pulling principal from your investments to live on be considered income? I'm not a tax attorney haha.

Anyway, really appreciating your responses thus far.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: Field123 on February 26, 2015, 03:53:08 PM
You've clearly thought this out so I guess it is a matter of personal preference. No doubt PAYE is much more beneficial than IBR, so I wonder if you would change your mind if you were eligible for that program?

Regardless, even if the math is close, or even if the expected value of IBR is lower than paying the loans back asap, I still prefer IBR. The reason is that it is a hedge. If something happens and my situation changes and I make $0, then I don't have to pay anything. As long as paying my student loans is tied to my income and as long as I'm making more money because I am a lawyer rather than a guy with a BA in Political Science, I figure the debt is good debt and I'm coming out ahead. Like I said before, if you can create a circumstance where the worst thing that can happen is you're making too much money... well I count that a win.

Someday I'll start a thread on my own situation to get the general feedback, I think it would be a good case study. Basically I have ALOT of student debt, but I also have a very high income and a very high savings rate (thanks to PAYE). I figure that I will be FIRE in 10-12 years. So I'm paying ~10% of my income towards student loans now (doesn't even come close to covering the interest), but I'm also investing all that money that I would otherwise be paying toward the loans which will result in the ability to retire early if I so choose. At least in my situation it seems like a no brainer and while you have less debt than me and a lower income, I think you could make it work for you as well if early retirement is the goal.

You're making enough sense for me to question my strategy of paying down my debt as quickly as possible, so that's a start. Two really important questions, though:

1. What are you going to do about filing taxes separately? If I file jointly, my girlfriend's income would push my payment to an amount that would pay off the loan in 18 years or so; thus, I'd have to file separately. This is a huge loss in deductions and limits investment vehicles. If you're in the same boat, how are you rationalizing that?

2. How would you report income once you retired? Would pulling principal from your investments to live on be considered income? I'm not a tax attorney haha.

Anyway, really appreciating your responses thus far.

1. Good question. The answer is really dependent upon the student loan/income situation of your SO. First, it's important to note that you do not have to file separately. It's just if you file jointly, then your student loan payment is based on both incomes combined. So filing separately is the answer if your spouse has an income but no student loans. Interestingly, if your wife has a lot of student loans and is also in an IBR program, then there is no negative effect by filing jointly. You are both treated as one unit with both your incomes and both your student loans combined. Also, if your wife has a lot of student loans but no income (say she stays home when you have kids), then her loans are essentially free under the program. Play around with that calculator I linked in my first post to see the different situations.

2. I haven't gotten this far to have this completely optimized, but I would start by withdrawing ROTH contributions because those are not taxable income. Hopefully I will have rental income that I can depreciate as well, so that would also be effectively tax free. After that I would look at the roth pipelines that are so often referenced on this site, although I really don't know enough detail on them to give specific advice. Basically, I am confident from reading this forum that it is possible to retire and report a very low taxable income. Also keep in mind, that I would only have to do this for about 8-10 years before my loans are forgiven.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 26, 2015, 04:10:52 PM
You've clearly thought this out so I guess it is a matter of personal preference. No doubt PAYE is much more beneficial than IBR, so I wonder if you would change your mind if you were eligible for that program?

Regardless, even if the math is close, or even if the expected value of IBR is lower than paying the loans back asap, I still prefer IBR. The reason is that it is a hedge. If something happens and my situation changes and I make $0, then I don't have to pay anything. As long as paying my student loans is tied to my income and as long as I'm making more money because I am a lawyer rather than a guy with a BA in Political Science, I figure the debt is good debt and I'm coming out ahead. Like I said before, if you can create a circumstance where the worst thing that can happen is you're making too much money... well I count that a win.

Someday I'll start a thread on my own situation to get the general feedback, I think it would be a good case study. Basically I have ALOT of student debt, but I also have a very high income and a very high savings rate (thanks to PAYE). I figure that I will be FIRE in 10-12 years. So I'm paying ~10% of my income towards student loans now (doesn't even come close to covering the interest), but I'm also investing all that money that I would otherwise be paying toward the loans which will result in the ability to retire early if I so choose. At least in my situation it seems like a no brainer and while you have less debt than me and a lower income, I think you could make it work for you as well if early retirement is the goal.

You're making enough sense for me to question my strategy of paying down my debt as quickly as possible, so that's a start. Two really important questions, though:

1. What are you going to do about filing taxes separately? If I file jointly, my girlfriend's income would push my payment to an amount that would pay off the loan in 18 years or so; thus, I'd have to file separately. This is a huge loss in deductions and limits investment vehicles. If you're in the same boat, how are you rationalizing that?

2. How would you report income once you retired? Would pulling principal from your investments to live on be considered income? I'm not a tax attorney haha.

Anyway, really appreciating your responses thus far.

1. Good question. The answer is really dependent upon the student loan/income situation of your SO. First, it's important to note that you do not have to file separately. It's just if you file jointly, then your student loan payment is based on both incomes combined. So filing separately is the answer if your spouse has an income but no student loans. Interestingly, if your wife has a lot of student loans and is also in an IBR program, then there is no negative effect by filing jointly. You are both treated as one unit with both your incomes and both your student loans combined. Also, if your wife has a lot of student loans but no income (say she stays home when you have kids), then her loans are essentially free under the program. Play around with that calculator I linked in my first post to see the different situations.

2. I haven't gotten this far to have this completely optimized, but I would start by withdrawing ROTH contributions because those are not taxable income. Hopefully I will have rental income that I can depreciate as well, so that would also be effectively tax free. After that I would look at the roth pipelines that are so often referenced on this site, although I really don't know enough detail on them to give specific advice. Basically, I am confident from reading this forum that it is possible to retire and report a very low taxable income. Also keep in mind, that I would only have to do this for about 8-10 years before my loans are forgiven.

1. I've played with the calculators. My payment right now would be somewhere around $890, which would mean I'd eventually pay the loan off anyway (especially after she's done paying her loans and my income increases).

2. You won't be able to contribute to a Roth if you file separately. You can backdoor from a traditional IRA to a Roth right now, but Obama seems intent on shutting that back door pretty quickly.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: Field123 on February 26, 2015, 04:22:06 PM
You've clearly thought this out so I guess it is a matter of personal preference. No doubt PAYE is much more beneficial than IBR, so I wonder if you would change your mind if you were eligible for that program?

Regardless, even if the math is close, or even if the expected value of IBR is lower than paying the loans back asap, I still prefer IBR. The reason is that it is a hedge. If something happens and my situation changes and I make $0, then I don't have to pay anything. As long as paying my student loans is tied to my income and as long as I'm making more money because I am a lawyer rather than a guy with a BA in Political Science, I figure the debt is good debt and I'm coming out ahead. Like I said before, if you can create a circumstance where the worst thing that can happen is you're making too much money... well I count that a win.

Someday I'll start a thread on my own situation to get the general feedback, I think it would be a good case study. Basically I have ALOT of student debt, but I also have a very high income and a very high savings rate (thanks to PAYE). I figure that I will be FIRE in 10-12 years. So I'm paying ~10% of my income towards student loans now (doesn't even come close to covering the interest), but I'm also investing all that money that I would otherwise be paying toward the loans which will result in the ability to retire early if I so choose. At least in my situation it seems like a no brainer and while you have less debt than me and a lower income, I think you could make it work for you as well if early retirement is the goal.

You're making enough sense for me to question my strategy of paying down my debt as quickly as possible, so that's a start. Two really important questions, though:

1. What are you going to do about filing taxes separately? If I file jointly, my girlfriend's income would push my payment to an amount that would pay off the loan in 18 years or so; thus, I'd have to file separately. This is a huge loss in deductions and limits investment vehicles. If you're in the same boat, how are you rationalizing that?

2. How would you report income once you retired? Would pulling principal from your investments to live on be considered income? I'm not a tax attorney haha.

Anyway, really appreciating your responses thus far.

1. Good question. The answer is really dependent upon the student loan/income situation of your SO. First, it's important to note that you do not have to file separately. It's just if you file jointly, then your student loan payment is based on both incomes combined. So filing separately is the answer if your spouse has an income but no student loans. Interestingly, if your wife has a lot of student loans and is also in an IBR program, then there is no negative effect by filing jointly. You are both treated as one unit with both your incomes and both your student loans combined. Also, if your wife has a lot of student loans but no income (say she stays home when you have kids), then her loans are essentially free under the program. Play around with that calculator I linked in my first post to see the different situations.

2. I haven't gotten this far to have this completely optimized, but I would start by withdrawing ROTH contributions because those are not taxable income. Hopefully I will have rental income that I can depreciate as well, so that would also be effectively tax free. After that I would look at the roth pipelines that are so often referenced on this site, although I really don't know enough detail on them to give specific advice. Basically, I am confident from reading this forum that it is possible to retire and report a very low taxable income. Also keep in mind, that I would only have to do this for about 8-10 years before my loans are forgiven.

1. I've played with the calculators. My payment right now would be somewhere around $890, which would mean I'd eventually pay the loan off anyway (especially after she's done paying her loans and my income increases).

2. You won't be able to contribute to a Roth if you file separately. You can backdoor from a traditional IRA to a Roth right now, but Obama seems intent on shutting that back door pretty quickly.

$890 on a $48,000 income seems high. Is this including your wife's income, how much does she make? If so, does she have a high enough loan balance to get into IBR or PAYE? Also, is there any chance that she will want to be a stay at home mom someday; you should take that into consideration. Even if you end up having to file separately, the gains from IBR + her income likely outweigh the lost tax benefits and IRA opportunity. Not to mention that you still have 401k (or your other jobs retirement plan, law firms like SIMPLE IRAs) and HSAs to invest in.

