Question About a Student Loan Gamble

[JL1984]

Hi all!

I'm 29 and just graduated from law school. I have about $200K in student debt (at about 7% interest - I know, I know), with no credit card or any other debt. I now work at a law firm that pays me $115,000/yr to start, with the strong possibility that my salary will increase at about $10K per year. I have no savings to speak of (but am REALLY EXCITED to get started).

Here's the catch - if one day I shift to the public sector, my alma mater (in cahoots with the federal government) will pay 100% of my student loan payments: my monthly loan payment will be zero dollars. And then, after ten years in the public sector, the feds will forgive the entire balance, tax-free.

Although I love my current corporate law job (truly), I might want to switch to the non-profit world in the future. My focus is in environmental law, so the public sector has a significant draw for me. If I make the switch, then I will never have to pay another cent towards my loans, meaning I'd have basically thrown away every dollar I'd previously spent paying them down. However, if I base my current debt payment approach on the assumption that I ultimately won't actually have to pay the balance (i.e., just paying the minimum every month), I'm gambling that I will indeed choose the public sector at some point in the future.

I would LOVE any wisdom/advice/inspiration/butt-kicking.

[prof61820]

You need to check out Public Sector legal salaries (you'll be mostly pleasantly surprised), do the math and, as a recent law grad I know you will do this, get everything in writing before you commit to a 10 year stint in the public sector.  For instance, what happens if funding is cut for your job, etc.?

[CommonCents]

Confirm:

• If you can start corporate and then go public and still qualify
• Whether you have to repay it if you end up stopping qualified employment before the 10 years is up.  (e.g. go corporate-->public-->corporate/non-qualified job)
• If you will be over the salary caps in a few years when you'd switch (e.g. my school it's $80K, but at the higher levels they repay lower amounts.)
• How likely you are to go corporate to public, rather than in-house

Frankly, with 7% loans and a lot of questions...I'd pay off the loans now.  Depending when you plan to switch and how much you would make in the new job, you may not even make back the "cost" of servicing the 7% loans.

[willn]

Hi all!

I'm 29 and just graduated from law school. I have about $200K in student debt (at about 7% interest - I know, I know),

Wow, great job!

If I were you I'd live on 30K/yr and pay the loan off in 3 years.   If you're coworkers are making fun of you you're doing it right.

Then you can work 2 more years to build a 150K nest egg or more, then go work in the public sector if that's what you love doing.

The idea is to knock down the debt fast, don't let it hang around your neck for 10 years influencing your decisions and freedom.

[ChiStache]

Put 10% in your 401(k) and kill your debt with the rest. Pretend the loan forgiveness thing doesn't exist.  If you actually like your job, chances are you're going to stay put for a few years. The interest accumulation in that time will be staggering. It will stress you out to no end, even if you think you have future access to debt forgiveness.  I speak from experience when I say that 7% interest compounding on $200,000 is a dangerous, dangerous thing.

[CommonCents]

Also, while you can save *a lot* on that salary, words of wisdom from one who has been there: be careful of the job encouraging a lifestyle.  By this, I mean when I worked at a large law firm, I found myself working late many a night and weekend.  This meant I had no time to grocery shop (much less search out good deals/coupon etc.) or make meals before work to bring in for lunch, and I ate out virtually every lunch the firm didn't provide.  I had no time to clean (luckily I had a small place, so I never got a cleaner).  I needed clothing of a certain level, so I needed to buy a wardrobe (no time for thrift store shopping) and pay for dry cleaning.

On the positives: On nights I was there after 9PM, the cafe was open for (free) dinner and I could get a cab voucher home (although with a T pass, that didn't save me money).

I had about $180,000 in loans ranging from about 3-8.5% (plus undergrad debt of about $30,000 at 0.)  Before I left biglaw after 2 years, I paid off all of the loans above 3% (and the remaining ones are now at 2.5% due to on time payments etc.)

