Alternative to Federal Loans Forum

[moshei24]

Given all the uncertainty with Federal loans, and all the origination fees that go along with, and high rates, would a loan like the Discover Law loan be a better option? Any financial aid experts out there want to weigh in?

Here's a comparison:
https://www.discover.com/student-loans/ ... loans.html

[guano]

Pros: (barely) lower rates, may be dischargeable through bankruptcy (but that might affect bar eligibility)
Cons: no IBR, PSLF, LRAP, PAYE

Avoid the variable rate loans, odds are that rates will shoot up in the near future and you could end up paying many times more

Edit: gives whole new meaning to "biglaw or bust"

[moshei24]

Pros: (barely) lower rates, may be dischargeable through bankruptcy (but that might affect bar eligibility)
Cons: no IBR, PSLF, LRAP, PAYE

Avoid the variable rate loans, odds are that rates will shoot up in the near future and you could end up paying many times more

Edit: gives whole new meaning to "biglaw or bust"

Besides for LRAP, the other acronyms aren't too familiar. Are they all ways to pay off a federal loan by going into PI?

Very true. Though, my loans won't be SO high. Probably 40k/yr in loans or so, only, if even that much. Haven't figured it out yet.

Also, do you know if federal loans are compounded daily after the grace period? It seemed like the Discover one was.

[cinephile]

I wouldn't. There's the potential for loan forgiveness with federal loans, but not with private loans. All those acronyms refer to payment programs by the government offering forgiveness.

Also 40k/yr in loans is plenty. That's actually really high.

[moshei24]

I wouldn't. There's the potential for loan forgiveness with federal loans, but not with private loans. All those acronyms refer to payment programs by the government offering forgiveness.

Also 40k/yr in loans is plenty. That's actually really high.

Right, but I don't plan on going into a career where I'd get my loans forgiven. Also, there's a 4% origination fee on the 7.9% GradPlus loan. I'd probably have an interest rate of about 5.49% with Discover with no origination fee. That means I'm paying about half the interest by using Discover. Even the unsubsidized FAFSA loan has a much higher interest rate with 6.8% and a 1% origination fee. Right now, if I don't change my mind, I will be going into BigLaw to start my career. $120,000 of loans + the loan interest rate would make it rather easy to pay off my loans.

Yes, 40k/yr is a lot, but much less than the 60-70k that many people take out.

[guano]

I don't plan

Plan has nothing to do with it

[cinephile]

Yes, 40k/yr is a lot, but much less than the 60-70k that many people take out.

Actually, most people don't take out 60-70k a year. Around half of all law students have a 50% scholarship and another 10% have full scholarships. Then you have people whose parents are helping them with school (or at least living expenses), those who have savings from having worked before law school, and those who are living with a SO and saving on living expenses. When you think about it like this, you realize you're actually probably borrowing more than most law students.

And you never ever know what at the future will bring and it's best to take the conservative approach and go for the federal loans. You might get a biglaw job and then that firm goes bankrupt and you can't find anything else. Now what? You shouldn't put yourself in that terrifying position for just a few percentage points of interest.

[moshei24]

Yes, 40k/yr is a lot, but much less than the 60-70k that many people take out.

Actually, most people don't take out 60-70k a year. Around half of all law students have a 50% scholarship and another 10% have full scholarships. Then you have people whose parents are helping them with school (or at least living expenses), those who have savings from having worked before law school, and those who are living with a SO and saving on living expenses. When you think about it like this, you realize you're actually probably borrowing more than most law students.

And you never ever know what at the future will bring and it's best to take the conservative approach and go for the federal loans. You might get a biglaw job and then that firm goes bankrupt and you can't find anything else. Now what? You shouldn't put yourself in that terrifying position for just a few percentage points of interest.

Wait, I'm supposed to be worried that a firm is going to go bankrupt? You have to be kidding.

I could always half federal and half non-federal, but that would be rather pointless. So it would mean that half my loans would be at double the interest rate. That is more than a mere few percentage point.

