Paying $27k loans in one year.

Paying for College
1

<p>So I may be going to Bucknell next year as an engineering student (probably chemical engineering). To do this, I'm looking at about $27k in loans (a mix of subsidized and unsubsidized federal loans). My plan is to hit the books hard, shoot for internships and research opportunities to gain experience in fields that interest me (and that I believe have substantial ability to grow fast) and then get a $60k job right of college. My budget for the fist year would be 60k - 10k (taxes) - 20k (living expenses) - 30(ish)k (loan repayment). Obviously, things never go perfectly as planned, so I am willing to reduce my estimates and shoot for two years (or even three). I am also not factoring in the possibility of reducing the debt while I am in college via payed co-ops, etc.</p>

<p>So my questions are:
If I plunk down $30k on year one, will I still have to pay all of the interest that I would have payed on a 10 year repayment plan?
Is it unreasonable to assume that I can get a $60k job out of college if I hit the books hard and shoot for internships and research opportunities whenever possible?
Is a $10k tax estimate realistic?
Am I missing anything?</p>

2

<p>For the tax estimate, spend some time at <a href=“http://www.irs.gov”>www.irs.gov</a> and at your home-state income tax website. $10k is probably low.</p>

<p>20k for living expenses may be pretty low too - especially if you need to get a car.</p>

<p>For federal loans, you only pay the interest accrued to date, so paying as much as you can afford from the very beginning will really reduce the total interest.</p>

<p>As to whether or not it is realistic to expect 60k right out of college for the major you are interested in, ask the career center at Bucknell.</p>

3

<p>The tax estimate is low: SS tax is 7.65% = $4,590, and federal taxes $11k, so you are already at $16k before considering state income taxes (could be another $3k, or more, or zero depending on your state.)</p>

4

<p>On $60,000 of wage/salary/tip income, US federal income tax plus payroll tax will probably be more like $13,000 for a single person with only the personal exemption and standard deduction. There may be state income tax as well. Of course, tax rates and brackets may be different when you graduate.</p>

5

<p>Yes, you’re missing all sorts of things, but $27k in debt is not an unreasonable amount, especially for a student graduating with an engineering degree.</p>

<p>What are you missing? Well, that $10k in income tax (which is pretty close to the amount from the 2013 tax table) isn’t the only tax you’ll be paying - you’re also going to be paying social security tax. And that $20k/year in living expenses . . . well, I guess it depends on where you’ll be living and how much it’s going to cost just to get back and forth to work, but chances are it’ll be higher. And so on and so forth. But, as for interest, you’ll only need to pay the actual accrued interest, so if you do manage to pay off the debt within a year (or two or three), you’ll save yourself a boatload of money on interest payments! You will have to be quite frugal your first couple of years out of school, but it sounds manageable.</p>

6

<p>So it sounds like a 2 year payment could work assuming everything goes alright in college and I get a job. I am a very frugal person, so I think I could live on 20k. However, I did some calculations and it seems like paying a loan such as this in 1 year vs 10 years only saves me about $5,000, making me wonder if it is really worth a stressful year. Would it be more wise to pay the loan slowly and instead look for other investment options for the money I make (investments that would have a ROI higher than 3.8%, that is)? Also, what are some good ways to start paying loans before graduation?</p>

7

<p>I’ve always used 30% as a crude estimate for taxes, including federal, state, SS, and other miscellaneous taxes. </p>

<p>What’s the huge rush? I can understand wanting to pay off the loans sooner than 10 years but why one year? Why not three or five years? </p>

<p>btw, if you have housemates and keep other living expenses down (don’t get a fancy new car, actually if you can, don’t get a car), $20K is feasible but it really depends on what kind of lifestyle you want.</p>

8

<p>I have a kid making close to that salary. I did their taxes and for you! I added up the taxes. There is a state income tax and local tax also. Taxes were $15,000. </p>

<p>I recommend you fully fund your 401k. Both of my kids’ employers match and so kids put in enough for the max match. That was an additional $3700. Important to at least fund that much to get the match, also one child’s employer gave them an additional 10% bonus at the end of the year. You are not taxed on your 401k contribution. </p>

<p>This kid elected to live in an apartment by themselves, but has an older car. Trying to save a sizable down payment for a car. Anyways, rule of thumb after all living expenses are paid, they have a $1,000 every month to put in savings. </p>

<p>The other kid of mine lives with a roommate but has a new car. Is probably able to save more with a roommate but has a job with extensive travel so day to day expenses are less. </p>

<p>Depending on engineering major, $60,000/year is not unrealistic. The only caveat is that many many engineering majors change majors, so just keep that in mind. </p>

<p>The other thing is that engineering majors have good internships in college. You may be able to make enough money in the summer to reduce some of that loan amount. But it depends on living expenses for the summer. Can be pricey. </p>

9

<p>I think a goal of paying $1000/mo, so probably about 30 month to pay $27000 in principal, would be excellent. It would allow you to save in your 401K or an IRA, and if you needed to pay less one month, it wouldn’t throw you off too much from your goal.</p>

<p>If you are so good at living frugally, you should be able to borrow less while in college. Look for paid internships rather than unpaid. Work while in school. Apply for scholarships.</p>

