New grads

[Mylez]

Hi new grads,

I have a question for you about loan repayment. I'm just wondering if I am idealizing loan repayment and wanted your real life experience. Since I know there are quite a few interns, I thought I'd start out this way.

So, here are the assumptions I am making:

That I land a job out of vet school at $50,000 (I think this is not unreasonable, most of the grads I talked to last year had job offers between 60-70,000).
That I have estimated loans of $140,000-150,000

That I can live on about $1300/mo (I do a little under this now, comfortably).

Assuming I poured all of my extra cash flow toward paying off my loan, per a loan repayment schedule (payments $2800/mo) I could have my loan paid off in about five years, and easily within 10.

What am I not taking into account? What am I missing? How is it that so many people need 30 years to repay? I recognize not everyone is ready to throw all of their earnings at their school loans, but I certainly am (get me away from those high numbers!).

Any thoughts are appreciated. Trying to plan this out now so it doesn't surprise me when I graduate!

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[svendenhowser]

I guess it's a little different here, but once I graduate I'll be wanting to get married, have children, buy a house (well I already have a mortgage, so investment properties). All those things cost money and generally come about when you get into a stable career.

But again it's different here, we have no interest on our commonwealth higher education schemes so I can take my whole life to pay it off and only accrue inflation.

Theres probably other things too, but if I left it 5-10 years after I graduate I would be in my 40's..

 

[critterologist]

I think the thing you are not taking into account is taxes. Depending on the tax structure where you live, your 50,000 a year turns into a fir bit less then 4,100 per month. Also, most people who finish professional programs have a hard time continuing to live like students. You are expected, and want, to live like a professional.

 

[alliecat44]

You are expected, and want, to live like a professional.

Of course this is highly variable based on your current lifestyle/wardrobe/etc, as well as what area of practice you're going into, whether you're male/female, but...I'm a woman and currently a VERY casual dresser as a student. I don't have a lot of nice clothes, and those that I do have might not be appropriate for a professional setting. I go longer in between haircuts, etc while I'm in school to save money. When I graduate, I'm going to have to budget for an improved wardrobe, more frequent haircuts, maybe some light jewelry, etc. (And need a bit more makeup because of all the wrinkles I'm accruing in school! ) This would also have to include some money for dry-cleaning.

I'm a very low-maintenance kind of girl, but am also aware of the need to dress/present myself as a professional. (And yes, I'm all about the mixing/matching to maximize purchases, minimizing the amount of dry-clean-only garments, etc--but I do think this is a significant thing to consider within the first year of graduating.)

 

[alliecat44]

Double-posted for some reason...sorry

 

[dgm]

Also, don't forget contributions to retirement accounts. Even while paying back your loans, you still should be saving for retirement. Taxes will eat up probably 25-30% of your paycheck, and another 10 or 15% (whatever you can swing) should probably go to retirement savings.

Of course, if you're willing to live on $1300/mo (my rent is only $260/mo and I'm still spending more than that per month), you probably can still pay your loans in less than 30 years, but maybe not quite 5.

 

[sumstorm]

Also, cost of living is variable. Some places are are just more expensive to live in terms of taxes, groceries, utilities, fuel, etc.

We lose about 1/3 of our annual income to taxes each year. We also contribute to a few non-profits (including the cost to foster dogs and do canine search and rescue.) Also, if it takes longer, you will have to deal with paying more interest.

 

[chris03333]

Hi new grads,

I have a question for you about loan repayment. I'm just wondering if I am idealizing loan repayment and wanted your real life experience. Since I know there are quite a few interns, I thought I'd start out this way.

So, here are the assumptions I am making:

That I land a job out of vet school at $50,000 (I think this is not unreasonable, most of the grads I talked to last year had job offers between 60-70,000).
That I have estimated loans of $140,000-150,000

That I can live on about $1300/mo (I do a little under this now, comfortably).

Assuming I poured all of my extra cash flow toward paying off my loan, per a loan repayment schedule (payments $2800/mo) I could have my loan paid off in about five years, and easily within 10.

What am I not taking into account? What am I missing? How is it that so many people need 30 years to repay? I recognize not everyone is ready to throw all of their earnings at their school loans, but I certainly am (get me away from those high numbers!).

Any thoughts are appreciated. Trying to plan this out now so it doesn't surprise me when I graduate!

Run your calculations with interest and taxes....then add some life crap happens and....

