leckj wrote:I figured that would be the response.
I think what that overlooks is repayment options like IBR. This, in essence, provides a similar government subsidy to the borrower (law student) as is provided to the lender (bank). If one spends $100,000 getting a law degree and ends up with a job at McDonalds, one is only on the hook for a fixed percentage of your income. And if one stays at McDonalds a long time, one's loan will be forgiven in 20 years)
(It's more likely that a JD's rock-bottom job, salary wise, is in a PD office or similar rather than at McDonalds, in which case their debt would be forgiven after only 10 years)
Yes, I'm looking into quantifying IBR and LRAP type options. I think they can be viewed as complex binary options, namely cash-or-nothing puts.
Granted, I can see using something higher than the 8% loan rate. But Schlunk is using rates up to 27%! That's absurd. In my estimation, even 16%, double the actual cost of funds, is quite high. I think 10-12% is probably the best number.
Agreed. This is why I use a lower spectrum.
This is of course a theoretical discussion. Your spreadsheet is quite nice and explains the numbers quite well.
But may I suggest that if earnings are #1 priority to one who could/would create (or even fully understand) this spreadsheet, and its underlying concepts (dcf, pv, annuities, etc), you become a banker. Cheers!
One of my main anxieties is the possibility that I should be going into pure finance, not law. Let's not exacerbate it. FWIW, I plan to work in securities law / banking & finance litigation. And, hell, you seem to understand the spreadsheet! Doesn't this concept apply to you to?