It all really comes down to your goals. If you're thinking early retirement, then you need to use IBR so that you can have the rest of your money invested. If your situation ends up being such that Traditional and Roth IRAs are not an option, I'm confident people on this forum can give you some good guidance on where to put that money. Like everything else in this analysis, missing out on IRAs is unfortunate, but it is again a result of the fact that your wife is making money -- which is a good thing for the family net worth.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: TXScout2 on February 26, 2015, 04:44:37 PM
If you're not going to do IBR, I would refinance immediately.  It's saved me thousands of dollars already. 

I also graduated from the best law school in my state, couldn't get a job, and ended up working on a stipend for months.  II had $153K of Federal loans at 7.1% plus a $12K private loan at 12%.  Eventually I got a document review job, and I poured every dollar into the private loan while paying IBR on the Federal loans.  That document review job turned into an associate position.

Eventually I refinanced through SoFi, got it down to 3.92% variable rate including the quarter point discount for auto-pay.  After paying that for a while, I refinanced it again through SoFi (no origination fee), now I am down to 3.26% (still variable rate though).  I owe $105K now.  I feel like there may be light at the end of the tunnel (not sure though).
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: TheOldestYoungMan on February 26, 2015, 05:07:37 PM
Encouragement!

I was helping a buddy work through his options the other day, and he was sorta exasperated.

He said, "It just feels like I'm in this huge hole with no hope of escape."

To which I said, "yea, but at least you've decided to stop digging."

The "net worth" graph is going to stay in the negative for awhile, but at least it's going to have a positive slope!
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 26, 2015, 08:17:00 PM
If you're not going to do IBR, I would refinance immediately.  It's saved me thousands of dollars already. 

I also graduated from the best law school in my state, couldn't get a job, and ended up working on a stipend for months.  II had $153K of Federal loans at 7.1% plus a $12K private loan at 12%.  Eventually I got a document review job, and I poured every dollar into the private loan while paying IBR on the Federal loans.  That document review job turned into an associate position.

Eventually I refinanced through SoFi, got it down to 3.92% variable rate including the quarter point discount for auto-pay.  After paying that for a while, I refinanced it again through SoFi (no origination fee), now I am down to 3.26% (still variable rate though).  I owe $105K now.  I feel like there may be light at the end of the tunnel (not sure though).

I was looking into refinancing, but somebody else on a separate forum said I wouldn't be eligible due to my mediocre income and high debt.

What was your experience?

And would you recommend variable over fixed? What are the pros and cons?
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 26, 2015, 08:28:48 PM
$890 on a $48,000 income seems high. Is this including your wife's income, how much does she make? If so, does she have a high enough loan balance to get into IBR or PAYE? Also, is there any chance that she will want to be a stay at home mom someday; you should take that into consideration. Even if you end up having to file separately, the gains from IBR + her income likely outweigh the lost tax benefits and IRA opportunity. Not to mention that you still have 401k (or your other jobs retirement plan, law firms like SIMPLE IRAs) and HSAs to invest in.

It all really comes down to your goals. If you're thinking early retirement, then you need to use IBR so that you can have the rest of your money invested. If your situation ends up being such that Traditional and Roth IRAs are not an option, I'm confident people on this forum can give you some good guidance on where to put that money. Like everything else in this analysis, missing out on IRAs is unfortunate, but it is again a result of the fact that your wife is making money -- which is a good thing for the family net worth.
To clarify: yes, $890 is using both of our incomes. My payment just on my income is $375.

Her loans are mostly private, so she is ineligible for PAYE or IBR.

I don't think she'd ever be a permanent stay at home mom. Maybe some day down the road, but she has a professional degree, thoroughly enjoys her job and her profession, and I certainly don't want to bank on her not having an income to keep my payments low.

Ultimately, I just don't think IBR is as good of a long term plan as you think it is.

After refinancing, I expect to pay around $200,000 towards these loans. If my average payment over 25 years was $500 per month (a low estimate even if I filed separately), that would be $150,000 in payments alone. Add a huge tax bill (since I wasn't covering the interest) and I ended up paying more towards those loans.

Meanwhile, if I grind hard and pay these off ASAP, when I'm done (hopefully 7-8 years), my GF and I will have about $3000 per month to pay off the mortgage and eventually save. I'd much rather do that and control everything than play games with the tax code and pray the government doesn't change things midstream.

I do appreciate your counter arguments, though, so keep them coming.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: Blonde Lawyer on February 26, 2015, 08:36:33 PM
For those of you arguing pro IBR/PAYE, what is your plan for the taxes on the debt forgiveness? Have you factored that into your equations?

ReadySetMillionaire - I think SoFi is pretty fussy about who they lend to.  I don't know about the others.  It can't hurt to get a quote though.  There is no application fee.

TXScout - interesting that your did 2 refi's with SoFi.  The interest rates seem to have gone down since I refinanced.  I could do it again I guess. 

I went w/ the fixed interest rate because I'm risk averse.  I also feel like rates are at historic lows which means at some point they will start going back up.  I'm potentially still looking at 4 more years until they are paid off so I wanted a guaranteed reduction in rate.  When I get my snowball really going and I foresee a faster payoff I might refi to variable now that I know I can. 
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 26, 2015, 08:54:10 PM
For those of you arguing pro IBR/PAYE, what is your plan for the taxes on the debt forgiveness? Have you factored that into your equations?

ReadySetMillionaire - I think SoFi is pretty fussy about who they lend to.  I don't know about the others.  It can't hurt to get a quote though.  There is no application fee.

TXScout - interesting that your did 2 refi's with SoFi.  The interest rates seem to have gone down since I refinanced.  I could do it again I guess. 

I went w/ the fixed interest rate because I'm risk averse.  I also feel like rates are at historic lows which means at some point they will start going back up.  I'm potentially still looking at 4 more years until they are paid off so I wanted a guaranteed reduction in rate.  When I get my snowball really going and I foresee a faster payoff I might refi to variable now that I know I can.

Thanks for the info.

I also totally agree about the tax liability.

Say you put the money you've been saving in a traditional brokerage account. Then your loan is $250k when it's forgiven, so you have to pay $95k in taxes that year (assuming 38% tax bracket). Now you have to pull 16% more than this to cover your capital gains, so now you're looking at pulling $110,000 to over the tax burden.

And all that is AFTER you've lost hundreds of thousands in deductions (literally), paid $150k on the principal anyway, and dicked around with the tax code for 25 years.

It's just not worth it to me and, maybe more importantly, it's way too risky and built on too many assumptions.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: mozar on February 26, 2015, 09:01:54 PM
I am the self appointed expert of stupid student loan decisions. I took out 100k for undergrad and 35k for accounting grad degree. So 135k. I got a job making 54k out of grad school. My rent was 550. I paid 2000 a month for 5 years. Then I bought a house for about 150k. I have about 15k in loans left at a super low rate. I preferred to grind it out because it was such a weight lifted off my back.

My concern is all these promises going around. You'll save for a downpayment if your gf promises to pay your loans? Your gfs parents promise to help pay her loans when the other daughter goes to school? At which point I guess the parents will promise the other daughter that they will pay for her loans once they paid off your gfs loans? My parents promised they would help me pay for my loans too and I am still waiting. I would prefer to keep things clean. You pay off your loans and she buys the house and you pay rent. You can always put your name on the deed later.

I think you should propose asap. Most women I know would prefer a smaller ring and get it sooner, so they can carry on with their life already and stop wondering. Then you can promise to get her a nicer ring in 10 years...
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 26, 2015, 09:15:19 PM
I am the self appointed expert of stupid student loan decisions. I took out 100k for undergrad and 35k for accounting grad degree. So 135k. I got a job making 54k out of grad school. My rent was 550. I paid 2000 a month for 5 years. Then I bought a house for about 150k. I have about 15k in loans left at a super low rate. I preferred to grind it out because it was such a weight lifted off my back.

My concern is all these promises going around. You'll save for a downpayment if your gf promises to pay your loans? Your gfs parents promise to help pay her loans when the other daughter goes to school? At which point I guess the parents will promise the other daughter that they will pay for her loans once they paid off your gfs loans? My parents promised they would help me pay for my loans too and I am still waiting. I would prefer to keep things clean. You pay off your loans and she buys the house and you pay rent. You can always put your name on the deed later.

I think you should propose asap. Most women I know would prefer a smaller ring and get it sooner, so they can carry on with their life already and stop wondering. Then you can promise to get her a nicer ring in 10 years...
Ha, good advice on the ring. I'm waiting for what feels right, though.

As for the "promises," I'd characterize them more as understandings. We're very open about my debt and she understands that getting rid of that debt will be a huge win for us. So saving on a down payment isn't necessarily a quid pro quo transaction; it's my way of saying, "Hey, I'm here to help you achieve a huge goal (buy a house) because I know you'll help me out later."
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: aschmidt2930 on February 26, 2015, 10:06:52 PM
Your expenses and lifestyle seem pretty solid. The focus for you needs to be on income, your salary is too low for that type of debt. Nothing to stress about, pretty much everyone starts lower than they would like. Work hard and aggressively pursue other opportunities.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: dsutt on February 26, 2015, 10:12:55 PM
$890 on a $48,000 income seems high. Is this including your wife's income, how much does she make? If so, does she have a high enough loan balance to get into IBR or PAYE? Also, is there any chance that she will want to be a stay at home mom someday; you should take that into consideration. Even if you end up having to file separately, the gains from IBR + her income likely outweigh the lost tax benefits and IRA opportunity. Not to mention that you still have 401k (or your other jobs retirement plan, law firms like SIMPLE IRAs) and HSAs to invest in.

