Author Topic: Young Lawyer - How To Tackle Student Loans?  (Read 8817 times)

jd535

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Young Lawyer - How To Tackle Student Loans?
« on: October 06, 2014, 12:30:55 PM »
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« Last Edit: July 26, 2018, 10:29:36 PM by jd535 »

Siobhan

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #1 on: October 06, 2014, 12:56:52 PM »
Right now you have a negative net worth of 183k.  You earn 175k a year...PAY THEM OFF!  Do not drag these payments out for 20-25 years, You will pay back in interest more then you ever borrowed, and you will be chained to a job for 25 years. Heck you earn too much to even qualify for the tax credit.  Making half of what you do, I paid mine off in 2 years (100k).   If you really buckle down on the expenses you can have a positive net worth in probably the same amount of time, leaving you the option to do whatever you like.  My good friend was a Harvard law grad, 140k in student loans, she joined corporate law in NYC and worked her behind off for 4 years to pay them off and save.  Then she walked in one day, quit, and went to work for the UN earning under half what her previous salary was and couldn't be any happier.

minimustache1985

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #2 on: October 06, 2014, 01:44:01 PM »
Also, why are you using the Roth 401?  At your income level and being in a high tax state (I assume NY based on the rent and big law salary) tax shelters are your friend.  Traditional 401s protect that $800/mo from high federal and state taxes.  If flexibility for a lower paying job is more important than FIRE to you, I might cut that back to whatever you need for an employer match and throw every extra dollar that comes at you towards those loans.  Analyze your expenses, $1600 feels high post rent/gym/medical, see if you can get a roommate or a cheaper place when your lease comes up, etc.

If you are set on holding on to a chunk you could refinance into 2 loans: one with a monthly payment you're comfortable with 3-5 years from now (fixed) and one you decimate before leaving corporate law (variable?).  That would hopefully allow you to take advantage of lower interest rates and not feel like you're trapping yourself.  The biggest thing is outflow though, if you want to be able to take a $100k job start living like that's your pre-tax salary NOW and put every additional cent on your loans.

TrulyStashin

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #3 on: October 06, 2014, 02:20:21 PM »
Unfortunately there's not a lot I can do on the expenses right now.  I do live in NYC, and living close to work is my number one priority.  It is expensive, but the extra sleep and time are worth the cost, especially if I stay in big law for more than two years. 

Nope.  Sorry, this simply will not wash on this website.  If you want to take a slower, easier path then you should probably post elsewhere........... 

Are you still here? 

Good.  Let me introduce you to my friend, Lentils, who is also a BigLaw associate in NYC.  She is totally badass.  http://forum.mrmoneymustache.com/journals/stealth-saving-%28lentils5eva-ioseftavi%29/ but her badassity may make you uncomfortable because it will expose your comment, above, for the facepunchworthy falsity that it is.

Get serious about these loans.  Your hair is on fire.  Do you want it to still be on fire in 10 years?

FWIW, I'm a JD too.  Class of 2011.   Also with debt, a house, and a teenager to support.  My loans ($156k) will be gone no later than 2018, and hopefully sooner thanks to the wisdom on this site and my ever-growing badassity.

You can do it too, but you have to have a take-no-prisoners attitude.

seattlecyclone

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #4 on: October 06, 2014, 02:49:16 PM »
Your loans at 6.8% and 7.9% are killing you. Dragging the payments out through IBR is an option, but it means you're locked into making payments for decades and it only "pays off" in the form of loan forgiveness if you do actually switch to a lower paying job. With your salary you should be able to completely knock those loans out within three years. After that you'll truly have the freedom to work at a slower-paced job if that's what you want to do. But for now, your hair is on fire, so kicking back and relaxing is not really a reasonable option for you right now.