Even if 50% of low students are paying half 35k/yr for law school, which I don't really believe, and would appreciate a source for that, the vast majority of law students go to schools where getting a job in BigLaw requires being on Law Review, if not higher than that. Hence, why having the federal forgiveness options are very important. Correct?

[guano]

Yes, 40k/yr is a lot, but much less than the 60-70k that many people take out.

Actually, most people don't take out 60-70k a year. Around half of all law students have a 50% scholarship and another 10% have full scholarships. Then you have people whose parents are helping them with school (or at least living expenses), those who have savings from having worked before law school, and those who are living with a SO and saving on living expenses. When you think about it like this, you realize you're actually probably borrowing more than most law students.

And you never ever know what at the future will bring and it's best to take the conservative approach and go for the federal loans. You might get a biglaw job and then that firm goes bankrupt and you can't find anything else. Now what? You shouldn't put yourself in that terrifying position for just a few percentage points of interest.

Wait, I'm supposed to be worried that a firm is going to go bankrupt? You have to be kidding.

I could always half federal and half non-federal, but that would be rather pointless. So it would mean that half my loans would be at double the interest rate. That is more than a mere few percentage point.

Even if 50% of low students are paying half 35k/yr for law school, which I don't really believe, and would appreciate a source for that, the vast majority of law students go to schools where getting a job in BigLaw requires being on Law Review, if not higher than that. Hence, why having the federal forgiveness options are very important. Correct?

Future partner at Dewey

[Holly Golightly]

Wait, I'm supposed to be worried that a firm is going to go bankrupt? You have to be kidding.

You should recognize that you can't always get what you want, and having a backup plan that involves loan forgiveness is better than nothing.

[NYstate]

Yes, 40k/yr is a lot, but much less than the 60-70k that many people take out.

Actually, most people don't take out 60-70k a year. Around half of all law students have a 50% scholarship and another 10% have full scholarships. Then you have people whose parents are helping them with school (or at least living expenses), those who have savings from having worked before law school, and those who are living with a SO and saving on living expenses. When you think about it like this, you realize you're actually probably borrowing more than most law students.

And you never ever know what at the future will bring and it's best to take the conservative approach and go for the federal loans. You might get a biglaw job and then that firm goes bankrupt and you can't find anything else. Now what? You shouldn't put yourself in that terrifying position for just a few percentage points of interest.

Wait, I'm supposed to be worried that a firm is going to go bankrupt? You have to be kidding.

I could always half federal and half non-federal, but that would be rather pointless. So it would mean that half my loans would be at double the interest rate. That is more than a mere few percentage point.

Even if 50% of low students are paying half 35k/yr for law school, which I don't really believe, and would appreciate a source for that, the vast majority of law students go to schools where getting a job in BigLaw requires being on Law Review, if not higher than that. Hence, why having the federal forgiveness options are very important. Correct?

Are you at all familiar with biglaw hiring, the competiveness for jobs, the difficulty of keeping a job and the general shakeout that is happening in biglaw? You realize that T14 doesn't guarantee anything and that even T6 students don't get jobs or get no offered from their firms?

My friends at Weil who got fired have 6 months salary to find something else. Some will be fine but at least some may not find anything making close to their biglaw salary. All firms are letting people go, often with less generous terms ( 3 months to find a job).

You bet your ass you need that federal protection. Law, espicially biglaw, is an uncertain profession.

By the way in the past years, at least 10 or 11biglaw firms have gone bankrupt. Others may be close depending on the economy.


Read the article in this thread about Mayer, brown.
http://www.top-law-schools.com/forums/v ... 3&t=213531

I was wrong in the past decade 12 biglaw firms have gone bankrupt. Not sure why you think it is a joke.

[moshei24]

Yes, 40k/yr is a lot, but much less than the 60-70k that many people take out.

Actually, most people don't take out 60-70k a year. Around half of all law students have a 50% scholarship and another 10% have full scholarships. Then you have people whose parents are helping them with school (or at least living expenses), those who have savings from having worked before law school, and those who are living with a SO and saving on living expenses. When you think about it like this, you realize you're actually probably borrowing more than most law students.

