home equity vs student loans

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izy223
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home equity vs student loans

Postby izy223 » Tue Dec 25, 2012 12:55 pm

Hi All,

I was just offered, by a family member, the opportunity to take a home equity loan out for me to pay for law school. The interest would be 3% vs the 6.8% student loan rate. Further i am not going into public interest so lrap is not a consideration.

Is there any reason not to take up the offer?

walkingpanda
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Re: home equity vs student loans

Postby walkingpanda » Tue Dec 25, 2012 1:41 pm

*snarky commented deleted due to christmas spirit

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Icculus
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Re: home equity vs student loans

Postby Icculus » Tue Dec 25, 2012 2:21 pm

The main issue I see is the fact that you could cost someone their home if you end up enemployed.

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spleenworship
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Re: home equity vs student loans

Postby spleenworship » Tue Dec 25, 2012 2:24 pm

Define "family member"

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dingbat
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Re: home equity vs student loans

Postby dingbat » Tue Dec 25, 2012 3:38 pm

As long as you're ok with that person losing their home if you fuck up, you should take it.

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typ3
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Re: home equity vs student loans

Postby typ3 » Wed Dec 26, 2012 1:48 am

izy223 wrote:Hi All,

I was just offered, by a family member, the opportunity to take a home equity loan out for me to pay for law school. The interest would be 3% vs the 6.8% student loan rate. Further i am not going into public interest so lrap is not a consideration.

Is there any reason not to take up the offer?


Why not have this family member take out the home equity loan as a down payment to buy out a mature recession proof business in your city/town... plumbing / electrical / hvac / low voltage integration / firealarm etc. At least you will be you own boss then, you have an endless upside, and your job won't be outsource-able to indians or 40k an hr contract attorneys in dayton OH.

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dingbat
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Re: home equity vs student loans

Postby dingbat » Wed Dec 26, 2012 9:09 am

typ3 wrote:
izy223 wrote:Hi All,

I was just offered, by a family member, the opportunity to take a home equity loan out for me to pay for law school. The interest would be 3% vs the 6.8% student loan rate. Further i am not going into public interest so lrap is not a consideration.

Is there any reason not to take up the offer?


Why not have this family member take out the home equity loan as a down payment to buy out a mature recession proof business in your city/town... plumbing / electrical / hvac / low voltage integration / firealarm etc. At least you will be you own boss then, you have an endless upside, and your job won't be outsource-able to indians or 40k an hr contract attorneys in dayton OH.

Because running a business is guaranteed to always succeed.
Bad answer

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typ3
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Re: home equity vs student loans

Postby typ3 » Wed Dec 26, 2012 2:14 pm

Buying out a mature business that can't be outsourced and will always be needed with service agreements is less risky than getting a degree with a 50/50 chance of being able to even get a positive ROI?

Your argument that businesses don't always make it is the same for law firms. How many law firms or lawyers don't make it? Although I'm not exactly an expert in it, I've worked at the largest bankruptcy filing firm in my state (approximately 35-50% of 7,13, & 11 annual filings). We had a lawyer and professional nearly every week come through our doors that went bust.

Not to mention, the ability to service said debt from law school is dubious due to structural changes in the legal market. So, you're basically advising someone to become a employee and commodity in a market where there excess labor and that is a race to the bottom over the opportunity of owning something.

So, instead of getting into an industry where the competition is a lot less stiff you're telling someone to get into a market where the competition is more motivated, educated, and often monied.

Owning a business is a greater opportunity to get ahead in this country. Getting a law degree is a great way to fall behind by being an employee your entire life. Eventually, if you want to get ahead you're going to have to be entrepreneurial and either run your own office, get your own clients, etc. to make it and get ahead in life.

z0rk
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Re: home equity vs student loans

Postby z0rk » Wed Dec 26, 2012 2:38 pm

Staying on topic, I'd advise that you stay clear of using a home equity loan to pay for your law school financing. If this is a parent offering you the help, tell them you are really appreciative and understand where they are coming from but you wish to apportion risk and to minimize any collateral damage if things go wrong. My father made a simillar offer to me when I started law school, and I told him exactly that. The fact is, you would be borrowing against someone else's property without any guarantee of success. I don't have any idea as to where you are going to school or how much it will cost you, but chances are you won't be number one at Harvard.

