Celebrating 10 years! 2007-2017

Seeking opinion student loans

I have $100,000 in cash. Law school student loan is about $1 trackpackage04/12/18
If they are consolidated, can you direct payment towards sub jd4hire04/12/18
Yes, I can direct payment towards subs/unsubs. No other stud trackpackage04/12/18
Pay off the unsubs first. The interest really adds up quick trijocker04/12/18
Pay off the loans first and get the weight off your back. O trijocker04/12/18
I would pay off enough to get the loan payments down and buy fettywap04/12/18
Student loan interest is deductible, but only the first $250 caj11104/12/18
i would sign up for REPAYE or PAYE and pay 10% of your AGI t jdslug04/12/18
The fuk? triplesix04/12/18
If he/she goes this route there are two outcomes - (1) he/sh jd4hire04/12/18
Reddit personal finance gets questions like this a lot and m 6figuremistake04/12/18
Psychologically, not having any school loans left is a prett anothernjlawyer04/12/18
I don't think IBR affects your credit score as long as you m fettywap04/12/18
It seems to affect mine. I posted a thread about it. guyingorillasuit04/12/18
The less simple answer is to get out a spreadsheet and calcu thirdtierlaw04/12/18
I'd go on IBR and invest the money. Maybe in Vanguard index david6198304/12/18
There are those smart ones who think the right move is to pa jdslug04/12/18
I am ready to pay off unsubsidized loan of $50,000 since it trackpackage07/09/18
DO NOT CONSOLIDATE IF YOU'RE ABOUT TO MAKE A SUBSTANTIAL PAY dingbat07/09/18
You need to get some second opinions. Get a few different q nycatt07/09/18
Thank you to both. I am in IBR now and making no payment trackpackage07/09/18
No such thing as not being eligible for REPAYE. There are no jdslug07/10/18
"I'd probably do as follows: drop 75k on the student debt, u hairypalms07/10/18
I am leasing and I really like it. Got an accord in August nycatt07/10/18
OP, I like nycatt's proposal even better. Lease the car for hairypalms07/11/18
Thanks! I was not expecting to lease, but so so far I have nycatt07/11/18
Better yet, buy a gently used car for $15k so you own a car cranky07/11/18
Paying off the loan will lock in an interest rate of 4,375 % unclebubba07/11/18
If you’re going to have good income, it’s very tempting qdllc07/11/18
IMHO an employee at-will should never base this decision on onehell07/17/18

trackpackage (Apr 12, 2018 - 11:22 am)

I have $100,000 in cash. Law school student loan is about $110,000, APR 4.375% FFEL subsidized and unsubsidized consolidated 50%/50%, now on deferment. I have sufficient income, and I don't believe I will qualify for PAYE or other income based loan repayment programs anymore.

I am thinking about paying off unsubsidized loan then buying a car ($25,000) or should I pay off the loans as much as possible with the cash then buy a new car with loan? I need a new car within a year or so anyway.

Student loans are non-dischargeable so paying off student loans first makes sense.

Any inputs?

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jd4hire (Apr 12, 2018 - 11:29 am)

If they are consolidated, can you direct payment towards subsidized versus unsubsidized? Do you have any other debt with higher interest rates?

If you have sufficient income, are employed, and have a relatively secure job/ ability to get a new job if some unforeseen event occurs, I don't think dischargeability, or lack thereof, should be given much weight (unless you plan on filing for bankruptcy for some reason).

I'd probably do as follows: drop 75k on the student debt, use 20k for a car (and take out a small loan if the purchase price exceeds 20k), and use 5k for schnitz and giggles.

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trackpackage (Apr 12, 2018 - 12:11 pm)

Yes, I can direct payment towards subs/unsubs. No other student loans debt.

Also, I should pay off unsubs first, right?

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trijocker (Apr 12, 2018 - 1:50 pm)

Pay off the unsubs first.
The interest really adds up quickly, trust me.

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trijocker (Apr 12, 2018 - 11:30 am)

Pay off the loans first and get the weight off your back.
Or you could put a down on a home with that much cash.
Don't waste your cash on a brand new auto that depreciates quickly.

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fettywap (Apr 12, 2018 - 11:28 am)

I would pay off enough to get the loan payments down and buy the car. Student loan payments are tax deductible.