It all really comes down to your goals. If you're thinking early retirement, then you need to use IBR so that you can have the rest of your money invested. If your situation ends up being such that Traditional and Roth IRAs are not an option, I'm confident people on this forum can give you some good guidance on where to put that money. Like everything else in this analysis, missing out on IRAs is unfortunate, but it is again a result of the fact that your wife is making money -- which is a good thing for the family net worth.
To clarify: yes, $890 is using both of our incomes. My payment just on my income is $375.

Her loans are mostly private, so she is ineligible for PAYE or IBR.

I don't think she'd ever be a permanent stay at home mom. Maybe some day down the road, but she has a professional degree, thoroughly enjoys her job and her profession, and I certainly don't want to bank on her not having an income to keep my payments low.

Ultimately, I just don't think IBR is as good of a long term plan as you think it is.

After refinancing, I expect to pay around $200,000 towards these loans. If my average payment over 25 years was $500 per month (a low estimate even if I filed separately), that would be $150,000 in payments alone. Add a huge tax bill (since I wasn't covering the interest) and I ended up paying more towards those loans.

Meanwhile, if I grind hard and pay these off ASAP, when I'm done (hopefully 7-8 years), my GF and I will have about $3000 per month to pay off the mortgage and eventually save. I'd much rather do that and control everything than play games with the tax code and pray the government doesn't change things midstream.

I do appreciate your counter arguments, though, so keep them coming.


Interesting discussion ReadySetMillionaire & Tank_Esq

I have a similar situation student debt wise and am curious how other people are handling the debt, and what MMM thinks of dealing with this.  I tend to agree with Tank_Esq.  I think ReadySetMillionare is right that the Income driven plans are a gamble, but they could pay off. 
 Here are a few points I don't think you have discussed yet regarding IBR and PAYE. 

If your loans just went into repayment, you get 3yrs of IBR or PAYE where the government will pay the leftover interest on the loans after you make your 10-15% of income payment.  No interest accrues during this time.  If you have extra income you could pay the minimum each month, have the government pay the rest of the interest for the month, and then make an additional payment directly to principal.

After three years, in either plan, as long as you maintain a financial hardship, (which with a loan of $150,000, is earning something under around $100,000,) interest accrued on the loan does not compound.  The unpaid interest just sits in a little side pile, that will be forgiven or paid off with all the money and compounding interest that you earned on the borrowed money that you did not put back in the loan. 
The situation will vary from person to person, but if you invest the difference your standard 10yr loan payment, and the 20 year PAYE each month, you should have around the same amount of money in your investment account and your debt account in 5-8 years.  That gives you 12-15 years of two accounts, investment with interest compounding, and debt with simple interest. 

20 yrs is up and if nothing changes, you do get a nasty tax bill on the 200,000 plus loan and interest you have accrued, but even if this is close to 40%, you can pay it out of your investment account no problem. 
Luckily Elizabeth Warren is working on non-taxable forgiveness for us--I believe she already put forth bill suggesting this.  There is a lot of talk about refinancing public loans too.  The government would have a hard time changing the rules on student loan forgiveness, as this would just bankrupt millions of people.

Obama did change the rules for PAYE for almost everyone.  ReadySetMillionaire, you and I will be allowed into the PAYE system in October of this year.   When you switch plans, the years on your loan do not reset.  If you already five yrs in, you only have 15 more to go for forgiveness. 

Lastly, check out this link.  It basically shows how the current income based repayment system is a cash cow for Lawyer and future high earner types.  It has a nice spreadsheet to accompany. 
http://newamerica.net/publications/policy/safety_net_or_windfall

Look forward to comments and rebuttals...

Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ZiziPB on February 27, 2015, 04:03:48 AM
I commend the OP for his plan to pay off what he borrowed in full.

For all of you fairly new mustachians with large student loan balances, this thread should be a required reading before you make your decision on IBR or whatever other program.  http://forum.mrmoneymustache.com/welcome-to-the-forum/ethical-dimensions-of-student-loan-income-based-repayment-plans/
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: former player on February 27, 2015, 04:15:49 AM
There is a lot to be said for paying off the student loans rather than going the IBR route: you are paying off your debts rather than relying on the government to do so, you are simplifying your life/taxes and you are buying your freedom from a 20 year obligation.  Just as some people would rather pay off their mortgage than invest for higher returns, it is a valid and mustachian choice.

I can quite see that the flat is too small.  But given that OP manages the building and gets a great break on the rent, would it be possible to move into a larger flat in the same building as soon as one becomes available?  It would take some of the pressure off the immediate need to buy a house, and give a bit of breathing room on savings/paying down debt.

The job sounds ideal apart from the pay.  So the question is: what are the likely pay rises in the next few years to partnership, how soon will they kick in, and what sort of financial rewards come with partnership?  What is the norm and is there likely to be room to negotiate?  OP should practice his negotiation skills to manage his pay upwards.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 27, 2015, 04:51:19 AM
Interesting discussion ReadySetMillionaire & Tank_Esq

I have a similar situation student debt wise and am curious how other people are handling the debt, and what MMM thinks of dealing with this.  I tend to agree with Tank_Esq.  I think ReadySetMillionare is right that the Income driven plans are a gamble, but they could pay off. 
 Here are a few points I don't think you have discussed yet regarding IBR and PAYE. 

If your loans just went into repayment, you get 3yrs of IBR or PAYE where the government will pay the leftover interest on the loans after you make your 10-15% of income payment.  No interest accrues during this time.  If you have extra income you could pay the minimum each month, have the government pay the rest of the interest for the month, and then make an additional payment directly to principal.

After three years, in either plan, as long as you maintain a financial hardship, (which with a loan of $150,000, is earning something under around $100,000,) interest accrued on the loan does not compound.  The unpaid interest just sits in a little side pile, that will be forgiven or paid off with all the money and compounding interest that you earned on the borrowed money that you did not put back in the loan. 
The situation will vary from person to person, but if you invest the difference your standard 10yr loan payment, and the 20 year PAYE each month, you should have around the same amount of money in your investment account and your debt account in 5-8 years.  That gives you 12-15 years of two accounts, investment with interest compounding, and debt with simple interest. 

20 yrs is up and if nothing changes, you do get a nasty tax bill on the 200,000 plus loan and interest you have accrued, but even if this is close to 40%, you can pay it out of your investment account no problem. 
Luckily Elizabeth Warren is working on non-taxable forgiveness for us--I believe she already put forth bill suggesting this.  There is a lot of talk about refinancing public loans too.  The government would have a hard time changing the rules on student loan forgiveness, as this would just bankrupt millions of people.

Obama did change the rules for PAYE for almost everyone.  ReadySetMillionaire, you and I will be allowed into the PAYE system in October of this year.   When you switch plans, the years on your loan do not reset.  If you already five yrs in, you only have 15 more to go for forgiveness. 

Lastly, check out this link.  It basically shows how the current income based repayment system is a cash cow for Lawyer and future high earner types.  It has a nice spreadsheet to accompany. 
http://newamerica.net/publications/policy/safety_net_or_windfall

Look forward to comments and rebuttals...

Interesting post, and I'll rebuttal point by point.

First, I guess I will qualify for PAYE this October. Yay me I guess.

Second, regarding forgiven interest, the government will only reimburse you for interest on your Subsidized Stafford loans. For me, these are only about 10% of my loans. More importantly, the rest of unpaid interest after three years capitalizes up to 110% of the loan (see here: http://www.ibrinfo.org/what.vp.html). Thus, by not being aggressive early on (and only paying $221 per month), my loan would balloon to over $160,000 easily, despite the forgiveness on my Subsidized Stafford Loans.

Side note: right now, I am enrolled in IBR even though I'm making huge payments. This means for the next three years, I'm barely putting anything towards my Stafford Loans, covering about $10 more than the monthly interest on all other loans (so they don't capitalize), and putting everything else towardsmy highest interest loans.

Third, my PAYE estimated my monthly payment to be $221, meaning there would be almost $600 in interest being added each month. What happens if I get a job paying $100,000 per year? Now my payment shoots up to $604 and I'm still not gaining ground on the interest. I'll get to the math later on why this is bad.

Fourth, your post assumes 7% returns in the market. I'm a believer in passive investing over the long haul, so that's fair. But what if the economy takes a hit in year 20 when your tax liability is due? This makes PAYE/IBR a HUGE gamble to me.

And this leads me to my fifth and most important point: I can't risk this plan with the hope that the government will amend the tax bill. This is for two reasons. First, the entire program becomes insolvent if you remove the tax burden. This would lead to even more increased tuition and outcries from a younger generation. Second, and more importantly, the present tax code accounts for people who really can't afford the tax liability. The IRS fact sheet on forgiven debt (http://www.irs.gov/pub/irs-pdf/p4681.pdf) provides, basically, that you are only accountable for forgiven debt to the extent that it exceeds your assets. So say the average Joe is on PAYE and paid for 20 years, thus allowing his loan to balloon to $250,000. Fortunately, because he's an average Joe and not a mustachian, all he has is a $150,000 house and $100,000 in his 401k. That means that his assets are equal to his forgiven debts and he therefore has no tax liability.

Of course, there are a lot of variations to this. But the point is that (1) the tax code already accounts for people who can't pay the tax liability and (2) the "tax bomb" problem people say will happen in 20 years isn't as bad as people think.

In Mustachian terms, however, this tax break wouldn't apply to you because you've been socking away money in a traditional brokerage account for 20 years (i.e., your assets would significantly exceed your forgiven debt). Thus, you would probably be the exception in having to actually pay the full tax liability.

Which leads me to the math.

The government estimates a 5% raise, which I think is fair. They estimate I'll pay $102,000 principal over the life of loan and have $249,000 forgiven.

Since I'll be stocking away money, my assets will dramatically exceed my liabilities, so I'll have to pay the full tax liability. Assuming a 38% tax bracket (which is certain given that the forgiven debt alone is $249,000), that comes to $94,620. So all in all, I'll have paid $196,620 towards the loan, or around the same amount if I just paid this off in 8 years.

