How long to pay back $150K in loans

[Steve.jd]

Inspired by Beatnik...

Assuming an adjusted gross income of 145,000 -- which, if memory serves, will be the market rate in NYC starting next year -- and being generous to the government by assuming no deductions, we have the following:

14,652.5 Federal Income base tax (roughly 10% rate)
20,454 (28% federal tax rate on income between 71,950 and 150,150)
8,700 NYC 6% income tax
10,694 NY State 7.375% income tax
(H&R Block Calculator said no AMT would apply)

54,500 Total Tax

54,500/145,000 = 37.5%

37.5% =/= 48%

What about medicare/FICA?

Gargh, why do I always forget those two?

I'm fairly certain Beatnik's right about the cap, though.

Even if we take FICA as ~4% over 145k then + what another 3% for medicare?, you're back in the mid 40s

I have to look it up when I get back, I'm not sure either assumption is a valid one.  I'm not sure where I put the article with it, but I'm almost that Medicare is 1.45% and the maximum tax cap on FICA is $6,000.  (If the tax rate is 6.2% and stops at 95k, it jives with what Beatnik says.)

You might be right about Medicare but if the top cap on FICA is 6000 then 6000/145k = ~4%

[Miss P]

Your FICA seems on the LOW end...I could be wrong, but I'm pretty sure I pay more than that with a much lower income.

As I understand it FICA is around 6% but maxes out around $90K (ceiling increases each year).  So if the max is 100K in a given year someone earning 125K pays the same FICA tax as someone earning 250K.

Yeah, this is correct.  FICA/Medicare (employee's share) is 7.65% up to $94,000; that is, it maxes out at around $7,200 (sorry, just doing this in my head -- too lazy!).

I don't know why I know these things, since I have never made more than $33,000, and I won't ever make the FICA/Medicare cap.  *sigh*

[Miss P]

True.  But you know by now that I can't talk and walk at the same time, let alone talk and type.

But since my point is the same as Beatnik's I'm not sure it matters.

Hey Lily!  Since I've read your posts on the fin aid threads and in my opinion you are the queen of all things financial your input definitely matters.

My thing is, as people have said NY and SF are expensive places to live and will definitely require some careful budgeting for a few years, but if people decide NOT to live here based on a faulty expectation of paying 50% in taxes they are unneccesarily closing off a legitimate option for repaying those loans.

Yes.
FWIW, I live in NYC and make much less than 50% of T100 firm salaries.  I'm just fine.

EDIT: I left out the most important part: until recently, I was paying back over $200/month in UG loans.  So with my takehome salary of, say, $24K, I lived here and paid between $250 and $350/month.  Assuming loan payments on $150K = approx. $1200/month (Is this at all close?  I haven't read the whole thread), you would need only $900/month more (post-tax) than I have. That's about $17K more in salary. So you could do this with a $50K salary, if you were frugal enough.

[mae8]

makes sense as a lot of law jobs in nyc not covered by most schools lraps wont be more than this.

[rider06]

having been born and raised in jersey, i can say that nyc is nice but it's just not worth the expense.  i love being so close to the city but coming home to a quiet, rural area at night.  it's also cheaper (jersey as a whole still has the highest Cost of living in the country IIRC, but still cheaper than manhattan of course)

i would rather live/work in jersey and have a nice view of the city from here than have to pay double to live there...

[dmitrik4]

that's about my debt level, and i'm planning to take as long as possible to pay back some parts of it; none of the interest rates (federal or private) are over 6%.  and at 3% on my federal loans, that's like free money.

Wow.  I don't even know where to start with this one.

This actually makes some sense.

My investments have been yielded ~28% on average over the past 3 years, and if I was smarter I would take awhile to pay back loans, and just keep funneling money into that.  Alas, I am debt averse, that if you can find any investment which will yield more than 3% it makes no financial sense to pay off loans quickly, especially considering interest on those loans is tax deductible.  Heck, ING.com savings accounts currently yield 4%.

