Student loan payments: get advice and actual numbers here Forum

[Anonymous User]

I can eliminate my debt in a single payment with my clerkship signing bonus. Is it advisable to do so? Any obvious downsides?

How much is the debt and I'll let you know what you should do.

Why should the amount matter, sparty, if he can afford to pay it off in one fell swoop? Isn’t that what anyone who can get out from under the burden of debt should do?

Thanks, nixy. What are your thoughts on the other poster who says HYSA > paying it off in one fell swoop?

[nixy]

I can eliminate my debt in a single payment with my clerkship signing bonus. Is it advisable to do so? Any obvious downsides?

How much is the debt and I'll let you know what you should do.

Why should the amount matter, sparty, if he can afford to pay it off in one fell swoop? Isn’t that what anyone who can get out from under the burden of debt should do?

Thanks, nixy. What are your thoughts on the other poster who says HYSA > paying it off in one fell swoop?

I think either is completely defensible. As much as I don't agree with sparty's knee-jerk take that you HAVE to do this, if you *want* to pay it off now, I think that's fine - you're not leaving enough money on the table to make it financially disastrous, and peace of mind is worth something if the debt stresses you out. I do think that a HYSA is a decent idea, though, in part because we don't know what's happening with forgiveness and such; it would be a bummer to pay your loans off now and a few months from now someone figures out how to get Biden's forgiveness plan to work. I'm less convinced by the liquidity argument - if you're paying them off at some point you're going to lose some liquidity/flexibility, it's just a question of when that happens. But if you have no real nest egg currently, I can see the argument for putting off the payments as long as no interest is accruing, so you have a safety net in place while you build up a separate nest egg, if that makes sense. (Also now I've typed nest egg enough that it's lost all meaning.)

[Anonymous User]

I can eliminate my debt in a single payment with my clerkship signing bonus. Is it advisable to do so? Any obvious downsides?

How much is the debt and I'll let you know what you should do.

Why should the amount matter, sparty, if he can afford to pay it off in one fell swoop? Isn’t that what anyone who can get out from under the burden of debt should do?

Thanks, nixy. What are your thoughts on the other poster who says HYSA > paying it off in one fell swoop?

I think either is completely defensible. As much as I don't agree with sparty's knee-jerk take that you HAVE to do this, if you *want* to pay it off now, I think that's fine - you're not leaving enough money on the table to make it financially disastrous, and peace of mind is worth something if the debt stresses you out. I do think that a HYSA is a decent idea, though, in part because we don't know what's happening with forgiveness and such; it would be a bummer to pay your loans off now and a few months from now someone figures out how to get Biden's forgiveness plan to work. I'm less convinced by the liquidity argument - if you're paying them off at some point you're going to lose some liquidity/flexibility, it's just a question of when that happens. But if you have no real nest egg currently, I can see the argument for putting off the payments as long as no interest is accruing, so you have a safety net in place while you build up a separate nest egg, if that makes sense. (Also now I've typed nest egg enough that it's lost all meaning.)

Thank you so much!

[DisappointedSummer]

Nixy’s equivocation is wrong. There is one correct answer if your goal is to maximize your wealth, and that is to take free money given the risk free interest. Just let it sit there and don’t touch it except to pay off loans at the minimal required amount until the rate picks up and exceeds the HYSA. If you pay it off early you are burning money for no reason.

Any “anxiety” you have about having loans should be ameliorated by seeing a savings account with an amount that grows far faster than your loan balance. You can even use the interest you earn from the HYSA to see a therapist! Don’t end up like sparty. Maximize your wealth risk free by setting up a HYSA and parking money there and letting it work for you in the meantime.

[nixy]

Nixy’s equivocation is wrong. There is one correct answer if your goal is to maximize your wealth, and that is to take free money given the risk free interest. Just let it sit there and don’t touch it except to pay off loans at the minimal required amount until the rate picks up and exceeds the HYSA. If you pay it off early you are burning money for no reason.

Any “anxiety” you have about having loans should be ameliorated by seeing a savings account with an amount that grows far faster than your loan balance. You can even use the interest you earn from the HYSA to see a therapist! Don’t end up like sparty. Maximize your wealth risk free by setting up a HYSA and parking money there and letting it work for you in the meantime.

