Anyone pay for Law school (not including housing) out of their own pocket? Forum

[Kinky John]

I'm guessing you're missing compound interest?

lol yep.

but my understanding was that interest accrues daily but only capitalizes at the end of deferment or forbearance

The purpose of this exercise is to compare paying back loans vs. possibly putting the money to work elsewhere. So funky fed loans interest calculations are not important for comparing rates of return in alternative ventures.
I think the optimal play here is to take out loans for first year, keep your $100k in a conservative interest bearing-portfolio, and if you're positive you're going into biglaw going into 2l, pay the shit back immediately and pay out of pocket for the rest of school. PAYE makes sense for $100k/debt for anything less than a ~80k starting salary though, even if you could pay out of pocket.

I don't get that though. $100k in loans @ 6.8% paid off over 25 years is about -$210k total. $100k invested conservatively will surely be more than that after 25 years.

[zhenders]

There's... So much going on in this thread.

To be clear: a 7% average annual return over 10 or more years is killer. People get paid incredible money to hit this average. Many of us have almost certainly known people who have had amazing (10%+) investment years (many of us, I'm sure, have had them) -- but to have a 10 year string of them is a very, very different thing. According to Zacks, most pension plans -- which operate on principles of stability -- pull a little over 3.5%/year -- and while those are significantly safer than other forms of investment, they're far from completely risk-free. Shooting to double that return means significantly more than double the risk.

If you are sure you are going private sector (and therefore won't have access to repayment assistance), it is incredibly foolish to expect that you can instead invest a wad of cash into the market and cover your interest for the entire term of your loan. It's possible, certainly -- but I doubt there is a single reputable financial advisor who would look any of their clients in the eyes and say that the wise decision would be to just roll with an unnecessary 7% loan. A 4% loan? HELL yes -- if you have a fancy house paid off, by all means, mortgage that shit at 3.8% and pay for your law school experience! -- but 6.8+% is a whole different ballgame.

On that note -- and with all respect -- when it comes to amortization, the difference between 4% and 6.8% is actually really substantial; with a 100k principle over 20 years, it's nearly double the interest. the bigger the percentages get, the bigger the difference even small variances can make (compounding is a serious thing).

Anyways, cudos to you investment geniuses ITT; if I could pull 10% year-over-year, I sure as hell know what I'd be doing instead of going to law school =)

[ChemEng1642]

On that note -- and with all respect -- when it comes to amortization, the difference between 4% and 6.8% is actually really substantial; with a 100k principle over 20 years, it's nearly double the interest. the bigger the percentages get, the bigger the difference even small variances can make (compounding is a serious thing).

Yeah like I said I was talking out of my ass

[Johann]

What in the fuck do you fucks not understand abput SPY returning >8% year on average over a 50 year history. This shit is infuriating. Don't read a book. Don't watch the market. Just put your fucking money in the fucking SPY and 50 years take it out and fucking retire a fucking millionaire.

[Kinky John]

What in the fuck do you fucks not understand abput SPY returning >8% year on average over a 50 year history. This shit is infuriating. Don't read a book. Don't watch the market. Just put your fucking money in the fucking SPY and 50 years take it out and fucking retire a fucking millionaire.

this

[lacrossebrother]

I'm guessing you're missing compound interest?

lol yep.

but my understanding was that interest accrues daily but only capitalizes at the end of deferment or forbearance

The purpose of this exercise is to compare paying back loans vs. possibly putting the money to work elsewhere. So funky fed loans interest calculations are not important for comparing rates of return in alternative ventures.
I think the optimal play here is to take out loans for first year, keep your $100k in a conservative interest bearing-portfolio, and if you're positive you're going into biglaw going into 2l, pay the shit back immediately and pay out of pocket for the rest of school. PAYE makes sense for $100k/debt for anything less than a ~80k starting salary though, even if you could pay out of pocket.

I don't get that though. $100k in loans @ 6.8% paid off over 25 years is about -$210k total. $100k invested conservatively will surely be more than that after 25 years.