 

[Mylez]

Ehehe...I realize I was being a bit unrealistic...

For me, personally, I am willing to make a few sacrifices in order to pay off my loans. I'd rather my $150,000 education not turn into a $300,000 education (with interest). I calculated loan payment with the tax figured in on a calculator and $2800 was the number. Corvallis (while not S. California) is a town that has a fairly high cost of living, so I'm a bit acquainted with cost fluctuation.

Thanks for the addendums! I realize there are things that come up that may make a $2800 payment unrealistic (obviously my big calculation error was taxes, but...some of my interest payment can be received back with taxes, right?) so I thought I'd nag the folks here about it!

 

[CookieBear]

Inquiring minds wanna know (at least mine does)...

Does anyone have the fact/figures of what's tax-deductible as far as student-loan interest or payments, etc.?

I should probably check the med-forums-- but can't afford the time right now.

Assume it's all federal loans. If we play examples - say, Stafford loans, since those are a biggie. Maybe throw in the GradPlus loans as well.

Does anyone know how much (if so) interest you can claim per year? Is it all tax-deductible like home mortgage interest, say? Is there a cap? Is it based on income?

Sorry to ask what is probably the age-old question...

Ooh, and while I'm at it: I have not entered into ANY repayment yet. I get the stub - the 1099-whatever-it's called - from school stating what my tuition was for the year - but I borrowed all of that. Is it true, that is un-claimable until I enter re-payment? I didn't claim a dime of it this year, b/c accountant said it's all borrowed - I haven't paid any back yet. I.E., I didn't do any HOPE or any sort of educational-claimage (I recall $1200 or $1500 in years past, for undergrad courses, for instance). Agree/disagree?

(Sorry for de-railing the original thread with this question... doh)

 

[VAgirl]

Also, don't forget contributions to retirement accounts. Even while paying back your loans, you still should be saving for retirement. Taxes will eat up probably 25-30% of your paycheck, and another 10 or 15% (whatever you can swing) should probably go to retirement savings.

You also need to figure you'll be contributing to savings that can be accessed in the near term, not just in retirement (when you're in your 60s). This is important for the various life goals that people mentioned (buying a house, getting married, flying to see family, etc.), but is also important for the unexpected things in life. You definitely need to be saving this separately from retirement savings because the way retirement plans are structured, if you dip into them to take money out, you incur huge penalties.

 

[VAgirl]

Inquiring minds wanna know (at least mine does)...

Does anyone have the fact/figures of what's tax-deductible as far as student-loan interest or payments, etc.?

I should probably check the med-forums-- but can't afford the time right now.

Assume it's all federal loans. If we play examples - say, Stafford loans, since those are a biggie. Maybe throw in the GradPlus loans as well.

Does anyone know how much (if so) interest you can claim per year? Is it all tax-deductible like home mortgage interest, say? Is there a cap? Is it based on income?

http://www.irs.gov/taxtopics/tc456.html and http://www.irs.gov/publications/p970/ch04.html

You can take a deduction on student loan interest paid up to $2,500 if you make less than $55,000 if single or $115,000 if married filing jointly. Between $55,000 and $70,000 ($115,000 and $145,000 if you file a joint return) the deduction gets phased out dramatically. If you make over $70,000 individually, $145,000 jointly, you get NO deduction. These numbers are for 2008 but have held steady for at least the past few years.

Ooh, and while I'm at it: I have not entered into ANY repayment yet. I get the stub - the 1099-whatever-it's called - from school stating what my tuition was for the year - but I borrowed all of that. Is it true, that is un-claimable until I enter re-payment? I didn't claim a dime of it this year, b/c accountant said it's all borrowed - I haven't paid any back yet. I.E., I didn't do any HOPE or any sort of educational-claimage (I recall $1200 or $1500 in years past, for undergrad courses, for instance). Agree/disagree?

(Sorry for de-railing the original thread with this question... doh)

Not 100% sure what you mean, but I think you're talking about the tax benefits you get from paying tuition. I paid some tuition out of pocket this year and got the rest from loans. I got a tax credit (Lifetime learning), and I'm 99% sure the only thing that counted towards this was the tuition I paid out of pocket. So if you're paying for school 100% with loans, I guess you probably wouldn't qualify for tuition associated deductions/credits, which is what your accountant seems to be saying. That seems right (though unfortunate) to me. I definitely appreciated my $2,000 tax credit!

