If you took out six figure student loans for a professional degree, what was your strategy

[Anonymous]

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Anonymous wrote:For the first few years, I paid on a 20 yr plan. Then I got married and we used all of my income to pay down the debt -- which was gone in 2 yrs. When the debt was gone, THEN we started a family. Not having that debt is CRUCIAL to having freedom in your life.

I highly recommend paying it all down and living without the next purchases for a few years. You will NOT regret getting that monkey off your back.

I highly recommend the exact opposite. I definitely would have regretted it.

Why would you regret taking only 2 years to get your debt to zero and then start living a very nice life? Why can't you do 2 years of delayed gratification?

DP: Depends on how much you can grow assets with the money you used to get debt to zero and the difference between that and the total cost of loans. "Gratification" isn't the only use of money. If you were living in an area with high home appreciation or during a stock market boom, I'd much rather devote income to taking advantage of those opportunities. I had student loans with a very low interest rate--I dragged those out as long as I could and am much better financially off for it--invested in a house and stock market in 2009 both of which boomed in that next decade. I would have kicked myself if I threw everything at my loans.

I get that, but the fact is paying off the loans is a guarantee. The stock market and home valuation is not. But if you truly have low interest loans, it does make more sense.

I'm the PP, my interest rate was under 2%.

[Anonymous]

My husband took out 250k to pay for law school at various rates 6% 8% etc. His parents are wealthy so he had (still has) little concept of money. His law school was not one that was amazing so no pedigree upon graduation. Decided to go public interest for loan forgiveness bc top firms would not give him a second look. Did that for a while but not long enough to pay off the loan. I happened to be an excellent saver, had no student loans and bought a home in NE DC before it was “on the rise”. Sold for a profit which we bought our suburban house with; roped in a low mortgage rate then after a few years refinanced and rolled the loan into our mortgage payment, paying off a little more than 1/3 of the loan as this was a lower finance rate compared to initial borrowed loans. Since the public interest job, he jumped to a couple of small firms and now does something in the related field. HHI around 40Ok. We still have 100k to pay back (almost 8 years later). We will plop down basically all of our savings to do this. Thankful for the COVID pause that helped us save to get the yokes off our neck. Borrowed money does not see real until you have to pay it off particularly for rich kids who were handed everything (except payment for law school!)

[Anonymous]

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Anonymous wrote:My spouse and I graduated into the recession (2010) with $250K law school loans, 5+% interest rates, and a pulled offer. We therefore were more risk averse than some others and focused on paying our loans down aggressively for 5+ years. Then focused on getting pregnant (worried about fertility) and saving for a down payment (tough with double daycare). That left us poised to buy in spring 2020 but then Covid happened and we waited a year to see whether we actually wanted to move out of the region to be closer to family. Ended up buying a house in the DMV in 2021. It’s worked out okay but if we had been less risk averse we likely would have gotten on the property ladder sooner which would have been much better for our net worth. I’m at peace with our approach but not sure I’d recommend to others.

Say you finished law school in 2005, worked to pay loans down for 2 years, then said let's buy a house now before we are debt free. So you spend $600K on a home in 2007, watch it go up in value for 1 year then watch the bottom drop out, so your home is only worth $300K and it takes another 7-8 years to be worth $600K again. So in 2009 you have a home worth half what you paid for it, you still have at least half your loans, you are thinking of getting pregnant or have a kid already paying for daycare, no choice to move as you cannot sell your home, you would owe the bank if you wanted to move out.
It's all about timing----for you you missed out on the years of increased home values. But it just as easily could have been missing out on the bottom dropping out and you being so happy you were still renting and focused on reducing debt and not being underwater by 40-50% on your home.

This is a pretty asinine comment. As it happened I bought my house in 2016 which has worked out very well for us but I wouldn’t have said no to paying 2007 prices instead! Especially since no one was ever 50% underwater on their DMV home.

There are plenty of places where people were in the USA, or at least 30-40% under. We bought a house in 2015, the original owner had bought in 2007. What we paid them was still 20% less than the original purchase price, factor in the ~10% for realtor fees, and real estate transfer taxes and they lived in a great home in a great area for 8 years and took a 25-30% loss, before considering any improvements they made to the home. (Note: they had been attempting to see for 2-3 years, but this was the highest they had gotten and finally wanted to downsize) Now when we sold 7 years later we sold house for 85% more than we paid. and could have sold for 100% more just 6 months prior.

no investment is guaranteed, housing or stock market. But paying down loans is always a guaranteed return.

