While in Law School: Pay off loans vs Investing Money

Discuss various money matters here. Loans (federal and private), scholarships, lottery winnings, or other school finance related information and queries.
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Kring345
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While in Law School: Pay off loans vs Investing Money

Postby Kring345 » Sat Apr 28, 2012 4:18 am

Quick question for you finance geeks.

I will be attending CLS and have about 1/2 scholarship thanks to veterans status. My goal is big law in NYC. I expect to come out of CLS with about 80k worth of debt, excluding the amount I could theoretically pay off during summer associate position. This is largely thanks to a 2350/mo living and housing stipend.

By the time I start law school, I will have about 10k in savings (excluding retirement accounts) that I can spend/invest/use. And I will be able to save an additional 500 dollars a month from 2350/mo stipend (1000 rent, 200 food, 300 misc/more food, 200 bills = about 500 left over).

My question: what should I do with this money?

1. Investment all 10k and save 500/mo as 'rainy day fund' to be invested annually/periodically? (more investment, less loans payments)
2. Use the 10k and 500/mo to pay off my principal and interest loan amount? (less investment, more loan payments)
3. Put all 10k into mutual funds and let it accrue interest and use the 500 to pay off interest and a bit of the principal? (hybrid - seems to make most sense)

Just trying to figure out what would be smartest in the long term? What other factors should I consider other than interest on loans vs growth of investments?

What factors would you consider? What would you do?

09042014
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Re: While in Law School: Pay off loans vs Investing Money

Postby 09042014 » Sat Apr 28, 2012 4:31 am

1) 1000 a month for rent anywhere near CLS? Let's see how far that stipend actually goes before you start counting it towards savings.

2) I wouldn't really invest it in anything with risk. You aren't going to reliably beat the interest rate on those loans.

3) I'd keep at least 5K as a rainy day fund. 500 bucks? That shit wouldn't last you 5 days in Manhattan.

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Kring345
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Re: While in Law School: Pay off loans vs Investing Money

Postby Kring345 » Sat Apr 28, 2012 5:01 am

1. 1000/mo is the rent I'll get for the subsidized CLS housing. Plus or minus.

2. This is my concern. But does this mean that I should invest none of the available money and focus entirely on lowering my loan amount? Or should I try and do a bit of each? I'd like to max out my IRA for 2013.

3. I didnt mean only 500 bucks for a rainy day fund. I meant 500/mo contributed to my pre-existing 4,000 rainy day fund. And when it gets "too big" (if there is such a thing), the invest the "extra"

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dingbat
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Re: While in Law School: Pay off loans vs Investing Money

Postby dingbat » Sat Apr 28, 2012 5:51 am

Your best bet is to borrow $10k less.
If you've already taken the money out, your next option would be to pay it back

Do not invest the money. On a tax adjusted basis, you will need to earn at least as much as your loan rate. That's not going to happen.

Any investing strategy that you can come up with that stands a decent chance of beating your loan rate is akin to taking your money to a casino and hoping for the best.
More than half the money managers in the business aren't capable of generating the returns required to justify investing over repaying.

09042014
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Re: While in Law School: Pay off loans vs Investing Money

Postby 09042014 » Sat Apr 28, 2012 7:06 am

Kring345 wrote:1. 1000/mo is the rent I'll get for the subsidized CLS housing. Plus or minus.

2. This is my concern. But does this mean that I should invest none of the available money and focus entirely on lowering my loan amount? Or should I try and do a bit of each? I'd like to max out my IRA for 2013.

3. I didnt mean only 500 bucks for a rainy day fund. I meant 500/mo contributed to my pre-existing 4,000 rainy day fund. And when it gets "too big" (if there is such a thing), the invest the "extra"


Then your best bet is just take less loans. You get hit with a 2.5% origination fee on your loans. So it's better to never take them, than take it and pay it off later.

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Tiago Splitter
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Re: While in Law School: Pay off loans vs Investing Money

Postby Tiago Splitter » Sat Apr 28, 2012 11:27 am

Kring345 wrote:2. This is my concern. But does this mean that I should invest none of the available money and focus entirely on lowering my loan amount? Or should I try and do a bit of each? I'd like to max out my IRA for 2013.


If you do go this route make sure you or a spouse have earned income in 2013.

Not that I'd endorse the strategy, since I'll be drawing down retirement savings to pay for law school.

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dingbat
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Re: While in Law School: Pay off loans vs Investing Money

Postby dingbat » Sat Apr 28, 2012 11:31 am

Tiago Splitter wrote:
Kring345 wrote:2. This is my concern. But does this mean that I should invest none of the available money and focus entirely on lowering my loan amount? Or should I try and do a bit of each? I'd like to max out my IRA for 2013.


If you do go this route make sure you or a spouse have earned income in 2013.

Not that I'd endorse the strategy, since I'll be drawing down retirement savings to pay for law school.

It's still a bad idea. http://www.top-law-schools.com/forums/viewtopic.php?f=10&t=182562

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Tiago Splitter
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Re: While in Law School: Pay off loans vs Investing Money

Postby Tiago Splitter » Sat Apr 28, 2012 11:33 am

dingbat wrote:
Tiago Splitter wrote:
Kring345 wrote:2. This is my concern. But does this mean that I should invest none of the available money and focus entirely on lowering my loan amount? Or should I try and do a bit of each? I'd like to max out my IRA for 2013.


If you do go this route make sure you or a spouse have earned income in 2013.

Not that I'd endorse the strategy, since I'll be drawing down retirement savings to pay for law school.

It's still a bad idea. http://www.top-law-schools.com/forums/viewtopic.php?f=10&t=182562


What's a bad idea? Investing borrowed money? I'd agree, which is why I said I wouldn't endorse the strategy. Just telling the OP it'll be even worse when he has to remove an excess contribution from the Roth with a 6% penalty for each year it was in when it wasn't supposed to be if he contributes without earned income.

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dingbat
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Re: While in Law School: Pay off loans vs Investing Money

Postby dingbat » Sat Apr 28, 2012 1:42 pm

Tiago Splitter wrote:
dingbat wrote:
Tiago Splitter wrote:
Kring345 wrote:2. This is my concern. But does this mean that I should invest none of the available money and focus entirely on lowering my loan amount? Or should I try and do a bit of each? I'd like to max out my IRA for 2013.


If you do go this route make sure you or a spouse have earned income in 2013.

Not that I'd endorse the strategy, since I'll be drawing down retirement savings to pay for law school.

It's still a bad idea. http://www.top-law-schools.com/forums/viewtopic.php?f=10&t=182562


What's a bad idea? Investing borrowed money? I'd agree, which is why I said I wouldn't endorse the strategy. Just telling the OP it'll be even worse when he has to remove an excess contribution from the Roth with a 6% penalty for each year it was in when it wasn't supposed to be if he contributes without earned income.

TITCR
It's a bad idea to invest in borrowed money.
It's even worse if you have to pay a penalty as you described.
You are spot on with everything you said

bmili
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Re: While in Law School: Pay off loans vs Investing Money

Postby bmili » Mon Apr 30, 2012 9:41 am

.




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