Money is being loaned by my parents; decision? Forum

[LotsofPrivledge]

As you can tell by my username, I acknowledge that my situation is unique and I am very grateful for their help. My parents have money and told me that they would be willing to help me out with school. I will be receiving around $80k leftover from my undergrad tuition fund and they said they would loan me the rest if the money with zero interest (we will work out a payment schedule once I graduate). They will also help me a bit with living costs (not fully). Obviously this is a huge help, and will mean that loans never will really hang over my head. This leads me to a couple of questions:

Is filling out info for need based aid worth it? I am 25, and make $50k a year right now. I am not considered a dependent, but if I have to fill out their financial information I am sure I would not qualify.

Would this information change your decision about where to attend if it were your choice? Currently I have gotten into C or C without any scholarship information (not really expecting much). I am unsure if I will get into Harvard, but if I do it is my top choice. I expect I will get a fair amount of money <100k at some lower T14.

Basically, I am wondering if my situation relieves the need to worry about money as much as other students. Would you take the sticker price at Harvard if you got in? Or would you want to truly graduate debt free still (lower T14) even though it is an interest free loan. I am leaning towards going to the best school I get into no matter the cost, but that is still a lot of money (around $200k if I am calculating correctly).

Thank you for the help, I know this is odd and I might get hate for it. But it would be appreciated.

Also, I can't even spell privilege correctly, so make fun of me for that too.

[waldorf]

From what I understand, the interest really hurts people when paying back their debt and puts a lot of pressure on people to get jobs that allow them to pay it back as soon as possible - limiting their options. Obviously, an interest free loan from a parent makes your situation much easier, but I would still be wary about paying six figures back to anyone. Unless you get into Harvard, I'd take a scholarship at a lower T14 for sure.

(I personally would not take out a six figure loan for even HYS, but honestly, attending one of those schools doesn't interest me as much as it does others. So that's a personal decision you have to make, and I'm sure a lot of people would encourage you to do it.)

[A. Nony Mouse]

This is just my personal reaction, FWIW - I think it depends on your relationship with your parents and your career goals. If you have a good relationship with your parents, you know they can afford to pay without suffering hardship, and you believe that owing them money/repaying them in the future won't cause any problems between you guys (like: will they think they have a say over what you do with your degree because they paid for it? will you feel like that even if they don't? will you feel guilty for having taken the money/like you didn't earn your own way?), then it makes much more sense to take the loan than if any of those aren't true. Also, what do you want to do with your degree? If you know what you want is a big firm, money at a T14 might make more sense than holding out for H, because then you get what you want and no one has to pay for it. If you're not sure what you want to do or think you want to do the kinds of jobs where H might make a difference (I honestly think this is a small number, but my knowledge about this is also wholly theoretical), maybe it's worth taking the loan.

The nice thing is it sounds like you will be in a good situation either way, so neither choice is bad. I like to think I'd take the lower T14 with money, but I could also see taking the loan to go to the higher-ranked school. Because emotions.

[LotsofPrivledge]

This is just my personal reaction, FWIW - I think it depends on your relationship with your parents and your career goals. If you have a good relationship with your parents, you know they can afford to pay without suffering hardship, and you believe that owing them money/repaying them in the future won't cause any problems between you guys (like: will they think they have a say over what you do with your degree because they paid for it? will you feel like that even if they don't? will you feel guilty for having taken the money/like you didn't earn your own way?), then it makes much more sense to take the loan than if any of those aren't true. Also, what do you want to do with your degree? If you know what you want is a big firm, money at a T14 might make more sense than holding out for H, because then you get what you want and no one has to pay for it. If you're not sure what you want to do or think you want to do the kinds of jobs where H might make a difference (I honestly think this is a small number, but my knowledge about this is also wholly theoretical), maybe it's worth taking the loan.

The nice thing is it sounds like you will be in a good situation either way, so neither choice is bad. I like to think I'd take the lower T14 with money, but I could also see taking the loan to go to the higher-ranked school. Because emotions.

Those are some good questions that I probably should have addressed. My parents are upper class by any standards, but they can't just throw out $300k and not notice. They will be perfectly comfortable loaning me the money. Frankly they are the best parents I could have ever asked for. I have no doubt that our relationship will remain strong.

I think my path will be biglaw to in house (same path my parents took when they were younger). However, if I do well in school, a clerkship would not be out of the question for me. I want to work and live in New York after school.

I like the type of freedom that Harvard would give me if I got in. I do have a bit of hesitation spending that type of money for not much tangible benefit. However, Harvard or CC basically guarantees a big law job if I want one. A poor GPA at Gtown might not.

