Which is the least terrible choice: T6, T14$, T16$$, T25$$$? Forum

[Whatisthis]

All right, I sorta agree with well-hello-there, and reading these posts has frustrated me enough to prompt a response…

So, the OP’s original debt shouldn’t be viewed as a pure sunk cost, as it has not been paid (though it has been incurred) and, as such, any future decision needs to consider this obligation (e.g. he shouldn’t go and take a job that pays too little to make the necessary payments). But because in this case he is going to law school in order to increase his earning power, waiting to attend solely for the purpose of paying down existing debt would be a bad decision.

As I see it, the OP needs to pay the 75K regardless of whether he attends school or not, and if he thinks that (not considering his existing debt) school will increase his income, then how could it be a bad thing… He is now left with more income and the same 75K debt.

NOTE: This is of course assuming that taking on 250K in additional debt at Columbia will leave him in a better spot than his current situation, but that is another debate (Personally, I would not feel comfortable making this assumption) Also, going to law school has its own opportunity costs.

As for the interest that would accrue, if the OP waited a year and assuming he is making 60K now, he would at most (being very aggressive) pay 30K down. Would the amount of interest on 30K accumulated throughout law school be more than the opportunity cost of 100K (again, optimistically assuming 160K job at graduation)? No.

Now, there are a lot of assumptions here, but if the OP believes that taking on the additional debt to go to law school will put him in a better spot than he is in now, then delaying solely to pay down his existing debt is not a smart financial move.

[boushi]

While its correct that his ug loans are a sunk cost in the sense that they have already been incurred, they also have the characteristic of compounding interest. In the real world, the choice to pile up compounding interest loans past a certain threshold has real implications for the OP's expected quality of life that need to be differentiated from the pure "in the long run, this way will increase his lifetime earnings by x%" type of analysis. The OP is not some hypothetical actor in a world of infinite possibilities; his choices are constrained by the realities of the job market for law grads and those salaries can only bear certain amounts of compounding interest loans before the interest payments alone require a severe reduction in the quality of life for the debtor. For example, if the OP has to pay nearly $4000 per month to loans for 10 years, he's going to be living a fairly modest lifestyle, despite working extremely long and stressful hours during that period. It is not unreasonable, then, to suppose the OP could consider that type of stress for over 10% of his life on earth to be an unreasonable cost, even for a "dream career," and conclude that he could be happier at his current job, enjoying his youth a little while longer in order to find a way to obtain his dream job without latching into the golden handcuffs. In the long run, sure, maybe he'd ultimately lose some money by deferring law school in certain scenarios, but it's completely possible to imagine that he could also give himself a better quality of life. In the end, after all, people with prestigious careers in law, banking, etc. are going to die with more money than they know what to do with. They won't want another paycheck on their death bed; they'll want more time to enjoy.

Here's what the loan repayment website says about $325k in loans, by the way. I've been generous with the interest rate and fees.

Loan Calculator
Loan Balance: $325,000.00
Adjusted Loan Balance: $325,000.00
Loan Interest Rate: 6.80%
Loan Fees: 0.00%
Loan Term: 10 years
Minimum Payment: $50.00

Monthly Loan Payment: $3,740.11
Number of Payments: 120

Cumulative Payments: $448,813.33
Total Interest Paid: $123,813.33
Note: The monthly loan payment was calculated at 119 payments of $3,740.11 plus a final payment of $3,740.24.

It is estimated that you will need an annual salary of at least $448,813.20 to be able to afford to repay this loan. This estimate assumes that 10% of your gross monthly income will be devoted to repaying your student loans. This corresponds to a debt-to-income ratio of 0.7. If you use 15% of your gross monthly income to repay the loan, you will need an annual salary of only $299,208.80, but you may experience some financial difficulty.This corresponds to a debt-to-income ratio of 1.1.

The following table lists the minimum income necessary to repay the debt without encountering a partial economic hardship. Partial economic hardship is defined as having annual education loan payments in excess of 15 percent of discretionary income, where discretionary income is the amount by which Adjusted Gross Income (AGI) exceeds 150 percent of the poverty line. This figure is shown in the Minimum AGI (IBR) column. The Minimum AGI (ICR) column uses an alternate definition of economic hardship, based on 20 percent of discretionary income which is defined as the excess of AGI over 100 percent of the poverty line.


Household Size Minimum AGI (IBR) Minimum AGI (ICR)
1 $315,454.00 $235,237.00
2 $321,064.00 $238,977.00
3 $326,674.00 $242,717.00
4 $332,284.00 $246,457.00
5 $337,894.00 $250,197.00
6 $343,504.00 $253,937.00

These results assume that the student is paying the interest charges on any unsubsidized loans and is not capitalizing the interest while in school. If the student is capitalizing the interest, the cumulative payments and total interest charges will be higher than shown here.