Take a hard look at your $1,600/month "expenses" category. You already separated your rent and health insurance out into their own categories. What else is there that costs $1,600? Groceries should be a small fraction of this. Beyond that, your hair is on fire with debt!!! Optional expenses are not an option for you until the debt is gone. Take at least $1,000 of the "expenses" line and divert it toward the "loan repayment" line. Then do the same with the "savings" line -- putting much money in a 0.1% savings account is rather silly when your existing debt is costing you 7.9%. Now, housing. New York is expensive, but $30k/year for housing for one person is too much even there. Find a roommate or a smaller apartment or something! If your job takes as many hours as you say, it's not like you need much out of the apartment other than a quiet place to sleep at night. Aim for another $1,000/month cost savings here.

Now that you've done these things, you can put $5k/month toward your loans. Your $2k/month payment is over half interest at the moment. Throw every last cent at those loans (starting with the 7.9% ones) to get the repayment curve working in your favor. You can do it! Refinancing the loans sounds like a great option if you can get the rates down to 3-5%. Refinancing doesn't give you an excuse to slack off on the loans. Your hair is still on fire, maybe just not burning quite as brightly. :-)

rocksinmyhead

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #5 on: October 06, 2014, 03:13:02 PM »
Does it make sense to max out the 401(k) even on an aggressive debt repayment strategy?  No employee match, but as MM1985 says, it's tax-sheltered space I can't get back.

you should run the numbers but most likely YES. I had pretty high SL interest rates too but was also in the 28% tax bracket so it made sense for me (and I was still able to knock out my loans in 2 years... I only had $70k and in a lower COL area but also make quite a bit less than you). you will have a much lower tax rate in retirement (and even probably in a few years, if you move to a lower paying gig). max that shit out now!

the following threads were super helpful to me on this topic:
http://forum.mrmoneymustache.com/ask-a-mustachian/u-s-tax-withholding-questions
http://forum.mrmoneymustache.com/welcome-to-the-forum/optimize-your-taxable-income/

Mazzinator

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #6 on: October 06, 2014, 03:47:26 PM »
What do you think your AGI will be for 2014?

If you could switch it over to traditional 401k, it would lower your AGI, and maybe even make it low enough for you to get a traditional IRA.

The lower your AGI, the lower your IBR payments. If you can get it low enough, at least for 2014, less than interest only, then you could benefit, at least for 1 year, of the interest forgiveness.

Quote
If your reduced payment under IBR does not cover the interest on your loans, the government will pay that interest on your Subsidized Stafford Loans during your first three years in IBR. After three years, and for all other loan types, the interest will accrue but not compound.

You could then, in 2015, start attacking the Unsubsidized portion of your SL first.

Anyways, that's what we did/are doing. (Although, we are in a different situation, we have kids, etc, etc)

Also, regarding the EF, we are a family of, very soon to be 5, and we only have an EF of $1,000. But my husbands job is VERY stable. We see our "savings rate" as our EF, a few CCs to use, and with a backup of some Roth IRA (if shit ever really hits the fan) When your "left over" money each month is a couple grand, then most "emergencies" could be "cash flowed" BUT you gotta do what makes you feel secure.

Good luck!!!

seattlecyclone

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #7 on: October 06, 2014, 05:04:45 PM »
Also, regarding the EF, we are a family of, very soon to be 5, and we only have an EF of $1,000. But my husbands job is VERY stable. We see our "savings rate" as our EF, a few CCs to use, and with a backup of some Roth IRA (if shit ever really hits the fan) When your "left over" money each month is a couple grand, then most "emergencies" could be "cash flowed" BUT you gotta do what makes you feel secure.

There are definite financial benefits to having two wage earners in the household. We don't have a designated "emergency fund" as such, instead relying on the fact that our spending is less than the take-home pay from either one of our jobs, so one unexpected job loss would not cause us to dip into our savings at all. In the incredibly unlikely event of a dual simultaneous job loss, we have some taxable investments and Roth contributions to fall back on.

However, I can see how a single person with a negative net worth and a lease on an expensive Manhattan apartment might be understandably terrified of what might happen if he lost his job, and would want an emergency fund to provide a bit more peace of mind.