But let's go even further. Let's look at everything else.

First, deductions lost because you had to file separately (this isn't negotiable for me...my GF makes substantially more than I do, and if I eventually made $100,000 per year, our incomes together would put me at a $1104 payment, or enough to pay the loan before it's forgiven).

Student loan interest deduction = $2500. Assuming 20 years of this and 25% tax bracket, you've missed out on either a deduction to your tax liability every paycheck or a $625 refund check from the feds every year.

Dependent care credit = $3000 per year per kid. Assume two kids (my plan) so $6,000 per year. Now you've missed out a $6,000 deduction on your taxable income or a $1,500 refund every year.

Married credit = $14,200 per year (compared to $6,200, which only one of you or your spouse can claim). That's an $8,000 difference in taxable income per year, or $2,000 in cash.

There are more than these three, but these are the three biggest ones. And putting your spouse in the equation (since he or she is filing separately as well), you're looking at $25,000 in lost deductions per year for 20 years ($500,000!!!). Again, assume a 25% tax bracket, and we're talking $125,000 in income taken out of your paychecks or tax refunds.

So now we're at your $196,020 in paying towards the loan plus $125,000 in lost deductions.

I feel like Billy Mays here--BUT WAIT, THERE'S MORE. Let's go back to the tax liability. Assume you've been throwing what would have been your student loans into an investment account, and now you need to cover your tax liability. Now you actually need to withdraw 16% more than your tax liability to cover capital gains, meaning you'd actually need to withdraw $111,383 to cover the tax liability.

Now we are at $102,000 principal payments + $125,000 in lost deductions + $111,383 to cover tax liability. Total cost is $338,383.

And by this 20th year, you've just substantially depleted your investment account when you are 47. You also haven't been able to contribute to a Roth IRA (since you can't when filing separately).

And I'll end on this: no matter what you guys are saying, IBR and PAYE will make you a slave to your loans more than paying would. Every financial decision you make will revolve around your payment and your tax liability for TWENTY YEARS. You also have no idea what will happen in terms of income--what if you've let interest balloon for ten years, but then you become a member of an incredibly lucrative LLC that nets you $500,000 income per year? Now you might not have a financial hardship and your loan would capitalize. Sure, you can pay off your loans with that much income, but my word, that will be WAY MORE than if you had just taken care of it.

Put most simply, IBR and PAYE are huge gambles due to the unknown tax liability, having to file separately, lost deductions, inability to forecast income, and having to pay capital gains when you do pay the tax liability. In the meantime, you CAN start making dents on your loans NOW if you put your mind to it and take control of the situation. If I pay my loans off in 8 years and maintain my lifestyle afterwards, using MMM's chart, I'll be about 7-10 years away from retirement. And that's way more optimal to me than risking everything on IBR/PAYE.

[Exits stage and waits for rebuttal...good discussion!].
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 27, 2015, 05:00:17 AM
I commend the OP for his plan to pay off what he borrowed in full.

For all of you fairly new mustachians with large student loan balances, this thread should be a required reading before you make your decision on IBR or whatever other program.  http://forum.mrmoneymustache.com/welcome-to-the-forum/ethical-dimensions-of-student-loan-income-based-repayment-plans/

Thanks for the link. Great thread.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 27, 2015, 05:04:12 AM
There is a lot to be said for paying off the student loans rather than going the IBR route: you are paying off your debts rather than relying on the government to do so, you are simplifying your life/taxes and you are buying your freedom from a 20 year obligation.  Just as some people would rather pay off their mortgage than invest for higher returns, it is a valid and mustachian choice.

I can quite see that the flat is too small.  But given that OP manages the building and gets a great break on the rent, would it be possible to move into a larger flat in the same building as soon as one becomes available?  It would take some of the pressure off the immediate need to buy a house, and give a bit of breathing room on savings/paying down debt.

The job sounds ideal apart from the pay.  So the question is: what are the likely pay rises in the next few years to partnership, how soon will they kick in, and what sort of financial rewards come with partnership?  What is the norm and is there likely to be room to negotiate?  OP should practice his negotiation skills to manage his pay upwards.

Thanks for the support.

We live in a 5 unit building, and all the units are identical. It's actually a decent one-bedroom loft, but there's no doors or anything. That doesn't stress me out, but my GF likes her privacy. We've done things like put curtains in front of the bathroom vanity so she can get ready in privacy. But, she's lived here for 3 years already. She works incredibly hard (she's a speech language pathologist; i.e., does swallow tests on nursing home residents, helps them with care, etc.) and just wants a house.

Also, I'm not sure about the pay increases here. I've been somewhat of a cyber stalker and looked to see where the partners live, and they all live in $250,000-300,000 houses, which are incredibly nice for my area. So they seem to be doing very well.

I did, however, ask the treasurer of the board so he can meet me to discuss how the firm works. He's a pretty candid guy, so I expect him to discuss the specifics of partnership tracks, profit sharing, etc. Until then, I'm in a black box and just trying to do the best work possible.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: YTProphet on February 27, 2015, 06:19:57 AM
Also, I'm not sure about the pay increases here. I've been somewhat of a cyber stalker and looked to see where the partners live, and they all live in $250,000-300,000 houses, which are incredibly nice for my area. So they seem to be doing very well.

I did, however, ask the treasurer of the board so he can meet me to discuss how the firm works. He's a pretty candid guy, so I expect him to discuss the specifics of partnership tracks, profit sharing, etc. Until then, I'm in a black box and just trying to do the best work possible.

Keep in mind that there is a definitive difference in pay between equity and non-equity partners. I know earlier in the thread that you said associates typically make partner after their fifth year. However, I can almost guarantee you that that's non-equity partner. Whether associates end up making equity partner is really the only thing that matters. That's where the money is at, because that's the only point at which you're making money off the work of the associates.

At most firms, when you make non-equity partner at year 5/6/7 you get a big pay bump. But it's generally not much of a pay bump at all (and sometimes it can be a pay loss). They bump you up because you're taxed differently as a partner (even though you're non-equity) and that generally results in an increased tax bill, so they have to gross you up for the amount of income you lose from increased taxes.

Just something to keep in mind.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 27, 2015, 06:41:54 AM
Keep in mind that there is a definitive difference in pay between equity and non-equity partners. I know earlier in the thread that you said associates typically make partner after their fifth year. However, I can almost guarantee you that that's non-equity partner. Whether associates end up making equity partner is really the only thing that matters. That's where the money is at, because that's the only point at which you're making money off the work of the associates.

At most firms, when you make non-equity partner at year 5/6/7 you get a big pay bump. But it's generally not much of a pay bump at all (and sometimes it can be a pay loss). They bump you up because you're taxed differently as a partner (even though you're non-equity) and that generally results in an increased tax bill, so they have to gross you up for the amount of income you lose from increased taxes.

Just something to keep in mind.

Thanks for the heads up. I'm looking forward to my meeting with a member of the BOD so I can clear all this up.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: dsutt on February 27, 2015, 06:46:30 AM
Interesting discussion ReadySetMillionaire & Tank_Esq

I have a similar situation student debt wise and am curious how other people are handling the debt, and what MMM thinks of dealing with this.  I tend to agree with Tank_Esq.  I think ReadySetMillionare is right that the Income driven plans are a gamble, but they could pay off. 
 Here are a few points I don't think you have discussed yet regarding IBR and PAYE. 

If your loans just went into repayment, you get 3yrs of IBR or PAYE where the government will pay the leftover interest on the loans after you make your 10-15% of income payment.  No interest accrues during this time.  If you have extra income you could pay the minimum each month, have the government pay the rest of the interest for the month, and then make an additional payment directly to principal.

After three years, in either plan, as long as you maintain a financial hardship, (which with a loan of $150,000, is earning something under around $100,000,) interest accrued on the loan does not compound.  The unpaid interest just sits in a little side pile, that will be forgiven or paid off with all the money and compounding interest that you earned on the borrowed money that you did not put back in the loan. 
The situation will vary from person to person, but if you invest the difference your standard 10yr loan payment, and the 20 year PAYE each month, you should have around the same amount of money in your investment account and your debt account in 5-8 years.  That gives you 12-15 years of two accounts, investment with interest compounding, and debt with simple interest. 

20 yrs is up and if nothing changes, you do get a nasty tax bill on the 200,000 plus loan and interest you have accrued, but even if this is close to 40%, you can pay it out of your investment account no problem. 
Luckily Elizabeth Warren is working on non-taxable forgiveness for us--I believe she already put forth bill suggesting this.  There is a lot of talk about refinancing public loans too.  The government would have a hard time changing the rules on student loan forgiveness, as this would just bankrupt millions of people.

Obama did change the rules for PAYE for almost everyone.  ReadySetMillionaire, you and I will be allowed into the PAYE system in October of this year.   When you switch plans, the years on your loan do not reset.  If you already five yrs in, you only have 15 more to go for forgiveness. 

Lastly, check out this link.  It basically shows how the current income based repayment system is a cash cow for Lawyer and future high earner types.  It has a nice spreadsheet to accompany. 
http://newamerica.net/publications/policy/safety_net_or_windfall

Look forward to comments and rebuttals...

Interesting post, and I'll rebuttal point by point.

First, I guess I will qualify for PAYE this October. Yay me I guess.

Second, regarding forgiven interest, the government will only reimburse you for interest on your Subsidized Stafford loans. For me, these are only about 10% of my loans. More importantly, the rest of unpaid interest after three years capitalizes up to 110% of the loan (see here: http://www.ibrinfo.org/what.vp.html). Thus, by not being aggressive early on (and only paying $221 per month), my loan would balloon to over $160,000 easily, despite the forgiveness on my Subsidized Stafford Loans.