You get that you don't pay back the entire loan with PAYE right? Like, some is forgiven at the end? Also, as you mentioned, the years that you're paying less than the interest, the interest is capped, so it doesn't compound anymore.

[lacrossebrother]

There's... So much going on in this thread.

To be clear: a 7% average annual return over 10 or more years is killer. People get paid incredible money to hit this average. Many of us have almost certainly known people who have had amazing (10%+) investment years (many of us, I'm sure, have had them) -- but to have a 10 year string of them is a very, very different thing. According to Zacks, most pension plans -- which operate on principles of stability -- pull a little over 3.5%/year -- and while those are significantly safer than other forms of investment, they're far from completely risk-free. Shooting to double that return means significantly more than double the risk.

If you are sure you are going private sector (and therefore won't have access to repayment assistance), it is incredibly foolish to expect that you can instead invest a wad of cash into the market and cover your interest for the entire term of your loan. It's possible, certainly -- but I doubt there is a single reputable financial advisor who would look any of their clients in the eyes and say that the wise decision would be to just roll with an unnecessary 7% loan. A 4% loan? HELL yes -- if you have a fancy house paid off, by all means, mortgage that shit at 3.8% and pay for your law school experience! -- but 6.8+% is a whole different ballgame.

On that note -- and with all respect -- when it comes to amortization, the difference between 4% and 6.8% is actually really substantial; with a 100k principle over 20 years, it's nearly double the interest. the bigger the percentages get, the bigger the difference even small variances can make (compounding is a serious thing).

Anyways, cudos to you investment geniuses ITT; if I could pull 10% year-over-year, I sure as hell know what I'd be doing instead of going to law school =)

Awesome. Just totally ignore my PAYE example of the loans costing 2.5%/year/20 year period.

[Kinky John]

You get that you don't pay back the entire loan with PAYE right? Like, some is forgiven at the end? Also, as you mentioned, the years that you're paying less than the interest, the interest is capped, so it doesn't compound anymore.

Ya I'm not talking about PAYE. The $210k figure is standard extended repayment.

[lacrossebrother]

How could standard repayment take 25 years?

[El Pollito]

lol lawyers playing math

[Kinky John]

How could standard repayment take 25 years?

sorry, extended

[zhenders]

Awesome. Just totally ignore my PAYE example of the loans costing 2.5%/year/20 year period.

Your example was 100% solid -- should have given credit to it; I read through the whole thread and found there to be a lot of other stuff which was quite a bit less logical or real-world credited -- I meant that post to "add to", and not to take away from; sorry it came across like that!

ETA: Kinky John, is your avatar implying that the average TLS male moonlights as a disturbingly attractive Nazi broadway performer? Because if so, the softs on my resume definitely just got demoted to "below average".

[Kinky John]

Your example was 100% solid -- should have given credit to it; I read through the whole thread and found there to be a lot of other stuff which was quite a bit less logical or real-world credited -- I meant that post to "add to", and not to take away from; sorry it came across like that!

ETA: Kinky John, is your avatar implying that the average TLS male moonlights as a disturbingly attractive Nazi broadway performer? Because if so, the softs on my resume definitely just got demoted to "below average".

except interest doesn't compound monthly

[zhenders]

Your example was 100% solid -- should have given credit to it; I read through the whole thread and found there to be a lot of other stuff which was quite a bit less logical or real-world credited -- I meant that post to "add to", and not to take away from; sorry it came across like that!

ETA: Kinky John, is your avatar implying that the average TLS male moonlights as a disturbingly attractive Nazi broadway performer? Because if so, the softs on my resume definitely just got demoted to "below average".

except interest doesn't compound monthly

missed that.

Still legit curious 'bout your tar, mate.