[LotsofPrivledge]

From what I understand, the interest really hurts people when paying back their debt and puts a lot of pressure on people to get jobs that allow them to pay it back as soon as possible - limiting their options. Obviously, an interest free loan from a parent makes your situation much easier, but I would still be wary about paying six figures back to anyone. Unless you get into Harvard, I'd take a scholarship at a lower T14 for sure.

(I personally would not take out a six figure loan for even HYS, but honestly, attending one of those schools doesn't interest me as much as it does others. So that's a personal decision you have to make, and I'm sure a lot of people would encourage you to do it.)

That is sort of what I assumed, interest is a killer. If I have $200k of interest free debt, I think I could quite easily pay off 50k a year to my parents and pay it off in 4 years.

[BigZuck]

From what I understand, the interest really hurts people when paying back their debt and puts a lot of pressure on people to get jobs that allow them to pay it back as soon as possible - limiting their options. Obviously, an interest free loan from a parent makes your situation much easier, but I would still be wary about paying six figures back to anyone. Unless you get into Harvard, I'd take a scholarship at a lower T14 for sure.

(I personally would not take out a six figure loan for even HYS, but honestly, attending one of those schools doesn't interest me as much as it does others. So that's a personal decision you have to make, and I'm sure a lot of people would encourage you to do it.)

That is sort of what I assumed, interest is a killer. If I have $200k of interest free debt, I think I could quite easily pay off 50k a year to my parents and pay it off in 4 years.

...you're going to quite easily pay 50K in loans each year? On a big law salary? In New York?

Can you show me the math you're doing to come up with that conclusion?

[cavalier1138]

...you're going to quite easily pay 50K in loans each year? On a big law salary? In New York?

Can you show me the math you're doing to come up with that conclusion?

Don't live in a stupidly expensive Manhattan apartment + don't buy stupidly expensive creature comforts = more than 50k in savings.

NYC is expensive, but I think that a lot of people take that as a command rather than a fact of life. You do not need to live in the parts of Manhattan that cost $5k+ a month in rent, and you don't need to down an expensive bottle of liquor once a week just to feel alive. If you prioritize paying off your loans, there's no reason you can't pay at least $50k off in a year.

[BigZuck]

K.

Show me the math.

It would be quite a challenge for me to do that in TX. Let alone NYC.

Show me a budget that makes that easily done.

[RedPurpleBlue]

K.

Show me the math.

It would be quite a challenge for me to do that in TX. Let alone NYC.

Show me a budget that makes that easily done.

I was curious about this math, so I did some napkin calculations.

Assuming: $180k/yr. + $10k bonus

Income taxes on $190k in NYC according to smart asset: $68k
$4,000/mo. on a 1bd/1ba apartment in Manhattan (found several for this price and well under) = $48k
Lifestyle costs: $20k
Total cost: $136k
Total costs + 50k loan repayment = $186k
Left over: $4k

It's possible year one and would definitely be substantially easier every proceeding year. I found places on Manhattan for as low as ~$2k/mo., so let's be safe and assume you can cut out $1k/mo. in housing expenses and find a $3k/mo. apartment and $5k in lifestyle cost. That would be an additional saving of $17k, so you'd have $21k left over for an emergency fund/misc. expenses. This is by no means a cushy lifestyle or economically safe, but, again, it'd definitely be possible to repay $50k/yr. if you live frugally.

[cavalier1138]

K.

Show me the math.

It would be quite a challenge for me to do that in TX. Let alone NYC.

Show me a budget that makes that easily done.

I have to make some general assumptions about the tax rate, but I was shooting for round numbers over 100% accuracy. In order to pay off $50,000 in loans in a year, you'd have to pay about $4,166 a month (let's call it $4,200 to make things easy).

NYC biglaw salary: $180,000 (ignoring bonuses).
Salary after tax: Let's say $120,000.
Income per month after tax: $10,000
Rent and utilities: $4,500 a month (I'm assuming that our hypothetical associate decides to go for it and waste a bit of money on a nicer place)
Food: $500 a month
Income minus necessary expenses: $5,000

So you can live quite well and still have $800 a month in pocket change if you want. And then you can factor in bonuses and maybe even make the immense personal sacrifice of living in *shudder* Brooklyn, which means you can probably still be saving a fair amount of money while you're paying off loans.

Edit: Oh man, we posted almost identical math at the same time.

[BigZuck]

Eh...

500 for food? This person never eats meals out?

No cell phone bill?

No money for transportation/travel?