And you never ever know what at the future will bring and it's best to take the conservative approach and go for the federal loans. You might get a biglaw job and then that firm goes bankrupt and you can't find anything else. Now what? You shouldn't put yourself in that terrifying position for just a few percentage points of interest.

Wait, I'm supposed to be worried that a firm is going to go bankrupt? You have to be kidding.

I could always half federal and half non-federal, but that would be rather pointless. So it would mean that half my loans would be at double the interest rate. That is more than a mere few percentage point.

Even if 50% of low students are paying half 35k/yr for law school, which I don't really believe, and would appreciate a source for that, the vast majority of law students go to schools where getting a job in BigLaw requires being on Law Review, if not higher than that. Hence, why having the federal forgiveness options are very important. Correct?

Are you at all familiar with biglaw hiring, the competiveness for jobs, the difficulty of keeping a job and the general shakeout that is happening in biglaw? You realize that T14 doesn't guarantee anything and that even T6 students don't get jobs or get no offered from their firms?

My friends at Weil who got fired have 6 months salary to find something else. Some will be fine but at least some may not find anything making close to their biglaw salary. All firms are letting people go, often with less generous terms ( 3 months to find a job).

You bet your ass you need that federal protection. Law, espicially biglaw, is an uncertain profession.

By the way in the past years, at least 10 or 11biglaw firms have gone bankrupt. Others may be close depending on the economy.

Correct. If you end up at the bottom of your class in T6, you may have trouble finding a good job. And what about the slow death of a lot of the federal forgiveness programs? A lot of the ones mentioned won't exist soon enough. And if you lost your job in BigLaw, who says you get a PI job that would even qualify for one of these plans? It's a risk either way. Taking the gradplus loan would mean 20-25 years of Hell if your worst case scenario occurs. With a private loan, I could pay it off in 3 years of BigLaw. With gradplus that number likely goes up to 4 years.

Why is it that so many people decide to assume the worst when making these decisions? Shouldn't decisions be made based on odds?

[A. Nony Mouse]

Correct. If you end up at the bottom of your class in T6, you may have trouble finding a good job. And what about the slow death of a lot of the federal forgiveness programs? A lot of the ones mentioned won't exist soon enough. And if you lost your job in BigLaw, who says you get a PI job that would even qualify for one of these plans? It's a risk either way. Taking the gradplus loan would mean 20-25 years of Hell if your worst case scenario occurs. With a private loan, I could pay it off in 3 years of BigLaw. With gradplus that number likely goes up to 4 years.

Why is it that so many people decide to assume the worst when making these decisions? Shouldn't decisions be made based on odds?

Evidence? PAYE was a recent expansion of IBR and neither seem to be going away anytime soon.

And people assume the worst because odds are nice and all, but if you end up on the wrong side of them it doesn't matter how good they were to start with.

[NYstate]

Dude, do what you want. Plenty of people want the protection. Many people who get biglaw manage to pay their debt off quickly by making massive payments.

Class ranking won't guarantee you a job or protect you if the economy tanks again. Just having grades and law review doesn't guarantee you a job. Even top third doesn't guarantee a job. People are cautious because they know how competitive biglaw is and how easy it is to miss that boat. I've seen people struggling and almost suicidal because of their law school debt because they didn't have PAYE or IBR. I'm just presenting that side.

Not everyone agrees. There is one person who is using a home equity loan on his parents house, I think, or something like that.

My opinion is that if you are counting on a biglaw job lasting at least 3 years before you've even taken a ( mandatory curved with one exam) a law school class, let alone have a grade, you are making a mistake.

[moshei24]

Dude, do what you want. Plenty of people want the protection. Many people who get biglaw manage to pay their debt off quickly by making massive payments.

Class ranking won't guarantee you a job or protect you if the economy tanks again. Just having grades and law review doesn't guarantee you a job. Even top third doesn't guarantee a job. People are cautious because they know how competitive biglaw is and how easy it is to miss that boat. I've seen people struggling and almost suicidal because of their law school debt because they didn't have PAYE or IBR. I'm just presenting that side.

Not everyone agrees. There is one person who is using a home equity loan on his parents house, I think, or something like that.

