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anonyjelly16's avatar

Education Debt?

Asked by anonyjelly16 (747points) August 13th, 2008

Now that law school is over, I am wondering how to most efficiently eliminate my education debt. Does anyone have any insight/advice on the topic? I have heard of Loan Consolidation, Accelerated Repayment Plans, etc. Can anyone provide any advice regarding these as well? (e.g. should I consolidate my education debt?)

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12 Answers

kevbo's avatar

Education debt is usually one of the least costly debts you’ll have, so there’s some incentive to not worry about it as much as other debts and life expenses. Other than making extra payments or paying extra on your regular payment schedule here are two things that have worked for me or people I know.

I consolidated when interest rates dropped a few years ago, so I’ve realized some savings there.

Also, I bought a house five years ago, and it’s value has increased enough that I could pay off my school debt if I sold my house and still have a good chunk left over. Obviously, the real estate market is dicey now, but it will probably be a good time to buy in a year or a couple of years. You’ll be buying at the bottom of a cycle and that should give your house time to appreciate.

I don’t mean to get pedantic with a law school graduate, but debt, used properly, is a decent tool. It may be worthwhile to just make maintenance payments on your debt while channelling more of your money in investments that can outpace the interest costs of your debt.

Knotmyday's avatar

Loan consolidation, if you have other large outstanding debts. I just slogged my way through, and paid it off separately. Took a decade, but it’s gone…Now for the mortgage.

Snoopy's avatar

Some loans will take off 1/4 percent if you let them debit out of your checking account. It isn’t much….but it is something.

Sometimes student loan debt is deductible depending on your income.

I appreciate what Kev is saying…and he is right. BUT debt is still debt. Just get rid of it. As fast as you can. Better to be earning money for yourself (like in a Roth or whatever) than racking up interest for you to be paying a bank.

shilolo's avatar

Snoopy. Not necessarily true. Hypothetically speaking, if you had 100K in debt at 3–4% interest (typical student loan), but then found 100K on the street, should you pay off the loan? Probably not! You basically have a very low interest loan that you can use as you please. If you invest it in the stock market (which historically has average 8–10% returns), you would realize a big net profit by investing rather than paying off the loan.

Snoopy's avatar

Shilo…I don’t disagree w/ you…..but even in your post you say…..“historically”....averages 8–10%. You are absolutely correct. Historically. But you have to put it in and leave it in——and in this current market to hope to make that kind of money….and hope that you make the correct choices and don’t actually LOSE some of the money.
So….you have to beat the interest rate on the loan, and hope that you don’t lose money, and deal w/ any taxes you might owe on the investment.
Personally, if I owed 100K and came into 100K, I would pay off the loan. Done. And then any money after that use to invest.
Can you win by trying to game the system. Sure! But there are just as many who lose moving their money around like that…...(just take a look at all of the long faces who invested in real estate).

Any way you slice it, the stock market isn’t a sure thing. What is a sure thing is that debt. And the interest rate it is accuring. It comes down to risk tolerance, really.

The person asking the question is fresh out of law school. His/Her highest priority is finding a decent job.

What should they do? In my opinion? Make regular payments on their loans. Don’t miss any…..Consolidate. And pay it off ASAP.

Get the monkey off of your back. Look at an amortization schedule and really KNOW how much you will pay back——at ?%—on X amount of loan that takes 10–15 years to pay off….
Now all of the sudden the actual amount you are paying back to the bank is shockingly more…..

shilolo's avatar

Snoopy, you make a good argument, but you can often get safe, stable rates on CDs or even online banks. The difference may be 1–2%, but it remains money in your pocket. I have consistently counseled my friends with large, medical school debt at low rates to hold on to the debt and pay it off over time, because that money can (and has) work for them in other ways. For example, the savings can be used as a down payment on a house (I know the real estate market now is a shambles, but it is going to “correct” and still be ok in the long run) or as a diversified investment.

Snoopy's avatar

Shilo…..yes, as long as it is in SAFE investments then I think it would be OK. Keep in mind, that again, w/ current rates you are lucky if you can get something much over 5% in a savings vehicle. After off setting the loan rate and taxes there would be little if any left over….It also depends on how good of a money manager someone is…...if they aren’t following things closely, then this type of plan can turn around and bite them.

There are alot of other factors to consider, is my point. Can your thoughts work? Yes. But for some it may not be a good fit. New job, high stress, new family, starting a medical/law practice…..any of these things can be overwhelming. I am just counseling this person down the safest road.

Can you strategy work? Yes. But it must be done w/ care, thought, planning, close monitoring, etc.

It is a different way of looking at money. I was counseled to do something similar…...but instead I now own my cars, house, etc. free and clear. No credit card debt, no student loans. Nothing.

I bet you are going to tell me how much I am missing out on not being able to write off house loan debt on my taxes :)

alive's avatar

not many people know about this because it is fairly recent. but since you are going into law (i assume since you just graduated from law school) this could be a great option for you (though i dont know what you specialized in…criminal, civil etc)

the College Cost Reduction and Access Act is a new law that says if you work in the public sector for 10 years (does not have to be consecutive) you can have all of your loans FORGIVEN!!!!!!!!!!! YES! BYE BYE REPAYMENTS!!!

here is a link to the NY Times that discusses the new law.–2008jun29,1,4240407.column

good luck!

kevbo's avatar

A better link here

(no offense @alive, just the link above didn’t work.)

alive's avatar

opps, that is strange…

well google this:

work in public law for 10 years erase loans

it was the first link there.

alive's avatar

LA Times, not NY. sorry

Response moderated (Spam)

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