The firm totally pays for health insurance?

Totally ignoring a 401K? No saving for retirement?

No money is spent on clothing?

No money for fun stuff?

[LotsofPrivledge]

K.

Show me the math.

It would be quite a challenge for me to do that in TX. Let alone NYC.

Show me a budget that makes that easily done.

Ok, starting BL salary is $180k in NY, my wife will be making around $50,000. After taxes and max 401K contribution, lets say we take home $150k.

$3,000/month rent
$300/month food
$300/month transportation
$200/month cable and internet
$200/month utilities
$400/month entertainment
$600/month miscellaneous
(that comes to $60,000 a year)

$5,000 annual health insurance (I think that is high, but lets be generous)
$5,000 annual vacations/travel
($70,000 a year)

That gives me $30,000 a year to put into any sort of savings in the short term while I pay my parents $50,000. Those numbers are also pretty generous, I can be a lot more frugal if I want.

[cavalier1138]

Eh...

500 for food? This person never eats meals out?

No cell phone bill?

No money for transportation/travel?

The firm totally pays for health insurance?

Totally ignoring a 401K? No saving for retirement?

No money is spent on clothing?

No money for fun stuff?

If you're spending over $100 a week on food without eating out, that's easily corrected by learning how to shop. I usually spend half that amount for groceries, and I eat quite well.

I factored transit and phone into utilities, and health insurance is usually a minimal monthly deduction from the employer. The 401(k) is probably the biggest hit if you're going to aggressively pay off loans while paying stupid amounts of rent, but that's why it was mentioned that $4,000 is an irresponsible amount to pay, even for Manhattan.

And no, if I'm paying off my loans, I am not spending more than $800 a month on clothing and "fun stuff". I can have fun stuff when I'm debt-free. This approach has, of course, been helped by my never having earned more than $30k in a year, so I actually know how to not be ridiculous about spending. I do wonder how easy this would be for the kids who go straight from undergrad into $180k jobs, but a lot of those kids aren't taking out loans, so they'll probably never have to worry.

[LotsofPrivledge]

K.

Show me the math.

It would be quite a challenge for me to do that in TX. Let alone NYC.

Show me a budget that makes that easily done.

I was curious about this math, so I did some napkin calculations.

Assuming: $180k/yr. + $10k bonus

Income taxes on $190k in NYC according to smart asset: $68k
$4,000/mo. on a 1bd/1ba apartment in Manhattan (found several for this price and well under) = $48k
Lifestyle costs: $20k
Total cost: $136k
Total costs + 50k loan repayment = $186k
Left over: $4k

It's possible year one and would definitely be substantially easier every proceeding year. I found places on Manhattan for as low as ~$2k/mo., so let's be safe and assume you can cut out $1k/mo. in housing expenses and find a $3k/mo. apartment and $5k in lifestyle cost. That would be an additional saving of $17k, so you'd have $21k left over for an emergency fund/misc. expenses. This is by no means a cushy lifestyle or economically safe, but, again, it'd definitely be possible to repay $50k/yr. if you live frugally.

I am not even planning on Manhattan to start probably, plus I have a wife that is going to be making money (also I am underestimating her salary, that is the salary now, not in 4 years). To say you can't pay $50k in New York city on a big law salary is crazy. It can definitely be done, even if you are single and living alone.

[LotsofPrivledge]

Eh...

500 for food? This person never eats meals out?

No cell phone bill?

No money for transportation/travel?

The firm totally pays for health insurance?

Totally ignoring a 401K? No saving for retirement?

No money is spent on clothing?

No money for fun stuff?

If you're spending over $100 a week on food without eating out, that's easily corrected by learning how to shop. I usually spend half that amount for groceries, and I eat quite well.

I factored transit and phone into utilities, and health insurance is usually a minimal monthly deduction from the employer. The 401(k) is probably the biggest hit if you're going to aggressively pay off loans while paying stupid amounts of rent, but that's why it was mentioned that $4,000 is an irresponsible amount to pay, even for Manhattan.

And no, if I'm paying off my loans, I am not spending more than $800 a month on clothing and "fun stuff". I can have fun stuff when I'm debt-free. This approach has, of course, been helped by my never having earned more than $30k in a year, so I actually know how to not be ridiculous about spending. I do wonder how easy this would be for the kids who go straight from undergrad into $180k jobs, but a lot of those kids aren't taking out loans, so they'll probably never have to worry.

Exactly, spending $1k a month on eating out/clothing/whatever is a ton of money. I have been living independently for 3 years and know not to blow crazy amounts of money on entertainment.