My opinion is that if you are counting on a biglaw job lasting at least 3 years before you've even taken a ( mandatory curved with one exam) a law school class, let alone have a grade, you are making a mistake.

So going to a T6 shouldn't be taken at all into consideration?

[rinkrat19]

Dude, do what you want. Plenty of people want the protection. Many people who get biglaw manage to pay their debt off quickly by making massive payments.

Class ranking won't guarantee you a job or protect you if the economy tanks again. Just having grades and law review doesn't guarantee you a job. Even top third doesn't guarantee a job. People are cautious because they know how competitive biglaw is and how easy it is to miss that boat. I've seen people struggling and almost suicidal because of their law school debt because they didn't have PAYE or IBR. I'm just presenting that side.

Not everyone agrees. There is one person who is using a home equity loan on his parents house, I think, or something like that.

My opinion is that if you are counting on a biglaw job lasting at least 3 years before you've even taken a ( mandatory curved with one exam) a law school class, let alone have a grade, you are making a mistake.

So going to a T6 shouldn't be taken at all into consideration?

Of course it should. If you were talking about going to TT/TTT/TTTT, you'd be getting advice to not take out any debt at all.

[NYstate]

Dude, do what you want. Plenty of people want the protection. Many people who get biglaw manage to pay their debt off quickly by making massive payments.

Class ranking won't guarantee you a job or protect you if the economy tanks again. Just having grades and law review doesn't guarantee you a job. Even top third doesn't guarantee a job. People are cautious because they know how competitive biglaw is and how easy it is to miss that boat. I've seen people struggling and almost suicidal because of their law school debt because they didn't have PAYE or IBR. I'm just presenting that side.

Not everyone agrees. There is one person who is using a home equity loan on his parents house, I think, or something like that.

My opinion is that if you are counting on a biglaw job lasting at least 3 years before you've even taken a ( mandatory curved with one exam) a law school class, let alone have a grade, you are making a mistake.

So going to a T6 shouldn't be taken at all into consideration?

Up to you. You seem to think that school = job . That is not at all the case. Aside from that, you have no idea what your grades will be at the end of 1L.

[zozin]

Origination fees are gonna be like $3.5K over three years. Suppose you borrow less from private lender, to account for lost fees, 6 months after graduation, you'd owe $4-5K less than if you had borrowed from the government. That number is also premised upon the 5.49% rate not changing, which obviously won't happen.

For $8.5K, the Stafford/GradPLUS option sounds a lot more appealing, considering the benefits.

[moshei24]

Origination fees are gonna be like $3.5K over three years. Suppose you borrow less from private lender, to account for lost fees, 6 months after graduation, you'd owe $4-5K less than if you had borrowed from the government. That number is also premised upon the 5.49% rate not changing, which obviously won't happen.

For $8.5K, the Stafford/GradPLUS option sounds a lot more appealing, considering the benefits.

6 months after graduation is before interest starts compounding, which then becomes a big deal when I need to start paying it back.

Correct, it's premised on the 5.49% rate not changing, a valid assumption, as a fixed rate doesn't change.

I do see the value in having other ways out, but the other ways out seem to mean living with very little money for a long time, or going into PI, and doing LRAP, which doesn't seem to be simplest thing like people make it out to be.

[zozin]

6 months after graduation is before interest starts compounding, which then becomes a big deal when I need to start paying it back.

Correct, it's premised on the 5.49% rate not changing, a valid assumption, as a fixed rate doesn't change.

I do see the value in having other ways out, but the other ways out seem to mean living with very little money for a long time, or going into PI, and doing LRAP, which doesn't seem to be simplest thing like people make it out to be.

Yea, I just calculated it up until capitalization.
I assumed the 5.49% was variable, but apparently Discover offers fixed rate student loans too. How confident are you that you'll be able to get the lowest advertised rate?

[guano]

Origination fees are gonna be like $3.5K over three years. Suppose you borrow less from private lender, to account for lost fees, 6 months after graduation, you'd owe $4-5K less than if you had borrowed from the government. That number is also premised upon the 5.49% rate not changing, which obviously won't happen.