They didn't say that their only goal was to maximize wealth, though. I agree that not paying the loans until repayments start up again in the better play, but telling them they'd be stupid to pay them off is just as dogmatic as sparty insisting they have to pay them off. (NB: The OP didn't mention refinancing, which I doubt they've done given the pause on payments, and there's no "pay off loans at the minimal required amount until the rate picks up and exceeds the HYSA" - basically all federal student loans have rates that far exceed any HYSA rates. So it's either pay now, or wait until the loan payment pause ends and then pay - paying off minimal amounts doesn't make any sense.)

[sparty99]

I can eliminate my debt in a single payment with my clerkship signing bonus. Is it advisable to do so? Any obvious downsides?

Obviously, in your situation only, since it is 60k you put that in an online savings account instead of paying it off.

[DisappointedSummer]

Hahahaha but sparky I thought having a loan made you a slave and HYSAs were stupid? What changed???

[The Lsat Airbender]

A good strategy, if you're worried about self-control, is to buy T-bills maturing on the date your loan is due (or stops being a 0% loan), then pocket the discount and do whatever you want with it. When the Treasuries mature, throw them straight at the loan balance (or, in the even the pause is extended, re-invest appropriately).

[bokampers]

Any good resources out there for selecting a HYSA?

[Hick4Life]

Any good resources out there for selecting a HYSA?

https://www.bankrate.com/banking/savings/rates/

[axiomaticapiary]

Would you guys use $30,000 in summer associate money to pay your tuition next year, put it in a HYSA, invest in index funds, or pay off the loans you’ve already accrued?

$100k debt through two years of law school still at 0% interest. $50k cost for tuition + living expenses coming up in 3L. Assume returning to biglaw unless I somehow fuck up really bad in July.

Also now that the bill they just passed is restarting payments no matter what happens with the $10,000 Biden forgave, that changes the entire debate you just had, right?

[The Lsat Airbender]

Would you guys use $30,000 in summer associate money to pay your tuition next year, put it in a HYSA, invest in index funds, or pay off the loans you’ve already accrued?

$100k debt through two years of law school still at 0% interest. $50k cost for tuition + living expenses coming up in 3L. Assume returning to biglaw unless I somehow fuck up really bad in July.

Also now that the bill they just passed is restarting payments no matter what happens with the $10,000 Biden forgave, that changes the entire debate you just had, right?

Some thoughts, considering that the interest pause finally seems to be ending:

- Index funds don't really make sense, even if you have a long time horizon; volatile stock-market returns don't compare well to the guaranteed 6-7% you get by paying down loans.

- Avoiding origination fees on new loans is worthwhile, and a reason to pay tuition directly rather than borrow + repay.

- Absent origination fees, partial paydown of loans will modestly improve your credit score and therefore be preferable for that reason.

- Loan interest doesn't start until August so you might as well leave in HYSA until then.

- Having a solid emergency fund in an HYSA (you might do a notch better in a money-market fund or short-dated Treasuries or something) is a good idea generally. Ideally you have 3-6 months' expenses within easy reach at all times. Really really nice in biglaw because you might want to (or have to) quit on short notice.

- Having hard cash will be important after you graduate and have bar expenses, new apartment deposit, furniture, wardrobe, etc. to handle before you start actually getting that biglaw salary.

So, unless you have a really good background situation which handwaves that last bullet, I'd put $20-30k in high-yielding cash equivalents (HYSA, "no fee" CD at Ally, money-market fund, floating rate Treasury ETF...). That's your emergency fund which you'll hopefully carry indefinitely. Any new money coming in should probably go towards paying down loans.

I'd consider buying $10k of I-bonds through treasurydirect.gov. These are inflation-protected (currently yielding CPI plus 0.9%), tax-deferred, and make a great rainy-day fund; the catch is that you're locked up for 12 months and pay a small penalty to withdraw before 60 months. But you should have enough cash to hit both of those timeframes and it'll be nice knowing you have that baseline cushion of "oh shit" money, about 2 months' expenses, pegged to inflation.

[Antetrust]

Would you guys use $30,000 in summer associate money to pay your tuition next year, put it in a HYSA, invest in index funds, or pay off the loans you’ve already accrued?

$100k debt through two years of law school still at 0% interest. $50k cost for tuition + living expenses coming up in 3L. Assume returning to biglaw unless I somehow fuck up really bad in July.

