Experienced Borrowers - Loan Strategy Question Forum

[Arboreal]

Situation:

0L, beginning law school in the fall.

Between scholarship $ and family support, all of my tuition payments for the next three years are covered. The only costs for which I may need to take out loans are those related to living expenses.

That said, I have approximately $50,000 in savings, with which I could pay these costs and likely avoid loans altogether (assuming 1L?/2L SA position).

The downside is that my net worth would be essentially 0$ at graduation. And with bar prep fees + COL over the summer + no emergency fund, this downside might make taking on a little bit of debt worthwhile.

What, in all of your opinions, should be my loan strategy? Flexibility is important to me, as is being able to survive. If all goes wrong (no job/whatever), I will not have family support to bail me out.

FYI -- I'll be at a T6, so biglaw is a fair bet careerwise.

[A. Nony Mouse]

You can wait to decide whether to take out loans 3L once you know what's going to happen (or not happen) job-wise. If it looks like you'll need money for bar prep/living expenses post-graduation, take out the loans 3L and save the money for summer. Otherwise I'd avoid loans and pay everything you can.

[derfs]

Sound advice above. I'd recommend that you wait until the spring semester of 3L year and decide whether you need to take out any loans. I was able to take out an additional loan - I hadn't used up my loan limit yet - to support myself this summer. Just fill out a FAFSA during your 3L year, turn down any loans that you could potentially get during the beginning of the semester, and wait to see if you would need it later on.

[Jency]

Given T6 and median to good grades you should be fine. It will come down to you securing a SA position (which could net $20,000 income) and being offered = the firm pays your Barbri and exam fees.

[abl]

Max out Perkins and whatever other low interest fed loans you qualify for (<5%) and invest the money that you save from that in a conservatively managed index fund -- something like Vanguard STAR. You probably won't break even, but you'll come darn close to it. You should do this for all three years regardless. The value of having some liquidity is definitely greater than the ~1% interest you'll lose (5% annual cost of loans - ~4% conservative rate of return on investments).

Then, I agree with one of the previous posters, that depending on what your career plans are (and by the beginning of 3L year you'll have a pretty good idea), you should either take out loans 3L year or pay the non-perkins remainder out of pocket. If you're in strong shape to get a PI job and want that, take out the full loans (b/c of LRAP or your school's equivalent). If you have a biglaw job and want that (esp. if they provide a bar stipend), don't take out anything except the Perkins/ultra low-interest loans. If you want PI but are unsure, or are otherwise in a shaky place wrt your career, save the money.

Regardless, you're in very good shape. You're going to graduate from a T6 with either only about $50k of debt -- serviceable on just about any income -- with $50k of savings (a downpayment on a pretty nice house), or you're going to graduate from a T6 completely debt free. If you follow my advice, you'll graduate with approximately of $15k of low-interest federal debt with $15k of savings (more if you work at a SA your 2L year and are somewhat frugal). That's enough savings to serve as a solid emergency fund, and little-enough debt to be easily manageable in even the worst-case scenario -- and will be very low-interest to boot.

[CanadianWolf]

Probably better to avoid student loan debt in your situation.

[bombaysippin]

I kind of have a related question to this, let's say you take out the loans, but have the financial means to pay them off (or at least a portion of the principal) and decide to do so, can you pay them off without penalty like as close as even a day after the loans get disbursed (I know this probably sounds dumb because then you'd be losing money from the origination fee and stuff)?

[derfs]

I kind of have a related question to this, let's say you take out the loans, but have the financial means to pay them off (or at least a portion of the principal) and decide to do so, can you pay them off without penalty like as close as even a day after the loans get disbursed (I know this probably sounds dumb because then you'd be losing money from the origination fee and stuff)?

Yes. There's no prepayment penalties on federal student loans.

ETA: Should've said federal. I have no clue about private loans.

[bombaysippin]

Awesome ty