250k Student Loan Payment Schedule

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InterAlia
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250k Student Loan Payment Schedule

Post by InterAlia » Sun Nov 03, 2013 11:03 pm

Hey everyone-

I've been reading this site for a long time and have really appreciated all of the insights and tips that I've gleaned. I am hoping that some fellow Bogleheads have the chance to review and respond to my proposed student loan repayment plan.

For background, I'm 25 years old and have approximately $250k in student loans (I know this is a disgustingly large amount) with the following approximate breakdown ($180k at 7.9%, $66k at 6.8%, and $10k at 5.5%). Fortunately, I've been able to land a biglaw job in NYC making $160k. My overall strategy is (obviously) to pay down my loans as fast as possible, ideally within 5-6 years. I plan on funneling all of my extra money and bonuses etc. towards loan payments, starting with my highest interest

I am also planning on contributing about $10k, maybe more, to my 401k (no employer match). I've read a lot about the debate between contributing to a 401k vs paying down loans, and I feel comfortable with this contribution amount, although I welcome others' input.

Here's my tentative budget. Please let me know what you think!

Year One: 160k salary, 4k month loan payment, 10k approximate 401k contribution
Year Two: 170k salary, $4,500 monthly loan payment, 10k-12 approximate 401k contribution
Year Three: 185k salary, $5,500 monthly loan payment, 12-14k approximate 401k contribution
Year Four: 210k salary, $6,000 monthly loan payment, 14k approximate 401k contribution
Year Five: 230k salary, $6,000 monthly loan payment, (max?) 401k contribution
Year Six: freedom?

Imdeng
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Re: 250k Student Loan Payment Schedule

Post by Imdeng » Mon Nov 04, 2013 11:36 am

Take it from someone who is in the middle of paying down student loans (my amount is half of yours, and rate is less than half of yours - but the point stands):
1. You are going to be in a new job in NYC - it is going to be difficult for you to save money. Still - save money you must. I have found automatic payments to be very helpful (i.e. get your student loan provider to deduct 4K/6K/whatever you want to pay - at the beginning of the month automatically). You can't spend the money you don't have.
2. You will do fine to attack the high interest rate first - although the 10K one is small enough to be a candidate to be removed entirely. Getting rid of # of loans is a very satisfying feeling as well.
3. I personally believe that one should take full advantage of tax sheltered space. I would put the whole 17.5K - again as an automatic deduction. With your income, you will save a bunch in taxes already.
4. Don't plan too much right now. The rubber will meet the road when you get the paycheck and have to defer gratification by saving. Keep your focus on doing that. If you are doing that right then rest of the stuff will take care of itself, more or less.
InterAlia wrote: For background, I'm 25 years old and have approximately $250k in student loans (I know this is a disgustingly large amount) with the following approximate breakdown ($180k at 7.9%, $66k at 6.8%, and $10k at 5.5%). Fortunately, I've been able to land a biglaw job in NYC making $160k. My overall strategy is (obviously) to pay down my loans as fast as possible, ideally within 5-6 years. I plan on funneling all of my extra money and bonuses etc. towards loan payments, starting with my highest interest

I am also planning on contributing about $10k, maybe more, to my 401k (no employer match). I've read a lot about the debate between contributing to a 401k vs paying down loans, and I feel comfortable with this contribution amount, although I welcome others' input.

Here's my tentative budget. Please let me know what you think!

Year One: 160k salary, 4k month loan payment, 10k approximate 401k contribution
Year Two: 170k salary, $4,500 monthly loan payment, 10k-12 approximate 401k contribution
Year Three: 185k salary, $5,500 monthly loan payment, 12-14k approximate 401k contribution
Year Four: 210k salary, $6,000 monthly loan payment, 14k approximate 401k contribution
Year Five: 230k salary, $6,000 monthly loan payment, (max?) 401k contribution
Year Six: freedom?

Traveler
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Re: 250k Student Loan Payment Schedule

Post by Traveler » Mon Nov 04, 2013 1:11 pm

Do you know what your living expenses in NYC will be? I understand trying to be aggressive in paying down the student loans, but NY is a high tax and cost of living state and you're not leaving a lot to work with after the student loans and 401K contribution. Also, are the relatively large raises over the next few years guaranteed?

Zytos
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Re: 250k Student Loan Payment Schedule

Post by Zytos » Mon Nov 04, 2013 1:34 pm

Do yourself a favor and live in Queens, if you work in midtown. Astoria or LIC or something. Also do not blow money going out drinking with other associates in Manhattan. Go back to your cheap Queens apartment and play video games. That loan will be paid off in no time.

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Toons
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Re: 250k Student Loan Payment Schedule

Post by Toons » Mon Nov 04, 2013 1:55 pm

Zytos wrote:Do yourself a favor and live in Queens, if you work in midtown. Astoria or LIC or something. Also do not blow money going out drinking with other associates in Manhattan. Go back to your cheap Queens apartment and play video games. That loan will be paid off in no time.
+1 :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

Zytos
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Re: 250k Student Loan Payment Schedule

Post by Zytos » Mon Nov 04, 2013 2:06 pm

I would also advise that you max out your 401(k) contributions, as a poster above said. You will likely be in AMT land (you will itemize due to high NYS and NYC income taxes), and 401(k) contributions avoid that.

awval999
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Re: 250k Student Loan Payment Schedule

Post by awval999 » Mon Nov 04, 2013 2:28 pm

I will just say one thing. It's a lot easier to write what you are considering into an Excel spreadsheet than it is to actually do it.

When you are working 80 hour weeks and Saturday comes along and you want to unwind on a date with a cute girl that $4500 check you want to write to the loan company isn't going to be the first thing on your mind.

bigred77
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Re: 250k Student Loan Payment Schedule

Post by bigred77 » Mon Nov 04, 2013 4:35 pm

I also think you'd be better off maxing out your 401k contributions to save on taxes.

