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
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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