DFJD

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #8 on: October 06, 2014, 05:57:58 PM »
I would refinance at a variable rate.  That's a risk, because hard to say when LIBOR (or whatever else the variable rate is pegged to) might fluctuate, but you can reduce that risk by paying down those loans as fast as possible.  That 7.9% unsubsidized loan(s) is going to kill you if you're planning on a long-term repayment (e.g., many years).  If you don't refinance all of them, maybe refinance the largest/highest rate loan, and dedicate all your spare cash to just that loan.

Your rent probably is what it is, if you're living near your firm (and that's probably worthwhile at the hours you're working) but you can cut on everything else.  Can you skip the gym and go jogging outside and lift weights at home?  What are you spending $1,600 a month on?  Can you bring breakfast/lunch to work (oatmeal? soup? Costco frozen burritos?) 

On the 401K, I'd run the numbers and see what works for you, but I also wouldn't underestimate the psychological benefit of wholly committing yourself to the goal of paying down your loans.  When I got serious about paying down my law school loans, I liquidated all my investments, threw the whole dang thing at the loans, and am continuing to throw every spare penny we've got at them.  I can't tell you how much extra motivation that's giving me.  Good luck! It's a long road, but I think you'll get a lot of satisfaction from fully facing the loan problem, and actively taking steps to pay them down.

DFJD

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #9 on: October 06, 2014, 06:12:44 PM »
PS - On the emergency fund issue, do not forget that once you start aggressively paying down your loans, you're also buying yourself a buffer of time in which you won't have to make any loan payments if things go south.  For example, now that I've started aggressively paying down my loans, my next scheduled loan repayment on 1 (of 2) loan is 2017. 

CommonCents

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #10 on: October 06, 2014, 06:23:15 PM »
I'm also a former biglaw lawyer (2007).

Yes, pay them off!  Funnel your bonus in there as well.  Otherwise you'll get trapped there by the golden handcuffs.  Or worse.  You don't know what will happen in the future - you might deal with what my class dealt with, which was losing their job in the mass layoffs, followed by difficulty finding a job in a recession.  Or you might not ever get the govt job, or they might change the forgiveness program, etc.

Be VERY careful with lifestyle inflation - eating out lunch, jaunting around on expensive vacation, buying lots of clothes for the new job, taking taxis frequently... 

Finally, where are these $100k govt jobs?  I started (with firm experience) at $70k, and am now just over $80k after 2.5 years. 

$200k

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #11 on: October 06, 2014, 06:37:10 PM »
Relevant question for OP and me (similar situation; large SL debt ~7.5%): Does it make sense to refinance small chunks of the SL (say $50k) into private debt at a lower interest rate to save on interest, even if payoff horizon is only 3-4 years? Assume that OP would tackle high-interest direct student loans first, then payoff refinance loans. 

Ever since Warren's refinance bill has failed to pass (twice) a Rhode Island-based bank (Citizens Bank) has gotten a lot of press on refinance loans of 2.31% (var.) or 4.74% (fixed), for qualified borrowers. 

bonjourliz

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #12 on: October 06, 2014, 06:40:04 PM »
When paying extra toward my law school loans, I made sure they credited the extra to the loans with the highest interest.  When my loans were with Direct Loans, this meant I had to call the every stinking month.  But it saved me $$$ in interest.

As a government lawyer myself, I give two thumbs up to your plan of paying off loans ASAP and then moving to public sector. 

Fuzz

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #13 on: October 06, 2014, 07:11:43 PM »
Pay them off as soon as you can. Don't bank on the IBR to save you, especially since you realize that it may not be there anyway.

I also think you should try to refinance if possible to lower the rate. Going from 7.4 to ~5 percent would is a nice savings. And plan on plowing that bonus into debt repayment.

Also, depending on where you are and how much you love NYC, see if it's possible to lateral around. My guess is that moving to Chicago would net you 20K a year after tax and moving to Houston would net you $40K, once you factor in the lower taxes and cheaper housing. Just a thought.

But yeah, you have the wherewithal to pay off the loans. So you should.