[ChiStache]

I had about $180,000 in loans ranging from about 3-8.5% (plus undergrad debt of about $30,000 at 0.)  Before I left biglaw after 2 years, I paid off all of the loans above 3% (and the remaining ones are now at 2.5% due to on time payments etc.)

Wow, that is badass! Care to share your tips for paying off the high interest debt so fast? I'm sure the OP could use them, and I'm curious too. :)

[dragoncar]

I ran the numbers on this a million ways a few years ago and unfortunately never came to a conclusion.  Too much depends on future earnings under IBR, etc.  I guess if it was me I'd just pay down the loan aggressively

[CommonCents]

Wow, that is badass! Care to share your tips for paying off the high interest debt so fast? I'm sure the OP could use them, and I'm curious too. :)

At the most simple, I just didn’t live like I was earning six figures.  I lived a (somewhat) MMM lifestyle, as if I had a third of the salary.

• I earned a lot, between about $170K-175K (including bonuses) for 2 years and 4 months in biglaw.
• My first “stub” year that I graduated, I paid low taxes for not working a full year and getting an educational credit.
• Although I lived in what may seem horrifically expensive housing at $1600/month, my apartment was actually a very good deal for my city (if one chooses not to have roommates and lives in that area).  I looked at 25 places and took one that was in-progress so most people couldn’t visualize it finished and passed it over.  I knew I’d be working long hours and paid more to live close to work to cut down on commute time for work/life balance.  I contemplated roommates – but felt I was too old (28) and in too stressful of a job to have unknown roommates.  I talked with a friend about rooming together but our times of living in the city didn’t match up well.  It was a good call in the end as I’d have had to pay for a 2-bed for 2 years after she finished her 1 year stint.
• I had no car payments.  For much of the time, I had no car and took the T.  My parents gave me their old 1989 Corolla (in 2007), which required ~$1000 in work to pass inspection.  I had it for 5 months and only drove it to soccer and to visit them 2 hours away (no commuting), until some dumb@$$ kid with a fancy BMW and NY address smashed into me when getting on the freeway.  Insurance paid about $1000 for the car (I also only carried insurance for my car if I hit someone, as required by law, and not insurance to replace) so it was a wash.  I didn’t replace it, and just took the bus to visit my parents at about $25-50 (sometimes my dad would persuade my mom to drive me back).
• I kept a lid on entertainment.  I played soccer (~$300-350 for 4 seasons each year) and carpooled to it.  I also paid about $200 for a sailing membership for the year.  I didn’t go out to bars.  I did buy lunches almost every day for time saving, but until I met my boyfriend (now husband), I didn’t really go out for dinners by myself much and didn’t have time to see friends too often, so I probably only wet out 2x a month, and even then it wasn’t crazy expensive by six figure salary standards. 
• I took advantage of firm perks.  My office for one year was near the floor conference room, so I’d snag lunch about once a week (and bonus didn’t need to leave the floor to get food).  I’d work late maybe 2-3 nights on average a week and get firm dinner.  Firm reimbursed my internet.  Firm paid half of a laptop every few years and I didn’t go hog-wild on choosing a laptop like a friend did.
• I didn’t go crazy on vacations.  I visited friends in San Diego and used hotwire/priceline for the car rental and hotel.  On the same trip, I stayed with friends in Portland, Oregon.  I searched a deal for a Caribbean cruise.  I stayed with a friend in London (and only paid hotels/car rental when we went out to the countryside for the 2nd half of the week).  On my bar trip with two friends, we stayed with a relative of one in Hong Kong and looked for reasonable accommodation in the other countries (Thailand, Vietnam, Cambodia) which after splitting were probably $15-30 a night.  On some weekends I’d take the bus (not even train) to NYC to visit friends and stay with them.
• I negotiated things like my cable bill.  (I paid extra for dvr so that I wouldn’t resent firm hours.)
• I bought my clothes on sale.  I’m not a clotheshorse in the first place (although not MMM I’m sure.)  I am very good at leveraging sales to buying good quality clothes on multiple discounts.  (e.g. recently I bought a pair of shorts, a pair of capris, and top tops from Ann Taylor for $33). 
• I didn’t get manicures/pedicures etc.  I had my hair done up near my parents (cheaper and I liked the person) and stretched time between visits so it was about $350 rather than $1000+.
• I prioritized loan repayment because I don't like debt, didn't want to pay extra and wasn't sure I'd have the corporate job for forever.  (Good thing.  I anticipated being there a minimum of 3 years though, not 2.)  I dumped extra money into highest paying loans (private @ 8.5% initially, until it dropped lower than the others from the terrible economy).
• I locked in my other rates and consolidated, so the other rates ranged from about 3 to 6.5%.  I simplified it above, but I actually amassed an emergency fund of $50,000 (fear of losing my job given the economy/seeing what was happening to others), so strictly speaking I didn’t pay off my 4.5% loans, but had the cash in hand to pay them at any time.  This was very good per below.

