Student Loans / Expected Value of Paying Down or Waiting

I have been deliberating what to do with my student loans.

I have approximately 85,000.00 in student loan debt from law school. I graduated a year ago. The average interest rate across my various loans is as follows: 61,000.00 at 6.5%, and 24,000.00 at 7.9% (Stafford and GradPlus, respectively). The propriety of my decision in going to law school is not in dispute.

The issue:

I am currently in income-based repayment, which, due to my income, is only $10.00 a month (I was unemployed for most of last year). It is re-evaluated annually based on tax return (not balance), and will likely be about $550.00 per month next year. I have no idea what my lifetime earning potential is, and the legal market in Florida (and everywhere else) is oversaturated.

If I can stay in income-based repayment for 25 years, any remaining balance is forgiven (and treated as income for tax purposes), however, if my income increases too much, then my payments will adjust to approximately $1,100.00 per month, and I may end up paying more over the life of the loan that under a traditional 10 year model.

The curve ball: $30,000.00 of my principal balance will not accrue interest the first 3 years I am in repayment, due to the income-based program.

Any advice or ideas as to whether I should throw as much money as I can at my loans now, or just make minimum payments until it is either paid off, or forgiven (25 years)?

Is there a pre-payment penalty in the income-based program? If not, you've got the best of both worlds - very low initial payments and "free" principal paydowns until the minimum payments increase.

You should absolutely extend the initial term of your loan as far into the future as you can. Most of the repayment programs (with the possible exception of the income-based program) have no early payment penalty. You can gain the flexibility of having lower minimum payments, and retain your ability to make additional payments on the principal balance as you're able.

It's also worth noting that student loan interest is tax deductible (subject to a soft income cap), so there's a small value associated with preserving your balance if you can deduct the interest and make more than 6.9% investing your would-be loan payments elsewhere. Prosper is one place where you can earn a nearly-guaranteed return in excess of the weighted average 6.9% student loan interest rate. I've never invested there, but I've borrowed (for school, before new laws made it illegal) from there and had a great experience.

To me, what it comes down to is: Do you really want to PLAN to live at lower than your true potential earning levels, just so that some debt can be retired in 25 years?!

I would not count on forgiving the debt, so I would make the biggest payments I could while still living a comfortable life. The interest rates aren't great, I have some debt not in my mortgage at 4%

You might want to also consider the viewpoints of the Bar regarding throwing in the towel prematurely, particularly if you want to continue as a member of the bar, albeit a presently unemployed one. I assume that Florida does not grant reciprocity since that would mean all lawyers in cold climates would open up down in Florida and skim the cream of the market. Therefore you might be limited in your options on both a time and geographic basis.

I see little difference between law school and some matchbook school purporting to teach data processing or something but actually churning out graduates with little in the way of actual training or ability. The formula is still the same: anticipated income versus anticipated payments. A cleansing bath through the bankruptcy courts can be a boon but it can haunt you for twelve years or more.

Many schools churn out graduates whose actual employment prospects are dismal. Virtually all modeling schools are a joke, most corrections officer schools are a joke. Professional schools should be above such things but they are not. You knew the job prospects going into law school. Not all that much changed, but the law is that if you have the filing fee you can file a petition to be adjudicated a bankrupt.

Be sure to go out and buy a Family Bible and two bushels of oats or whatever it is the various state and federal laws allow you to keep. Pay your utility bills but don't make it a preference. Student loans were only made difficult to discharge in bankruptcy because college students were routinely accepting a diploma with one hand and handing them a petition in bankruptcy with the other during the sixties.

Quote: dwheatley

I would not count on forgiving the debt, so I would make the biggest payments I could while still living a comfortable life. The interest rates aren't great, I have some debt not in my mortgage at 4%

6.5% is about spot on for non-undergraduate student loan rates.

Quote: dlevinelaw

Any advice or ideas as to whether I should throw as much money as I can at my loans now, or just make minimum payments until it is either paid off, or forgiven (25 years)?

You haven't given enough information. For example: what is the income limit for the "income-based repayment"? And what kind of law do you practice, what are the expected salary bands for 1/3/5 years out, etc.

Generally speaking, unless you're bumping up against your available credit and/or driving your scores down, I tend to favor an opportunity-cost approach to the question of debt repayment. If you have a place for your next dollar that will earn more than the cost of keeping your loans, don't pay down the loans and invest instead, use the proceeds to carry the debt, and pocket the difference. If anything, try to get your notes refinanced at a lower rate (though I don't know if this is possible).

Quote: rdw4potus

Prosper is one place where you can earn a nearly-guaranteed return in excess of the weighted average 6.9% student loan interest rate. I've never invested there, but I've borrowed (for school, before new laws made it illegal) from there and had a great experience.