[myspiritanimal]

This quote alone is enough to make me weary of anything you say with regard to finances. Judging the future returns of a portfolio based on the past couple of years is asinine. Just ask the c/o 2008, which you are so terrified of ending up like. The 7% average returns of the market is an average. Some years it's down 20% some years it up 20%. How nice would it be to know that, beginning school you had enough to cover tuition, then a year later you have a 20% shortfall? Of course the opposite could happen, but then you might as well just take the tuition money and bet it all on black, or red for that matter.

agree mostly about the short term fluctuations, but 7% is a shitty return historically

more like 8-9% and north of 10% if you reninvest dividends

you don't have to start a hedge fund to get a 7 % return lol. just buy the ^gspc index fund. if any of y'all have real assets, then you shouldn't be investing yourself let an investment bank do it, they have time to actively research and pick stocks

my assets have doubled since late 2010 from this method (investment bank in chicago and beating the market too)

Yeah see I don't know what this means/won't have time to research this before I make a decision/have no real assets - so I am leaning towards the path of least resistance which is minimizing debt.

a gspc index fund is basically a way to buy ALL the stocks in the S and P 500 (500 publicly traded companies). Therefor it minimizes risk. (through diversification). It's a way to have an average return on investment, and is the best option for those who have don't have time to actively manage a portfolio. The percent on return i would be VERY safe saying would be greater than 7%. The interest you would be paying would be less than 7% (long-term). So logic dictates that you should not mimize debt. (bc you would pay be paying more and you wouldn't be able to take advantage of LRAP)

Err I have no idea what that first part means which is definitely part of the problem. And I guess since I don't really know what that means, it doesn't seem "very safe" to me. And now that I think about it, how relatively safe is it? Is it as "very safe" as expecting a Biglaw job out of H? If the market crashes, will I have the same ROI?

Although again I'm not sure my situation is the same because my parents are giving me interest free $$ to pay for law school, NOT to invest (as in if I said - hey mom and dad can I have that money to invest instead they would say lol no). My personal assets are very minimal. So my options are really - take out a loan with my little personal $$ making interest (or investing it or whatever), or use my parent's $$ which is an interest free loan...and still have my personal $$ to do whatever with.

Yikes. There’s a lot of faulty financial advice here. Consider this:

1. The general idea that you should follow the higher number between returns and interest rates is right. This matters, though, only if you have capital to use. If you don’t, then this simply doesn’t apply. (The argument is that one should allocate capital as efficiently as possible. And that means to either pay down high interest if your expected returns are low, or vice versa.)
2. That leads to the second, really important point: Never, ever assume that your returns will be high. Particularly not in the current market, which many people believe stands on stilts. I know various folks in the financial industry with impressive historical returns that are holding a lot of money in cash because they don’t believe the market can go much higher (i.e., correction if not crash ahead). Assuming an index fund (any of them) will return a yield greater than 7% is, in my opinion, foolish (over 1, 2, or even 5 years). That’s not to say it won’t happen – it very well might – but it’s just really dangerous to assume.

In the end, such a move is a financial bet. And it’s a risky one at that. Please do some research before going this route.

Arguing that the market is going to crash is an even stronger reason to take out government loans. If stocks are super cheap, you want to be sitting on cash to buy stocks and flexible debt in case you get employment pwned. It's really not a financial bet anyway you slice it. It's a hedge where the only situation you lose in is if all of the following are true: (1) You work in biglaw right out of the gate and remain in biglaw for 5+ years before moving or remaining in more lucrative careers; the market does literally nothing - stays in the exact same spot and does not go up or down; (3) the government which is constantly moving towards friendlier loan programs changes course. S&P over its 50 year history has returned over 8% on average annually.

To benefit from a crash, as you describe above, one would have to sit on the sidelines and thus earn almost nothing (at current rates). This is simply not a good idea. The most likely scenario is a market with marginal returns. And so I, for one, would be wary of holding a lot of debt. If one goes into PI, then it's a different story, but you never know, of course.

Also, a hedge, by definition, is a financial bet.

I've worked in IB/PE for a while now, and your claims don't have much merit. Do you work in finance? Please be careful about the advice you're giving.

[starry eyed]

There's... So much going on in this thread.

To be clear: a 7% average annual return over 10 or more years is killer. People get paid incredible money to hit this average. Many of us have almost certainly known people who have had amazing (10%+) investment years (many of us, I'm sure, have had them) -- but to have a 10 year string of them is a very, very different thing. According to Zacks, most pension plans -- which operate on principles of stability -- pull a little over 3.5%/year -- and while those are significantly safer than other forms of investment, they're far from completely risk-free. Shooting to double that return means significantly more than double the risk.

