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Risks and LRAP
Posted: Tue Jan 18, 2011 9:20 am
by Eugenie Danglars
So, I've been combing through info on IBR and various schools LRAP programs. Here's what I've got:
-Let's say I get a $45,000 qualifying public interest job
-Leave school with a debt of about $190,000
-I do IBR and pay about $360 a month for ten years (making no dent in the principal)
-Loan is forgiven completely in 10 years.
Depending on which school I attend and how their LRAP allots, I might pay all of that $360, none of it, or about 40% of it each month. All in all, this makes law school ridiculously cheap.
The problem is: I have to sit with $190,000 in debt for ten years.
The questions are: what are the disadvantages of sitting on that debt, even if repayment isn't the issue? How will it affect plans to get a house or a car? What are the other issues, cause it seems kinda too good to be true? (Considering that I'd pay about $4313 for law school...or less)
Re: Risks and LRAP
Posted: Tue Jan 18, 2011 9:59 am
by BrownBears09
Eugenie Danglars wrote:So, I've been combing through info on IBR and various schools LRAP programs. Here's what I've got:
-Let's say I get a $45,000 qualifying public interest job
-Leave school with a debt of about $190,000
-I do IBR and pay about $360 a month for ten years (making no dent in the principal)
-Loan is forgiven completely in 10 years.
Depending on which school I attend and how their LRAP allots, I might pay all of that $360, none of it, or about 40% of it each month. All in all, this makes law school ridiculously cheap.
The problem is: I have to sit with $190,000 in debt for ten years.
The questions are: what are the disadvantages of sitting on that debt, even if repayment isn't the issue? How will it affect plans to get a house or a car? What are the other issues, cause it seems kinda too good to be true? (Considering that I'd pay about $4313 for law school...or less)
I'm no accountant, but I'd imagine your debt-to-income ratio would make it extremely hard to take out additional credit. So any large purchases (house, car, etc) may be out of the question for 10 years.
Re: Risks and LRAP
Posted: Tue Jan 18, 2011 10:00 am
by homestyle28
Eugenie Danglars wrote:So, I've been combing through info on IBR and various schools LRAP programs. Here's what I've got:
-Let's say I get a $45,000 qualifying public interest job
-Leave school with a debt of about $190,000
-I do IBR and pay about $360 a month for ten years (making no dent in the principal)
-Loan is forgiven completely in 10 years.
Depending on which school I attend and how their LRAP allots, I might pay all of that $360, none of it, or about 40% of it each month. All in all, this makes law school ridiculously cheap.
The problem is: I have to sit with $190,000 in debt for ten years.
The questions are: what are the disadvantages of sitting on that debt, even if repayment isn't the issue?
How will it affect plans to get a house or a car? What are the other issues, cause it seems kinda too good to be true? (Considering that I'd pay about $4313 for law school...or less)
It will certainly affect these options. My wife and I bought a house while I was in a graduate program. I have a small amount of subsidized UG loans that were deferred at the time we financed. We still had to count
what we would be paying on the loans against our monthly income for approval purposes. You'll have that 190k sitting on your credit report for 10 years (though you'll also get a credit score bump for making timely payments). That means you'll have some challenges securing financing for homes/cars.
Re: Risks and LRAP
Posted: Tue Jan 18, 2011 2:00 pm
by sidhesadie
I will say up front that my understanding may be incomplete and that I realize that requirements vary by school.
However, my understanding from the LRAP programs I've looked at is that many of them require continuous qualifying employment for that period of 10 years. So, for example, getting laid off (which happened to a number of lawyers in my hometown prosecutors office and public defenders offices recently), and then having to hang a shingle or do divorces to pay the bills, would negate your qualification for the loan forgiveness.
That may not be the case for all programs, but having to maintain continuous employment for 10 years in a qualifying job is actually kind of a frightening prospect at the moment, so while the program's great if you can get it, gosh it'd really suck to be counting on it and then find yourself not qualifying and be on the hook for that sticker tuition that you didn't think you were going to actually have to pay.
Re: Risks and LRAP
Posted: Tue Jan 18, 2011 4:15 pm
by sgtgrumbles
I don't really have anything to add except that I'm very interested in this conversation. Any other insight would be much appreciated.
Re: Risks and LRAP
Posted: Tue Jan 18, 2011 4:21 pm
by thelaststraw05
sgtgrumbles wrote:I don't really have anything to add except that I'm very interested in this conversation. Any other insight would be much appreciated.
+1
Re: Risks and LRAP
Posted: Tue Jan 18, 2011 4:31 pm
by vanwinkle
sidhesadie wrote:However, my understanding from the LRAP programs I've looked at is that many of them require continuous qualifying employment for that period of 10 years. So, for example, getting laid off (which happened to a number of lawyers in my hometown prosecutors office and public defenders offices recently), and then having to hang a shingle or do divorces to pay the bills, would negate your qualification for the loan forgiveness.
That may not be the case for all programs, but having to maintain continuous employment for 10 years in a qualifying job is actually kind of a frightening prospect at the moment, so while the program's great if you can get it, gosh it'd really suck to be counting on it and then find yourself not qualifying and be on the hook for that sticker tuition that you didn't think you were going to actually have to pay.