I might also consider $5500 backdoor roth IRA contributions out of your bonus each year that can double as an emergency fund while you're attacking the student loans.

I might back off my Student Loan paydowns to $3000/month the first 3 years and $4000 the next 3 years. Enjoy your youth a little bit.

Consider living outside of Manhattan but close to the subway. Do not try and commute more than 20-30 min each way. You'll be working enough as is. if your single and have friends in a similar position in life then consider a roommate.

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market timer
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Re: 250k Student Loan Payment Schedule

Post by market timer » Mon Nov 04, 2013 5:41 pm

Given how many people burn out of these types of careers, and the potential to take a job qualifying for loan forgiveness, I think it might be worth considering the following strategy for the first 2-3 years, assuming you save on average $70K/year:
1. Max out 401K ($17.5K/year)
2. Backdoor Roth ($5.5K/year)
3. Build up emergency fund ($25K/year)
4. Interest-only payments on student loans ($22K/year)

If things are still going well for you in 2-3 years, then aggressively pay down debt. At that time, you may want to use your emergency fund and borrow against your 401K to do so.

YttriumNitrate
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Re: 250k Student Loan Payment Schedule

Post by YttriumNitrate » Mon Nov 04, 2013 5:48 pm

The ~$20,000 a year student loan interest you're paying would be fairly devastating if you shifted over to the other side of the bi-modal attorney salary curve. There's also a fairly good chance you won't be at the biglaw job for very long, so you might want to up the savings/loan repayment rate in the first few years till it hurts.

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market timer
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Re: 250k Student Loan Payment Schedule

Post by market timer » Mon Nov 04, 2013 5:51 pm

YttriumNitrate wrote:The ~$20,000 a year student loan interest you're paying would be fairly devastating if you shifted over to the other side of the bi-modal attorney salary curve. There's also a fairly good chance you won't be at the biglaw job for very long, so you might want to up the savings/loan repayment rate in the first few years till it hurts.
Under PAYE, a MFJ household with two kids and $60K/year income would owe at most $206/month, regardless of loan balance.

YttriumNitrate
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Re: 250k Student Loan Payment Schedule

Post by YttriumNitrate » Mon Nov 04, 2013 6:44 pm

market timer wrote:Under PAYE, a MFJ household with two kids and $60K/year income would owe at most $206/month, regardless of loan balance.
Assuming InterAlia started college when there were 18 that would have been seven years ago (2006) so there's a good chance they had a student loan balance as of Oct 1, 2007 and don't qualify for PAYE. Of course, there's IBR, but that still leaves the looming threat of paying taxes on the written off student loans and interest a quarter century from now.

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danwhite77
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Re: 250k Student Loan Payment Schedule

Post by danwhite77 » Mon Nov 04, 2013 6:59 pm

Take it from someone further down the same road you are on, pay down the loans as quickly as possible. The IBR / PAYE / etc. loan repayment options are a terrible "Plan A" and frankly there is nothing that will prevent the Federal government from doing away with the programs at any time.

While contributing some modest amount to your retirement, make priority number one to pay the loans off as quickly as possible.
"While some mutual fund founders chose to make billions, he chose to make a difference." - Dedication to Jack Bogle in 'The Bogleheads' Guide to Investing'.

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ray.james
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Re: 250k Student Loan Payment Schedule

Post by ray.james » Mon Nov 04, 2013 7:49 pm

A recommendation on the interest rates. Some credit units offer loans at lower rates given your income. It may help long term, given the highest rate is on the 160k amount.

If you are someone comfortable with idea of doing 401k and having loans for extra couple of years, then why not go for max contribution? technically at (28+ 6%?), after tax 17.5k contribution is 12k for loan payoff. Scales better in future if your income rises. Job stability is crucial to this decision.

Congratulations on Job and smart move to tackle loans.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

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zebrafish
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Re: 250k Student Loan Payment Schedule

Post by zebrafish » Mon Nov 04, 2013 9:48 pm

I would not increase your planned retirement contributions as others have suggested. I would hammer away at that debt. It won't go away until you pay it off.

MGBGTV8
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Re: 250k Student Loan Payment Schedule

Post by MGBGTV8 » Tue Nov 05, 2013 12:52 pm

I read some of the comments about being wary of "overplanning" your budget before actually getting a paycheck, and disagree.

Plan your big picture payoff scheme. You've got the loan repayments, good advice on contributing to the 401K to the threshold of pain (or legal limit), and that will leave you with some tradeoffs for managing living expenses (ie rent) and building an emergency fund.

I use the "pay yourself first" plan. Allocate your budget to savings off the top, then don't worry about spending what's left. You need a plan of some sort. Reevaluate your plan when you are settled in a place to live. dont be afraid to amend your plan, but when you have everything spelled out, you can make good, informed choices when necessary. You sound like you're doing a good job of that (IMHO).

strbrd
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Re: 250k Student Loan Payment Schedule

Post by strbrd » Tue Nov 05, 2013 6:06 pm

Was in your shoes two years ago--but in slightly lower COL city, not NYC. The generic advice you're getting here does not take into account the pyramid structure of biglaw firms. But you're on the right track--stick with it and do not be intimidated into thinking you need to spend money just because you have liquidity.

1) Get a roommate. I might consider teensiest possible apartment in Manhattan over a long train ride--time is your friend; exercise on the way to work is better than exercise on your "off hours" (scare quotes intended). And you won't be spending that much time in your apartment, so who cares?

2) Do you start in 2013? If so, use your "stub year" income to claim the deduction on your student loan interest--and pay as much on your student loans as you need to to max out that, even if you're technically in your grace period.