Also now that the bill they just passed is restarting payments no matter what happens with the $10,000 Biden forgave, that changes the entire debate you just had, right?

Some thoughts, considering that the interest pause finally seems to be ending:

- Index funds don't really make sense, even if you have a long time horizon; volatile stock-market returns don't compare well to the guaranteed 6-7% you get by paying down loans.

- Avoiding origination fees on new loans is worthwhile, and a reason to pay tuition directly rather than borrow + repay.

- Absent origination fees, partial paydown of loans will modestly improve your credit score and therefore be preferable for that reason.

- Loan interest doesn't start until August so you might as well leave in HYSA until then.

- Having a solid emergency fund in an HYSA (you might do a notch better in a money-market fund or short-dated Treasuries or something) is a good idea generally. Ideally you have 3-6 months' expenses within easy reach at all times. Really really nice in biglaw because you might want to (or have to) quit on short notice.

- Having hard cash will be important after you graduate and have bar expenses, new apartment deposit, furniture, wardrobe, etc. to handle before you start actually getting that biglaw salary.

So, unless you have a really good background situation which handwaves that last bullet, I'd put $20-30k in high-yielding cash equivalents (HYSA, "no fee" CD at Ally, money-market fund, floating rate Treasury ETF...). That's your emergency fund which you'll hopefully carry indefinitely. Any new money coming in should probably go towards paying down loans.

I'd consider buying $10k of I-bonds through treasurydirect.gov. These are inflation-protected (currently yielding CPI plus 0.9%), tax-deferred, and make a great rainy-day fund; the catch is that you're locked up for 12 months and pay a small penalty to withdraw before 60 months. But you should have enough cash to hit both of those timeframes and it'll be nice knowing you have that baseline cushion of "oh shit" money, about 2 months' expenses, pegged to inflation.

This is all fantastic advice, but poster forgot the actual best move: put it all into tesla call options and use the profits to pay off all your loans, then use the leftover millions to buy a new house.

[showusyourtorts]

Would you guys use $30,000 in summer associate money to pay your tuition next year, put it in a HYSA, invest in index funds, or pay off the loans you’ve already accrued?

$100k debt through two years of law school still at 0% interest. $50k cost for tuition + living expenses coming up in 3L. Assume returning to biglaw unless I somehow fuck up really bad in July.

Also now that the bill they just passed is restarting payments no matter what happens with the $10,000 Biden forgave, that changes the entire debate you just had, right?

Some thoughts, considering that the interest pause finally seems to be ending:

- Index funds don't really make sense, even if you have a long time horizon; volatile stock-market returns don't compare well to the guaranteed 6-7% you get by paying down loans.

- Avoiding origination fees on new loans is worthwhile, and a reason to pay tuition directly rather than borrow + repay.

- Absent origination fees, partial paydown of loans will modestly improve your credit score and therefore be preferable for that reason.

- Loan interest doesn't start until August so you might as well leave in HYSA until then.

- Having a solid emergency fund in an HYSA (you might do a notch better in a money-market fund or short-dated Treasuries or something) is a good idea generally. Ideally you have 3-6 months' expenses within easy reach at all times. Really really nice in biglaw because you might want to (or have to) quit on short notice.

- Having hard cash will be important after you graduate and have bar expenses, new apartment deposit, furniture, wardrobe, etc. to handle before you start actually getting that biglaw salary.

So, unless you have a really good background situation which handwaves that last bullet, I'd put $20-30k in high-yielding cash equivalents (HYSA, "no fee" CD at Ally, money-market fund, floating rate Treasury ETF...). That's your emergency fund which you'll hopefully carry indefinitely. Any new money coming in should probably go towards paying down loans.

I'd consider buying $10k of I-bonds through treasurydirect.gov. These are inflation-protected (currently yielding CPI plus 0.9%), tax-deferred, and make a great rainy-day fund; the catch is that you're locked up for 12 months and pay a small penalty to withdraw before 60 months. But you should have enough cash to hit both of those timeframes and it'll be nice knowing you have that baseline cushion of "oh shit" money, about 2 months' expenses, pegged to inflation.

This is the way.

