HELOC vs Stafford Unsubsidized/GradPLUS

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meachum
Posts: 13
Joined: Mon Mar 09, 2015 7:33 pm

HELOC vs Stafford Unsubsidized/GradPLUS

Postby meachum » Thu Apr 23, 2015 9:31 pm

Has anyone had experience with using a Home Equity Line of Credit to pay for law school as an alternative to federal loans? I've seen some threads from a few years ago, but I'd imagine you could get a better HELOC interest rate these days. I'm no HELOC expert though, so I'm looking for people who could share any not-so-obvious upsides and downsides.

A clear downside would be disqualifying yourself for LRAP/PAYE programs. Not to mention the added risk of parents losing their home/strained relationship.

A clear upside would be favorable interest rates and origination fees. Also, the loan is dischargeable in bankruptcy and HELOC interest can be tax deductible.

I would appreciate any more insight into this situation.

Thanks!
Last edited by meachum on Thu Apr 23, 2015 11:27 pm, edited 1 time in total.

UndecidedMN
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Re: HELOC vs Stafford Unsubsidized/GradPLUS

Postby UndecidedMN » Thu Apr 23, 2015 9:38 pm

First, your parents stress is not worth any cost savings. Also you lose PAYE/IBR option which is invaluable. Take the federal loan.

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twenty
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Re: HELOC vs Stafford Unsubsidized/GradPLUS

Postby twenty » Thu Apr 23, 2015 10:46 pm

A HELOC for law school is absolute insanity. Terrible, terrible idea.

meachum
Posts: 13
Joined: Mon Mar 09, 2015 7:33 pm

Re: HELOC vs Stafford Unsubsidized/GradPLUS

Postby meachum » Thu Apr 23, 2015 11:22 pm

twenty wrote:A HELOC for law school is absolute insanity. Terrible, terrible idea.


Could you elaborate on this?

UndecidedMN wrote:First, your parents stress is not worth any cost savings. Also you lose PAYE/IBR option which is invaluable. Take the federal loan.


I don't think this would cause my parents a significant amount of stress. Some additional info: In my (very fortunate) scenario, my parents were planning on paying off a large chunk of my law school loans anyway (and will probably cover the entire HELOC). My goal is biglaw, I'll be attending a school in the PBDV range, so I think I'll have a reasonable shot, so PAYE/IBR isn't a major concern.

I'm more looking for any hidden reasons why this would be a good/bad idea from anyone who has (or has had a colleague/friend that has) taken the HELOC route.

Thanks for the feedback so far!

The King
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Joined: Sun Mar 15, 2015 6:12 pm

Re: HELOC vs Stafford Unsubsidized/GradPLUS

Postby The King » Thu Apr 23, 2015 11:43 pm

.
Last edited by The King on Fri Jul 24, 2015 9:23 pm, edited 1 time in total.

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twenty
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Re: HELOC vs Stafford Unsubsidized/GradPLUS

Postby twenty » Fri Apr 24, 2015 12:41 am

So that follow up information changes things quite a bit:

I don't think this would cause my parents a significant amount of stress.


is pretty different from:

Not to mention the added risk of parents losing their home/strained relationship.


and this is kind of important:

Some additional info: In my (very fortunate) scenario, my parents were planning on paying off a large chunk of my law school loans anyway (and will probably cover the entire HELOC).


Depending on what a "large chunk" looks like, it sounds like no matter what happens, your parents aren't at any real risk of losing their home if you don't get biglaw. I dunno. My guess is that if your parents are paying, say, 2/3rds of sticker cost, that will leave you with about 100k's worth of debt. The difference between a HELOC and a federal loan is about 2-3k a year. The tax advantages on the HELOC are probably slightly better, too.

Maybe I'd take out federal loans for the first year, see if you get an SA at OCI. If you do, immediately pay back the federal loan and have your parents throw all their money at your 2L and 3L years, and then HELOC the rest. If you don't get biglaw, put all your eggs in the PAYE basket and have your parents (with the money they didn't spend on your loans up front) + your school's LRAP subsidize your payments for ten years.




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