3) In 2013, build up a small emergency fund--like 2 months rent + groceries if you don't already have it. You don't need too much, since when law firms fire you they usually give you 3-6 months to find a new job. Also, free dinner at work, so who needs groceries.

4) Next, put something in your 401K in 2013. Just get used to having it taken out of your paycheck.

5) In 2014, max out your 401k (taxes!!! state taxes!!! NYC taxes!!!). Then pay down your student loans until it HURTS--5K per month when you can, targeting higher interest loans first to lower your minimum payment in case of no more biglaw and because it saves money.

6) Put ALL of your 2014 bonus toward your loans and/or 401K. I think I did 1K to 401k and the rest to loans.

7) Also consider SoFi (sofi.com) to lower your interest rates.

The majority of people who start biglaw jobs in New York do not last 6 years. The more you pay on the early end, the more you save in the long run. That said, I'm on track to pay off my loans in 4 years (2 in biglaw) and started with half what you have. Good luck.

Redriff
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Re: 250k Student Loan Payment Schedule

Post by Redriff » Tue Nov 05, 2013 8:09 pm

Personally I'd not contribute anything to retirement and throw EVERYTHING at the debt until it's GONE.
With your great income you will have this monkey off your back while your still in your 20s, plenty of time to save for retirement.

jaj2276
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Re: 250k Student Loan Payment Schedule

Post by jaj2276 » Tue Nov 05, 2013 8:22 pm

You should live in New Jersey, somewhere along the Path, so you don't have to pay NYC income tax. People living in Bronx, Queens, Brooklyn, Manhattan, Staten Island (?) all have to pay it (i.e. it's not just Manhattan). This amounts to around 3% of your income. That amount right there is a Roth IRA contribution.

RobInCT
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Re: 250k Student Loan Payment Schedule

Post by RobInCT » Wed Nov 06, 2013 9:52 am

jaj2276 wrote:You should live in New Jersey, somewhere along the Path, so you don't have to pay NYC income tax. People living in Bronx, Queens, Brooklyn, Manhattan, Staten Island (?) all have to pay it (i.e. it's not just Manhattan). This amounts to around 3% of your income. That amount right there is a Roth IRA contribution.
Disagree unless you work at a firm downtown or somewhere near a PATH in NYC. I'm not a lawyer, but I work with a lot of law firm lawyers, and several of my college friends went the NYC law firm route. Understand that many, many people burn out of these jobs or are forced out before 6 years are up. Hours are long and working conditions are often inhumane. Locking yourself into a 45+ minute commute with 2-3 transfers may save you money in the short term but cost you in the long-run if it's one of the factors that pushes you more quickly towards burnout. There are relatively less expensive options under 30 minutes from just about every spot in Manhattan (Astoria, Inwood, Bushwick, Jersey City) depending on what part of Manhattan your office is located. Try to keep your commute to 30 minutes or less.

In terms of finances, take it a year at a time. You can't realistically know what your life or your expenses will be like in 4 years. Some people around here seem to think that everyone has 100% control over their spending, but that's realistically not the case for everyone. People around you will be spending more than you want to spend, and while you should try to avoid letting their lifestyle creep totally sabotage your financial goals, there are limits to your ability to resist. You aren't going to be able to get away with wearing $200 suits if everyone around you is wearing $2000 suits--this is particularly true in a image-conscious city like NYC. That isn't to say you're going to have to spend $2000, just that you should be aware that these kinds of jobs often come with hidden costs that may seem optional but really are not.

Get an emergency fund ASAP--I understand the law market is still really rough--and keep plugging away. It's the only way to make it.

jaj2276
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Re: 250k Student Loan Payment Schedule

Post by jaj2276 » Wed Nov 06, 2013 10:43 am

RobInCT wrote:
jaj2276 wrote:You should live in New Jersey, somewhere along the Path, so you don't have to pay NYC income tax. People living in Bronx, Queens, Brooklyn, Manhattan, Staten Island (?) all have to pay it (i.e. it's not just Manhattan). This amounts to around 3% of your income. That amount right there is a Roth IRA contribution.
Disagree unless you work at a firm downtown or somewhere near a PATH in NYC. I'm not a lawyer, but I work with a lot of law firm lawyers, and several of my college friends went the NYC law firm route. Understand that many, many people burn out of these jobs or are forced out before 6 years are up. Hours are long and working conditions are often inhumane. Locking yourself into a 45+ minute commute with 2-3 transfers may save you money in the short term but cost you in the long-run if it's one of the factors that pushes you more quickly towards burnout. There are relatively less expensive options under 30 minutes from just about every spot in Manhattan (Astoria, Inwood, Bushwick, Jersey City) depending on what part of Manhattan your office is located. Try to keep your commute to 30 minutes or less.

... Other stuff deleted ...
I'm not sure how you "disagree" with my statement and then mention "there are relatively less expensive options under 30 minutes from just about every spot in Manhattan (Astoria, Inwood, Bushwick, Jersey City)." You do realize that the PATH stops in Jersey City right? And Hoboken. And Exchange Place. All places that you can get into Manhattan in 30 mins or less. Hence my original statement about not living in NYC which you both agree and disagree with.

maxim81
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Re: 250k Student Loan Payment Schedule

Post by maxim81 » Wed Nov 06, 2013 10:56 am

I was in a similar boat.. here is what I did:

1) Min contribution to 401k (min = whatever the company matches)
2) Pay off as much as you can (bonus money, beer money, etc.)
3) Once paid off.. max 401k, ira, save, invest, etc.

Note: this is assuming you have a emergency account

It's painful, it was sad to see all that money go away, but it's worked for me pretty well. I was also tempted to take a 401K loan, but I did not. I did, however, withdraw my roth ira contributions to lower the debt. I know it is not recommended, but I just had to do it.