 

[CookieBear]

VAgirl, thank you!!

Yes, you answered my questions perfectly.

We do like our accountant, and he seems to know his stuff, but just thought I'd ask.

Thanks again!

 

[Nexx]

My understanding is that the Hope Scholarship Tax Credit and the Lifetime Learning credit are applicable regardless of if you took loans to pay for the education or not.

Then again, if you are working enough to pay taxes.. technically you have probably paid towards 'educational expenses' out of pocket in one way or another.

 

[VAgirl]

My understanding is that the Hope Scholarship Tax Credit and the Lifetime Learning credit are applicable regardless of if you took loans to pay for the education or not.

Then again, if you are working enough to pay taxes.. technically you have probably paid towards 'educational expenses' out of pocket in one way or another.

Ok, now I'm confused...

From http://www.irs.gov/individuals/article/0,,id=96273,00.html#QA1

"Q.11. If a student (who is not claimed as a dependent on anyone's Federal income tax return) pays qualified tuition and related expenses using a combination of a Pell Grant, a loan, a gift from a family member, and some personal savings, what expenses may be taken into account in calculating the Lifetime Learning Credit the student may claim?


A.11. The student may take into account only out-of-pocket expenses in calculating the Lifetime Learning Credit. Qualified tuition and related expenses paid with the student's earnings, a loan, a gift, an inheritance, or personal savings (including savings from a qualified state tuition program) are taken into account in calculating the credit amount. However, qualified tuition and related expenses paid with a Pell Grant or other tax-free scholarship, a tax-free distribution from an Education IRA, or tax-free employer-provided educational assistance are not taken into account in calculating the credit amount."

That makes it sounds like, no, you can't take loan money into account. And that seems to track with my experience for the lifetime learning credit.

BUT...

From http://www.irs.gov/publications/p970/ch03.html#en_US_publink100020831 (describing the Lifetime learning Credit)

"What Expenses Qualify The lifetime learning credit is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Generally, the credit is allowed for qualified education expenses paid in 2008 for an academic period beginning in 2008 or in the first 3 months of 2009.
For example, if you paid $1,500 in December 2008 for qualified tuition for the Spring 2009 semester beginning in January 2009, you may be able to use that $1,500 in figuring your 2008 credit.
Academic period. An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period.
Paid with borrowed funds. You can claim a lifetime learning credit for qualified education expenses paid with the proceeds of a loan. You use the expenses to figure the lifetime learning credit for the year in which the expenses are paid, not the year in which the loan is repaid. Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account."

Cookiebear...it sounds like you should have your accountant read and reconcile these two documents. Please let us know what you find out. I may have done my taxes wrong!!


Oh, and from http://www.irs.ustreas.gov/newsroom/article/0,,id=107670,00.html


"The Hope Credit

• The credit applies for the first two years of post-secondary education, such as college or vocational school. It does not apply to the third, fourth, or higher years of undergraduate programs, to graduate programs, or to professional-level programs."

I've never used the Hope Credit, but it sounds like vet students aren't eligible. This one I've found in a few places, so I think that piece of info is right.

 

[VAgirl]

Sorry, meant to post this in the original post. There is also a tuition and fees deduction one can take if they don't qualify for the Lifetime Learning Credit (which has an income cap).

You can find out more info here: http://www.irs.gov/publications/p970/ch06.html#en_US_publink100020940

Looks like your modified adjusted gross income needs to be less than $80,000 if single or less than $160,000 if married filing jointly for this deduction. (This eligibility income cap is higher than for the lifetime learning credit, whose cap is $58,000 if single, $116,000 if married filing jointly.) The benefit of this deduction is up to a $4,000 tax deduction and it says the same thing as the Lifetime Learning credit did in the second document I read:

"Paid with borrowed funds. You can claim a tuition and fees deduction for qualified education expenses paid with the proceeds of a loan. You use the expenses to figure the deduction for the year in which the expenses are paid, not the year in which the loan is repaid. Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account."

 

[chris03333]

\
Thanks for the addendums! I realize there are things that come up that may make a $2800 payment unrealistic (obviously my big calculation error was taxes, but...some of my interest payment can be received back with taxes, right?) so I thought I'd nag the folks here about it!

Tax breaks for interest payments has an income cap. So as soon as you make decent money, the tax credit no longer applies