Prosper doesn't allow everybody to invest, dependent on what state you live in. For example, I live in Arizona, and thus I'm unable to invest with Prosper. Prior to this change of theirs occurring, I had deposited money with Prosper and invested it, but now I can no longer re-invest the money that is there. And I'm finding it extremely difficult to get my money back from them. If you're going to use Prosper to invest in micro loans, just make sure you are able to do so from your state.

Throw all that extra money at your student loans each month, and you’ll start making progress in no time! You’ll see the date you’ll pay off each loan if you keep making those minimum payments. By making larger payments, you’ll be able to attack the amount you owe at a quicker rate. Tackling your student loans proactively is key to paying them off sooner rather than later. There are plenty of ways to manage your debt more effectively, but the worst thing you can do is nothing.
"If you find you're having difficulty affording your federal or private student loan payments, don't ignore the problem or assume there are no options," DePaulo says.

You graduated law School a year ago yet only earn ten bucks a month?

Have you taken and passed the bar exam yet?

I thought it was 12 years ago, but as always, people are welcome to explain my math errors.

Who said he even earned $10 a month, that was what was owed.

I came out of college owing a few thousand dollars, but back then it was really easy to get deferments and the interest rate was around three percent so I made minimum payments. I think my monthly payment was less than fifty dollars a month. My Mom was shocked when she heard me joking about turning forty and still paying back student loans.
Today's loans are a very different animal.

Ah, now I see...an ancient, hoary thread resurrected from the dead.

Silly me.

I assume the OPfound a job, perhaps as a barista.

I am kind of sad that I forced my daughter to pay off her loans earlier this year now that it looks like their might be some forgiveness for the loans.

Quote: DRich

I am kind of sad that I forced my daughter to pay off her loans earlier this year now that it looks like their might be some forgiveness for the loans.
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I have been advising everyone who asks NOT to payoff loans since (during the end of the last presidential administration) that the Democrats would be taking over the three (President, house, and senate) law making entities. The Democrats want student loans to disappear like magic. Not getting political, from a purely EV perspective you should not be paying off student loans. If the Republicans win inn2022 the EV might flip depending on your personal situation, interest rates, etc…

Why should recent student loan borrowers get a free pass when folks like me who previously borrowed and paid it all off get a bag full of excrement for our efforts?

If Biden is damn fool enough to have the gov't pay off all unpaid student loans then he should aloo reimburse me and all others for the payments I / we have made.

This will be a toxic issue for Biden and will likely relegate him to being a one termer, with a Republican taking over

Actually I see a lot of reasons why the democrats will soon lose power.

Would you rather get 5 more $2,000 stimmy checks or a $10,000 student loan forgiveness?
Well, states will have to step up with the stimmy checks.

Quote: ChumpChange

Would you rather get 5 more $2,000 stimmy checks or a $10,000 student loan forgiveness?
Well, states will have to step up with the stimmy checks.
link to original post

Where are the options for neither and why?

Quote: mcallister3200

Quote: ChumpChange

Would you rather get 5 more $2,000 stimmy checks or a $10,000 student loan forgiveness?
Well, states will have to step up with the stimmy checks.
link to original post

Where are the options for neither and why?
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Or both, and why not?

I saw a vehicle in my parking lot (next to mine) the other day that had the baldest tires ever. I checked the inspection sticker and it was 2 months overdue. I went shopping and came back and the vehicle was gone. They saw me checking the inspection sticker. Aren't these stimmies supposed to be used to buy new tires? Seems they're way late with more stimmies. I know I bought new tires with my stimmy.

I used half of mine on legal pot and comic books and pretty much blew the rest.

deleted, accidental double post

Quote: billryan

Quote: mcallister3200

Quote: ChumpChange

Would you rather get 5 more $2,000 stimmy checks or a $10,000 student loan forgiveness?
Well, states will have to step up with the stimmy checks.
link to original post

Where are the options for neither and why?
link to original post

Or both, and why not?
link to original post

I'm sure you already know but $5-$6 gas and the grocery store prices. But I suppose what some see as the problem others see as the answer.

Quote: billryan

deleted, accidental double post
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One of my younger cousins went to college late and got a job as a rookie teacher at 31 or 32. He owed about $50,000 in student loans.
His union got him into a program where he got his Masters in a shorter time than normal, and it added another $25,000 to his debt. He had, in writing, assurances that if he paid his loans on time and taught full-time for X amount of years, the remainder would be forgiven. Teachers, cops, EMT, firemen, and several other civil service type professions all got the same deal. He says the previous administrations honored the deal but then, in an effort to drain the swamp, six years ago they canceled the program.
I'm not sure how I feel about canceling everyone's debt, but if there really are hundreds of thousands of public service workers that got screwed, I hope he cancels theirs.

Economic stimulus checks...bah, ridiculous.

Forgiveness of studen debt: no way, Jose.

In both cases it's a shell game, with the repayment not forgiven; rather it is on the backs of the tax payers.