Lesson learned - student loans suck.

Zytos
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Re: 250k Student Loan Payment Schedule

Post by Zytos » Wed Nov 06, 2013 11:17 am

That is indeed a tough nut. I had ~$100k upon graduation in loans before starting NYC BIGLAW, and paid it off in about three years. Five years after graduation (and still in NYC BIGLAW) I have $400k in taxable+retirement accounts and $200k equity in a house. Stick with it.

NoVa Lurker
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Re: 250k Student Loan Payment Schedule

Post by NoVa Lurker » Wed Nov 06, 2013 12:02 pm

OP - Good luck! I was in your shoes, although it was 12 years ago. Can't believe how time flies. My student loan debt was just a tick over $100,000, not nearly as bad as yours, but obviously higher education costs have skyrocketed. Many of my friends (even with the biglaw jobs) opted for NJ or Brooklyn, but I lived near 60th & 2nd with a roommate, while working in Midtown East. Best decision I could have made. Taxes were a hammer, but I really think that the easy commute (usually walking) helped me last longer at the firm. It was also easy to go into work for a few hours pretty much every weekend day, which helped me to seem on top of things without feeling too worn out. I LOVED the city and miss it all the time.

Student loans were paid off quickly, in less than 2.5 years, with the help of a huge second-year bonus during the peak of the boom. I didn't start contributing to the 401(k) until my third year, right after the last loan repayment. Financially, it almost certainly would have been smarter to start contributing to the 401(k) right away, but psychologically, I wanted to get rid of the loans. It felt so good to be free of them; even though I did work another five years at the firm after repaying the loans. Eventually I got married, had kids, and now live in Northern Virginia with a pretty ideal in-house job. Life is good, and the school loans are a distant memory.

Unsolicited advice time: I really like your plan for the debt vs. retirement funding, but it's honestly not nearly as important as creating pathways for your future. If you are starting next year at 26, you'll probably be working in some capacity for 40 years, even if not all as a lawyer. Remember that EVERYONE -- including opposing counsel, the weird senior partner, the most junior member of a client team, and the neighbor who plays music too loud next door -- could potentially be in a position to help you get your dream job in the future. The best things you can do now are (1) create and maintain your reputation and professional connections, and (2) find something you like doing, and start to think about how to get paid for doing that as a career. For the vast majority of lawyers starting in biglaw, your career will consist of maybe 2-6 years in biglaw, and then 35 years of something related but different. I'm amazed at all the directions in which my old classmates have gone! Sorry, couldn't resist giving some advice to someone who sounds very similar to me from over a decade ago.

ChrisC
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Re: 250k Student Loan Payment Schedule

Post by ChrisC » Wed Nov 06, 2013 12:31 pm

Have a daughter in the OP's situation as well with debt of around $175K. She works at a BigLaw firm in midtown Manhattan. She started in October and just got word she passed the NY Bar. While we (both her parents are retired lawyers) strongly suggested she live in Brooklyn (my home town) and take the 25 minute door-to-door commute to midtown from Cobble Hill or Brooklyn Heights, she decided to find a place in Kips Bay at an outrageous rental price, which is offset by sharing the rent with a roomie. Thus, far, it's working quite well for her -- she walks to work and is enjoying her tiny apartment and neighborhood.

The advice about paying as much as you can during the stub year is very sound, since next year's student loan interest would not be deductible because of high income levels. Also, if you can contribute to the 401K plan sponsored by the firm this year, then by all means do that. My daughter's firm restricts enrollment for new hires and the earliest she's able to contribute to the 401K would occur January 2014. Also, if you can contribute to an Roth IRA this year you should do that since you won't be eligible for the Roth IRA next year because of the income caps.

Right now, I'm trying to work out a plan to kill her high interest loans (which begin repayment this December) by either paying off most of her loans myself and having her pay me at a reduced low interest (2%)rate for the amount I've taken down for her over a short term maturity. I'm figuring out the tax consequences for us from both perspectives. From her perspective, it would appear this would be treated as a simple refinancing of consumer debt, with no significant tax consequences to her. From my perspective, I'd have income on her interest payments to us.

Good luck.

RobInCT
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Re: 250k Student Loan Payment Schedule

Post by RobInCT » Wed Nov 06, 2013 1:34 pm

jaj2276 wrote:
RobInCT wrote:
jaj2276 wrote:You should live in New Jersey, somewhere along the Path, so you don't have to pay NYC income tax. People living in Bronx, Queens, Brooklyn, Manhattan, Staten Island (?) all have to pay it (i.e. it's not just Manhattan). This amounts to around 3% of your income. That amount right there is a Roth IRA contribution.
Disagree unless you work at a firm downtown or somewhere near a PATH in NYC. I'm not a lawyer, but I work with a lot of law firm lawyers, and several of my college friends went the NYC law firm route. Understand that many, many people burn out of these jobs or are forced out before 6 years are up. Hours are long and working conditions are often inhumane. Locking yourself into a 45+ minute commute with 2-3 transfers may save you money in the short term but cost you in the long-run if it's one of the factors that pushes you more quickly towards burnout. There are relatively less expensive options under 30 minutes from just about every spot in Manhattan (Astoria, Inwood, Bushwick, Jersey City) depending on what part of Manhattan your office is located. Try to keep your commute to 30 minutes or less.

