Student Loan Repayment (BIG law loans)

In My Humble Opinion
1

It’s not unusual these days to come out of law school with over $120,000 in student loan debt.

A friend of mine started a solo practice, bought a new car, bought a house in San Diego, etc. He bought a new car before I did, he got married before I did, and he bought real estate before I did. He says he not getting rich off of the practice, but he’s doing ok. I asked him how in the hell he is doing all that AND paying his student loans.

He basically said he is not really paying his student loans. He didn’t give much in the way of specifics, but it sounds like he’s been doing deferments, forebearances, and/or minimum payment plans for the past 8 years or so.

I’m no expert on student loans, but his loans are probably on a 30 year term that will not be extended, at some point the loans will come due, and the longer he puts off paying the piper, the monthly payment is going to be through the roof when the lender comes knocking.

His response, “Well, I’m going to be dead at some point.”

In the meantime, I am doing basically the same as he is doing in terms of a law practice and a house, albeit not in San Diego, but I’m paying my loans on a “level pay plan” instead of making reduced payments now in exchange for large payments later. It really hurts the wallet to fork over the money every month, but I suck it up and do it.

I get the feeling my friend is setting himself up for default down the road unless his practice really takes off.

Which one of us is on the better track?

2

It’s hard to say without specifics. I have a loan that I am paying off over 30 years, I pay little now and it will jump up later to about duoble, although that will still be very managable. But I have heard baout huge jumps as well. The thing is, I want to pay off my student loan as slowly as possible since I have this ridiculously low interest rate of 2.25%

3

You are. Sooner or later the piper will come to collect and it won’t be pretty for your friend. I’ve seen it happen.

4

I would say you are on the better track, simply because it is true that someday he will be dead, but assuming he was 35 when loans started coming due and he has a 30 year loan term, he will have a boatload of money due right when he hits retirement age. Sure, he doesnt have to retire at 65, but what if he is ill and cant work, or he has a spouse who is ill and he needs to devote more time to them, or just feels like he has worked all his life and now it is time to do what he wants? Even if he has been especially prudent about saving for retirement (which I would guess he is not if he can’t be bothered to pay his loans) $120k having to be paid out of his 401k will be a huge deal and could greatly effect the lifestyle he wants to have at that time. He can be the grasshopper or the ant, and if he continues to be the grasshopper be wary when he shows up on your doorstep one chilly winter morning.

This assumes a starting age of 35…if he started at 25 or whatever that will make a difference, but it still won’t be pretty when the collection man comes calling.

5

Nice! I’m jealous, and I can’t reconsolidate.

6

I’m holding out for the passing of HR 916 or some derivative thereof, which will repay student loans for law grads who become local prosecutors, up to $10,000 a year for up to six years. It’s already passed the House, but a similar bill died last session without action.

7

:eek: ('Cause there’s no “green with envy” smilie.)

I try not to depend on the kindness of strangers, but whatever hocus-pocus you whipped up to get that rate, umm, can I have some?

Please?

Pretty?

Cherry on top?

8

I’d say it really depends on what interest rate the loans are at, and whether your friend is saving the money he would have been using to make loan payments.

If he is getting an interest rate well below 5%, it would make sense to pay as little as possible (without triggering any penalties or fees) and save the money he would have sent them. For example, if his interest rate is 3% and he could afford to send them $10k above the minimum payments this year, he’d be $200 ahead if instead he stuck it in a 5% money market account. Time can be your friend with low-interest loans.

Of course, if he’s just spending all his money on more expensive stuff and letting the loan balance build, well, that’s not so smart.

9

I have the same ridiculous low interest rate (well, 3%)-- consolidated with the gummint at the last minute before the rates went up a couple of years ago and am on the ‘pathetic humanities degree’ 'graduated payment" plan. It’s like, interest that accrues slower than inflation. I’m MAKING money.
God, if this marginally employed humanities adjunct instructor can make loan payments your pal sure should.

10

Well if I recall, I consolidated loans, then I think I got 0.25% reduction by doing an automatic debit from my checking, and then I think (the exact details I am not sure about) I got a 0.5% reduction for one year of on-time payments and another 1% reduction for 3 years of on-time payments. This is through Sallie Mae.

11

Oh, yeah, I’ve seen some of this stuff in loan applications. Not so hocus-pocus after all, huh? :wink: Looks like it just involves being smart enough to explore your options and then going after the best one. Good on you!

And thanks for providing a real-world example that these kinds of things really do make a difference, in which case I should have something good to look forward to after I graduate five, six, seven years ( :frowning: ) from now.

12

I consolidated my law school loans at 2.875% (still not too shabby), and was actually making HUGE payments for a couple years directly after, trying to whittle the amount down as quickly as possible. Then I quit my job and the entire profession, started with jobs that paid a lot less, and went back to school for my MLS. Now I’m paying for my classes out of pocket (with help from my current employer), and my law school loans are in deferment while I’m in grad school. I have a savings account earning 5-point-something % interest, so it makes more sense to just keep my money in that and tone down the loan payments once I get my grad degree.

13

I hear you about the large loans. An undergrad education at a top-rated engineering school, coupled with a graduate education at a mid-level school equals lots of loans. From the two years between undergrad and grad school, I was paying off my loans at, IIRC, 3.25%. I got a .25% reduction from doing the automatic debit, and the starting low rate was because it’s through VSAC, a non-profit loan and scholarship organization for Vermont students.

14

I don’t think he’s saving or investing. He gave me the impression that he was able to afford to pay for what he has, but not much else. He said his business ran at a loss the previous month. So, I get the feeling he’s pretty much able to stay afloat.

15

I agree with all this (especially Giraffe’s analysis).

Let me say one possible way this could make sense is if he expects an inheritance of some kind at some point. The general consensus expressed here is still true – the Piper will come calling - but if this professional is looking at his likely lifetime cash flow that could explain the otherwise unwise financial actions as outlined here.

Or - more likely - he is like 10’s of thousands of people who live financially irresponsible lives.

16

Possibly. I think his father is pretty well-off and financed, in whole or in part, the upstart of his solo practice.

One of my main questions here is whether I am missing out on some angle whereby I could similarly put the loans off. From the responses, it seems I’m doing what I should, at least until the feds change the law to allow refinancing of consolidation loans.

17

If you owe the Federal Government money when you retire, they WILL take payments out of your social security. Plan ahead.