Side note: right now, I am enrolled in IBR even though I'm making huge payments. This means for the next three years, I'm barely putting anything towards my Stafford Loans, covering about $10 more than the monthly interest on all other loans (so they don't capitalize), and putting everything else towardsmy highest interest loans.

Third, my PAYE estimated my monthly payment to be $221, meaning there would be almost $600 in interest being added each month. What happens if I get a job paying $100,000 per year? Now my payment shoots up to $604 and I'm still not gaining ground on the interest. I'll get to the math later on why this is bad.

Fourth, your post assumes 7% returns in the market. I'm a believer in passive investing over the long haul, so that's fair. But what if the economy takes a hit in year 20 when your tax liability is due? This makes PAYE/IBR a HUGE gamble to me.

And this leads me to my fifth and most important point: I can't risk this plan with the hope that the government will amend the tax bill. This is for two reasons. First, the entire program becomes insolvent if you remove the tax burden. This would lead to even more increased tuition and outcries from a younger generation. Second, and more importantly, the present tax code accounts for people who really can't afford the tax liability. The IRS fact sheet on forgiven debt (http://www.irs.gov/pub/irs-pdf/p4681.pdf) provides, basically, that you are only accountable for forgiven debt to the extent that it exceeds your assets. So say the average Joe is on PAYE and paid for 20 years, thus allowing his loan to balloon to $250,000. Fortunately, because he's an average Joe and not a mustachian, all he has is a $150,000 house and $100,000 in his 401k. That means that his assets are equal to his forgiven debts and he therefore has no tax liability.

Of course, there are a lot of variations to this. But the point is that (1) the tax code already accounts for people who can't pay the tax liability and (2) the "tax bomb" problem people say will happen in 20 years isn't as bad as people think.

In Mustachian terms, however, this tax break wouldn't apply to you because you've been socking away money in a traditional brokerage account for 20 years (i.e., your assets would significantly exceed your forgiven debt). Thus, you would probably be the exception in having to actually pay the full tax liability.

Which leads me to the math.

The government estimates a 5% raise, which I think is fair. They estimate I'll pay $102,000 principal over the life of loan and have $249,000 forgiven.

Since I'll be stocking away money, my assets will dramatically exceed my liabilities, so I'll have to pay the full tax liability. Assuming a 38% tax bracket (which is certain given that the forgiven debt alone is $249,000), that comes to $94,620. So all in all, I'll have paid $196,620 towards the loan, or around the same amount if I just paid this off in 8 years.

But let's go even further. Let's look at everything else.

First, deductions lost because you had to file separately (this isn't negotiable for me...my GF makes substantially more than I do, and if I eventually made $100,000 per year, our incomes together would put me at a $1104 payment, or enough to pay the loan before it's forgiven).

Student loan interest deduction = $2500. Assuming 20 years of this and 25% tax bracket, you've missed out on either a deduction to your tax liability every paycheck or a $625 refund check from the feds every year.

Dependent care credit = $3000 per year per kid. Assume two kids (my plan) so $6,000 per year. Now you've missed out a $6,000 deduction on your taxable income or a $1,500 refund every year.

Married credit = $14,200 per year (compared to $6,200, which only one of you or your spouse can claim). That's an $8,000 difference in taxable income per year, or $2,000 in cash.

There are more than these three, but these are the three biggest ones. And putting your spouse in the equation (since he or she is filing separately as well), you're looking at $25,000 in lost deductions per year for 20 years ($500,000!!!). Again, assume a 25% tax bracket, and we're talking $125,000 in income taken out of your paychecks or tax refunds.

So now we're at your $196,020 in paying towards the loan plus $125,000 in lost deductions.

I feel like Billy Mays here--BUT WAIT, THERE'S MORE. Let's go back to the tax liability. Assume you've been throwing what would have been your student loans into an investment account, and now you need to cover your tax liability. Now you actually need to withdraw 16% more than your tax liability to cover capital gains, meaning you'd actually need to withdraw $111,383 to cover the tax liability.

Now we are at $102,000 principal payments + $125,000 in lost deductions + $111,383 to cover tax liability. Total cost is $338,383.

And by this 20th year, you've just substantially depleted your investment account when you are 47. You also haven't been able to contribute to a Roth IRA (since you can't when filing separately).

And I'll end on this: no matter what you guys are saying, IBR and PAYE will make you a slave to your loans more than paying would. Every financial decision you make will revolve around your payment and your tax liability for TWENTY YEARS. You also have no idea what will happen in terms of income--what if you've let interest balloon for ten years, but then you become a member of an incredibly lucrative LLC that nets you $500,000 income per year? Now you might not have a financial hardship and your loan would capitalize. Sure, you can pay off your loans with that much income, but my word, that will be WAY MORE than if you had just taken care of it.

Put most simply, IBR and PAYE are huge gambles due to the unknown tax liability, having to file separately, lost deductions, inability to forecast income, and having to pay capital gains when you do pay the tax liability. In the meantime, you CAN start making dents on your loans NOW if you put your mind to it and take control of the situation. If I pay my loans off in 8 years and maintain my lifestyle afterwards, using MMM's chart, I'll be about 7-10 years away from retirement. And that's way more optimal to me than risking everything on IBR/PAYE.

[Exits stage and waits for rebuttal...good discussion!].

Good Points.

Investing $1600 dollars a month for 8 years, that's $250,000 in the bank before you even start investing after paying off your loan!  Any investor will tell you, time is the biggest advantage.  Even with the giant tax payment at year 20, you will have a hard time catching up if you pay your loan for 8 yrs first.  The only way I've seen these two number equal out for me in 20 yrs is if I were to pay off my loan in 3 years, which I just can't do. 

You do lose some advantages on the tax deductions, but not student loan interest deduction.  You will still be hitting the $2500 max with PAYE or IBR.  And you lose this deduction anyway when you start making around $65000. 
Also, you're not married yet, and you don't have any kids yet, so taking 20yrs of these deductions is not really fair, these events could be 2-10yrs away.



Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 27, 2015, 07:01:42 AM
Good Points.

Investing $1600 dollars a month for 8 years, that's $250,000 in the bank before you even start investing after paying off your loan!  Any investor will tell you, time is the biggest advantage.  Even with the giant tax payment at year 20, you will have a hard time catching up if you pay your loan for 8 yrs first.  The only way I've seen these two number equal out for me in 20 yrs is if I were to pay off my loan in 3 years, which I just can't do. 

You do lose some advantages on the tax deductions, but not student loan interest deduction.  You will still be hitting the $2500 max with PAYE or IBR.  And you lose this deduction anyway when you start making around $65000. 
Also, you're not married yet, and you don't have any kids yet, so taking 20yrs of these deductions is not really fair, these events could be 2-10yrs away.

You cannot claim the student loan interest deduction if you file separately.

And I realize it might not be fair to include deductions for the entire course of the loan period, but my point is that these can add up to huge sums (even figure 15 years of these and you're looking at $90,000+) and people discredit how much of a financial loss it can be to file separately.

And yes, you're right, time is your biggest asset. But after establishing a frugal lifestyle and paying off my loans and mortgage, I feel like I could catch up extremely quickly while having more control over my overall financial situation.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: Blonde Lawyer on February 27, 2015, 08:25:57 AM
The other issue is IBR/PAYE only apply to the federal portion of loans.  For everyone that took out loans pre-2008 (I don't remember the exact year it changed) a good majority of their loans are private. 
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: TXScout2 on February 27, 2015, 08:26:48 AM

I was looking into refinancing, but somebody else on a separate forum said I wouldn't be eligible due to my mediocre income and high debt.

What was your experience?

And would you recommend variable over fixed? What are the pros and cons?

I am not sure what their minumum lending requirements are, I know if you have a worse debt to income ratio, the rates they offer won't be as good.  Another limitation on who can borrow: SoFi = Social Finance; they actually get alumni from your own university to lend the money, with the idea being that hopefully the social aspect of it will reduce default rates.  So if you didn't go to one of the schools that they have alumni lending from, you can't borrow from them.

Fixed vs variable, I don't know if I made a good decision or not.  The advantage to variable is that your starting rate will be over a full point lower.  The downside is that if LIBOR increases enough that your variable rate is higher than the fixed rate they offered you, you will wish you had locked in the rate.  I do know that SoFi caps rates at 8.95% regardless of how high LIBOR might get.

Regarding the second refinance, I got a lower rate not because rates went down, but because my debt to income ratio improved.  You can refinance at any time with no origination fee, which is nice.  So say you pick a really aggressive 5-year payoff (shorter payoffs get lower rates) and pay that for a couple years, but then have a baby on the way, you could refinance it again over 15 years, you'd get a higher rate but lower monthly payment.

When I first borrowed I had $153K, I chose 10-year repayment, got 3.92% interest, had to pay $1550 per month.  Once I was down to $105K, I refinanced again over 10 years, variable rate 3.26%, now my payment is $1050 per month (still paying over though).    Also the refinance the second time was super easy, I just called and told them I wanted to refinance it again, they did everything, I just had to send them updated pay stubs.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 27, 2015, 09:07:02 AM
I am not sure what their minumum lending requirements are, I know if you have a worse debt to income ratio, the rates they offer won't be as good.  Another limitation on who can borrow: SoFi = Social Finance; they actually get alumni from your own university to lend the money, with the idea being that hopefully the social aspect of it will reduce default rates.  So if you didn't go to one of the schools that they have alumni lending from, you can't borrow from them.

Fixed vs variable, I don't know if I made a good decision or not.  The advantage to variable is that your starting rate will be over a full point lower.  The downside is that if LIBOR increases enough that your variable rate is higher than the fixed rate they offered you, you will wish you had locked in the rate.  I do know that SoFi caps rates at 8.95% regardless of how high LIBOR might get.