[LotsofPrivledge]

K.

Show me the math.

It would be quite a challenge for me to do that in TX. Let alone NYC.

Show me a budget that makes that easily done.

I am curious about your Texas costs. How would your monthly/annual breakdown go that you couldn't pay off $50k annually with a starting salary of $180k.

[cavalier1138]

I am curious about your Texas costs. How would your monthly/annual breakdown go that you couldn't pay off $50k annually with a starting salary of $180k.

To be fair, non-NYC biglaw salaries are a bit lower. I don't know what TX pays, but it isn't $180k.

[BigZuck]

K.

Show me the math.

It would be quite a challenge for me to do that in TX. Let alone NYC.

Show me a budget that makes that easily done.

Ok, starting BL salary is $180k in NY, my wife will be making around $50,000. After taxes and max 401K contribution, lets say we take home $150k.

$3,000/month rent
$300/month food
$300/month transportation
$200/month cable and internet
$200/month utilities
$400/month entertainment
$600/month miscellaneous
(that comes to $60,000 a year)

$5,000 annual health insurance (I think that is high, but lets be generous)
$5,000 annual vacations/travel
($70,000 a year)

That gives me $30,000 a year to put into any sort of savings in the short term while I pay my parents $50,000. Those numbers are also pretty generous, I can be a lot more frugal if I want.

Only one person is maxing the 401K? Or both?

If it's both, that's 230-36=194. NYC taxes on 194 is going to leave you with 150K? No, let's not say that.

That's just the first line, I can get to the other stuff when I have time. I mean, two people spending 300 a month on food will have died of starvation in about 3 months.

Cavalier- saying someone spending more than $100 on food in a week is dumb is dumb. Drop your schtick for a minute and think about it. A real life big lawyer is going to strictly spend $125 a week on food, every week? That's silly.

[BigZuck]

I am curious about your Texas costs. How would your monthly/annual breakdown go that you couldn't pay off $50k annually with a starting salary of $180k.

To be fair, non-NYC biglaw salaries are a bit lower. I don't know what TX pays, but it isn't $180k.

Nope

I'm making DAT BIG MONEY 180K CASH MONEY HONEY

I can post a budget for two in TX in a bit

[cavalier1138]

Cavalier- saying someone spending more than $100 on food in a week is dumb is dumb. Drop your schtick for a minute and think about it. A real life big lawyer is going to strictly spend $125 a week on food, every week? That's silly.

If that person thinks of themselves as a "big lawyer", then no. They will probably spend what they think a big lawyer deserves to spend on food.

But I've literally lived on about 1/9th of a biglaw salary, so I don't know a better way to put it. Spending more than $100 a week on food when you have more important financial obligations is dumb. I simply don't have any sympathy for an opposing viewpoint, because that viewpoint necessarily contains the stipulation that luxuries are necessities. I just can't agree to that.

[LotsofPrivledge]

K.

Show me the math.

It would be quite a challenge for me to do that in TX. Let alone NYC.

Show me a budget that makes that easily done.

Ok, starting BL salary is $180k in NY, my wife will be making around $50,000. After taxes and max 401K contribution, lets say we take home $150k.

$3,000/month rent
$300/month food
$300/month transportation
$200/month cable and internet
$200/month utilities
$400/month entertainment
$600/month miscellaneous
(that comes to $60,000 a year)

$5,000 annual health insurance (I think that is high, but lets be generous)
$5,000 annual vacations/travel
($70,000 a year)

That gives me $30,000 a year to put into any sort of savings in the short term while I pay my parents $50,000. Those numbers are also pretty generous, I can be a lot more frugal if I want.

Only one person is maxing the 401K? Or both?

If it's both, that's 230-36=194. NYC taxes on 194 is going to leave you with 150K? No, let's not say that.

That's just the first line, I can get to the other stuff when I have time. I mean, two people spending 300 a month on food will have died of starvation in about 3 months.

Cavalier- saying someone spending more than $100 on food in a week is dumb is dumb. Drop your schtick for a minute and think about it. A real life big lawyer is going to strictly spend $125 a week on food, every week? That's silly.

You are right, I did not max both. So the take home would be around $125,000 instead. That still leaves me with $5,000 leftover with all of the above calculations. $300/month on food (only food cooked at home) is incredibly easy to do. The entertainment/miscellaneous budget covers any meals eaten out.

Edit: We have been incredibly generous with the calculations for you. Paying $3000 a month is not necessary, a $5,000 vacation is not necessary, $400/month for entertainment is not necessary. Even maxing the 401k is not necessary. Those can all be cut drastically. It is crazy to say that $50k a year is too difficult to pay down.

