Downside to maxing cost-of-living loan to live comfortably? Forum

[duckmoney]

Here's a thought: is there any downside to taking out the maximum cost-of-living loans in order to live comfortably during law school, even if you won't necessarily spend every bit of it?

Here's my reasoning. Tuition at CCN next year after a small scholly will cost $120,000 in loans by itself, no way around it. I could pinch pennies and live off savings / earnings for 3 years, or I could max out loans and bump up debt to $180,000. I see three options for paying it back:

1) Biglaw. I will be able to comfortably pay off loans regardless of size, and live comfortably during BOTH law school and as my time as a lawyer.
2) LRAP-qualifying PI job. The loans will be paid off completely after 10 years at no cost to me, regardless of size. I would have been stupid NOT to max out loans.
3) Shitlaw. Get on IBR and killself; debt at 120 or 180 will be too high to ever manage. At least I start with money in the bank.

So, is there any reason NOT to max loans, keep a big rainy day fund, live somewhere nice, eat good food, go out, go to a nice gym, and generally buy my way out of the stressful negatives that might otherwise detract from grades?

Or am I missing something?

[NYC Law]

If you do get biglaw you'll be able to pay it off much more quickly and, who knows, maybe have a year or two to actually enjoy the biglaw salary without worrying about loans.

[ReelectClayDavis]

Very good question OP. Interested in hearing others' thoughts on this.

2) seems generally valid but its utility might depend on the government job you take. I haven't looked at the numbers super carefully, but for some PI jobs on the GS scale (think DOJ), I have heard that within a few years of regular raises, you will not be paying less under IBR than you would on a normal payment plan. But at the same time, you won't be pulling down $160K, more like $80K. You could still probably live comfortably under full payments on a salary like that, but I could see the advantage of having only $50,000 in loans to pay off as opposed to a larger amount.

If you're going to prosecution/public defense for a while with a salary more like 50-60K, I think 2) is very credited.

For 3), I don't think that they have fixed the "tax bomb" yet at the end of 25-year IBR (correct me if I am wrong). This means that your low payments for 25 years will only result in large tax liability on the end.

[duckmoney]

Approximate payment on the biglaw plan:

$1400 / month @ 120k
$2100 / month @ 120k

My wife will be making 40 - 60k depending on market with no debt, so our salary range would be anywhere in the range of 150k to 220k on a biglaw salary.

Living on 125k in a small market or 195k in a large one (not NYC, wouldn't work there) still seems rich to me, and I feel like the extra 7k / yr I'd save if I didn't max the loans wouldn't make much difference.

[MrPapagiorgio]

Delay of gratification, man. I personally would not want to purposely take out an additional $60,000 that I do not need so I can live "comfortably." I know you're going to a great school, but there is no guarantee of any job anymore, even from CCN.

Debt is, in almost every instance, bad to accrue. Some may argue that education is a good debt to have, and they would be mostly right, except you essentially want to take out more money to play around (let's face it, you want play money).

Only you can decide if truly need this money.

[duckmoney]

Very good question OP. Interested in hearing others' thoughts on this.

2) seems generally valid but its utility might depend on the government job you take. I haven't looked at the numbers super carefully, but for some PI jobs on the GS scale (think DOJ), I have heard that within a few years of regular raises, you will not be paying less under IBR than you would on a normal payment plan. But at the same time, you won't be pulling down $160K, more like $80K. You could still probably live comfortably under full payments on a salary like that, but I could see the advantage of having only $50,000 in loans to pay off as opposed to a larger amount.

If you're going to prosecution/public defense for a while with a salary more like 50-60K, I think 2) is very credited.

For 3), I don't think that they have fixed the "tax bomb" yet at the end of 25-year IBR (correct me if I am wrong). This means that your low payments for 25 years will only result in large tax liability on the end.

Thanks for the comments. My thoughts:

For 2), even at $80k I would still qualify for IBR and pay 800 a month, which is a lot less then 1400, and it would be the same at 120k or 180k debt and be forgiven after 10 years. Also, LRAP covers jobs that pay under 80k.

For 3), I'm pretty sure I'm looking at bankruptcy for the tax bomb either way, and just need to plan accordingly. I'm hoping to avoid this, relatively few people at CCN end up in shitlaw, but I feel like I can't discount it totally as a realistic option.

I agree that 50000 in loans would be better, but being as tuition will cost me $120k before any cost of living it's not an option. It's the choice between a whole lot of debt and a SHIT TON of debt, which is what makes this interesting.

[NYC Law]

For 3), I'm pretty sure I'm looking at bankruptcy for the tax bomb either way, and just need to plan accordingly. I'm hoping to avoid this, relatively few people at CCN end up in shitlaw, but I feel like I can't discount it totally as a realistic option.

I just looked it up and at least bankruptcy creditors can't go after your 401(k), so if you know you're going that route just be sure to max out your contribution every year and look for anything else that will be exempt you can hide money in. So it won't be the end of the world to go that route, it'd still just suck to pay on loans for 25 years just to go bankrupt because of them.

[duckmoney]

For 3), I'm pretty sure I'm looking at bankruptcy for the tax bomb either way, and just need to plan accordingly. I'm hoping to avoid this, relatively few people at CCN end up in shitlaw, but I feel like I can't discount it totally as a realistic option.

I just looked it up and at least bankruptcy creditors can't go after your 401(k), so if you know you're going that route just be sure to max out your contribution every year and look for anything else that will be exempt you can hide money in. So it won't be the end of the world to go that route, it'd still just suck to pay on loans for 25 years just to go bankrupt because of them.

I agree. My reasoning is that if I have 120k of debt and make a shitlaw salary, I'm going to go bankrupt anyway so why not go out with a bang?

[cinephile]

I agree. My reasoning is that if I have 120k of debt and make a shitlaw salary, I'm going to go bankrupt anyway so why not go out with a bang?

And now you've convinced me to max out my COL loan.

[upfish]

On this note, my friend maxed out her COL loans for her MBA and bought a house. She sold it several years later at a profit and is basically set for life.

This was JUST before the housing crash though, so this is probably no longer viable.