Errors:

• I probably should have done a regular 401K, but I did a Roth instead.  I tried to do the math of what was better, it gave me a headache to figure out “what might be” and I decided I could forego the tax break now well enough for benefits later.
• I probably should have maxed out my 401K, even though I didn't get any sort of match, because I can't go back and make up for the years.  Instead of doing it over the three calendar years, I just did it one year plus a little bit of a year.  I wanted to pay off my loans first, and later when I was worried about my job, I stopped it to amass a larger emergency fund.
• Keeping the emergency fund in a vehicle it earned nada for a few years.

Thus, when I lost my job after two years (I survived two waves of people leaving but was caught in the third wave), I wasn’t panicked because I had a solid emergency fund, a lot of my loans paid off, and a lower cost of living.  I don’t recall off the top of my head w/o my records how much I had paid so these numbers are ballparks only, but I think I had paid about $5000 of the 0 interest loan.  It was probably actually $35K now that I think about it, and roughly $90K-100K of the high interest, leaving maybe $100K-$95K (of which $75-80K was at 2.5-3%), a $50K emergency fund, and $10K in the bank account.  I also had a $10K interest free firm loan (advance on salary) I paid back over the first year and a $4K interest free loan from my parents I paid back in the first month’s paycheck.

It took me 2 years to find full-time employment.  I kept reassuring my parents I was ok because of my emergency fund (I didn’t them the exact size).  I had unemployment and after about 8 months I took a very part-time, very low paid job teaching classes as a college adjunct.  I was allowed $200/week for a job before I lost unemployment on a dollar by dollar basis, so while I made some money ($200/week during each term), it was very little for the effort, but I did it to keep up my resume/skills.  (I actually wasn’t legally obligated to apply for the job in the first place per unemployment rules, because it wasn’t in my field, but I did and got it due to a second degree I had.)  Turned out this spring to be a bonus, because it helped me get a side hustle teaching a Coursera class for $5K.

This was way longer than you wanted I bet.

[Rebecca Stapler]

With $200k of graduate debt in 3 years, it sounds like you have private loans. Will your school's loan repayment program pay off private loans? The federal PSLF will not. So, right off the bat you have a middle-of-the-road answer: Concentrate on paying off all of your private loans. Then revisit issue of paying down your federal loans when you're done with that.

If you still love your job after the private loans are gone, then pay those loans off ASAP. Take the advice on here to live frugally and you will have a lot of financial freedom in a few short years. Not retirement-worthy financial freedom, but the freedom to be able to choose your next job based on what you want to do, not what it pays you.

[RootofGood]

It may be worth it to pay as little as possible now if that is an option and plan on going to a non profit later.  Biglaw jobs are killer and the billing targets will mean you are working bighours (50-60+/wk is common).  At some point you want a life back (or you get married and/or have kids) and a non profit is a 40 hr/week gig.

I actually avoided law practice altogether due to the long hours.  Luckily I had engineering as a back up plan after finishing law school.