[pancakes3]

I mean, you *could* take on HLS at sticker and live like a pauper in NYC for 4 years, but you can also attend a lower ranked school and NOT live monastically - especially since you're aiming for NYC BL anyway.

Can you do it? Probably. Should you? I mean, things like saving for home ownership, prepping for a baby, etc. Don't you want to spend that money? All for what? A HLS degree that frankly nobody actually gives a shit about the second you take your first job anyway?

[LotsofPrivledge]

I mean, you *could* take on HLS at sticker and live like a pauper in NYC for 4 years, but you can also attend a lower ranked school and NOT live monastically - especially since you're aiming for NYC BL anyway.

Can you do it? Probably. Should you? I mean, things like saving for home ownership, prepping for a baby, etc. Don't you want to spend that money? All for what? A HLS degree that frankly nobody actually gives a shit about the second you take your first job anyway?

Thank you for bringing this back on track . You are right, it probably isn't worth it. Hard to turn down Harvard though.

[BigZuck]

Here's what I ate today, all at home:

2 eggs- $0.67 (I buy the $4 carton because I'm not a peasant, sue me)
1 avocado- 1
2 slice of prosciutto (again, not a peasant)- 1
1 apple- .50 (I'll admit, I have no idea how much a single apple costs, it was probably cheaper than that)
1 pound of ground chicken- 4 (I don't normally eat a pound of meat in a day but whatever, today was meatball and football day)
Couple carrots- 1
Let's call it .50 for assorted ingredients (hot sauce, spices, a can of soda)

That's 8.67, let's call it 9

9X30= 270. Thats one person in a month.
270X2= 540. $540 for two people in a month.
Go out for Sushi just twice in that month (remember: NOT a peasant) and that's like another $120.

That's $660 for two people eating pretty clean at home and only two meals out a month.

$300 a month for two people is absolutely bonkers IMO.

Cavalier- saying someone spending more than $100 on food in a week is dumb is dumb. Drop your schtick for a minute and think about it. A real life big lawyer is going to strictly spend $125 a week on food, every week? That's silly.

If that person thinks of themselves as a "big lawyer", then no. They will probably spend what they think a big lawyer deserves to spend on food.

But I've literally lived on about 1/9th of a biglaw salary, so I don't know a better way to put it. Spending more than $100 a week on food when you have more important financial obligations is dumb. I simply don't have any sympathy for an opposing viewpoint, because that viewpoint necessarily contains the stipulation that luxuries are necessities. I just can't agree to that.

I think it's a lot easier to be poor when you're poor. I was able to scrape buy in an expensive city on 20K when I was younger so I get it.

I think you're talking about people potentially getting wasteful, accepting the golden handcuffs, etc. I think that could be a factor. But I'm more thinking about the practicalities of doing the job. A super strict food budget means you don't sometimes forget your lunch at home. You don't sometimes have to buy a dinner because you have to stay late but can't expense it. You don't go out with your coworkers who occasionally come by and say "Hey man, you want to go grab a bite." You're never just too damn tired to not go to the grocery store or cook that night.

Also there's dumb cospicuous consumption, but there's also just being part of a social group. All the other first years going out for a drink at a swanky bar that doesn't have a happy hour? Sure you don't have to go spend $100 there, but you're not going to buy the $10 cocktail (or two) with your friends? You're not going to go? You're going to go but just choose to drink sparkling water? Again I'm not talking about bottle service, I'm talking about spending time with friends and going where the group is going that one random Thursday night (or simply fitting in if you want to be more cynical about it).

I'm not trying to harp just on the food thing, I just think it's emblematic of a larger miscalculation. I've gone out to dinner exactly once this month (yeah, it was sushi, I personally spent $40 because I am not a peasant). I bring my lunch (and often breakfast and dinner) to work every day. Every other meal this month has been at home. I try to be pretty frugal. But what you guys are talking about just isn't realistic when you actually have to do this job IMO.

[Tiago Splitter]

It's hard but doable to pay back 50k in year one but don't assume you'll last to the end of year 4.

To follow up on BigZuck's point, it's hard to live cheaply in NYC when you work all the time. Sure you can save a little with a Trader Joe's run on Saturday but it's like an hour wait on Saturday just to walk into the store. So you go to Westside Market or whatever and pay a little more, knowing full well that in most parts of the country Trader Joe's is actually the "high end" grocer.

Also: don't forget you won't work for 4-6 months after graduation. Also 2: Don't forget payroll taxes.