This is true at some schools, and varies from school to school. Not only that, but for many programs, you have to enter the LRAP within a year or two of graduating. That means you can't go work at a law firm for a couple years and then switch to PI and expect LRAP to help you. It's kind of an-all-or-nothing thing at many schools, it's only there for the people who go into PI and stay there for 10 uninterrupted years.
Re: Risks and LRAP
Posted: Tue Jan 18, 2011 5:06 pm
by sidhesadie
That's what I thought...(again with the caveat of each school being different).
That was the part that scared me as far as *depending* on an LRAP to make a school a good choice.
I work 5 years in a govt. job and get laid off and now I'm on the hook for the whole 100K or more? Whoa.
Great program, I just won't be using it to make an otherwise not-feasible school seem like a good bet.
Re: Risks and LRAP
Posted: Tue Jan 18, 2011 5:11 pm
by 4102011
thelaststraw05 wrote:sgtgrumbles wrote:I don't really have anything to add except that I'm very interested in this conversation. Any other insight would be much appreciated.
+1
Re: Risks and LRAP
Posted: Thu Jan 20, 2011 11:19 am
by homestyle28
sidhesadie wrote:That's what I thought...(again with the caveat of each school being different).
That was the part that scared me as far as *depending* on an LRAP to make a school a good choice.
I work 5 years in a govt. job and get laid off and now I'm on the hook for the whole 100K or more? Whoa.
Great program, I just won't be using it to make an otherwise not-feasible school seem like a good bet.
Well, assuming your LRAP is paired with IBR, your IBR required payment drops to 0 in this scenario.
Re: Risks and LRAP
Posted: Thu Jan 20, 2011 11:25 am
by Eugenie Danglars
homestyle28 wrote:sidhesadie wrote:That's what I thought...(again with the caveat of each school being different).
That was the part that scared me as far as *depending* on an LRAP to make a school a good choice.
I work 5 years in a govt. job and get laid off and now I'm on the hook for the whole 100K or more? Whoa.
Great program, I just won't be using it to make an otherwise not-feasible school seem like a good bet.
Well, assuming your LRAP is paired with IBR, your IBR required payment drops to 0 in this scenario.
Right, so your IBR payment is zero, but does the clock on your 10 year PI forgiveness stop until you're employed again?
Re: Risks and LRAP
Posted: Thu Jan 20, 2011 5:40 pm
by law_monkey
I've also heard that when the loans are forgiven it's counted as taxable income for that year. So for tax purposes you've made your income plus the forgiveness loan.
Re: Risks and LRAP
Posted: Thu Jan 20, 2011 9:10 pm
by Eugenie Danglars
That's a fairly small price to pay considering that you don't actually have to pay back a bajillion dollars in loans...
Re: Risks and LRAP
Posted: Thu Jan 20, 2011 9:14 pm
by vissidarte27
law_monkey wrote:I've also heard that when the loans are forgiven it's counted as taxable income for that year. So for tax purposes you've made your income plus the forgiveness loan.
According to what I've read, that's only true of the 25 year IBR -- there's a big ol' tax bomb at the end. But there is no such tax bomb for the 10 year PI-based IBR. Not as of yet, anyway.
Re: Risks and LRAP
Posted: Thu Jan 20, 2011 9:16 pm
by AreJay711
Eugenie Danglars wrote:That's a fairly small price to pay considering that you don't actually have to pay back a bajillion dollars in loans...
lol so you only have to pay back 35% of a bajillion dollar loan
Re: Risks and LRAP
Posted: Thu Jan 20, 2011 9:20 pm
by Eugenie Danglars
AreJay711 wrote:Eugenie Danglars wrote:That's a fairly small price to pay considering that you don't actually have to pay back a bajillion dollars in loans...
lol so you only have to pay back 35% of a bajillion dollar loan
I still maintain that 35% of a bajillion is better than 1005 of a bajillion.
Re: Risks and LRAP
Posted: Thu Jan 20, 2011 9:21 pm
by Veyron
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Re: Risks and LRAP
Posted: Thu Jan 20, 2011 9:27 pm
by anti-phronimos
vissidarte27 wrote:law_monkey wrote:I've also heard that when the loans are forgiven it's counted as taxable income for that year. So for tax purposes you've made your income plus the forgiveness loan.
According to what I've read, that's only true of the 25 year IBR -- there's a big ol' tax bomb at the end. But there is no such tax bomb for the 10 year PI-based IBR. Not as of yet, anyway.
PLSF, the part of IBR that forgives federal loans after ten years of service, explicitly states that forgiven loans are not considered taxable income. Whew.
I'm looking into this route for myself, and hopefully it won't change. If it does, then it's entirely likely that I'll be crushed by the tax bomb.