For $8.5K, the Stafford/GradPLUS option sounds a lot more appealing, considering the benefits.

6 months after graduation is before interest starts compounding, which then becomes a big deal when I need to start paying it back.

Correct, it's premised on the 5.49% rate not changing, a valid assumption, as a fixed rate doesn't change.

I do see the value in having other ways out, but the other ways out seem to mean living with very little money for a long time, or going into PI, and doing LRAP, which doesn't seem to be simplest thing like people make it out to be.

Look. Taking out a federal loan is basically a hedge in case things go wrong. That hedge costs approximately 10% (assuming you qualify for a low fixed rate and will aggressively pay down debt when able)
Whether you think the hedge is worth 10% is up to you.

[moshei24]

Origination fees are gonna be like $3.5K over three years. Suppose you borrow less from private lender, to account for lost fees, 6 months after graduation, you'd owe $4-5K less than if you had borrowed from the government. That number is also premised upon the 5.49% rate not changing, which obviously won't happen.

For $8.5K, the Stafford/GradPLUS option sounds a lot more appealing, considering the benefits.

6 months after graduation is before interest starts compounding, which then becomes a big deal when I need to start paying it back.

Correct, it's premised on the 5.49% rate not changing, a valid assumption, as a fixed rate doesn't change.

I do see the value in having other ways out, but the other ways out seem to mean living with very little money for a long time, or going into PI, and doing LRAP, which doesn't seem to be simplest thing like people make it out to be.

Look. Taking out a federal loan is basically a hedge in case things go wrong. That hedge costs approximately 10% (assuming you qualify for a low fixed rate and will aggressively pay down debt when able)
Whether you think the hedge is worth 10% is up to you.

True. That is what it comes down to. But it's not a classic hedge, as in the alternative isn't that attractive either. 20-25 years of barely making it is bad. The only attractive alternative would be 10 years in PI to pay off the loans, but from what I hear LRAP isn't as simple as it seems, and you could get screwed doing it. Do you know anything about it?

[moshei24]

And another issue with a fallback is that it's always in the back of your head as a way out, so you don't end up putting in 100%. Even subconsciously it could affect you.

[guano]

And another issue with a fallback is that it's always in the back of your head as a way out, so you don't end up putting in 100%. Even subconsciously it could affect you.

Actually, I look at it as a business arrangement - you want to succeed, and will put full effort into succeeding, but you should still limit the downside risk.

As for the classic hedge analogy, it's not a classic investment either. It's more like an alternative investment. These are the rules of the game and the tools available. It is up to you to determine the optimum balance of risk, reward, and cost.
By choosing a T6 at high cost, you're upping the potential reward by upping the risk (cost), compared to a free ride at a lower ranked school. By increasing the cost you can decrease the risk.

Remember, if you succeed, and end up in biglaw, the cost is minimal considering your salary (do the math. The increased cost is no more than a few months' salary, especially at the backend when you're at a 3rd/4th year pay scale)
But if you fail, which is always a possibility, then the difference can be immense

[moshei24]

And another issue with a fallback is that it's always in the back of your head as a way out, so you don't end up putting in 100%. Even subconsciously it could affect you.

Actually, I look at it as a business arrangement - you want to succeed, and will put full effort into succeeding, but you should still limit the downside risk.

As for the classic hedge analogy, it's not a classic investment either. It's more like an alternative investment. These are the rules of the game and the tools available. It is up to you to determine the optimum balance of risk, reward, and cost.
By choosing a T6 at high cost, you're upping the potential reward by upping the risk (cost), compared to a free ride at a lower ranked school. By increasing the cost you can decrease the risk.

Remember, if you succeed, and end up in biglaw, the cost is minimal considering your salary (do the math. The increased cost is no more than a few months' salary, especially at the backend when you're at a 3rd/4th year pay scale)
But if you fail, which is always a possibility, then the difference can be immense

The 3rd/4th year pay scale is a good point. I wasn't even thinking in those terms. By those years, I'd probably accrued about $15,000 more of loans/interest by going federal. Am I underestimating that?