[axiomaticapiary]

Would you guys use $30,000 in summer associate money to pay your tuition next year, put it in a HYSA, invest in index funds, or pay off the loans you’ve already accrued?

$100k debt through two years of law school still at 0% interest. $50k cost for tuition + living expenses coming up in 3L. Assume returning to biglaw unless I somehow fuck up really bad in July.

Also now that the bill they just passed is restarting payments no matter what happens with the $10,000 Biden forgave, that changes the entire debate you just had, right?

Some thoughts, considering that the interest pause finally seems to be ending:

- Index funds don't really make sense, even if you have a long time horizon; volatile stock-market returns don't compare well to the guaranteed 6-7% you get by paying down loans.

- Avoiding origination fees on new loans is worthwhile, and a reason to pay tuition directly rather than borrow + repay.

- Absent origination fees, partial paydown of loans will modestly improve your credit score and therefore be preferable for that reason.

- Loan interest doesn't start until August so you might as well leave in HYSA until then.

- Having a solid emergency fund in an HYSA (you might do a notch better in a money-market fund or short-dated Treasuries or something) is a good idea generally. Ideally you have 3-6 months' expenses within easy reach at all times. Really really nice in biglaw because you might want to (or have to) quit on short notice.

- Having hard cash will be important after you graduate and have bar expenses, new apartment deposit, furniture, wardrobe, etc. to handle before you start actually getting that biglaw salary.

So, unless you have a really good background situation which handwaves that last bullet, I'd put $20-30k in high-yielding cash equivalents (HYSA, "no fee" CD at Ally, money-market fund, floating rate Treasury ETF...). That's your emergency fund which you'll hopefully carry indefinitely. Any new money coming in should probably go towards paying down loans.

I'd consider buying $10k of I-bonds through treasurydirect.gov. These are inflation-protected (currently yielding CPI plus 0.9%), tax-deferred, and make a great rainy-day fund; the catch is that you're locked up for 12 months and pay a small penalty to withdraw before 60 months. But you should have enough cash to hit both of those timeframes and it'll be nice knowing you have that baseline cushion of "oh shit" money, about 2 months' expenses, pegged to inflation.

Thanks for the very detailed answer.

My question is: isn't the interest on whatever student loans I take out going to be more than I would get in a HYSA? The loans would be part subsidized (~5%), part unsubsidized (~6%). HYSAs yield around 4%. So I'm best off keeping the minimum amount I need to live on in the HYSA and using every extra dollar to avoid loans, right?

[Antetrust]

Would you guys use $30,000 in summer associate money to pay your tuition next year, put it in a HYSA, invest in index funds, or pay off the loans you’ve already accrued?

$100k debt through two years of law school still at 0% interest. $50k cost for tuition + living expenses coming up in 3L. Assume returning to biglaw unless I somehow fuck up really bad in July.

Also now that the bill they just passed is restarting payments no matter what happens with the $10,000 Biden forgave, that changes the entire debate you just had, right?

Some thoughts, considering that the interest pause finally seems to be ending:

- Index funds don't really make sense, even if you have a long time horizon; volatile stock-market returns don't compare well to the guaranteed 6-7% you get by paying down loans.

- Avoiding origination fees on new loans is worthwhile, and a reason to pay tuition directly rather than borrow + repay.

- Absent origination fees, partial paydown of loans will modestly improve your credit score and therefore be preferable for that reason.

- Loan interest doesn't start until August so you might as well leave in HYSA until then.

- Having a solid emergency fund in an HYSA (you might do a notch better in a money-market fund or short-dated Treasuries or something) is a good idea generally. Ideally you have 3-6 months' expenses within easy reach at all times. Really really nice in biglaw because you might want to (or have to) quit on short notice.

- Having hard cash will be important after you graduate and have bar expenses, new apartment deposit, furniture, wardrobe, etc. to handle before you start actually getting that biglaw salary.

So, unless you have a really good background situation which handwaves that last bullet, I'd put $20-30k in high-yielding cash equivalents (HYSA, "no fee" CD at Ally, money-market fund, floating rate Treasury ETF...). That's your emergency fund which you'll hopefully carry indefinitely. Any new money coming in should probably go towards paying down loans.