Regarding the second refinance, I got a lower rate not because rates went down, but because my debt to income ratio improved.  You can refinance at any time with no origination fee, which is nice.  So say you pick a really aggressive 5-year payoff (shorter payoffs get lower rates) and pay that for a couple years, but then have a baby on the way, you could refinance it again over 15 years, you'd get a higher rate but lower monthly payment.

When I first borrowed I had $153K, I chose 10-year repayment, got 3.92% interest, had to pay $1550 per month.  Once I was down to $105K, I refinanced again over 10 years, variable rate 3.26%, now my payment is $1050 per month (still paying over though).    Also the refinance the second time was super easy, I just called and told them I wanted to refinance it again, they did everything, I just had to send them updated pay stubs.
Thanks for the reply. I simply don't think I have the credit history yet to refinance as of right now. Any drop in interest rates would be minimal and I don't think it would be losing the protections that federal loans provide.

For now, I'm applying the avalanche method and relentlessly attacking the loans that are above 7% interest.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: Mazzinator on February 27, 2015, 12:36:40 PM
Quote
Second, regarding forgiven interest, the government will only reimburse you for interest on your Subsidized Stafford loans. For me, these are only about 10% of my loans. More importantly, the rest of unpaid interest after three years capitalizes up to 110% of the loan (see here: http://www.ibrinfo.org/what.vp.html). Thus, by not being aggressive early on (and only paying $221 per month), my loan would balloon to over $160,000 easily, despite the forgiveness on my Subsidized Stafford Loans.

Side note: right now, I am enrolled in IBR even though I'm making huge payments. This means for the next three years, I'm barely putting anything towards my Stafford Loans, covering about $10 more than the monthly interest on all other loans (so they don't capitalize), and putting everything else towardsmy highest interest loans.

Log into your SL account and make sure to pay the min ONLY to the Subsidized Stafford loans. Pay all the extra to one loan (highest interest rate)

Make sure your payments are distributed correctly. This may take some "work" by logging in, calling them, etc etc. but if you are already on IBR, then you should take advantage of the "forgiven interest"

Also, by maxing out (or putting more into it) your traditional 401k and/or traditional IRA, you will be lowering your monthly payment, maybe even low enough for 0% interest on the Subsidized portion.

You can do this for 3 years, so you can pay more towards the higher interest ones first...then pay those sukkas off!!!!

Good luck!! I feel your pain!!!
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 27, 2015, 01:03:28 PM
Quote
Log into your SL account and make sure to pay the min ONLY to the Subsidized Stafford loans. Pay all the extra to one loan (highest interest rate)

Make sure your payments are distributed correctly. This may take some "work" by logging in, calling them, etc etc. but if you are already on IBR, then you should take advantage of the "forgiven interest"

Also, by maxing out (or putting more into it) your traditional 401k and/or traditional IRA, you will be lowering your monthly payment, maybe even low enough for 0% interest on the Subsidized portion.

You can do this for 3 years, so you can pay more towards the higher interest ones first...then pay those sukkas off!!!!

Good luck!! I feel your pain!!!
Yep, I'm only paying something like $12 per month towards my subsidized loans. The rest is going towards other loans to stay on top of interest (usually monthly interest + $10), with the entire remaining going to the 7.55% loan.

I also pay bi-weekly, which has a ton of advantages. Check out this calculator for savings (sad that you have to use a mortgage calculator to figure this out, but it's a useful tool nonetheless haha): http://www.dinkytown.net/java/Biweekly.html
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: Pooplips on February 27, 2015, 01:19:55 PM
Interesting discussion ReadySetMillionaire & Tank_Esq

I have a similar situation student debt wise and am curious how other people are handling the debt, and what MMM thinks of dealing with this.  I tend to agree with Tank_Esq.  I think ReadySetMillionare is right that the Income driven plans are a gamble, but they could pay off. 
 Here are a few points I don't think you have discussed yet regarding IBR and PAYE. 

If your loans just went into repayment, you get 3yrs of IBR or PAYE where the government will pay the leftover interest on the loans after you make your 10-15% of income payment.  No interest accrues during this time.  If you have extra income you could pay the minimum each month, have the government pay the rest of the interest for the month, and then make an additional payment directly to principal.

After three years, in either plan, as long as you maintain a financial hardship, (which with a loan of $150,000, is earning something under around $100,000,) interest accrued on the loan does not compound.  The unpaid interest just sits in a little side pile, that will be forgiven or paid off with all the money and compounding interest that you earned on the borrowed money that you did not put back in the loan. 
The situation will vary from person to person, but if you invest the difference your standard 10yr loan payment, and the 20 year PAYE each month, you should have around the same amount of money in your investment account and your debt account in 5-8 years.  That gives you 12-15 years of two accounts, investment with interest compounding, and debt with simple interest. 

20 yrs is up and if nothing changes, you do get a nasty tax bill on the 200,000 plus loan and interest you have accrued, but even if this is close to 40%, you can pay it out of your investment account no problem. 
Luckily Elizabeth Warren is working on non-taxable forgiveness for us--I believe she already put forth bill suggesting this.  There is a lot of talk about refinancing public loans too.  The government would have a hard time changing the rules on student loan forgiveness, as this would just bankrupt millions of people.

Obama did change the rules for PAYE for almost everyone.  ReadySetMillionaire, you and I will be allowed into the PAYE system in October of this year.   When you switch plans, the years on your loan do not reset.  If you already five yrs in, you only have 15 more to go for forgiveness. 

Lastly, check out this link.  It basically shows how the current income based repayment system is a cash cow for Lawyer and future high earner types.  It has a nice spreadsheet to accompany. 
http://newamerica.net/publications/policy/safety_net_or_windfall

Look forward to comments and rebuttals...

Interesting post, and I'll rebuttal point by point.

First, I guess I will qualify for PAYE this October. Yay me I guess.

Second, regarding forgiven interest, the government will only reimburse you for interest on your Subsidized Stafford loans. For me, these are only about 10% of my loans. More importantly, the rest of unpaid interest after three years capitalizes up to 110% of the loan (see here: http://www.ibrinfo.org/what.vp.html). Thus, by not being aggressive early on (and only paying $221 per month), my loan would balloon to over $160,000 easily, despite the forgiveness on my Subsidized Stafford Loans.

Side note: right now, I am enrolled in IBR even though I'm making huge payments. This means for the next three years, I'm barely putting anything towards my Stafford Loans, covering about $10 more than the monthly interest on all other loans (so they don't capitalize), and putting everything else towardsmy highest interest loans.

Third, my PAYE estimated my monthly payment to be $221, meaning there would be almost $600 in interest being added each month. What happens if I get a job paying $100,000 per year? Now my payment shoots up to $604 and I'm still not gaining ground on the interest. I'll get to the math later on why this is bad.

Fourth, your post assumes 7% returns in the market. I'm a believer in passive investing over the long haul, so that's fair. But what if the economy takes a hit in year 20 when your tax liability is due? This makes PAYE/IBR a HUGE gamble to me.

And this leads me to my fifth and most important point: I can't risk this plan with the hope that the government will amend the tax bill. This is for two reasons. First, the entire program becomes insolvent if you remove the tax burden. This would lead to even more increased tuition and outcries from a younger generation. Second, and more importantly, the present tax code accounts for people who really can't afford the tax liability. The IRS fact sheet on forgiven debt (http://www.irs.gov/pub/irs-pdf/p4681.pdf) provides, basically, that you are only accountable for forgiven debt to the extent that it exceeds your assets. So say the average Joe is on PAYE and paid for 20 years, thus allowing his loan to balloon to $250,000. Fortunately, because he's an average Joe and not a mustachian, all he has is a $150,000 house and $100,000 in his 401k. That means that his assets are equal to his forgiven debts and he therefore has no tax liability.

Of course, there are a lot of variations to this. But the point is that (1) the tax code already accounts for people who can't pay the tax liability and (2) the "tax bomb" problem people say will happen in 20 years isn't as bad as people think.

In Mustachian terms, however, this tax break wouldn't apply to you because you've been socking away money in a traditional brokerage account for 20 years (i.e., your assets would significantly exceed your forgiven debt). Thus, you would probably be the exception in having to actually pay the full tax liability.

Which leads me to the math.

The government estimates a 5% raise, which I think is fair. They estimate I'll pay $102,000 principal over the life of loan and have $249,000 forgiven.

Since I'll be stocking away money, my assets will dramatically exceed my liabilities, so I'll have to pay the full tax liability. Assuming a 38% tax bracket (which is certain given that the forgiven debt alone is $249,000), that comes to $94,620. So all in all, I'll have paid $196,620 towards the loan, or around the same amount if I just paid this off in 8 years.

But let's go even further. Let's look at everything else.

First, deductions lost because you had to file separately (this isn't negotiable for me...my GF makes substantially more than I do, and if I eventually made $100,000 per year, our incomes together would put me at a $1104 payment, or enough to pay the loan before it's forgiven).

Student loan interest deduction = $2500. Assuming 20 years of this and 25% tax bracket, you've missed out on either a deduction to your tax liability every paycheck or a $625 refund check from the feds every year.

Dependent care credit = $3000 per year per kid. Assume two kids (my plan) so $6,000 per year. Now you've missed out a $6,000 deduction on your taxable income or a $1,500 refund every year.

Married credit = $14,200 per year (compared to $6,200, which only one of you or your spouse can claim). That's an $8,000 difference in taxable income per year, or $2,000 in cash.

There are more than these three, but these are the three biggest ones. And putting your spouse in the equation (since he or she is filing separately as well), you're looking at $25,000 in lost deductions per year for 20 years ($500,000!!!). Again, assume a 25% tax bracket, and we're talking $125,000 in income taken out of your paychecks or tax refunds.