Extended repayment would cut the monthly payment by $1,621.35 (43.4%) by increasing the loan term to 30 years but would also increase the total interest paid over the life of the loan by $313,940.27 (253.6%), a factor of 3.54 increase. You should stick with the shortest loan term you can afford. After all, do you really want to still be repaying your own student loans when your children enroll in college?

Student loans do not have prepayment penalties. If you wish, you can make an extra payment to principal each month to accelerate repayment of the debt. If you pay an extra $50.00 a month, you will cut 0.2 years off of the 10-year repayment term and save $2,527.40 in interest over the life of the loan. If you pay an extra $100.00 a month, you will cut 0.3 years off of the 10-year repayment term and save $4,951.85 in interest over the life of the loan.

EDIT: I'm not an econ major or accountant, so forgive me I'm not using the exact terminology. Also, I now realize that the sunk cost dude/dudette was just trolling anyway. Still, OP, think long and hard about how that debt will actually affect your quality of life.

[ahduth]

You are all morons and fail basic economics. The 75k he's adding into those figures in the poll is not sunk costs - it is DEBT. The sunk costs were his investment in his UG education, he can't go back and "unspend" that money. The cost is done and gone, therefore it is "sunk."

The 75k in debt is an entirely separate item from the cost. It is how he financed the cost. And it is still very much around. There is nothing "sunk" about it.

Stop conflating sunk costs with debt. It's bothering me.

[Whatisthis]

You are all morons and fail basic economics. The 75k he's adding into those figures in the poll is not sunk costs - it is DEBT. The sunk costs were his investment in his UG education, he can't go back and "unspend" that money. The cost is done and gone, therefore it is "sunk."

The 75k in debt is an entirely separate item from the cost. It is how he financed the cost. And it is still very much around. There is nothing "sunk" about it.

Stop conflating sunk costs with debt. It's bothering me.

Read my post asshole and you'll see I am not confused about the meaning of sunk costs.

[well-hello-there]

There is absolutely no way that Columbia is worth 100K more than Duke. That people think that really speaks to the obsession with US News rankings. 100K more? That's absurd. Further for his stated goal (DOJ) going to CLS over Duke won't give him a noticeable leg up. They're going to look at the two schools as being peers and will want to say GPAs above 3.3 at both.

blatant duke trolling

[beachbum]

There is absolutely no way that Columbia is worth 100K more than Duke. That people think that really speaks to the obsession with US News rankings. 100K more? That's absurd. Further for his stated goal (DOJ) going to CLS over Duke won't give him a noticeable leg up. They're going to look at the two schools as being peers and will want to say GPAs above 3.3 at both.

blatant duke trolling

Can we ban this dude yet, or how that does work? His posts make my head hurt, and the creepy-ass video in his profile kinda makes me think he's unstable. And while I enjoy discussing law schools as much as the next guy, I'd rather not be turned into a lampshade.

[stratocophic]

You are all morons and fail basic economics. The 75k he's adding into those figures in the poll is not sunk costs - it is DEBT. The sunk costs were his investment in his UG education, he can't go back and "unspend" that money. The cost is done and gone, therefore it is "sunk."

The 75k in debt is an entirely separate item from the cost. It is how he financed the cost. And it is still very much around. There is nothing "sunk" about it.

Stop conflating sunk costs with debt. It's bothering me.

Read my post asshole and you'll see I am not confused about the meaning of sunk costs.

Third classic blunder to add to the list:
1. Never get involved in a land war in Asia
2. Never go against a Sicilian when death is on the line
3. Never insult a UChicago kid's understanding of economics

[well-hello-there]

The 75k in debt is an entirely separate item from the cost. It is how he financed the cost. And it is still very much around. There is nothing "sunk" about it.

you fail at arguing because ^here you make my point but then say that I'm wrong

[well-hello-there]

There is absolutely no way that Columbia is worth 100K more than Duke. That people think that really speaks to the obsession with US News rankings. 100K more? That's absurd. Further for his stated goal (DOJ) going to CLS over Duke won't give him a noticeable leg up. They're going to look at the two schools as being peers and will want to say GPAs above 3.3 at both.

blatant duke trolling

Can we ban this dude yet, or how that does work? His posts make my head hurt, and the creepy-ass video in his profile kinda makes me think he's unstable. And while I enjoy discussing law schools as much as the next guy, I'd rather not be turned into a lampshade.

you're just mad cuz you checked your econ book and found out I'm right

[ahduth]

So, the OP’s original debt shouldn’t be viewed as a pure sunk cost, as it has not been paid (though it has been incurred) and, as such, any future decision needs to consider this obligation (e.g. he shouldn’t go and take a job that pays too little to make the necessary payments).