... Other stuff deleted ...
I'm not sure how you "disagree" with my statement and then mention "there are relatively less expensive options under 30 minutes from just about every spot in Manhattan (Astoria, Inwood, Bushwick, Jersey City)." You do realize that the PATH stops in Jersey City right? And Hoboken. And Exchange Place. All places that you can get into Manhattan in 30 mins or less. Hence my original statement about not living in NYC which you both agree and disagree with.
I apologize that my response appears to have been unclear. I disagree with your advice that that OP should live in New Jersey without regard to where his office happens to be located. If it happens to be the case that office is in one of only a couple of neighborhoods that are less than 30 minute commute from New Jersey, then I think it's good advice. I realize that it takes less than 30 minutes to get from New Jersey to "Manhattan," which is not the same thing as getting from New Jersey to his office.

I think the better plan is to locate where his office is and to find the cheaper neighborhood that is less than 30 minutes from that office. If he's in Midtown West, that may be Inwood. If he's in Midtown East, it may be Astoria or East Harlem. Downtown may be Bushwick or Jersey City. No matter where his office is in Manhattan, there's a good chance there will be at least one cheaper neighborhood within a 30 minute commute, but which cheaper neighborhood that is will depend on what neighborhood of Manhattan he works in. Jersey is a multi-transfer and/or long walk commute to the majority of neighborhoods in which large law firms are clustered in NYC, and if he works in one of those, I would not recommend living in New Jersey.

I hope that clears up the confusion.
ChrisC wrote:Have a daughter in the OP's situation as well with debt of around $175K. She works at a BigLaw firm in midtown Manhattan. She started in October and just got word she passed the NY Bar. While we (both her parents are retired lawyers) strongly suggested she live in Brooklyn (my home town) and take the 25 minute door-to-door commute to midtown from Cobble Hill or Brooklyn Heights, she decided to find a place in Kips Bay at an outrageous rental price, which is offset by sharing the rent with a roomie. Thus, far, it's working quite well for her -- she walks to work and is enjoying her tiny apartment and neighborhood.
Do you still live in that neighborhood and rent? As of about 6 months ago, there wasn't an appreciable price difference between those neighborhoods in Brooklyn and Kips Bay. You generally get more room in Brooklyn because the apartments tend to be bigger, but prices these days in close-in Brooklyn are roughly comparable to prices in Manhattan these days, unfortunately. Prices have gone through the roof.

2stepsbehind
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Re: 250k Student Loan Payment Schedule

Post by 2stepsbehind » Wed Nov 06, 2013 4:49 pm

RobInCT wrote:
jaj2276 wrote:
RobInCT wrote:
jaj2276 wrote:You should live in New Jersey, somewhere along the Path, so you don't have to pay NYC income tax. People living in Bronx, Queens, Brooklyn, Manhattan, Staten Island (?) all have to pay it (i.e. it's not just Manhattan). This amounts to around 3% of your income. That amount right there is a Roth IRA contribution.
Disagree unless you work at a firm downtown or somewhere near a PATH in NYC. I'm not a lawyer, but I work with a lot of law firm lawyers, and several of my college friends went the NYC law firm route. Understand that many, many people burn out of these jobs or are forced out before 6 years are up. Hours are long and working conditions are often inhumane. Locking yourself into a 45+ minute commute with 2-3 transfers may save you money in the short term but cost you in the long-run if it's one of the factors that pushes you more quickly towards burnout. There are relatively less expensive options under 30 minutes from just about every spot in Manhattan (Astoria, Inwood, Bushwick, Jersey City) depending on what part of Manhattan your office is located. Try to keep your commute to 30 minutes or less.

... Other stuff deleted ...
I'm not sure how you "disagree" with my statement and then mention "there are relatively less expensive options under 30 minutes from just about every spot in Manhattan (Astoria, Inwood, Bushwick, Jersey City)." You do realize that the PATH stops in Jersey City right? And Hoboken. And Exchange Place. All places that you can get into Manhattan in 30 mins or less. Hence my original statement about not living in NYC which you both agree and disagree with.
I apologize that my response appears to have been unclear. I disagree with your advice that that OP should live in New Jersey without regard to where his office happens to be located. If it happens to be the case that office is in one of only a couple of neighborhoods that are less than 30 minute commute from New Jersey, then I think it's good advice. I realize that it takes less than 30 minutes to get from New Jersey to "Manhattan," which is not the same thing as getting from New Jersey to his office.

I think the better plan is to locate where his office is and to find the cheaper neighborhood that is less than 30 minutes from that office. If he's in Midtown West, that may be Inwood. If he's in Midtown East, it may be Astoria or East Harlem. Downtown may be Bushwick or Jersey City. No matter where his office is in Manhattan, there's a good chance there will be at least one cheaper neighborhood within a 30 minute commute, but which cheaper neighborhood that is will depend on what neighborhood of Manhattan he works in. Jersey is a multi-transfer and/or long walk commute to the majority of neighborhoods in which large law firms are clustered in NYC, and if he works in one of those, I would not recommend living in New Jersey.

I hope that clears up the confusion.
I think he is confused because he specifically said somewhere in New Jersey along the path. While Newark and Harrison are on the path, every other stop is in Jersey City or Hoboken and consequently during prime commuting hours likely to be within 45 mins of most of midtown (edit: and as you note in some cases 20-30mins).