All this being said, if the the interest and size of debt is problematic then I urge you to look for a course of study that will best enable you to mitigate costs. Instead of taking out an equity loan maybe that relative (again assuming it's a parent parent) would let you live with them while attending school. Right there you save a lot of exorbitant principal and compounding interest on living expenses (which in nearly all situations is the grad plus loans). I am presently pursuing my law degree part-time while working as a paralegal. This arrangement affords me the opportunity to pay for 1/3rd of my law school tuition AND living expenses while studying. Right there I will be ahead of the debt, and there is a greater chance I will have a manageable economic situation post-graduation.

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OneMoreLawHopeful
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Re: home equity vs student loans

Postby OneMoreLawHopeful » Wed Dec 26, 2012 6:23 pm

You should definitely do this for two reasons:

First, the interest is significantly lower, something that the above posters seem to be ignoring. Note, however, that you should make sure to ONLY borrow against the home's equity for as much as you would have borrowed at an UNsubsidized rate. If you can get subsidized student loans, that's a better del every time.

Two, and this is something no one above seems to have mentioned: unlike student loans, home equity loans are dischargeable, either through handing over the home, or in bankruptcy. In fact, if the home is owner occupied, many states will actually take steps to prevent eviction during bankruptcy proceedings, meaning that you can screw up law school AND they can keep the house (provided they proactively declare bankruptcy). Check your state's laws to be sure about this.

The reason student loans are so crippling is because they are non-dischargeable. Any opportunity you have to replace non-dischargeable debt with dischargeable debt should be taken.

You should, however, have a serious talk with the homeowner about what a "worst case scenario" looks like so that all parties can protect themselves (be sure the homeowner is prepared to declare bankruptcy if things get hot).

AspiringAcademic
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Re: home equity vs student loans

Postby AspiringAcademic » Wed Dec 26, 2012 7:01 pm

1.) If your school has a decent LRAP program, you might be passing up a chance to participate.

2.) You could take out loans normally and pay them off with your family's money only after you are big law secure. You'd only pay the higher interest for a short period of time (and thus accumulate most of the benefits) and would avoid leaving your family hanging if you flamed out.

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dingbat
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Re: home equity vs student loans

Postby dingbat » Wed Dec 26, 2012 7:07 pm

AspiringAcademic wrote:1.) If your school has a decent LRAP program, you might be passing up a chance to participate.

2.) You could take out loans normally and pay them off with your family's money only after you are big law secure. You'd only pay the higher interest for a short period of time (and thus accumulate most of the benefits) and would avoid leaving your family hanging if you flamed out.

No. You'll be paying double origination charges. If you're gunning for an LRAP eligible position, take out loans. If not, and it won't kill your parents if you fuck up, take the home equity loan.

To the poster who differentiated subsidized and unsubsidized, that's just stupid. There are no subsidized loans for law school. If you meant grad plus vs Stafford, the cost difference isn't worth it either

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Icculus
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Re: home equity vs student loans

Postby Icculus » Wed Dec 26, 2012 7:12 pm

Basically the only way this is okay is if the family member will not be relying on you to pay the loan back. If you can do this and the house is safe if you miss big law then fine, but the advice about bankruptcy, etc, is dumb. You do not want to put a family member into bankruptcy because of your mistakes. Is this person making this offer aware of the likelihood of you actually getting a big law job that would allow you to pay the loans back? If not, educate them and see if they still want to do this.

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izy223
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Re: home equity vs student loans

Postby izy223 » Wed Dec 26, 2012 10:48 pm

Icculus wrote:Basically the only way this is okay is if the family member will not be relying on you to pay the loan back. If you can do this and the house is safe if you miss big law then fine, but the advice about bankruptcy, etc, is dumb. You do not want to put a family member into bankruptcy because of your mistakes. Is this person making this offer aware of the likelihood of you actually getting a big law job that would allow you to pay the loans back? If not, educate them and see if they still want to do this.


this is the conversation i had with the family member earlier today. They assured me if I cant pay it back then they would be able to so there is no chance of losing the house. So Im going to go for it thanks for the advice everyone

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IAFG
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Re: home equity vs student loans

Postby IAFG » Wed Dec 26, 2012 10:53 pm

They should get a life insurance policy out against you if you do this.

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izy223
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Re: home equity vs student loans

Postby izy223 » Wed Dec 26, 2012 11:05 pm

IAFG wrote:They should get a life insurance policy out against you if you do this.