I'd consider buying $10k of I-bonds through treasurydirect.gov. These are inflation-protected (currently yielding CPI plus 0.9%), tax-deferred, and make a great rainy-day fund; the catch is that you're locked up for 12 months and pay a small penalty to withdraw before 60 months. But you should have enough cash to hit both of those timeframes and it'll be nice knowing you have that baseline cushion of "oh shit" money, about 2 months' expenses, pegged to inflation.

Thanks for the very detailed answer.

My question is: isn't the interest on whatever student loans I take out going to be more than I would get in a HYSA? The loans would be part subsidized (~5%), part unsubsidized (~6%). HYSAs yield around 4%. So I'm best off keeping the minimum amount I need to live on in the HYSA and using every extra dollar to avoid loans, right?

If the interest is higher on your debt than you would receive in a HYSA, then yes, prioritize paying off the debt. If the interest in the HYSA is higher (or equal), you should only make minimum payments to the debt.

[showusyourtorts]

Would you guys use $30,000 in summer associate money to pay your tuition next year, put it in a HYSA, invest in index funds, or pay off the loans you’ve already accrued?

$100k debt through two years of law school still at 0% interest. $50k cost for tuition + living expenses coming up in 3L. Assume returning to biglaw unless I somehow fuck up really bad in July.

Also now that the bill they just passed is restarting payments no matter what happens with the $10,000 Biden forgave, that changes the entire debate you just had, right?

Some thoughts, considering that the interest pause finally seems to be ending:

- Index funds don't really make sense, even if you have a long time horizon; volatile stock-market returns don't compare well to the guaranteed 6-7% you get by paying down loans.

- Avoiding origination fees on new loans is worthwhile, and a reason to pay tuition directly rather than borrow + repay.

- Absent origination fees, partial paydown of loans will modestly improve your credit score and therefore be preferable for that reason.

- Loan interest doesn't start until August so you might as well leave in HYSA until then.

- Having a solid emergency fund in an HYSA (you might do a notch better in a money-market fund or short-dated Treasuries or something) is a good idea generally. Ideally you have 3-6 months' expenses within easy reach at all times. Really really nice in biglaw because you might want to (or have to) quit on short notice.

- Having hard cash will be important after you graduate and have bar expenses, new apartment deposit, furniture, wardrobe, etc. to handle before you start actually getting that biglaw salary.

So, unless you have a really good background situation which handwaves that last bullet, I'd put $20-30k in high-yielding cash equivalents (HYSA, "no fee" CD at Ally, money-market fund, floating rate Treasury ETF...). That's your emergency fund which you'll hopefully carry indefinitely. Any new money coming in should probably go towards paying down loans.

I'd consider buying $10k of I-bonds through treasurydirect.gov. These are inflation-protected (currently yielding CPI plus 0.9%), tax-deferred, and make a great rainy-day fund; the catch is that you're locked up for 12 months and pay a small penalty to withdraw before 60 months. But you should have enough cash to hit both of those timeframes and it'll be nice knowing you have that baseline cushion of "oh shit" money, about 2 months' expenses, pegged to inflation.

Thanks for the very detailed answer.

My question is: isn't the interest on whatever student loans I take out going to be more than I would get in a HYSA? The loans would be part subsidized (~5%), part unsubsidized (~6%). HYSAs yield around 4%. So I'm best off keeping the minimum amount I need to live on in the HYSA and using every extra dollar to avoid loans, right?

If the interest is higher on your debt than you would receive in a HYSA, then yes, prioritize paying off the debt. If the interest in the HYSA is higher (or equal), you should only make minimum payments to the debt.

When making that calculation, don't forget that your earnings in HYSA are taxable.

[Anonymous User]

Thoughts on this NYT article?

https://www.nytimes.com/interactive/202 ... esume.html

With how generous IDR is getting (you can completely avoid any interest now if you make the minimum payment), and the possibility that no one will ever pay back the massive pile of outstanding student loans, do you guys think there is an argument for just going on IDR, paying the minimums, and waiting it out for them to cancel the debt rather than aggressively paying down the principal?

[Anonymous User]

Thoughts on this NYT article?

https://www.nytimes.com/interactive/202 ... esume.html

With how generous IDR is getting (you can completely avoid any interest now if you make the minimum payment), and the possibility that no one will ever pay back the massive pile of outstanding student loans, do you guys think there is an argument for just going on IDR, paying the minimums, and waiting it out for them to cancel the debt rather than aggressively paying down the principal?