Siobhan

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #14 on: October 07, 2014, 07:28:30 AM »
JD, we kept 10k in ER funds in cash while repaying.  Once we got under owing 10k, we mailed them a check for the entire amount.  This way we had a little back up "just in case" and it felt good to finally say DONE paying off the loans!  It also kept the fire lit to get that money back into our accounts as quickly as possible

cynthia1848

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #15 on: October 07, 2014, 08:07:50 AM »
I would do the following (former biglaw here)

- max out 401k
- refinance loans to lower interest rate
- pay off remaining loans ASAP!

In biglaw, there are a lot of meetings that end up with free food at the end of them - you can stalk the kitchens and pick up some free food that way at 130-2 pm.  If you work late you can also usually charge dinner to a client or 2 - I would start doing that and then you can have leftovers for lunch the next day.  You are also working a lot so hardly ever home - you should be able to not use your heat/electricity very much (unless it's included in your rent).

CommonCents

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #16 on: October 07, 2014, 09:00:37 AM »
I went into state govt.  If you go into federal, it is a different payscale - but I also know a lot of people had a tough time breaking into the federal civilian jobs for interviews.  (JAG apparently was easier.)  I myself would get tons of firm and in-house interviews, but no federal govt interviews (and I have some summer fed government exp plus prior non-profit exp. so I didn't just look like a for-profit biglawyer).

If you want to go in-house, try to move by 6 years at the latest.  4 is probably the sweet spot, if you can suck it up and stay that long.  My friend looking to move at 7 years was informally told by a very very senior mentor (former managing partner of her international firm, now running a major business) that it's tougher because she left it a bit too late.

Do you want to switch out of law entirely?  Watching my classmates, people started to go out of law as early as 2 years (aside from the one that never practiced due to a sweet job offer before graduation), but more commonly 4-5 years.  It's probably easier to go in-house first, but I don't have personal experience.  I think it helps if you have an undergrad degree that is business related, or you have an MBA.  Consulting firms are happy to take you immediately but their interview process can be annoying.

bugbaby

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #17 on: October 07, 2014, 09:07:23 PM »
can you get a roommate for a couple years and throw that extra 20-30k at the 7.9% loans?

I also second maxing the pretax retirement. it's a golden opportunity while in the high income tax bracket.  I regret not doing it while I was attacking my loans which were as high as yours... if you leave biglaw to lower income, you might not get such high marginal savings..

Fuzz

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #18 on: October 21, 2014, 09:59:05 PM »
Ouch. That holy grail stings. I'm right there with you. For what it's worth, I went out as a solo recently and have loved it. The pay is better, the responsibility is a lot different, and I feel like I'm connecting with my clients in a better way. I like to provide a good service. I know that's not where you're looking, but you might like it more than you think.

Sarita

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #19 on: October 21, 2014, 10:51:37 PM »
Fellow NYCer here.... and calling you out on your housing.  You can find something cheaper--- get a walk up studio if you don't want roommates.  You can get something for under 2k without changing your commute much.

ioseftavi

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #20 on: October 22, 2014, 07:36:23 AM »
Asking my wife to reply - she's in NYC biglaw, Amlaw100 firm, blah blah blah.  We're about to be done paying down six figures in debt from her education.  Granted, there were 2 of us doing this, but we knocked it out in 2 years from the repayment date. 

Offhand, I can see a few things about your situation I'd suggest revisiting.  Top of the list would probably be "living in manhattan is important to me".  Living in a nice building in an outer borough with a likeminded roommate will save you $500+/month, easily.  You'll also find it way easier to avoid the hedonic treadmill if you're living in 'normal' neighborhood like Astoria or LIC with a 20-25 minute commute.