I wasn't referring to you so much as well-hello-there and everyone before you, but since you invited me so kindly to pick apart your definitions, let's have at.

You explicitly tie the debt and the costs, even though they are two entirely distinct accounting concepts. When you say an item has not been paid, though it has been incurred, you could be talking about an accrual of sorts I guess? All of that is okay, I know everyone isn't an accountant.

I do however object to the way sunk cost is being thrown around here. Is his undergraduate tuition a sunk cost? Yes. Do we care if the 75k in debt came from it or some other source? No. He could have 75k in debt from buying a Maserati, and it'd be the same thing in my book. Debt is debt. Calling the 75k a sunk cost might imply that he is throwing good money after bad on the same venture. It's just unnecessary in this context. He has 75k in debt, and now he's considering law school. Done.

[beachbum]

There is absolutely no way that Columbia is worth 100K more than Duke. That people think that really speaks to the obsession with US News rankings. 100K more? That's absurd. Further for his stated goal (DOJ) going to CLS over Duke won't give him a noticeable leg up. They're going to look at the two schools as being peers and will want to say GPAs above 3.3 at both.

blatant duke trolling

Can we ban this dude yet, or how that does work? His posts make my head hurt, and the creepy-ass video in his profile kinda makes me think he's unstable. And while I enjoy discussing law schools as much as the next guy, I'd rather not be turned into a lampshade.

you're just mad cuz you checked your econ book and found out I'm right

Yup, you caught me. Guilty as charged. And hey, maybe later you can stop by my office for a Snickers bar. Just remember: I'm the nice guy- so you can go ahead and erase "beachbum" from that list of yours.

[well-hello-there]

Is his undergraduate tuition a sunk cost? Yes. Do we care if the 75k in debt came from it or some other source? No. He could have 75k in debt from buying a Maserati, and it'd be the same thing in my book. Debt is debt. Calling the 75k a sunk cost might imply that he is throwing good money after bad on the same venture. It's just unnecessary in this context. He has 75k in debt, and now he's considering law school. Done.

This is exactly what I'm saying

[ahduth]

Is his undergraduate tuition a sunk cost? Yes. Do we care if the 75k in debt came from it or some other source? No. He could have 75k in debt from buying a Maserati, and it'd be the same thing in my book. Debt is debt. Calling the 75k a sunk cost might imply that he is throwing good money after bad on the same venture. It's just unnecessary in this context. He has 75k in debt, and now he's considering law school. Done.

This is exactly what I'm saying

No. You were the person who started this debt / sunk cost conflation thing. You are the source of the problem.

The 75k in DEBT absolutely must be considered. The 75k in SUNK COSTS is pretty irrelevant, since the OP now has his UG degree and it's done.

I'm just arguing about the definitions, because this thread was so full of win, I had to get involved.

[well-hello-there]

The 75k in DEBT absolutely must be considered.

wrong. You could make a case for considering the additional interest that will accrue, but not the $75K.

[ahduth]

The 75k in DEBT absolutely must be considered.

wrong. You could make a case for considering the additional interest that will accrue, but not the $75K.

You are why America is owned by China.

[TheStrand]

@boushi there's little chance he's not going to have at least partial financial hardship as defined by the parameters you used (and which are used to determine IBR eligibility). Why would he not do IBR and just get forgiveness (aside from the tax issues which I think still don't negate the benefit of the forgiveness though I suppose that is debatable). OP would not need to make a salary of 448k a year, he would just have to pay 10% for the 10 or 25 years without regard to salary.

[well-hello-there]

The 75k in DEBT absolutely must be considered.

wrong. You could make a case for considering the additional interest that will accrue, but not the $75K.

You are why America is owned by China.

YOU ARE!

[stratocophic]

The 75k in DEBT absolutely must be considered.

wrong. You could make a case for considering the additional interest that will accrue, but not the $75K.

So you're saying that on the flip side, OP shouldn't consider 75k in the bank in his calculations, but should consider the interest from that 75k.

[DeeCee]

wrong. You could make a case for considering the additional interest that will accrue, but not the $75K.

Have you ever looked at a debt calculator or thought about repaying loans? Obviously OP has, and is factoring in his previous debt with his future debt to make an educated decision.

Nobody give two shits about the terminology of "sunk costs." He still has to pay his 75k loan back, as well as any new debts incurred. You know, like a responsible adult that takes out loans does, they try to repay them and plan their finances.