So now we're at your $196,020 in paying towards the loan plus $125,000 in lost deductions.

I feel like Billy Mays here--BUT WAIT, THERE'S MORE. Let's go back to the tax liability. Assume you've been throwing what would have been your student loans into an investment account, and now you need to cover your tax liability. Now you actually need to withdraw 16% more than your tax liability to cover capital gains, meaning you'd actually need to withdraw $111,383 to cover the tax liability.

Now we are at $102,000 principal payments + $125,000 in lost deductions + $111,383 to cover tax liability. Total cost is $338,383.

And by this 20th year, you've just substantially depleted your investment account when you are 47. You also haven't been able to contribute to a Roth IRA (since you can't when filing separately).

And I'll end on this: no matter what you guys are saying, IBR and PAYE will make you a slave to your loans more than paying would. Every financial decision you make will revolve around your payment and your tax liability for TWENTY YEARS. You also have no idea what will happen in terms of income--what if you've let interest balloon for ten years, but then you become a member of an incredibly lucrative LLC that nets you $500,000 income per year? Now you might not have a financial hardship and your loan would capitalize. Sure, you can pay off your loans with that much income, but my word, that will be WAY MORE than if you had just taken care of it.

Put most simply, IBR and PAYE are huge gambles due to the unknown tax liability, having to file separately, lost deductions, inability to forecast income, and having to pay capital gains when you do pay the tax liability. In the meantime, you CAN start making dents on your loans NOW if you put your mind to it and take control of the situation. If I pay my loans off in 8 years and maintain my lifestyle afterwards, using MMM's chart, I'll be about 7-10 years away from retirement. And that's way more optimal to me than risking everything on IBR/PAYE.

[Exits stage and waits for rebuttal...good discussion!].
👌👍👊. 👏👏👏👏👏
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: CorpRaider on February 27, 2015, 02:28:28 PM
You can knock down your AGI by 401(k) contributions as pointed out above.  If you're a good associate, after a year or two you might run a loan forgiveness package by your firm.  They might be willing to lend you the money to pay off your SLS and then forgive it over time as a sort of backdoor non-compete.  I have heard of this happening.  Usually doesn't hurt to ask, it costs them a lot to find and train good associates.  Keep your ears open for new rules expanding PAYE to be promulgated by ED this year, based on President's directive from last year. 

Also, obviously, incurring a tax liability for the relief of the debt is not a reason not to have the debt relieved.  It is just something to plan for maybe over the last 5 years.  If I offered to pay off someone's $100K mortgage they wouldn't say "pass, I would have to pay ~ 25% of the $100K you would be giving me in tax."  It might be a can flow issue to manage but its one that will get handled.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: Blonde Lawyer on February 27, 2015, 02:58:59 PM
You can knock down your AGI by 401(k) contributions as pointed out above.  If you're a good associate, after a year or two you might run a loan forgiveness package by your firm.  They might be willing to lend you the money to pay off your SLS and then forgive it over time as a sort of backdoor non-compete.  I have heard of this happening.  Usually doesn't hurt to ask, it costs them a lot to find and train good associates.  Keep your ears open for new rules expanding PAYE to be promulgated by ED this year, based on President's directive from last year. 

Also, obviously, incurring a tax liability for the relief of the debt is not a reason not to have the debt relieved.  It is just something to plan for maybe over the last 5 years.  If I offered to pay off someone's $100K mortgage they wouldn't say "pass, I would have to pay ~ 25% of the $100K you would be giving me in tax."  It might be a can flow issue to manage but its one that will get handled.

The issue is if your loan grows to the point that it quadruples, your tax liability can be almost as much as you would have paid in the first instance.  Many IBR plans don't even cover the minimum interest so that loan is just getting bigger and bigger for twenty five years.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 27, 2015, 03:06:39 PM
You can knock down your AGI by 401(k) contributions as pointed out above.  If you're a good associate, after a year or two you might run a loan forgiveness package by your firm.  They might be willing to lend you the money to pay off your SLS and then forgive it over time as a sort of backdoor non-compete.  I have heard of this happening.  Usually doesn't hurt to ask, it costs them a lot to find and train good associates.  Keep your ears open for new rules expanding PAYE to be promulgated by ED this year, based on President's directive from last year. 

Also, obviously, incurring a tax liability for the relief of the debt is not a reason not to have the debt relieved.  It is just something to plan for maybe over the last 5 years.  If I offered to pay off someone's $100K mortgage they wouldn't say "pass, I would have to pay ~ 25% of the $100K you would be giving me in tax."  It might be a can flow issue to manage but its one that will get handled.

The issue is if your loan grows to the point that it quadruples, your tax liability can be almost as much as you would have paid in the first instance.  Many IBR plans don't even cover the minimum interest so that loan is just getting bigger and bigger for twenty five years.
Nice summary of the real heart of the problem, Blonde Lawyer.

CorpRaider: take a look at my example again. I originally borrowed $150,000, but if I stuck do PAYE and kept my AGI down (through 401k, as you recommend), then  my loan would balloon to $249,000 (at the least). Tax liability on that alone is pushing $100,000, or 2/3 of my original loan balance.

In other words, this isn't a 25% flat fee on a loan; it can become much, much, much bigger if you intentionally let your loans grow because you are keeping your payments down.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: CorpRaider on February 27, 2015, 03:44:29 PM
Yeah, I see more details later in the thread.  Seems like you're on the analysis; if the after-tax marginal real rate of return on the dollar you don't pay toward the loan is higher than the marginal after tax real rate accruing on the loan then you're increasing your net worth by the spread over the period until the loan is discharged.  7.55% is a tough hurdle.  Check out that "root of good" guy's blog.  He was a law student and I believe there's a post on there somewhere that reflects a solid analysis of the issue.

Anyways, keep your head up.  That's pretty much par for the course as a professional.  If you like your position and focus on the work "on your desk."  I'm sure you'll have the SL knocked out before you know it.

I would really run that non-compete/loan by your partners, maybe in your annual review after you've been there a few years.  After a couple, three years of experience you will really have some value and I'm sure they will want to tie you down, if it doesn't cost them a ton, one less thing  for a busy partner to worry about.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: Mazzinator on February 27, 2015, 03:54:55 PM
Quote
Log into your SL account and make sure to pay the min ONLY to the Subsidized Stafford loans. Pay all the extra to one loan (highest interest rate)

Make sure your payments are distributed correctly. This may take some "work" by logging in, calling them, etc etc. but if you are already on IBR, then you should take advantage of the "forgiven interest"

Also, by maxing out (or putting more into it) your traditional 401k and/or traditional IRA, you will be lowering your monthly payment, maybe even low enough for 0% interest on the Subsidized portion.

You can do this for 3 years, so you can pay more towards the higher interest ones first...then pay those sukkas off!!!!

Good luck!! I feel your pain!!!
Yep, I'm only paying something like $12 per month towards my subsidized loans. The rest is going towards other loans to stay on top of interest (usually monthly interest + $10), with the entire remaining going to the 7.55% loan.

I also pay bi-weekly, which has a ton of advantages. Check out this calculator for savings (sad that you have to use a mortgage calculator to figure this out, but it's a useful tool nonetheless haha): http://www.dinkytown.net/java/Biweekly.html

We were in a similar boat.. ~$150k SL, my hubs is a lawyer, me an architect...anyways, we were also bold (and pretty mustachian) and transferred some of the private SLs to a 0% 0 fee Credit card, we then knocked out some of the highest interest private loans, then went back to finish off the CC before the 0% expired.

We delayed IBR, until i quit working, had 3 kids and moved to hawaii, and now for 3 yrs we will take advantage of IBR to "get ahead" and then we will knock them out. $55k to go ($44k is IBR)

Anyways, good luck!!!
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: DFJD on February 27, 2015, 05:25:17 PM
Very best of luck! 

I disagree with those folks who have recommended law-based side hustles; as others have noticed, that's a quick way to get yourself in real trouble with both your firm and the bar.

I can't tell from your post what the best-case scenario looks like for your firm.  Say you do great (which it seems like you're doing) - bring in clients, impress the partners, etc., etc.  What does salary look like for you as a senior associate?  As a junior partner?  You're doing such a good job on costs that income is going to be the big determinant for you in terms of when the loans get paid off.  If your firm is going to pay off in the end (and you like it), I don't see a reason not to take a slow but steady approach to loan repayment, and focus your efforts on doing the most bang-up job for your firm possible.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: Spondulix on February 28, 2015, 01:06:08 AM
Encouragement!
I agree!

Check out this podcast - she knocked out 30k of student loans in 3 years, and has some really unique tips:
http://www.listenmoneymatters.com/negotiating-side-hustle-student-loan-stephanie-halligan/
Or the short story is here:
http://www.empowereddollar.com/how-i-paid-off-student-loans/

Are you in a rush to get married? What's an extra year or two of waiting to get married to put yourself in a much better financial place? You will be together for life...
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: Spondulix on February 28, 2015, 01:09:40 AM
Very best of luck! 

I disagree with those folks who have recommended law-based side hustles; as others have noticed, that's a quick way to get yourself in real trouble with both your firm and the bar.
But that doesn't mean don't side hustle. If anything, sometimes it's a nice contrast to have a side gig that's something totally different than your day job.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: rafiki on February 28, 2015, 09:18:41 AM
I am in a similar boat - graduated in 12 with ~75k or so in debt. Made about what you did my first year out of school. A couple years later I am down to ~45k. I have been paying very aggressively, at least doubling the minimum payment each month. My focus has been on paying down debt while leveraging the tax benefits of IRAs (a SEP IRA and ROTH in my case as I am self employed). What I mean by that is that I have not only been paying down the debt. Maybe not the most popular decision here, but you can only contribute so much to a roth each year and I'd sooner put some money in a SEP to lower my tax exposure than just give that money to the government.