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caj111 (Apr 12, 2018 - 11:40 am)

Student loan interest is deductible, but only the first $2500 of it, and even then only if you earn less than $ 80,000 if filing as a single person and or $ 160,000 if filing jointly with your spouse. The amount of tax savings is minimal, if at all, after a certain point, and that 4.375% rate is on the higher side (rates for buying a new home are similar or less around where I live).

So I say, pay down a good chunk of the loans, and buy the car you need, and if you finance the car, I'm certain the rate for that will be far less than 4.375%. Just don't go to one of those sleazy car dealerships with a "YOUR JOB IS YOUR CREDIT!" sign or something like that.

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jdslug (Apr 12, 2018 - 11:47 am)

i would sign up for REPAYE or PAYE and pay 10% of your AGI to the student loans after you get to keep 150% of the poverty level based on your family size. If you pay the student loans you can never get that money back! Don't be a fool! Don't live like a peasant so you can say "I owe nothing!". just pay the minimum payment on student loans until money is no issue or it's forgiven... God forbid something happens to you wouldn't it be nice to have the money? and pay 0 towards student loans?

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triplesix (Apr 12, 2018 - 12:03 pm)

The fuk?

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jd4hire (Apr 12, 2018 - 1:45 pm)

If he/she goes this route there are two outcomes - (1) he/she pays for 25 years at IBR rates, has the loan forgiven, and then gets taxed on what was forgiven; or (2) he/she pays off the loans at IBR rates at some point in time in between now and 25 years.

PLSF would be a good idea if they have a qualifying job, but often qualifying jobs go hand in hand with poor paying jobs.

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6figuremistake (Apr 12, 2018 - 11:49 am)

Reddit personal finance gets questions like this a lot and may be another good resource. I think the general PF advice is to pay down loans if you can't get a better return on investment. 4.3X isn't bad, but unless you have higher interest loans or some other investment that will provide a better return, the purely mathematical choice probably is to knock out the loans.

If you feel you really need a 25k car though (you may want to consider getting a cheaper preowned vehicle), then it probably makes sense to pay for that in cash because an auto loan is almost certainly going to have a higher rate.

Personally, I have 10k left in loans, but having a big emergency fund and making a future used vehicle purchase is more important to me than paying off the loan, and I have a much worse interest rate than you.

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anothernjlawyer (Apr 12, 2018 - 2:19 pm)

Psychologically, not having any school loans left is a pretty powerful positive.

My view generally is that you want to direct your money towards the investment / debt with the highest interest.

It's going to be difficult to invest the 100K safely at better than a 4.3% return rate, and if you buy a new car the loan rate should be lower. It's true that new cars depreciate, but the interest rates available on new car purchases are often significantly lower than the rates on used cars.

Will going into IBR, making minimum payments, etc? have any affect on your credit score? Does anyone know the answer to this?

Current 30 year mortgage rates are around 4.5% (I think). I don't know if those rates are expected to go up or down by I would check. If buying a house is in the cards within the next few years, it might make sense to save the money for your down payment.

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fettywap (Apr 12, 2018 - 2:31 pm)

I don't think IBR affects your credit score as long as you make the payments on time.

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guyingorillasuit (Apr 12, 2018 - 3:53 pm)

It seems to affect mine. I posted a thread about it.

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thirdtierlaw (Apr 12, 2018 - 3:47 pm)

The less simple answer is to get out a spreadsheet and calculate what your IBR looks like. You said money isn't an issue and you think your income is too high on IBR to qualify.

First, your income can't be too high to qualify, so if you go under the IBR they'll cap your payment at the 10-year repayment amount, but you'll still get credit towards loan forgiveness if god-forbid something happens. That is the protection of federal loans, you're monthly payment amount can be zero while you're getting credit towards forgiveness.

Second, you can calculate how much the loan will cost you by not paying it off. If you'll be paying it back on a 10-year plan (because your IBR amount would be capped at that), then you'll see an actual return paying it off right away. However, if there is a chance that you'll be making substantially less in 4-5 years (i.e. getting pushed out of biglaw) it may be worth estimating what that'll look like for you as well under and IBR and calculate what the tax bomb will look like for you.