It's not the savings -- it's his belief that interest rates are 6% and 3%, and the implicit assumption that they'll stay that way through the life of the loan. 

Federal loans, yes.  The private loans those of us without a 750 have to take out for law school? Not so much.

i'm not assuming anything.

correct me if i'm wrong, but since all my loans are consolidated at fixed rates (fed 3.1, private 5.9), the interest isn't changing over the life of the loan...or does "fixed" somehow actually mean variable?  the whole point of consolidation is to fix the interest rate.  anyone with unconsolidated federal loans (even those still in school) should be consolidating them NOW, before the rules and interest rates change in July.

my private loans are all through a NJ state agency, and available to anyone who attends school in NJ.  obviously if i was into CitiBank or Sallie Mae for $40k in variable-rate loans, i would be hurrying to pay them back.  but i ain't, so i'm not.

some constructive counter-arguments would be preferable to vaguely condescending potshots.

the point was that rushing to pay back student debt isn't always the best plan; sometimes it makes sense to put that money to use in other ways.  the best plan will depend on an individual's particular scenario.

[greengrl]

that's about my debt level, and i'm planning to take as long as possible to pay back some parts of it; none of the interest rates (federal or private) are over 6%.  and at 3% on my federal loans, that's like free money.

Wow.  I don't even know where to start with this one.

This actually makes some sense.

My investments have been yielded ~28% on average over the past 3 years, and if I was smarter I would take awhile to pay back loans, and just keep funneling money into that.  Alas, I am debt averse, that if you can find any investment which will yield more than 3% it makes no financial sense to pay off loans quickly, especially considering interest on those loans is tax deductible.  Heck, ING.com savings accounts currently yield 4%.

It's not the savings -- it's his belief that interest rates are 6% and 3%, and the implicit assumption that they'll stay that way through the life of the loan. 

Federal loans, yes.  The private loans those of us without a 750 have to take out for law school? Not so much.

i did mention that my FEDERAL loans will be stretched out as long as possible.  and i'm not assuming anything.

correct me if i'm wrong, but since all my loans are consolidated at fixed rates (fed 3.1, private 5.9), the interest isn't changing over the life of the loan...or does "fixed" somehow actually mean variable?  the whole point of consolidation is to fix the interest rate.  anyone with unconsolidated federal loans (even those still in school) should be consolidating them NOW, before the rules and interest rates change in July.

my private loans are all through a NJ state agency, and available to anyone who attends school in NJ.  obviously if i was into CitiBank or Sallie Mae for $40k in variable-rate loans, i would be hurrying to pay them back.  but i ain't, so i'm not.

some constructive counter-arguments would be preferable to vaguely condescending potshots.

NO, you're right; consolidated fixed interest rates remain constant over the life of the loan. From what I understand those of us starting in 2006 will not have the opportunity to consolidate our loans when we enter repayment; correct me if I'm wrong. 

[dmitrik4]

i was being slightly facetious. 

i think you'll still have the opportunity to consolidate, but you'll have to wait until  either your grace period (between graduation and repayment) or until repayment.  the option to consolidate in-school will apparently be gone.  the DoE website probably has info regarding the new rules.

but if you have UG federal loans, you should probably consolidate them now, b/c rates are going up in july.

[greengrl]

i was being slightly facetious. 

i think you'll still have the opportunity to consolidate, but you'll have to wait until  either your grace period (between graduation and repayment) or until repayment.  the option to consolidate in-school will apparently be gone.  the DoE website probably has info regarding the new rules.

but if you have UG federal loans, you should probably consolidate them now, b/c rates are going up in july.

oh, thanks for the clarification. actually i thought i couldn't consolidate at all; good to know. I thought it sounded a bit over the top

[queencruella]

A lot of us are going to schools in states that don't have agencies that will give loans. We are pretty much stuck with private lenders like CitiBank and the like. I know I just want to pay the private loan off ASAP because I don't want to end up paying 20% 10 years down the road.