I dont get the reference

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Bildungsroman
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Re: home equity vs student loans

Postby Bildungsroman » Wed Dec 26, 2012 11:17 pm

izy223 wrote:
IAFG wrote:They should get a life insurance policy out against you if you do this.


I dont get the reference

It's a reference to the fact that their home loan won't expire if you do.

timbs4339
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Re: home equity vs student loans

Postby timbs4339 » Thu Dec 27, 2012 11:39 am

I would not do this unless the person could pay the money back without seeing a drop in their 1) living standards, 2) retirement prospects. A lot of boomers count on their home equity to carry them through retirement. My parents thought so and then took a bath on their house when they sold it- now their retirement savings are significantly decreased. This is in part because they took out a HEL to fund two UG tuitions.

Depending on your school, there is a significant chance that this loan will be a "default" for the lender (the homeowner) who will have to eat the cost. If that extra 150K or whatever will last them 5-10 years in retirement, you don't want that on your head.

Also remember that the person lending you the money may have an unrealistic view of your repayment prospects- even more so than the typical wide-eyed 0L. They may not understand that there is a very real chance you will wind up unemployed or making <40k after this is all said and done, and if you tell them otherwise they may just think you are being conscientious. The idea that higher education could ever be a bad investment is like saying that vegetables aren't healthy to some people.

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dingbat
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Re: home equity vs student loans

Postby dingbat » Thu Dec 27, 2012 11:53 am

timbs4339 wrote: A lot of boomers count on their home equity to carry them through retirement
Such a boomer thing to do, too

Paul Campos
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Re: home equity vs student loans

Postby Paul Campos » Thu Dec 27, 2012 12:05 pm

No one has mentioned that you can't IBR a HELOC loan, and that you can't foreclose on a law degree, which in any case is priceless. Assuming Congress doesn't change the rules retroactively law school loans are now just monopoly money, so borrow early and often, these deals are too good to last.

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spleenworship
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Re: home equity vs student loans

Postby spleenworship » Thu Dec 27, 2012 12:09 pm

dingbat wrote:
timbs4339 wrote: A lot of boomers count on their home equity to carry them through retirement
Such a boomer thing to do, too

God forbid they actually took the thirty amazing economic boom years to save for their old age. No, they'll use their home equity instead.

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dingbat
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Re: home equity vs student loans

Postby dingbat » Thu Dec 27, 2012 12:09 pm

Paul Campos wrote:No one has mentioned that you can't IBR a HELOC loan, and that you can't foreclose on a law degree, which in any case is priceless. Assuming Congress doesn't change the rules retroactively law school loans are now just monopoly money, so borrow early and often, these deals are too good to last.

that was 10 years ago, when student loans were 3 point something percent

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dingbat
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Re: home equity vs student loans

Postby dingbat » Thu Dec 27, 2012 12:09 pm

spleenworship wrote:
dingbat wrote:
timbs4339 wrote: A lot of boomers count on their home equity to carry them through retirement
Such a boomer thing to do, too

God forbid they actually took the thirty amazing economic boom years to save for their old age. No, they'll use their home equity instead.

Because causing a bubble is so much more fun. Building equity in your home is a boomer flame

timbs4339
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Re: home equity vs student loans

Postby timbs4339 » Thu Dec 27, 2012 12:10 pm

spleenworship wrote:
dingbat wrote:
timbs4339 wrote: A lot of boomers count on their home equity to carry them through retirement
Such a boomer thing to do, too

God forbid they actually took the thirty amazing economic boom years to save for their old age. No, they'll use their home equity instead.


Why actually save when you can invest all your extra cash in the stock market and live fat and happy off of dividends for the rest of your life?

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dingbat
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Re: home equity vs student loans

Postby dingbat » Thu Dec 27, 2012 12:13 pm

timbs4339 wrote:
spleenworship wrote:
dingbat wrote:
timbs4339 wrote: A lot of boomers count on their home equity to carry them through retirement
Such a boomer thing to do, too

God forbid they actually took the thirty amazing economic boom years to save for their old age. No, they'll use their home equity instead.


Why actually save when you can invest all your extra cash in the stock market and live fat and happy off of dividends for the rest of your life?

Invest? Fuck that shit, blow it all on bigger houses, flashier cars and nicer vacations




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