Buying a house may also be credited, people always harsh on a home being used as "an investment", but there are some serious advantages to home ownership, that having your student loans paid off won't offer you.

You're fortunate that you can't really make a wrong decision. If being out of a massive debt load will give you peace of mind, you should do it, even if it isn't mathematically the best outcome.

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david61983 (Apr 12, 2018 - 9:49 pm)

I'd go on IBR and invest the money. Maybe in Vanguard index loans. You likely get a 7-8% return over 25 years which is more than your loan interest. I don't see how you lose that way. There could be a student loan bailout one day and I doubt there will be a tax bomb. There isnt one for PSLF.

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jdslug (Apr 12, 2018 - 9:59 pm)

There are those smart ones who think the right move is to pay off 100k in the loans and then buy some kind of disability insurance for 500$ a month (the same as the would be ibr payment) so you can get 100k if you get disabled.

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trackpackage (Jul 9, 2018 - 6:44 pm)

I am ready to pay off unsubsidized loan of $50,000 since it seems my income is too high to qualify for IBR. I will pay the other $50,000 in a regular monthly payment plan. Just spoke to the loan company and they tell me to reconsolidate the student loan then pay off the unsubs loan. The loan company told me that the interest rate will likely to stay same. Is it true?

What's pros and cons of re-consolidating the loans now? The loans were previously consolidated.

Thank you for sharing your wisdom.

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dingbat (Jul 9, 2018 - 6:52 pm)

DO NOT CONSOLIDATE IF YOU'RE ABOUT TO MAKE A SUBSTANTIAL PAYMENT

the ONLY reason to consolidate is if your overall interest rate goes down. If you have loans at different rates, consolidation basically makes them all the same rate, which tends to be a weighted average. (e.g. if you had a $10k loan at 5% and a $30k loan at 6%, your aggregate is $40k at 5.75%. Consolidation only makes sense if the new loan is at a lower interest rate than that)

If you have loans at a different rate, pay down the higher interest rate loan. If you wish to consolidate you can do so after.
(see the earlier example. If you consolidate to $40k at 5.75$ and pay off $20k, you have a $20k loan at 5.75%. If instead you paid off $20k from the 6% loan, you would have $10k at 5% and $10k at 6%, for an aggregate of $20k at 5.5%)

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nycatt (Jul 9, 2018 - 6:54 pm)

You need to get some second opinions. Get a few different quotes from loan consolidators, then you will understand the market. I went to Sofi and got almost a 2% reduction on my loan. I worked at a pretty big firm and a bank gave the attornes a deal with like an even lower rate, but you had to bank with them. I don't really understand the whol subsidized thing, but if you talk to a few banks, you should get a pretty good idea based on what they are saying.

Edit - Dingbat is right, but if you can get a good overall reduction like Sofi and many lenders give, it is worth it. If all you are getting is the weighted average, forget it.

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trackpackage (Jul 9, 2018 - 7:04 pm)

Thank you to both.

I am in IBR now and making no payment for 2 years, but ending soon. Both of them are the same interest rate, 5.5%. (50K in subsidized/$50K unsubsidized)

I told the loan company that the website calculator estimating the eligibility of IBR shows that I am no longer eligible. Then, I asked if there are other options. Maybe the rep meant to say to re- consolidate the loan for another 25 years and reduce a monthly payment?

Maybe I asked a wrong question to the rep.

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jdslug (Jul 10, 2018 - 7:44 pm)

No such thing as not being eligible for REPAYE. There are no income limitations.

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hairypalms (Jul 10, 2018 - 7:52 pm)

"I'd probably do as follows: drop 75k on the student debt, use 20k for a car (and take out a small loan if the purchase price exceeds 20k), and use 5k for schnitz and giggles."

This ^^ sounds about right to me. At its highest, I owed about $200,000 in student loans. I now only owe around $25,000 -- after 15 years of practicing law. Having only $25,000 in student loans at a low % of interest is really a drop in the bucket. At least get the balance down to a manageable level so that the bulk of it is going toward principle. If you can make that big of a dent in your loans, you deserve a car!