You’re forgetting the massive tax advantages in investing for high income people. Maxing out retirement contributions was a huge advantage over student loans given the very marginal high tax rate of highly paid professionals.

Of course as a matter of fact I came out way way ahead buying a house and investing, but even if the market hadn’t done so well, I still could easily expect to be better off investing pretax income than paying tax on it and then paying off student loans.

NP. I would not say prioritizing student loans over retirement contributions is the same thing as prioritizing buying a house or making other investments over student loans. We were very frugal in order to pay off student loans, and that meant not buying a house for a long time, but we did max out the 401k. I guess there is a spectrum of how big of a priority this is. I think the big idea for me is that I didn't want to leverage my student loan debt to make investments that might get a better rate of return, like many people do by buying a house before paying off student loans. Unless you can afford to eat your losses, which I understand many can.

I'm the PP, and yes I would prioritize retirement along with paying down loans. But I would not buy a home until I had most of the loans paid off. We had nearly $75K in loans and we paid them off in 2 years with a focus on redirecting one salary to them, along with bonuses, and living in a decent but not fancy apartment for 2 years. We also saved for a home downpayment at same time and funded retirement as best we could. We waited to buy a home until we had paid off the loans and saved 10% down. Yes we could have bought earlier, but we preferred to wait the extra year and felt more comfortable having the loans gone (loans were at 6-10%).

I understand feeling more comfortable that way, but now that the cookies have all crumbled, there's really no doubt those of us who bought houses first over paying off loans first made the right choice. Our appreciation in the past few years is several multiples of what my student loans were.

[Anonymous]

Went to a big law firm and paid it all off within 2 years.

[Anonymous]

Anonymous wrote:Went to a big law firm and paid it all off within 2 years.

Must have either had a lot of scholarships or else gone to school a long time ago because now it couldn't be done for a student paying sticker, not even if they didn't have a single living expense.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:My spouse and I graduated into the recession (2010) with $250K law school loans, 5+% interest rates, and a pulled offer. We therefore were more risk averse than some others and focused on paying our loans down aggressively for 5+ years. Then focused on getting pregnant (worried about fertility) and saving for a down payment (tough with double daycare). That left us poised to buy in spring 2020 but then Covid happened and we waited a year to see whether we actually wanted to move out of the region to be closer to family. Ended up buying a house in the DMV in 2021. It’s worked out okay but if we had been less risk averse we likely would have gotten on the property ladder sooner which would have been much better for our net worth. I’m at peace with our approach but not sure I’d recommend to others.

Say you finished law school in 2005, worked to pay loans down for 2 years, then said let's buy a house now before we are debt free. So you spend $600K on a home in 2007, watch it go up in value for 1 year then watch the bottom drop out, so your home is only worth $300K and it takes another 7-8 years to be worth $600K again. So in 2009 you have a home worth half what you paid for it, you still have at least half your loans, you are thinking of getting pregnant or have a kid already paying for daycare, no choice to move as you cannot sell your home, you would owe the bank if you wanted to move out.
It's all about timing----for you you missed out on the years of increased home values. But it just as easily could have been missing out on the bottom dropping out and you being so happy you were still renting and focused on reducing debt and not being underwater by 40-50% on your home.

This is a pretty asinine comment. As it happened I bought my house in 2016 which has worked out very well for us but I wouldn’t have said no to paying 2007 prices instead! Especially since no one was ever 50% underwater on their DMV home.

There are plenty of places where people were in the USA, or at least 30-40% under. We bought a house in 2015, the original owner had bought in 2007. What we paid them was still 20% less than the original purchase price, factor in the ~10% for realtor fees, and real estate transfer taxes and they lived in a great home in a great area for 8 years and took a 25-30% loss, before considering any improvements they made to the home. (Note: they had been attempting to see for 2-3 years, but this was the highest they had gotten and finally wanted to downsize) Now when we sold 7 years later we sold house for 85% more than we paid. and could have sold for 100% more just 6 months prior.

no investment is guaranteed, housing or stock market. But paying down loans is always a guaranteed return.

You’re forgetting the massive tax advantages in investing for high income people. Maxing out retirement contributions was a huge advantage over student loans given the very marginal high tax rate of highly paid professionals.

Of course as a matter of fact I came out way way ahead buying a house and investing, but even if the market hadn’t done so well, I still could easily expect to be better off investing pretax income than paying tax on it and then paying off student loans.