EDIT:  Just saw that you've budgeted $2,500/month for rent, not $2,000 as I initially thought.  Jesus, just no.  I mean no offense whatsoever, but DO NOT DO THIS.  You are already starting down the path to 'golden handcuffs' with decisions like that.  Please remember that of all the things in your budget, rent is your biggest expense as well as the biggest determinant of how expensive many other things in your life (groceries / restaurants) will be.  If you live in a $2,500 apartment, ordering seamless web 20+ times per month and going to $80/person meals multiple times per week will feel "normal".  Your housing choice has a massive, massive multiplier effect.
« Last Edit: October 22, 2014, 07:41:49 AM by ioseftavi »

nereo

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #21 on: October 22, 2014, 08:05:10 AM »
Just to clarify - you're paying ~45% of your income in taxes?  On $175k salary? Eee!!
I realize you are in the 28% federal tax bracket, and that NYC has higher taxes than most places in the country (combined state/city I believe is ~%12), but this still seems absurdly high, given the standard deductions, SL deductions, etc etc etc.
I've never been a high-earner before, but I'd look to see if there isn't a few thousand $ sitting around from taxes you are overpaying.

Lentils5eva

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Re: Young Lawyer - How To Tackle Student Loans?
« Reply #22 on: October 22, 2014, 08:42:44 AM »
my basic question is this:  How do I manage my federal student loan debt (~$200K) while maintaining the flexibility to take a lower-paying job (say, $100K) in government or business in two or three years?  I like my job, but the golden handcuffs are very real -- I do not want to be trapped as a corporate lawyer, and interesting opportunities may come along sooner rather than later. 

Hey there JD!

I am said "wife" from ioseftavi's post, above, and also the person trulystashin mentioned.  I love seeing fellow biglaw associates on MMM because I feel like biglaw life and culture is so skewed towards making people feel dependent on their jobs - the golden handcuffs you mentioned.  We had HR people tell us at orientation, "your free time is so precious - live walking distance from the office," and "You're going to work so much.  Use the money we pay you to hire someone to clean your apartment or to send your laundry out." 

The fact is, you do work a lot, but the best way to be able to NOT work like that forever isn't the far-off carrot of a partnership down the line - something you don't really seem interested in anyway - it's to avoid becoming dependent on the salary.  You're going to get tons of great advice from people here about how to allocate your badass resources or manage the interest rates on your debt.  I agree with the priorities you're gleaning from this thread. 


(2) Refinance
(3) Max 401(k)
(4) Build a modest emergency fund, maybe $10-20K?
(5) Plow into loans


The single most important thing I would add here is SNOWBALL.  Pay the absolute minimum on every loan except the one with the highest interest rate.  Sock every cent you can manage every single month into the one with the highest rate until it's dead.  Then repeat with the next highest rate loan.  Check out www.whatsthecost.com for a calculator that will show you how much you will save over your repayment term by doing this.  It is absolutely staggering.  Further, even if you don't pay them off completely during your tenure in biglaw, when you leave, you'll have MUCH lower principal and the principal you have will cost a lower weighted average interest rate, making the remaining debt easier to pay off on a lower salary.

The second most important point I want to make is that the best way to avoid golden handcuffs is not to allow yourself to shift into thinking that you "need" the luxuries people will tell you that you deserve because you work so hard.  Avoiding the "why am I working this hard if not to afford the things that I want?" pattern of thinking is crucial.  For me, the easiest way to do that was to set an extremely high monthly loan repayment number.  I chose a repayment goal and eliminated that money from what I considered my "discretionary" income.  Right now, that number is about $5,000 of my $7,700 (though I built up to that, starting at $1600 and adding until it felt a little tight).  After I pay my rent and other fixed expenses, I still have around $1500/month just for my living expenses.  That's a lot of money, especially by the standards set 'round these parts.  And by practicing living with $1500/month of "fun money" I'm avoiding the pitfalls that befall the coworkers who slowly expand their cost of living by getting the blue apron meals or the equinox memberships with the personal trainers and the etc etc, and find themselves wondering every month where all their very-hard-earned money went.  I'm going to finish paying off my $110k of loans in about two weeks.  For me it's a mindset shift.  On my 30 minute commute to the outer boroughs (or 10 minute, reimbursed cab ride if its after 9), I think about how freedom is the greatest luxury for a biglaw associate.  Most of the stuff my coworkers spend their money on is the illusion of freedom (conveniences that free up a few minutes here and there).  When my loans are gone, I will be free to take a job that pays less than half of what I make now without having to adjust my standard of living.  That's pretty great.