RobInCT
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Re: 250k Student Loan Payment Schedule

Post by RobInCT » Wed Nov 06, 2013 5:37 pm

2stepsbehind wrote:I think he is confused because he specifically said somewhere in New Jersey along the path. While Newark and Harrison are on the path, every other stop is in Jersey City or Hoboken and consequently during prime commuting hours likely to be within 45 mins of most of midtown (edit: and as you note in some cases 20-30mins).
Correct. And as my original post said, 45 minutes with 2-3 transfers and/or a significant walk (i.e what you agree is the the commute from Jersey City to most of midtown) is, in my opinion, too long a commute for someone working at a demanding NYC job. In my opinion, OP should shoot for under 30 minutes.

jaj2276
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Re: 250k Student Loan Payment Schedule

Post by jaj2276 » Wed Nov 06, 2013 6:34 pm

RobInCT wrote:
2stepsbehind wrote:I think he is confused because he specifically said somewhere in New Jersey along the path. While Newark and Harrison are on the path, every other stop is in Jersey City or Hoboken and consequently during prime commuting hours likely to be within 45 mins of most of midtown (edit: and as you note in some cases 20-30mins).
Correct. And as my original post said, 45 minutes with 2-3 transfers and/or a significant walk (i.e what you agree is the the commute from Jersey City to most of midtown) is, in my opinion, too long a commute for someone working at a demanding NYC job. In my opinion, OP should shoot for under 30 minutes.
I'm not confused on any count. You can live in NJ and have the same short commute into Manhattan as if you lived in Manhattan. Of course if you wanted to have the *shortest* commute, then commuting from NJ (or any other NYC boro) can't compete with being able to live in the same neighborhood that your work is located.

However, the OP didn't ask where to live to get the shortest commute. The OP asked about getting rid of the student loan debt while still contributing to retirement. I made the (in my opinion) correct statement that if you lived in NJ, you would still have a short commute (as short as some intra-Manhattan commutes, short as most inter-NYC commutes) and you would have an additional ~$5k to contribute to retirement.

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Re: 250k Student Loan Payment Schedule

Post by ChrisC » Wed Nov 06, 2013 6:36 pm

RobInCT wrote: Do you still live in that neighborhood and rent? As of about 6 months ago, there wasn't an appreciable price difference between those neighborhoods in Brooklyn and Kips Bay. You generally get more room in Brooklyn because the apartments tend to be bigger, but prices these days in close-in Brooklyn are roughly comparable to prices in Manhattan these days, unfortunately. Prices have gone through the roof.
Actually, I'm a landlord in Cobble Hill along with my sister, a local real estate agent in the area. We rent out three apartments right near PS29 in a highly desirable block considered to be one of the best in the neighborhood. Yes, space in pre-war II apartments in those Brooklyn areas is much bigger than post-war apartments in Manhattan, where my daughter found space. Rental prices have risen sharply in my old neighborhood of Cobble Hill and Red Hook. I visit the neighborhood a lot so I know from a space and price point of view my daughter would have been much better in Cobble Hill than Kips Bay.

RobInCT
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Re: 250k Student Loan Payment Schedule

Post by RobInCT » Wed Nov 06, 2013 7:02 pm

jaj2276 wrote:I made the (in my opinion) correct statement that if you lived in NJ, you would still have a short commute (as short as some intra-Manhattan commutes, short as most inter-NYC commutes) and you would have an additional ~$5k to contribute to retirement.
It's 45 minutes or longer from New Jersey to most points in midtown. If he is in midtown, OP can decide if that's a good commute for him. My advice would be that that is too long. You can disagree if you like. If he's downtown and near the WTC/path, then I agree Jersey City is a good option.

But this discussion is getting pointless as we don't know where OP is going to be working geographically. My general advice: live in the cheapest neighborhood you can find that is less than a 30-minute commute from the office. It is possible, though not highly likely, that New Jersey will fit that description.

2stepsbehind
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Re: 250k Student Loan Payment Schedule

Post by 2stepsbehind » Wed Nov 06, 2013 9:39 pm

In case the OP is considering the Jersey option, for most biglaw jobs once you stay after a certain amount of time (usually until 8 or 9pm), you get free car service/taxi reimbursement home so even if the OP lives 45mins away via public transportation it is likely that s/he will only be doing that one way for the vast majority of time.

ChrisC
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Re: 250k Student Loan Payment Schedule

Post by ChrisC » Wed Nov 06, 2013 10:30 pm

2stepsbehind wrote:In case the OP is considering the Jersey option, for most biglaw jobs once you stay after a certain amount of time (usually until 8 or 9pm), you get free car service/taxi reimbursement home so even if the OP lives 45mins away via public transportation it is likely that s/he will only be doing that one way for the vast majority of time.

How did we ever get to this "Jersey option" from the OP's original post? :P . Now, we're delving into car service for the OP. Next, we'll tell the OP to work late so he or she can get meal money and save on a food bill? The OP simply asked whether student loan payments should be accelerated while making modest contributions to the employer's 401K plan. I guess I'm just as responsible as others here in getting this thread way off-track.

lostInFinance
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Re: 250k Student Loan Payment Schedule

Post by lostInFinance » Thu Nov 07, 2013 12:13 am

RobInCT wrote: You aren't going to be able to get away with wearing $200 suits if everyone around you is wearing $2000 suits--this is particularly true in a image-conscious city like NYC. That isn't to say you're going to have to spend $2000, just that you should be aware that these kinds of jobs often come with hidden costs that may seem optional but really are not.

Get an emergency fund ASAP--I understand the law market is still really rough--and keep plugging away. It's the only way to make it.
Even in NYC can most people really tell how much a suit cost? Here's an experiment. I've posted links to a $2k suit and a $1k suit at retail. Can you tell which is which?

http://s18.postimg.org/4yfe6qtyx/suit_A.jpg

http://s8.postimg.org/7u8k7lc4l/suit_B.jpg

2stepsbehind
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Re: 250k Student Loan Payment Schedule

Post by 2stepsbehind » Thu Nov 07, 2013 8:27 am

ChrisC wrote:
2stepsbehind wrote:In case the OP is considering the Jersey option, for most biglaw jobs once you stay after a certain amount of time (usually until 8 or 9pm), you get free car service/taxi reimbursement home so even if the OP lives 45mins away via public transportation it is likely that s/he will only be doing that one way for the vast majority of time.