Seeing a 75k loan with hundreds of dollars of interest accruing each week really pissed me off so the decision to be aggressive with it was easy. I do have a couple side hustles at this point not related to the practice of law. I enjoy business and trying to make money so has been more like a hobby for me. If I were in your position I'd likely focus on the debt and work on becoming the best lawyer you can so that some day you can make some real money. I stay late and come in on the weekends if I have to. I do not plan on buying a diamond ring or wedding soon. There is a time and a place for work life balance - for me it isn't when I am just starting out and have XX,XXX in student loans to my name! Good luck!
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: Bracken_Joy on February 28, 2015, 10:01:43 AM
I am the self appointed expert of stupid student loan decisions. I took out 100k for undergrad and 35k for accounting grad degree. So 135k. I got a job making 54k out of grad school. My rent was 550. I paid 2000 a month for 5 years. Then I bought a house for about 150k. I have about 15k in loans left at a super low rate. I preferred to grind it out because it was such a weight lifted off my back.

My concern is all these promises going around. You'll save for a downpayment if your gf promises to pay your loans? Your gfs parents promise to help pay her loans when the other daughter goes to school? At which point I guess the parents will promise the other daughter that they will pay for her loans once they paid off your gfs loans? My parents promised they would help me pay for my loans too and I am still waiting. I would prefer to keep things clean. You pay off your loans and she buys the house and you pay rent. You can always put your name on the deed later.

I think you should propose asap. Most women I know would prefer a smaller ring and get it sooner, so they can carry on with their life already and stop wondering. Then you can promise to get her a nicer ring in 10 years...
Ha, good advice on the ring. I'm waiting for what feels right, though.

As for the "promises," I'd characterize them more as understandings. We're very open about my debt and she understands that getting rid of that debt will be a huge win for us. So saving on a down payment isn't necessarily a quid pro quo transaction; it's my way of saying, "Hey, I'm here to help you achieve a huge goal (buy a house) because I know you'll help me out later."

The way you've represented all of this seems very tit for tat. I know all relationships work differently, but this sends up red flags for me. Where is the sense of partnership? The "I do this because it matters to you, and thus to me, and I love us and our shared future"? It sounds like you guys need to get a book like "The hard questions: 100 questions before you say I do" or a list like this: http://www.libbieholmes.com/100-questions-to-ask-before-you-get-married/

I too was promised assistance with tuition... which didn't happen. Then promised assistance with loan repayment... which I guarantee won't happen. Don't bank on it is all I'm saying.

Edit to add: this is a good resource too, and from another mustachian no less! http://www.frugalwoods.com/2014/08/18/behind-the-scenes-of-a-happy-frugal-marriage/
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: bettyb on February 28, 2015, 10:43:08 AM
I had roughly the same amount of debt, and just finished paying it off (9 years later). There were a few years where I didn't pay off as much as I could but, as time went on, the weight of the debt felt continuously heavier to the point where it became much more important to me to pay it off rather than save for a house downpayment or wedding.  I second the suggestion to talk out your financial goals with your partner because how you feel today about the debt may not be how you feel about it five years down the road.

For me, about 5-6 years in when I started evaluating career progression, I started to realize law firm life/partnership wasn't for me, and then having large outstanding debt felt constricting with respect to what alternatives I could choose. It was a lot of unnecessary stress - my hair on fire moment.

9 years ago, I probably would have been more excited about setting up house or having a big wedding party, but today being debt free is much more satisfying and less limiting (but my partner was on the same page with me on that one).  I guess my advice is to be cautious about whether a long term repayment plan is really how you want to structure your debt repayment given that how you feel today about your job or making minimum or close to minimum payments may change greatly down the road.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 28, 2015, 12:16:54 PM
The way you've represented all of this seems very tit for tat. I know all relationships work differently, but this sends up red flags for me. Where is the sense of partnership? The "I do this because it matters to you, and thus to me, and I love us and our shared future"? It sounds like you guys need to get a book like "The hard questions: 100 questions before you say I do" or a list like this: http://www.libbieholmes.com/100-questions-to-ask-before-you-get-married/

I too was promised assistance with tuition... which didn't happen. Then promised assistance with loan repayment... which I guarantee won't happen. Don't bank on it is all I'm saying.

Edit to add: this is a good resource too, and from another mustachian no less! http://www.frugalwoods.com/2014/08/18/behind-the-scenes-of-a-happy-frugal-marriage/

I must not be communicating things clearly enough if it can be construed as "tit for tat." The brass tacks of it is that buying a home is extremely important to her, and paying off my student loans is extremely important to me. Each of these are our number one financial goals.

For her, she looks in Zillow probably 2-3 times a week even though we are years away from buying a house. She has lived in an apartment for ten years now and lives well below her income level because she knows the situation I'm in. She's probably going to cry of happiness when she buys a house. Because that goal is obtainable in a relatively short period of time (2-3 years), I want to help her get there and make her that happy.

Meanwhile, for every time she's on Zillow, I'm reading MMM or some other blog trying to maximize my knowledge to pay off my loans. She knows how important it is to me. So once we get a house, she's going to help me pay off my loans.

And to clarify: she would help me with my loans right now if she could. But she's saving for a down payment, paying off her loans ($790/month), and paying off her car ($378 per month, which she bought before she met me haha). It just so happens that she will be done paying her student loans and car off around the same time that we would have finally saved enough for a down payment, thus clearing the way for her to help me out.

In short, it's more helping each other with our financial goals than "tit for tat" trade off.

Hope that makes sense.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on February 28, 2015, 12:20:53 PM
Update: just got off the phone with a family friend who remodels homes and he hired me to do some side jobs at his properties (paint, lawn care, etc.) on the weekends. Should be a good side income!
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ltt on February 28, 2015, 01:49:52 PM
I had 94k when I graduated, best day EVER was the day I sent in the last payment.

I'd suggest some side hustles to increase your debt payment, I worked 2-3 jobs during repayment.  Everyone needs lawyers, think about posting on elance or something.

This.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: Bracken_Joy on February 28, 2015, 02:01:00 PM
The way you've represented all of this seems very tit for tat. I know all relationships work differently, but this sends up red flags for me. Where is the sense of partnership? The "I do this because it matters to you, and thus to me, and I love us and our shared future"? It sounds like you guys need to get a book like "The hard questions: 100 questions before you say I do" or a list like this: http://www.libbieholmes.com/100-questions-to-ask-before-you-get-married/

I too was promised assistance with tuition... which didn't happen. Then promised assistance with loan repayment... which I guarantee won't happen. Don't bank on it is all I'm saying.

Edit to add: this is a good resource too, and from another mustachian no less! http://www.frugalwoods.com/2014/08/18/behind-the-scenes-of-a-happy-frugal-marriage/

I must not be communicating things clearly enough if it can be construed as "tit for tat." The brass tacks of it is that buying a home is extremely important to her, and paying off my student loans is extremely important to me. Each of these are our number one financial goals.

For her, she looks in Zillow probably 2-3 times a week even though we are years away from buying a house. She has lived in an apartment for ten years now and lives well below her income level because she knows the situation I'm in. She's probably going to cry of happiness when she buys a house. Because that goal is obtainable in a relatively short period of time (2-3 years), I want to help her get there and make her that happy.

Meanwhile, for every time she's on Zillow, I'm reading MMM or some other blog trying to maximize my knowledge to pay off my loans. She knows how important it is to me. So once we get a house, she's going to help me pay off my loans.

And to clarify: she would help me with my loans right now if she could. But she's saving for a down payment, paying off her loans ($790/month), and paying off her car ($378 per month, which she bought before she met me haha). It just so happens that she will be done paying her student loans and car off around the same time that we would have finally saved enough for a down payment, thus clearing the way for her to help me out.

In short, it's more helping each other with our financial goals than "tit for tat" trade off.

Hope that makes sense.

I think it was this sentence that got me: "Hey, I'm here to help you achieve a huge goal (buy a house) because I know you'll help me out later." To me, you help your partner because that's what you do, not to mention "their goals" and "your goals" shouldn't be separate. It's not going to be *her* house, it will be both your house. They aren't *your* loans if you're getting married- they're both of your loans. I guess it just feels from all this that, in spite of approaching lifestyle the same (similar levels of spending, etc) it seems like you don't have a sense of co-ownership over your future together. And that's like... the point of marriage pretty much.
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: feelingroovy on February 28, 2015, 03:02:47 PM
Congrats on the side hustle.  That sounds like a perfect one.

I was very much like your girlfriend about buying a house when I was in my 20s. I get it.

I don't think you've mentioned her interest rates on her car and student loan, but wouldn't she get to her down payment goal faster if she snowballed her loans?  You said she should finish all three at the same time, but that suggests she's paying interest on the others while getting virtually no interest on the house savings. Or does she have a 0-1% car loan?
Title: Re: In $150,000 of Student Loan Debt and Need Some Advice/Encouragement
Post by: ReadySetMillionaire on March 01, 2015, 11:09:03 AM
Congrats on the side hustle.  That sounds like a perfect one.

I was very much like your girlfriend about buying a house when I was in my 20s. I get it.

I don't think you've mentioned her interest rates on her car and student loan, but wouldn't she get to her down payment goal faster if she snowballed her loans?  You said she should finish all three at the same time, but that suggests she's paying interest on the others while getting virtually no interest on the house savings. Or does she have a 0-1% car loan?

Her student loan interest rates are close to 6%. She has 0% on her car loan. I'd love for her to pay off her student loans quicker, but she is already paying $790 a month towards them and has very little wiggle room because of the car.

She is also in the process of getting some side work, and I think she's committed to putting anything extra she earns towards her loans. We will see.