Is the bolded actually true? Also don’t you get hit with a tax bomb after forgiveness? Seems unlikely anything will be cancelled regardless

[Anonymous User]

Thoughts on this NYT article?

https://www.nytimes.com/interactive/202 ... esume.html

With how generous IDR is getting (you can completely avoid any interest now if you make the minimum payment), and the possibility that no one will ever pay back the massive pile of outstanding student loans, do you guys think there is an argument for just going on IDR, paying the minimums, and waiting it out for them to cancel the debt rather than aggressively paying down the principal?

Is the bolded actually true? Also don’t you get hit with a tax bomb after forgiveness? Seems unlikely anything will be cancelled regardless

The bolded is what Biden announced as part of the new SAVE repayment plan, yes. Nope, I got that wrong - see a couple posts below for clarification. If the interest goes away, the likelihood of paying off a decent chunk of your loans over the 20(?I forget) years of repayment seems really good. [leaving this just for reference:] Not the anon you’re replying to, but I just got my loans forgiven under PSLF in March. I borrowed about $100k. After 10 years of making income-based payments, my debt had grown to $114k at forgiveness. I don’t have a precise total paid because the loan servicer seems to wipe almost all info after forgiveness and I’m not going to go look up my records, but I think it was around $70k, and keep in mind this includes about 3 years of not making payments due to the Covid pause.

Now I realize that lots of people at top schools have way more debt than $100k, but if they’re in biglaw they also have much bigger salaries than I do. If the interest does in fact go away [it doesn't], paying off a large enough chunk of loans over the time of the repayment plan such that the tax on the forgiven income won’t be that bad is probably reasonably possible. If not for interest, I’d have knocked out a decent chunk of my debt in only 10 years. [that said, I think the proposed plan will help limit the brutal growth of your loans despite making payments, especially for people with lower incomes]

Assuming the interest doesn’t go away so paying down the minimum doesn’t really make a dent in the loan, you could aggressively pay the loans down; or you could stretch out the payments over the life of the loan, which wouldn’t really get you forgiveness but would avoid the tax bomb and give you a little more income to work with; or you could pay as little as possible, aggressively invest everything else including what you save by not paying off the loans, and plan ahead for the tax liability from the forgiven loan. Which of these is the best option probably depends a lot on one’s own salary, goals, etc. I know people in biglaw who would rather put their salary into investments now on the theory that what they earn over that 20 years outweighs the tax they’ll have to pay at the end. But I’ve never done any kind of calculations to figure out if this makes sense. Conversely, someone with a tiny PI salary their whole career may not have a lot of options.

I also know someone who swears the feds will make the tax bomb go away by the time people become eligible for forgiveness, but that may be wishful thinking, and in any case there’s still a chunk of time before that’s going to happen.

[Anonymous User]

Thoughts on this NYT article?

https://www.nytimes.com/interactive/202 ... esume.html

With how generous IDR is getting (you can completely avoid any interest now if you make the minimum payment), and the possibility that no one will ever pay back the massive pile of outstanding student loans, do you guys think there is an argument for just going on IDR, paying the minimums, and waiting it out for them to cancel the debt rather than aggressively paying down the principal?

Is the bolded actually true? Also don’t you get hit with a tax bomb after forgiveness? Seems unlikely anything will be cancelled regardless

The bolded is what Biden announced as part of the new SAVE repayment plan, yes. If the interest goes away, the likelihood of paying off a decent chunk of your loans over the 20(?I forget) years of repayment seems really good. Not the anon you’re replying to, but I just got my loans forgiven under PSLF in March. I borrowed about $100k. After 10 years of making income-based payments, my debt had grown to $114k at forgiveness. I don’t have a precise total paid because the loan servicer seems to wipe almost all info after forgiveness and I’m not going to go look up my records, but I think it was around $70k, and keep in mind this includes about 3 years of not making payments due to the Covid pause.