NP. I would not say prioritizing student loans over retirement contributions is the same thing as prioritizing buying a house or making other investments over student loans. We were very frugal in order to pay off student loans, and that meant not buying a house for a long time, but we did max out the 401k. I guess there is a spectrum of how big of a priority this is. I think the big idea for me is that I didn't want to leverage my student loan debt to make investments that might get a better rate of return, like many people do by buying a house before paying off student loans. Unless you can afford to eat your losses, which I understand many can.

I think this is the crux of things. A lot of people with professional degrees have high incomes. They can afford to not worry about their losses, its just less savings, and there's a lot more upside in a house or the market than 5% or whatever they are paying on student loans. If you buy a $1mm house and it devalues 10% you are $100k underwater but still probably have an affordable house payment. If it increases in value 10% you are up $100k. There's more upside than downside imo.

[Anonymous]

I graduated in 2008 with $160K in student loan debt. My loans were repaid by the end of 2012. My first job was slightly under $50K (fed). I saved enough for retirement to get the max employer match. Beyond that I went on one nice trip a step above hosteling and prioritized repaying my loans. Debt terrified me as I grew up very financially insecure. I paid extra each month starting with the highest interest loans (bar study loans), then I think the federal loans had the next highest interest rate (which I thought was weird, but whatever), then private. When DH and I married he had $10K saved for no particular purpose and suggested putting that towards my loans. We basically lived on one income. Then he was sent overseas for a few months and with the extra pay we made more progress (and took a couple nice trips and he bought a gadget less than $500).

Would I have been better off paying the minimum? Maybe? My recollection is my interest rates were like 3.5% + LIBOR which put them around 6-8% for the most part. I was a fed for over 11 years so would have qualified for PSLF. When I originally ran the numbers I would have paid more over 10 years making minimum payments than paying them off as quickly as I did. I did NOT factor in the time value of money (i.e. what I could have earned investing in the market - CD rates were super low), or appreciation if we'd bought a house sooner. Both would have been very speculative.

I don't regret being debt free as soon as I was. When I had my first child I had the freedom to choose whether to return to work and not feel chained to my job to get the PSLF. (I went back to work). But, I am curious if/how much more $ we would have now if we had bought a house sooner. Oh well.

[Anonymous]

I graduated in 2004 with $110K of law school debt. I had a low interest rate, a bit less than 3%, and paid about $700 month. My husband had no school debt or any other debt, so we treated it as just another bill. We bought a condo in 2007 and had kids not long after that.
So, in other words, we didn’t delay property purchases or having kids to prioritize paying down the loan.
I threw lots of extra money at the loans when my kids exited day care, to be done paying it sooner. That was foolish in hindsight as I qualified for expanded PSLF in 2021 and the last $4K was forgiven!
The truth is, since my parents could not fund law school, without the loans, I couldn’t have the job that I have, that I love.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Took $120k, half private and half Direct Loan. On graduation, was able to consolidate the federal loan at a low rate on a 30 year repayment time-line.

Prioritized paying off the private loan, which had a floating rate. I was able to do it in about 3 years. I was a single person with simple tastes, so not a lot else to spend my salary on.

Moved to lower paying public service job after that but chose not to do the (faster) payment plan that qualified for PSLF: just kept paying the monthly payment, and double payments when I could. The last little bit became eligible for forgiveness in 2022 but otherwise I'd be nearly done now, after 20 years.

So you did IDR.

No, I made too much for that to work well. I had a 30 year fixed repayment plan, not income driven.

Since others are posting their years and other purchases: graduated in 2004, paid private loans off in 2007, borrowed to buy a house in 2009, borrowed to buy a car in 2014, and federal (fixed rate) loans gone in 2022. The main factor here was the low rate available when I graduated.

[Anonymous]

Chose a public law school over private schools for the lower tuition as I always wanted to work for the government. Ironically, I’ve always been in private practice but have always appreciated not having the debt that others do. Still graduated $60k in debt.

Got married right after law school, bought a very small house at a great price in a gentrifying neighborhood three years later. Had first baby two years after that and consolidated/extended the loans so that we could afford daycare. Had two more kids, bought a bigger house (not big) with great public schools. Finally paid off the loan about a year or so ago but it was just like another manageable monthly payment. Never had a luxury car, buy used cars sometimes, take budget friendly vacations (but good trips - to Europe some years), already put two kids through college (publics).

Nothing wrong with living frugally or at least within budget. You can’t have everything in life.