How did we ever get to this "Jersey option" from the OP's original post? :P . Now, we're delving into car service for the OP. Next, we'll tell the OP to work late so he or she can get meal money and save on a food bill? The OP simply asked whether student loan payments should be accelerated while making modest contributions to the employer's 401K plan. I guess I'm just as responsible as others here in getting this thread way off-track.
Someone already did
strbrd wrote:Was in your shoes two years ago--but in slightly lower COL city, not NYC. The generic advice you're getting here does not take into account the pyramid structure of biglaw firms. But you're on the right track--stick with it and do not be intimidated into thinking you need to spend money just because you have liquidity.

1) Get a roommate. I might consider teensiest possible apartment in Manhattan over a long train ride--time is your friend; exercise on the way to work is better than exercise on your "off hours" (scare quotes intended). And you won't be spending that much time in your apartment, so who cares?

2) Do you start in 2013? If so, use your "stub year" income to claim the deduction on your student loan interest--and pay as much on your student loans as you need to to max out that, even if you're technically in your grace period.

3) In 2013, build up a small emergency fund--like 2 months rent + groceries if you don't already have it. You don't need too much, since when law firms fire you they usually give you 3-6 months to find a new job. Also, free dinner at work, so who needs groceries.

4) Next, put something in your 401K in 2013. Just get used to having it taken out of your paycheck.

5) In 2014, max out your 401k (taxes!!! state taxes!!! NYC taxes!!!). Then pay down your student loans until it HURTS--5K per month when you can, targeting higher interest loans first to lower your minimum payment in case of no more biglaw and because it saves money.

6) Put ALL of your 2014 bonus toward your loans and/or 401K. I think I did 1K to 401k and the rest to loans.

7) Also consider SoFi (sofi.com) to lower your interest rates.

The majority of people who start biglaw jobs in New York do not last 6 years. The more you pay on the early end, the more you save in the long run. That said, I'm on track to pay off my loans in 4 years (2 in biglaw) and started with half what you have. Good luck.
I don't think this discussion is off-track at all. The OP asked whether student loan payments should be accelerated while making modest contributions to the employer's 401K plan. One way to potentially do both or maximize the payment amount is reducing one's expenses. To that end, discussions of where one should live and the advantages and disadvantages associated with that decision are relevant.

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Re: 250k Student Loan Payment Schedule

Post by Cash » Thu Nov 07, 2013 8:29 am

ChrisC wrote:Next, we'll tell the OP to work late so he or she can get meal money and save on a food bill?
Not a bad idea. Working late = billing more = free ride home, free dinner, and most importantly, more bonus money to pay off those loans!

RobInCT
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Re: 250k Student Loan Payment Schedule

Post by RobInCT » Thu Nov 07, 2013 9:08 am

lostInFinance wrote:Even in NYC can most people really tell how much a suit cost?
Yes. Regardless, both of the suits you posted would likely be appropriate for OP's new job. Between those two options, I would advise the $1000 suit over the $2000 suit. What I would not advise is a $200 suit.

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SecretAsianMan
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Re: 250k Student Loan Payment Schedule

Post by SecretAsianMan » Thu Nov 07, 2013 10:50 am

I agree with everything strbrd said.

It's really not as hard to save money in NYC as some people make it out to be. I was able to save $80/K a year my two years in biglaw, and that was while living in a decent place in the East Village (with 2 roommates), going out multiple times a week, and taking nice (but not extravagant) vacations.

It's impossible to guess how long you'll end up staying. I know plenty of people who planned on staying 4-5 years and then were desperate to get out after 2. Often, you can be cruising along with no big problems and then within a very short period of time you'll be ready to leave. The moral of the story is pay off as much as you can but still enjoy living in NYC in your 20s. There's a way to do both.

SAM

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Re: 250k Student Loan Payment Schedule

Post by englishgirl » Thu Nov 07, 2013 10:59 am

I'd say pay as much money as you can to the loans as early as you can. As already mentioned, you cannot be sure how long you'll want to stick it out in BigLaw, or how long they'll let you stick it out. What if the area of law you are in suddenly takes a big downturn in revenue, and they want to cull 20% of the associates in that group? What if you totally burn out after 2 years?
Sarah

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Re: 250k Student Loan Payment Schedule

Post by ChrisC » Thu Nov 07, 2013 11:00 am

Cash wrote:
ChrisC wrote:Next, we'll tell the OP to work late so he or she can get meal money and save on a food bill?
Not a bad idea. Working late = billing more = free ride home, free dinner, and most importantly, more bonus money to pay off those loans!
Let me complete this equation. All of the above equals = no life.

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Re: 250k Student Loan Payment Schedule

Post by Cash » Thu Nov 07, 2013 11:09 am

ChrisC wrote:
Cash wrote:
ChrisC wrote:Next, we'll tell the OP to work late so he or she can get meal money and save on a food bill?
Not a bad idea. Working late = billing more = free ride home, free dinner, and most importantly, more bonus money to pay off those loans!
Let me complete this equation. All of the above equals = no life.
That's a given. OP should not enter with any expectations of a life. To the extent that s/he is able to carve out one, consider it icing on the money cake.

(I say this as a biglaw associate not in NYC who entered with low expectations but has been pleasantly surprised)

Savvy
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Re: 250k Student Loan Payment Schedule

Post by Savvy » Thu Nov 07, 2013 1:27 pm

Pay off the $10K loan as fast as possible. Will free up some cash flow.

lostInFinance
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Re: 250k Student Loan Payment Schedule

Post by lostInFinance » Thu Nov 07, 2013 6:12 pm

If you make partner, aren't lawyers expected to put up a capital contribution for their equity stake? Is that something you need to save for?
Last edited by lostInFinance on Fri Nov 08, 2013 11:45 pm, edited 1 time in total.