Now I realize that lots of people at top schools have way more debt than $100k, but if they’re in biglaw they also have much bigger salaries than I do. If the interest does in fact go away, paying off a large enough chunk of loans over the time of the repayment plan such that the tax on the forgiven income won’t be that bad is probably reasonably possible. If not for interest, I’d have knocked out a decent chunk of my debt in only 10 years

Assuming the interest doesn’t go away so paying down the minimum doesn’t really make a dent in the loan, you could aggressively pay the loans down; or you could stretch out the payments over the life of the loan, which wouldn’t really get you forgiveness but would avoid the tax bomb and give you a little more income to work with; or you could pay as little as possible, aggressively invest everything else including what you save by not paying off the loans, and plan ahead for the tax liability from the forgiven loan. Which of these is the best option probably depends a lot on one’s own salary, goals, etc. I know people in biglaw who would rather put their salary into investments now on the theory that what they earn over that 20 years outweighs the tax they’ll have to pay at the end. But I’ve never done any kind of calculations to figure out if this makes sense. Conversely, someone with a tiny PI salary their whole career may not have a lot of options.

I also know someone who swears the feds will make the tax bomb go away by the time people become eligible for forgiveness, but that may be wishful thinking, and in any case there’s still a chunk of time before that’s going to happen.

Thanks for this summary, really helpful. I was dead set on paying my loans lump sum once repayments resume (have nearly the entire balance stashed in a HYSA) but now I’m contemplating the SAVE plan and doing something else with my savings

[Anonymous User]

Thoughts on this NYT article?

https://www.nytimes.com/interactive/202 ... esume.html

With how generous IDR is getting (you can completely avoid any interest now if you make the minimum payment), and the possibility that no one will ever pay back the massive pile of outstanding student loans, do you guys think there is an argument for just going on IDR, paying the minimums, and waiting it out for them to cancel the debt rather than aggressively paying down the principal?

Is the bolded actually true? Also don’t you get hit with a tax bomb after forgiveness? Seems unlikely anything will be cancelled regardless

This isn’t accurate with SAVE. If your minimum payment is below the amount of interest due, then the excess interest will be forgiven. In effect, SAVE prevents negative amortization. You’re not receiving a 20 year interest-free loan.

[Anonymous User]

Thoughts on this NYT article?

https://www.nytimes.com/interactive/202 ... esume.html

With how generous IDR is getting (you can completely avoid any interest now if you make the minimum payment), and the possibility that no one will ever pay back the massive pile of outstanding student loans, do you guys think there is an argument for just going on IDR, paying the minimums, and waiting it out for them to cancel the debt rather than aggressively paying down the principal?

Is the bolded actually true? Also don’t you get hit with a tax bomb after forgiveness? Seems unlikely anything will be cancelled regardless

This isn’t accurate with SAVE. If your minimum payment is below the amount of interest due, then the excess interest will be forgiven. In effect, SAVE prevents negative amortization. You’re not receiving a 20 year interest-free loan.

Ah, you're right, I misread. That definitely makes more sense. So ignore my comments related to that provision (though depending on your income and the size of your debt, I feel like it's still a significant savings).

[Anonymous User]

From what I understand, the answer is yes, but just checking: After the SCOTUS decision and Biden's new plan, the moratorium on interest is ending and recent law graduates will have to start paying.

[Anonymous User]

Thoughts on this NYT article?

https://www.nytimes.com/interactive/202 ... esume.html

With how generous IDR is getting (you can completely avoid any interest now if you make the minimum payment), and the possibility that no one will ever pay back the massive pile of outstanding student loans, do you guys think there is an argument for just going on IDR, paying the minimums, and waiting it out for them to cancel the debt rather than aggressively paying down the principal?

Is the bolded actually true? Also don’t you get hit with a tax bomb after forgiveness? Seems unlikely anything will be cancelled regardless

This isn’t accurate with SAVE. If your minimum payment is below the amount of interest due, then the excess interest will be forgiven. In effect, SAVE prevents negative amortization. You’re not receiving a 20 year interest-free loan.

Can I briefly ask for a clarification on this as a non-finance person? This is my understanding of SAVE:

I have a 100K loan and I'm on SAVE with a monthly payment of $150. This doesn't fully satisfy my interest, which is $500 a month. The government, on SAVE, is essentially waiving the $350 difference. Month to month, my loan is staying at exactly 100K, because I'm never paying enough to begin to pay off principal, but there's also no interest accruing. If I do that for 20 years, the government will forgive the 100K that I never technically started to pay off (since my $150 was constantly going towards interest only).

Is this correct?