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Author Topic: Paying back loans  (Read 404 times)

seankenn

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Paying back loans
« on: March 10, 2005, 12:34:09 PM »
I keep hearing people talking about paying their loans back for the next 20 years, but doesn't this seem unreasonable.  I expect to rack up a debt of 80K-100K, but I figure this can be paid off in only a few years.  The way I see it is I survive off 25K/yr now, so a job of 75K+ will allow me to cut into my debt significantly.  Of course I would say I would spent 10K-15K per year more just because it is there to spent, that leaves 30K per year to cut into the debt.  I know everybody's situation is different, but for a single person living like a pauper for a few years seems well worth it to clear debt.  Is my reasoning skewed?

eileen2004

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Re: Paying back loans
« Reply #1 on: March 10, 2005, 12:40:48 PM »

Use this to figure out what your monthly payments would be:  http://www.finaid.org/calculators/loanpayments.phtml


HighlanderDP95

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Re: Paying back loans
« Reply #2 on: March 10, 2005, 12:46:06 PM »
It all depends on the person.  As someone who can see the end of his student loans on the horizon (less than 4 years), the debt load has never been unmanageable.   You are correct that if you have no other debt, don't want a house and have inexpensive tastes, a $100K debt load is not insurmountable.   If you add a spouse, kids and a house payment, priorities can shift.

Even at $100K, however, at 3.5%, that is almost a $1,000 a month payment to pay it off in 10 years.   If you're making $75K, that would be over 20% of your take home pay.   So not only do you have to be a pauper during law school,  you'd have to be a pauper for a few years after graduation.

I was lucky, I had a scholarship for two years and only needed $26K.  I have been in no rush to pay off my loans, because I benefitted from the interest rate drop.  All my loans are locked in at 2.5%, so I just have my payments on automatic withdrawal so I don't even think twice.
King Hall, '98
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Accepted: King Hall, Lewis & Clark
Waitlisted then Accepted: Hastings, UCLA
Waitlisted then . . .: Arizona, Colorado
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burghblast

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Re: Paying back loans
« Reply #3 on: March 10, 2005, 02:26:59 PM »
Here's the breakdown I did using an Excel spreadsheet:

My current cost of living, excluding savings, is $1,700/month (No car payment, $425 rent).

Assume the following throughout law school:
* Same COL throughout law school (Which is more than comfortable)
* 6% average interest rate
* No federally subsidized loans, grants or scholarships
* $20,000 earned during L2 summer
* No other income throughout law school

I would graduate from Northwestern $160,000 in debt. 

Now assume the following for the first 7 years after law school:
* $110,000 starting salary
* 40% effective income tax rate
* $2,400/month COL starting immediately after graduation
* No pay raises but also no COL increases
* $700 savings each month
* Same 6% average interest rate

This yields $5,500 in take home pay every month.  Subtracting COL and savings, this leaves $2,400 left over for student loan payments. $160,000 at 6% with $2,400 payments will be paid off in 81 months - less than 7 years.   



seankenn

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Re: Paying back loans
« Reply #4 on: March 10, 2005, 02:40:29 PM »
$1700 for your COL w/ $425 rent.  You must be a spender.  I take home $1550 monthly w/$700 rent and manage to save 300-400 a month. 

burghblast

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Re: Paying back loans
« Reply #5 on: March 10, 2005, 02:50:46 PM »
$1700 for your COL w/ $425 rent.  You must be a spender.  I take home $1550 monthly w/$700 rent and manage to save 300-400 a month. 

I also manage to save several hundred bucks a month, but I wasn't factoring that into my cost of living.  I agree that my current living standards are very comfortable, which is why I believe it will be easy for me to get by at the same level or even slightly below throughout law school. 

HighlanderDP95

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Re: Paying back loans
« Reply #6 on: March 10, 2005, 03:11:27 PM »

* $20,000 earned during L2 summer


and


* $110,000 starting salary


Both of these are on the high side.  If you're top 20%, then this is reasonable, but you won't know until you get there.   Based on my experience of those of us who weren't in the stratosphere (top 20%), I think you should adjust the 2L summer to $10,000 and the starting salary to $75,000.   While your numbers are "best case,"  the numbers I suggested are "more likely."

It is definitely doable and you understand the costs, but some people can be blinded by the reality.
King Hall, '98
Admitted CA, '98, NV '02
Stats (1995)
3.75/160
Accepted: King Hall, Lewis & Clark
Waitlisted then Accepted: Hastings, UCLA
Waitlisted then . . .: Arizona, Colorado
Denied:  Boalt, Texas

burghblast

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Re: Paying back loans
« Reply #7 on: March 10, 2005, 03:14:39 PM »

* $20,000 earned during L2 summer


and


* $110,000 starting salary


Both of these are on the high side.  If you're top 20%, then this is reasonable, but you won't know until you get there.   Based on my experience of those of us who weren't in the stratosphere (top 20%), I think you should adjust the 2L summer to $10,000 and the starting salary to $75,000.   While your numbers are "best case,"  the numbers I suggested are "more likely."

It is definitely doable and you understand the costs, but some people can be blinded by the reality.

Are you kidding me?  For any school in the T14, the *median* starting salaray is $125,000.  And although I haven't seen published data to support the L2 summer position estimates, I have seen anecdotal evidence that most L2's from top schools earn $2,000-$2,500 a week at summer positions.  If anything, I believe my numbers are a little on the conservative side.  Now, if I were planning on going to a T2 or T3 school, then I would be much more nervous...