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torius71
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Re: 250k Student Loan Payment Schedule

Post by torius71 » Thu Nov 07, 2013 6:52 pm

Savvy wrote:Pay off the $10K loan as fast as possible. Will free up some cash flow.
The repayment schedule will stay the same either way. Paying off the 7.9% loans will free up more cash flow and save more interest. With 250K worth of debt, I wouldn't leave 2.4% worth of interest on the table. But that's just me, I'd be reusing coffee grinds too. :P
"A new truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it."-MP

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Re: 250k Student Loan Payment Schedule

Post by 2stepsbehind » Fri Nov 08, 2013 11:41 pm

lostInFinance wrote:If you make partner, aren't lawyers expected to put up a capital contribution for their equity stake? Is that someone you need to save for?
Not even worth contemplating at this point.

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BolderBoy
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Re: 250k Student Loan Payment Schedule

Post by BolderBoy » Sat Nov 09, 2013 12:23 am

lostInFinance wrote:Even in NYC can most people really tell how much a suit cost? Here's an experiment. I've posted links to a $2k suit and a $1k suit at retail. Can you tell which is which?

http://s18.postimg.org/4yfe6qtyx/suit_A.jpg

http://s8.postimg.org/7u8k7lc4l/suit_B.jpg
I'd say Suit A is the 2k suit. It seems so obvious to me, that I'm undoubtedly wrong.

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BolderBoy
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Re: 250k Student Loan Payment Schedule

Post by BolderBoy » Sat Nov 09, 2013 12:30 am

I'd view the student loans exactly like a mortgage to be paid off. The way I'd do this is:

1. Max out 401k every year. First and foremost, before anything else.
2. Pay the minimum due on the student loans as you go along, BUT, be saving to make big additional payments on those. By paying this off sort of in a trailing fashion, you will always have a nice emergency fund - set an upper limit to the EF and pay extra on the loans from excesses in the EF.
3. Don't live too far from work. When the commute (even on a train) gets more than 45"-60", you'll start resenting it pretty quickly.

Congratulations and Good Luck!

Cash
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Re: 250k Student Loan Payment Schedule

Post by Cash » Sat Nov 09, 2013 10:30 am

BolderBoy wrote: 2. Pay the minimum due on the student loans as you go along, BUT, be saving to make big additional payments on those.
That might make sense if his loans weren't at such high rates, but given the rates, it makes more sense to pay them off as quickly as possible. Plus, as someone who decided to pay off the rest of my and my wife's student loans last night, I can say that it is less painful to watch several smaller payments go out than to see one big :moneybag leave your bank account... :|

InterAlia
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UPDATE: Re: 250k Student Loan Payment Schedule

Post by InterAlia » Mon Mar 13, 2017 11:01 pm

Hi all,

It's been a few years since my original post and I wanted to thank you for all of your previous help and provide an update.

After about three years, my balance sits at ~$160k. I was hoping that it would be a bit lower at this point, but my starting balance ended up being a little over $260k, NYC is even more expensive than I anticipated, and I was paying ~7.5%! A few months ago, I was able to refinance (managed to get 3.5% with a five year term).

I left my biglaw job, but I am on the same salary scale (though it's primarily paid as a bonus) and I am still living in NYC (single).

Current financial position:

I have been maxing out my 401k contributions and am going to begin maxing out a backdoor Roth every year.
401k: $75k
Roth IRA: $20k
Cash: $20k (I know I should be holding more cash for an emergency fund. This is approx 3.5 months of rent, student loan payments, and credit card.)

Monthly take home: approx $8k (not including a lump sum bonus, ~$50k net taxes).
Mininum student loan payments: $3,200
Rent: $2500
Expenses (credit card, insurance, commuting, etc.): $2000
Balance: Save

I have a few questions and I would love to get your advice:

1. Given that I was able to refinance at a low rate (it's amazing what can happen to interest rates in a few months, my friends now are refinancing at 4-5%), my inclination is that I should just pay the minimums on my student loans for five years and use the extra monthly savings to fund a backdoor Roth every year, open a taxable account (mostly funded from the bonus), and save more cash.

I could probably pay off the student loans entirely in two/three if I put my bonuses etc entirely towards the student loans (which I was doing when I was paying 7%+), but I feel like the smarter decision is to start a taxable account and try to invest 20-30k/year.

I know there is no right answer, but I'm curious if anyone would suggest that I do anything differently.

2. Roth vs traditional 401k. My employer offers a Roth 401k as well as a traditional. Since I'm in the 33% bracket, the traditional 401k makes the most sense, right? I am also planning to also do an annual backdoor Roth IRA.

3. Tax Efficiency

I am currently 100% equities (mostly ITOT/low cost S&P and total market ETFs). I am going to shift to 90/10 and am planning to put my bond holdings in the 401k. My options are:

FSTIX (Fidelity US Bond Index Fund Premium Class) 0.05% Expense Ratio
PTTRX (PIMCO Total Return Fund Institutional Class) 0.46% Expense Ratio
FBNRX (Templeton Global Bond Fund Class R6) 0.56% Expense Ratio

I'm planning to go with Fidelity US bond index because of the lower fees, but I'm not as smart about bond funds, so I'd love to hear if you guys disagree.

Should I put the bond funds in my Roth or 401(k)?

Thanks all for your guidance.

blueman457
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Re: 250k Student Loan Payment Schedule

Post by blueman457 » Tue Mar 14, 2017 3:01 am

Congratulations on making significant progress on your loans. NYC is a very expensive place to live so you've done a pretty good job.

In your tax bracket I would go with a traditional 401k.
However I would consider going 100% equities and using your "taxable fund" to pay off the rest of your student loans. It's hard to get 3.5% guaranteed in a bond fund.

Blue man

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