10

<p>Sure pay it all off as soon as possible. It’s not going to be $27K, by the way, though at 3% (a little more, really) isn’t going to jack it up that much more. The interest starts accumulating on the unsubsidized parts as soon as you get the money. Great idea if other things don’t come up where you would be better off investing the money.</p>

<p>My son got some great opportunities to travel and visit with classmates right out of school, in ways he’s highly unlikely to have in the future and at greatly subsidized prices, staying with families. So he took those opportunies at a cost. THough I’m sure you will get something for right away, as directed as you are already, a lot of kids don’t . It can cost money to live until you get your job and job search can cost too. My son was looking in a field that was seeking, so most of his direct costs were reimbursed, but he did have to have seed money. You need clothes, a car, and a family that can back you until you where you want to be is very helpful. Cars need insurance. When you do find a job, unless it’s right where you can live with parents or family for free or little, there are start up costs, like rent deposits, utilities and getting set up. </p>

<p>My son is frugal, pays for most things himself, lives inexpensively, makes about $60K, likes to come back to see us a few times a year which does rack it up some, and he’s saved about $10K in not quite a year. He has no loans. So without the start up costs next year, if he had had the student loans, it is possible for him to have them paid off by then. But he’s also too introverted and I wish he had spent a little bit more to get involved in his community, make more friends, do a little more. There is that trade off and it can be a balancing act.</p>

<p>With that amount of loans and the type of job prospects you have, you’ll likely be fine, though there is always that chance that a specific engineering industry or whatever goes bust. I’ve seen it a number of times. So, planning to pay off those loans early is a pretty good idea, but so is putting away some money. Getting that kind of interest rate for a loan is not so easy, and there might be better uses for your money too, so don’t get tunnel vision. To pay off a 4% loan and then take one out for 6% for your car, for example that might have no prepayment allowed terms is not such a good idea. The loan is flexible wheras some things in life are not. </p>

11

<p>$27,000 in loans for ALL of undergrad school is reasonable. Your plan to pay as much principal as possible is a good one. I would also suggest that you pay the interest on the unsubsidized loans while you are in college, if possible. </p>

12

<p>A couple of things to think about. Cpt is right about start up costs. They were around $3500 (I kept track) but kids had signing bonuses that covered these costs but did not get their bonus right away. We fronted them that money and they paid us back within 6 months. </p>

<p>Don’t underestimate having a safety net. You can pay a substantial amount back to your loans but things come up and you will want some liquid money in the bank for those realities. </p>

<p>Also interest paid on student loans up to $2500 is deducted off your gross income so you will have some relief from interest paid. The single exemption is $60,000/year and then the amount deducted is less. Not sure how much. Someone with more knowledge of taxes could explain. Another reason for someone making $60,000 to put money in their 401k. </p>

13

<p>You are just starting out. You aren’t even in college yet. You are likely about 18 years old. I think it’s wonderful that you are thinking about these things, but do be aware that things are not etched in stone, and that flexibility is important. First things first. You gotta get there, take the courses and do well. Engineering has a high exodus, drop out rate.</p>

<p>Also, things change with the economy. My one son was at a top gun college for engineering and computer jobs, and things just dried up terrible in the mid 2000s and kids who were all set on those high paying jobs were looking to fold sweaters at the GAP. I am not exaggerating either. Scary. Looks like things are opening up a bit now. But with engineering even, entire parts of that industry can tank, in terms of hiring and pay, as it can in any field. </p>

<p>But you are on the right track, taking the loans seriously.</p>

14

<p>Could you start using a professional financial planner now? </p>

15

<p>if your job is not in town and live with family, then that $20k expense is probably not realistic.</p>

16

<p>""So I may be going to Bucknell next year as an engineering student (probably chemical engineering). To do this, I’m looking at about $27k in loans (a mix of subsidized and unsubsidized federal loans). My plan is to hit the books hard, shoot for internships and research opportunities to gain experience in fields that interest me (and that I believe have substantial ability to grow fast) and then get a $60k job right of college. My budget for the fist year would be 60k - 10k (taxes) - 20k (living expenses) - 30(ish)k (loan repayment). Obviously, things never go perfectly as planned, so I am willing to reduce my estimates and shoot for two years (or even three). I am also not factoring in the possibility of reducing the debt while I am in college via payed co-ops, etc.</p>

<p>So my questions are:
If I plunk down $30k on year one, will I still have to pay all of the interest that I would have payed on a 10 year repayment plan?""</p>

<p>First of all…the word is PAID…not PAYED. (Why does this generation misspell that word?)</p>

<p>You may live frugally, but unless your parents are paying for some of your living expenses, they will be more than $20k per year. Will you be living alone? If so, at least 1200 a month will go towards that (rent, electric, cable, internet, etc). Then there are the other expenses: car, gasoline, car insurance, car repairs/maintenance, food, professional clothing, regular clothing, home furnishings, paper products (TP, paper towels, etc), cell phone, etc. Do you date? If so, there’s another big expense. </p>

<p>A single person with few/no deductions is going to get hit hard with taxes…state and federal. Plus there is FICA and other work deductions (health insurance, etc). And, you should begin a 401k immediately.</p>

17

<p>You may have other paycheck deductions as well – eg, various types of insurance.</p>