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nycatt (Jul 10, 2018 - 9:12 pm)

I am leasing and I really like it. Got an accord in August 2017 right before 2018s were gonna come out and I pay $170 per month. Was like $2k down. I was gonna buy, but for that price, it is hard to say no. The 2019s will be announced soon for many car models (Honda is always behind most of the car brands in announcing), so this month or next month will be the best time all year to lease. I would pay 75k towards debt, lease a car, and save 20k for a rainy day. Hopefully, your rainy day will be a down payment on a house and not a health issue. Also, you will need 5k when you have a kid (a bit of medical, crib, etc), plus ongoing increased expenses. We also spent another 5k on a night nanny the first 2 months (4 days a week), and it made things amazing, I would recommend saving for that too. Sorry if you are young and it is not on your radar.


By the way, I just paid off my loan this month and it felt amazing. We had about 400k come through a few months ago (because my wife is a baller executive). Paid all our debt and have enough for a down payment on house. Feels so good.

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hairypalms (Jul 11, 2018 - 6:26 am)

OP, I like nycatt's proposal even better. Lease the car for 3 years and keep the money tucked away, possibly invest a portion of it. Having the rainy day fund will put your mind at ease.

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nycatt (Jul 11, 2018 - 10:20 am)

Thanks! I was not expecting to lease, but so so far I have really liked it. It is nice to have a new car and we may need a mini van after number 2 arrives in a few months, so it is nice to have options.

OP, to be clear, I mean to lease 2018 car now (not a 2019), because right when the 2019s are announced, the car companies are motivated to get the overstocked older models out of the lots because many will want the new model and they literally have to fit 2019s onto the lot. The prices should start getting slashed in a few weeks.

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cranky (Jul 11, 2018 - 12:41 pm)

Better yet, buy a gently used car for $15k so you own a car outright. A friend of mine was recently raving about buying from Carvana. Put a few thousand in a Roth IRA too.

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unclebubba (Jul 11, 2018 - 1:08 pm)

Paying off the loan will lock in an interest rate of 4,375 % for the remainder of the loan balance and duration of the loan (say 10 years? 20 years?).

If you direct your loan payments to savings, you will net the 4,375 % interest rate plus whatever you make off the savings.

If you take out a car loan, the interest rate will be x - 4,375 %.

I would pay off the student loan as you cannot bankrupt it and 4 % is still sizable interest.

I would not buy a new car, but instead a beater - provided it met my needs. If you drive a beater for 4 years, the saved interest alone will give up 18.000 $ to use on down payment on a car.

But it really depends on how much you are willing to defer gratification.

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qdllc (Jul 11, 2018 - 2:20 pm)

If you’re going to have good income, it’s very tempting to just pay down the loans and get them off your back. I advocate this only because the student loan industry are a bunch of deceitful illegitimate children who have the ability to get the terms of repayment plans changed and made retroactive on all borrowers. Courts may apply estoppel to protect borrowers who have relied X years on the current repayment terms, but I’d not trust these people at all. To be debt free is freedom.

THAT SAID, there’s no way to know how it will all work out. Banking the money, going into an income-based repayment plan, and waiting for “forgiveness” is the smart move if your income stream is small or unknown. It would certainly suck to pay off the debt then a decade later learn there’s going to be tax free forgiveness for all borrowers after 30 years of payments.

If your income stream is going to be very good, you can rebuild savings and sleep well knowing the monkey is off your back. Hard for me to say which is better in such a situation.

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onehell (Jul 17, 2018 - 6:17 pm)

IMHO an employee at-will should never base this decision on interest-rate arbitrage (though your rate is low enough that such arbitrage may another reason not to pay it off, especially once you consider the benefit inflation is to fixed-rate debtors) or even necessarily on what will be paid over life of loan if all goes according to plan.

This is ultimately a survival issue, really. If you get canned tomorrow you will still have your 100k and upon signing up for IBR, you make no payments.

OTOH, if you get canned tomorrow and your loans are paid off, you have nothing to live on. Even if you don't qualify for IBR right now, knowing it's there is a pretty nice insurance policy.

I would put your loans on whatever the shortest repayment term you can afford is, ideally 10 year standard. If all goes according to plan then you will have paid only a reasonable amount of interest, and if anything goes sideways IBR is your insurance policy.

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