If you are sure you are going private sector (and therefore won't have access to repayment assistance), it is incredibly foolish to expect that you can instead invest a wad of cash into the market and cover your interest for the entire term of your loan. It's possible, certainly -- but I doubt there is a single reputable financial advisor who would look any of their clients in the eyes and say that the wise decision would be to just roll with an unnecessary 7% loan. A 4% loan? HELL yes -- if you have a fancy house paid off, by all means, mortgage that shit at 3.8% and pay for your law school experience! -- but 6.8+% is a whole different ballgame.

On that note -- and with all respect -- when it comes to amortization, the difference between 4% and 6.8% is actually really substantial; with a 100k principle over 20 years, it's nearly double the interest. the bigger the percentages get, the bigger the difference even small variances can make (compounding is a serious thing).

Anyways, cudos to you investment geniuses ITT; if I could pull 10% year-over-year, I sure as hell know what I'd be doing instead of going to law school =)

You're a fucking idiot. What's your point? That you are clueless when it comes to investing and think it is marred with huge risks? Look at a few charts of the s and p500's performance since the early 1900s. You will find year over year performance exceeding that of 7%. Buy the s and p index find and you're risk is essentially nil (bc an index fund is diversified by nature) unless the overall market crashes and never recovers in which case everyone is screwed anyway.

Buddy, the reason why everyone is going to law school instead of investing is BC it takes CAPITAL to invest. You would need a million dollars invested to earn 70k at 7%.

[starry eyed]

What in the fuck do you fucks not understand abput SPY returning >8% year on average over a 50 year history. This shit is infuriating. Don't read a book. Don't watch the market. Just put your fucking money in the fucking SPY and 50 years take it out and fucking retire a fucking millionaire.

And this

[blsingindisguise]

There's... So much going on in this thread.

To be clear: a 7% average annual return over 10 or more years is killer. People get paid incredible money to hit this average. Many of us have almost certainly known people who have had amazing (10%+) investment years (many of us, I'm sure, have had them) -- but to have a 10 year string of them is a very, very different thing. According to Zacks, most pension plans -- which operate on principles of stability -- pull a little over 3.5%/year -- and while those are significantly safer than other forms of investment, they're far from completely risk-free. Shooting to double that return means significantly more than double the risk.

If you are sure you are going private sector (and therefore won't have access to repayment assistance), it is incredibly foolish to expect that you can instead invest a wad of cash into the market and cover your interest for the entire term of your loan. It's possible, certainly -- but I doubt there is a single reputable financial advisor who would look any of their clients in the eyes and say that the wise decision would be to just roll with an unnecessary 7% loan. A 4% loan? HELL yes -- if you have a fancy house paid off, by all means, mortgage that shit at 3.8% and pay for your law school experience! -- but 6.8+% is a whole different ballgame.

On that note -- and with all respect -- when it comes to amortization, the difference between 4% and 6.8% is actually really substantial; with a 100k principle over 20 years, it's nearly double the interest. the bigger the percentages get, the bigger the difference even small variances can make (compounding is a serious thing).

Anyways, cudos to you investment geniuses ITT; if I could pull 10% year-over-year, I sure as hell know what I'd be doing instead of going to law school =)

You're a fucking idiot. What's your point? That you are clueless when it comes to investing and think it is marred with huge risks? Look at a few charts of the s and p500's performance since the early 1900s. You will find year over year performance exceeding that of 7%. Buy the s and p index find and you're risk is essentially nil (bc an index fund is diversified by nature) unless the overall market crashes and never recovers in which case everyone is screwed anyway.

Buddy, the reason why everyone is going to law school instead of investing is BC it takes CAPITAL to invest. You would need a million dollars invested to earn 70k at 7%.

Wow, it's a wonder there's even a market for investments that pay less than 7% when everything is so simple and obvious. Why doesn't the rest of the investing world just see what you see?

[pancakes3]

They're not wrong - if you don't ever plan on spending money during an economic downturn.