[well-hello-there]

Yup, you caught me. Guilty as charged. And hey, maybe later you can stop by my office for a Snickers bar. Just remember: I'm the nice guy- so you can go ahead and erase "beachbum" from that list of yours.

done and done
--ImageRemoved--

[stratocophic]

Yup, you caught me. Guilty as charged. And hey, maybe later you can stop by my office for a Snickers bar. Just remember: I'm the nice guy- so you can go ahead and erase "beachbum" from that list of yours.

done and done
--ImageRemoved--

Someone should tell him to get in here, he'll be relieved

[boushi]

@boushi there's little chance he's not going to have at least partial financial hardship as defined by the parameters you used (and which are used to determine IBR eligibility). Why would he not do IBR and just get forgiveness (aside from the tax issues which I think still don't negate the benefit of the forgiveness though I suppose that is debatable). OP would not need to make a salary of 448k a year, he would just have to pay 10% for the 10 or 25 years without regard to salary.

That salary number was not something I came up with; it's just what the fed govt's loan repayment website automatically suggested. I realize that even a much lower salary could bear that amount of loans. I merely reposted the website's entire "print out" as a rough example of the kinds of numbers that are being thrown around here. Honestly, I don't know how IBR works in practical terms for high salary earners. I suppose that would be pertinent info for the OP.

For reference, the calculator I used is here:
http://www.finaid.org/calculators/loanpayments.phtml

[beachbum]

Yup, you caught me. Guilty as charged. And hey, maybe later you can stop by my office for a Snickers bar. Just remember: I'm the nice guy- so you can go ahead and erase "beachbum" from that list of yours.

done and done
--ImageRemoved--

Someone should tell him to get in here, he'll be relieved

Laugh all you want, but I'm not gonna be the one that has to put the lotion in the basket.

[Whatisthis]

So, the OP’s original debt shouldn’t be viewed as a pure sunk cost, as it has not been paid (though it has been incurred) and, as such, any future decision needs to consider this obligation (e.g. he shouldn’t go and take a job that pays too little to make the necessary payments).

I wasn't referring to you so much as well-hello-there and everyone before you, but since you invited me so kindly to pick apart your definitions, let's have at.

You explicitly tie the debt and the costs, even though they are two entirely distinct accounting concepts. When you say an item has not been paid, though it has been incurred, you could be talking about an accrual of sorts I guess? All of that is okay, I know everyone isn't an accountant.

I do however object to the way sunk cost is being thrown around here. Is his undergraduate tuition a sunk cost? Yes. Do we care if the 75k in debt came from it or some other source? No. He could have 75k in debt from buying a Maserati, and it'd be the same thing in my book. Debt is debt. Calling the 75k a sunk cost might imply that he is throwing good money after bad on the same venture. It's just unnecessary in this context. He has 75k in debt, and now he's considering law school. Done.

My choice of language was not the best, as I was referring to the initial expense and not the debt itself as being the sunk cost. The debt is an existing obligation which must be considered in making future decisions (you still have to make sure you can meet your obligations). I thought I acknowledged this in my first post, but it was sloppy. But even if the debt is not a sunk cost (in that you can’t completely ignore it), the debt already exists… It is important to acknowledge that the decision to go to law school doesn’t change this fact. And assuming that attending law school will put the OP in better financial situation, then the previous debt shouldn’t really factor into the equation (see my original post). Of course, this requires some big assumptions, and also ignores factors like having to work biglaw conditions while barely qualifying as middle class.

[D-ROCCA]

As always, this thread seems to bring out the best(worst) of TLS.

OP, what you have to consider is this: will the added debt of your undergrad education (~$75k) be a significant burden to your law school aspirations? You have to weigh whether or not you think the education and job prospects that Columbia, Duke, and other schools afford will allow you to not only pay off your debts, but allow you to live the kind of life that you want to live. This is an inherently personal question, and one that likely only you can answer.

Conventional wisdom (and my advice) would be to limit the amount of debt that you incur, so that-in the unfortunate and potentially unlikely event that you end up in a situation where you are unable to secure a high paying job that allows you to pay back your loans- you are able to live a decent life, free of the burdens of soul crushing debt. Then again, the economy is picking up and Columbia is arguably the best school for big law in the country. But is it worth the potential risk? That's up for you to decide.

You can do it. You've set yourself up in a position where you can get into a good legal market without incurring a ton of debt and set yourself up for prosperity. Or you can take on the debt and fight to get a great job and pay off your loans. A lot of people would kill to be in your position. Best of luck.

D-ROCCA