My wife and I are trying to come up with a realistic long-term strategy for handling her law school debt while still being able to build toward other financial goals, and I’d appreciate advice from people who’ve dealt with something similar.
Current situation:
– My wife graduates law school at the end of this month
– She has about ~$220,000 in Grad PLUS student loans at ~8.95%
– Roughly ~$20,000 of that is accrued interest that has not capitalized yet
– She’s studying for the bar this summer and will take it in July
– Assuming she passes, she has a job lined up starting in October making ~$95k/year
For me:
– I’m currently a graduate student making about ~$35k/year (sometimes a bit more if I adjunct teach)
– I’ll probably be at that income level for another ~3 years before hopefully moving into a professor position in the ~$70–80k range
Other financial info:
– We currently have about ~$30k in savings
– No other significant debt
– We eventually want to buy a house, start a family, invest consistently, and not completely delay retirement savings or future college funds for kids
One important point:
PSLF is probably not realistic for her current career trajectory/job, so we are mainly trying to decide between staying federal for flexibility vs refinancing aggressively if rates become favorable.
We’re considering a few options:
– Refinancing privately at some point if we can substantially reduce the interest rate
– Moving to a 20–25 year repayment plan to lower mandatory monthly payments, but then making aggressive extra payments whenever possible
– Staying federal for safety/flexibility while our income is lower over the next few years
– Trying to balance loan payoff with investing and saving for a future home
The thing that worries us most is getting trapped in a situation where all of our cash flow goes toward debt and we delay every other major life goal for the next decade. But at the same time, nearly 9% interest feels hard to ignore.
If you were in our situation, how would you approach this over the next 3–5 years?
Especially interested in:
– Refinance vs staying federal
– Whether extended repayment + aggressive extra payments is a smart approach
– How much cash savings you’d keep before aggressively attacking the loans
– Any pitfalls people with large law school debt commonly run into
Thanks.
Trying to balance large student loans with saving for a house/family
byu/weenir_cum_balls inStudentLoans
Posted by weenir_cum_balls
8 Comments
$95k starting salary seems a bit low.
Stay federal, pay off as aggressively as you can, especially if PSLF is not an option. Get as high paying of a job as possible if unable to go for PSLF. Consider a consult with student loan planner – or at least check out his(Travis) YouTube and podcast.
30k is probably enough in savings.
At nearly 9% aggressive repayment is your best option. Average market returns are 8-10% so investing with the loans isn’t even treading water when you factor in income taxes and cap gains on the returns.
Keeping the debt around longer than necessary at that interest rate would be your biggest mistake.
At 9% I would probably refi if I could cut the rate in atleast half, but I am in the minority with that opinion on this forum. I would put off buying a house and kids until the debt is under control. Daycare costs are brutal. What if one of you wants to stay home after having a baby? Homeownership is expensive. Rent is the most you will pay, your mortgage is the least you will pay. Insurance and taxes always go up and maintenance gets expensive fast.
Not to be blunt, but taking out $220k of student loans isn’t a small decision, and by necessity, typically requires delaying certain milestones as a result. Unless you get a fantastic salary, which isn’t the case you’re in, making large investments in education requires some sacrifice afterwards. Buying a house is just going to increase the number of expenses that could ruin you, and getting a mortgage with that debt-to-income ratio will be difficult. Are you in a HCOL area?
>Refinance vs staying federal
Even if your interest rate decreased to 6%, you’re still making payments of at least $2,500 a month and will take a decade to pay off her loans. Will you have any loans on top of it? IMO you’ll get more protection and a lower payment if you keep it federal. Run the math yourself, though, and make sure to include any taxes you’ll owe on the tax bomb if it gets forgiven at the end of a federal repayment plan.
>Whether extended repayment + aggressive extra payments is a smart approach
With your expected salaries, I’m not sure you’ll be able to go aggressive unless you live with family. In which case, you might be able to knock this out in three years, living extremely frugally and getting promotions. Even then, it would be very hard. But at least you’re fully free to live your life after.
>How much cash savings you’d keep before aggressively attacking the loans
IMO have enough saved to cover 2 months of expenses and your deductibles on health/car insurance/
Best of luck. Acknowledge now that it’s going to be a long road, not a sprint, but life goes on, and it’s not the end of the world.
Minimum payments possible, no offense but it’s very difficult to move into a full professor positions. You are an adjunct now? At 2 people making 130 your income based payments will be low. There’s too many what ifs about increasing income to justify making large payments.
Keep them federal. Put them on income-based repayment and pay the minimum. That’s really your only decent option until your income increase dramatically.
the answer is DINK.
We’re kinda in the same boat, we bought real estate first and are a bit in a pickle with student loans…we can just barely afford it but only because my husband with about $280k in grad loans makes about $140k