How much debt is too much?

[ElizaB]

I didn't mean it to sound like I thought that $200k was nothing....because I certainly think it is a lot of money.  I just meant that I try to view it as an investment in our future (that sounds like a bad bank commercial) instead of a debt.

[Garbled]

I didn't mean it to sound like I thought that $200k was nothing....because I certainly think it is a lot of money.  I just meant that I try to view it as an investment in our future (that sounds like a bad bank commercial) instead of a debt.

I agree 100% and i understood what you meant. It will be the best $200K that you ever spent!

[vagrant]

I wouldn't say that 200K is "nothing" but your point is well taken. Additionally, the interest on student loan debt is written off your tax in a different and much more beneficial way than, say, mortgage interest. With mortgage interest you have to itemize and the tax savings benefits are usually not nearly as beneficial as people might think, but student loan interest isn't handled that way. Ask a tax guy for details.

but many will blow through the income cap for this deduction their first year out of law school

[Garbled]

I wouldn't say that 200K is "nothing" but your point is well taken. Additionally, the interest on student loan debt is written off your tax in a different and much more beneficial way than, say, mortgage interest. With mortgage interest you have to itemize and the tax savings benefits are usually not nearly as beneficial as people might think, but student loan interest isn't handled that way. Ask a tax guy for details.

but many will blow through the income cap for this deduction their first year out of law school

Good point. But i think having that kind of income is a problem we would all like to suffer with.

[enlyay]

$150,000

[vagrant]

$1

[ElizaB]

Oh my goodness!!!!!!!   I just did the math on a hypothetical $250,000 in student loans. I am hypothetically going to say that my boyfriend and I will owe $250k in student loans by the time I finnish law school and he finnishes his residency (this is a rough estimate...I'm thinking of our current loans plus the ones I will take out in law school plus the interest that will acrue on my unsub. loans while I am in school and the interest that will acrue on his loans while he is in his 4 to 5 year residency). Say we take 10 years to pay it off at 3% interest. That is $75,000 in interest. So our total is now $325,000. That amounts to monthly payments of $2,708!!!!!!! Now I now my figuring is off because we won't be paying interest on the full amount for all of those years...but even if we pay $50,000 in interest...that still amounts to payments of $2,500 a month!  Wowzers!!!

Now, I'm trying to figure out how much this will effect us.  Say he makes $175,000 and I make $75,000 and we have a combined income of $250,000.  If we pay 40% in taxes, that will leave us $150,000. (I know nothing about taxes so I am just estimating). Say my boyfriend has to pay another $25k in medical malpractice insurance. That leaves us with $125,000. That $30,000+ a year in loans will consume 25% of our household income!  That is alot!

Are my estimates even in the ball park on this thing?  If they are, I think I better look into freezing my eggs because it looks like I won't behaving kids until I am 50!!!

[ElizaB]

$1

$1 is too much money to owe for an education!  You must have a rich Daddy footing the bill of your education!

[Highway]

Oh my goodness!!!!!!!   I just did the math on a hypothetical $250,000 in student loans. I am hypothetically going to say that my boyfriend and I will owe $250k in student loans by the time I finnish law school and he finnishes his residency....That amounts to monthly payments of $2,708!!!!!!! Now I now my figuring is off because we won't be paying interest on the full amount for all of those years...but even if we pay $50,000 in interest...that still amounts to payments of $2,500 a month!  Wowzers!!!

Are my estimates even in the ball park on this thing?  If they are, I think I better look into freezing my eggs because it looks like I won't behaving kids until I am 50!!!

Here are some real-world figures:

I still have $181k in principal to pay off my med school loan. I am on the 30 year consolidation, at 4.95% interest (the rates weren't as low when I went to school as they are now, and you can only consolidate once). Payments are $791 a month. On the 10 year plan, I'd be paying $2300 a month.

My wife owes $40k or so on her grad school loans. At 4.00% interest, it's something like $400 a month (10 year plan - I don't have the exact figures available to me right now).

If you consolidate over a longer time period, it's not too bad. I would caution that you should not consolidate the two loans together. If you do, your debt mingles, and you are each responsible for it. In our case, if I happen to die or something, my wife is not responsible for the remainder of my $181k debt because it is all in my name only, and taken out before we were married.

Another option is the 25 year consolidation income-contingent plan. That takes into account what you put on your tax forms, and they figure out a percentage you can pay. The more you make, though, the more you pay. In our case, our payments would be even higher than they are now. The good thing about that plan is that if you don't get the entire debt paid off in 25 years, they write off the rest. The bad thing is that it is considered as "income" and reported to the IRS, so you owe taxes on it.

Lastly, if you consolidate through the Federal program (which I did), they allow you to pay whatever you want (technically, whatever you "can afford."). If you call them and say you can't pay the full amount, they will work out a payment with you on a yearly basis to send them what you can. That way you can stay out of default, though the interest keeps growing. Oh...and by the way, the interest on my $181k loan is about $700 a month, or so, depending on when a payment is made (if you can pay it earlier than a full month between payments, more goes to principle, as would be expected).

Hope this helps. Large student loans do suck...no doubt about that, but they are manageable. We just think of ours as our second home. Unfortunately, we can never visit, rent or sell it.

Jeff

[chicago]

Great info, thanks Jeff.