Re: Risks and LRAP
Posted: Fri Jan 21, 2011 2:30 pm
by sidhesadie
My understanding from the ones I've looked at (again, I'm not a financial aid officer or loan agent, LOL, and I am most decidedly NOT an econ major...so I could definitely be oh-so-wrong) is:
The clock does not stop, when they say X number of years of continuous employment, they mean it. You can't go do some other type of law for a couple years then come back and get the LRAP again. (if someone's program didn't state continuous employment, that'd be different)
If you get laid off before you've done the requisite term of employment, and are unable to get another PI job within their required timeframe, that's it. You're done, no loan forgiveness.
As to IBR...your payments would be zero if you weren't working...I have a family, that's not going to be an option. If I get laid off the PI job, I have to get another one. If I'm working family law, earning a salary, my IBR payments are not zero AND I'm out of the LRAP, no loan forgiveness.
Re: Risks and LRAP
Posted: Sun Jan 23, 2011 10:08 pm
by pauwelsd
correct me if i'm wrong, but you could simply put the car/house/line of credit into your souse/significant other's name while you're in the 10-year period. that way you can still buy a house or car and take advantage of the benefits the IBR and LRAP offers.
Re: Risks and LRAP
Posted: Sun Jan 23, 2011 10:23 pm
by NoleinNY
pauwelsd wrote:correct me if i'm wrong, but you could simply put the car/house/line of credit into your souse/significant other's name while you're in the 10-year period. that way you can still buy a house or car and take advantage of the benefits the IBR and LRAP offers.
Not saying you are wrong (I might be the one misinformed), but IIRC if you are married your spouse's income is factored into IBR. In that case, it is You+Him/Her = Income they judge your payments on. So if you have $100k debt, you make 50k and she makes 51k, you are no longer qualified... I think that is what it said on the IBR website.
Re: Risks and LRAP
Posted: Sun Jan 23, 2011 10:36 pm
by Eugenie Danglars
NoleinNY wrote:pauwelsd wrote:correct me if i'm wrong, but you could simply put the car/house/line of credit into your souse/significant other's name while you're in the 10-year period. that way you can still buy a house or car and take advantage of the benefits the IBR and LRAP offers.
Not saying you are wrong (I might be the one misinformed), but IIRC if you are married your spouse's income is factored into IBR. In that case, it is You+Him/Her = Income they judge your payments on. So if you have $100k debt, you make 50k and she makes 51k, you are no longer qualified... I think that is what it said on the IBR website.
Your spouse only counts if you file taxes jointly. If you file separately, you're fine.
Re: Risks and LRAP
Posted: Sun Jan 23, 2011 10:38 pm
by Ford Prefect
Eugenie Danglars wrote:NoleinNY wrote:pauwelsd wrote:correct me if i'm wrong, but you could simply put the car/house/line of credit into your souse/significant other's name while you're in the 10-year period. that way you can still buy a house or car and take advantage of the benefits the IBR and LRAP offers.
Not saying you are wrong (I might be the one misinformed), but IIRC if you are married your spouse's income is factored into IBR. In that case, it is You+Him/Her = Income they judge your payments on. So if you have $100k debt, you make 50k and she makes 51k, you are no longer qualified... I think that is what it said on the IBR website.
Your spouse only counts if you file taxes jointly. If you file separately, you're fine.
Or just find someone who doesn't mind waiting to get married for 10 years. And who won't leave you homeless and possibly carless in the interim.
Re: Risks and LRAP
Posted: Sun Jan 23, 2011 10:56 pm
by tipler4213
dulcatis wrote:thelaststraw05 wrote:sgtgrumbles wrote:I don't really have anything to add except that I'm very interested in this conversation. Any other insight would be much appreciated.
+1
Interested as well. Also a discussion of the advantages and disadvantages of certain schools LRAPs
Re: Risks and LRAP
Posted: Sun Jan 23, 2011 11:06 pm
by XxSpyKEx
Eugenie Danglars wrote:So, I've been combing through info on IBR and various schools LRAP programs. Here's what I've got:
-Let's say I get a $45,000 qualifying public interest job
-Leave school with a debt of about $190,000
-I do IBR and pay about $360 a month for ten years (making no dent in the principal)
-Loan is forgiven completely in 10 years.
Depending on which school I attend and how their LRAP allots, I might pay all of that $360, none of it, or about 40% of it each month. All in all, this makes law school ridiculously cheap.
The problem is: I have to sit with $190,000 in debt for ten years.
The questions are: what are the disadvantages of sitting on that debt, even if repayment isn't the issue? How will it affect plans to get a house or a car? What are the other issues, cause it seems kinda too good to be true? (Considering that I'd pay about $4313 for law school...or less)
Ahh, good ole’ lawyer math. If you leave law school with $190k in debt and are only repaying 15% of your income for 10 years, your principal will increase substantially over the period of 10 years. I don’t really feel like busting out a calculator right now, but I’ll venture to guess you are going to owe over a half million 9 years out of law school.
It will most likely affect your ability to take on any additional debt. If you are the typical law student who is in his/her early 20s with no assets going into law school, then you are coming out of law school insolvent (i.e. you will have $190K in debt, and no assets). Any bank with even the slightest bit of common sense would not lend to you, an insolvent debtor. Granted you can’t discharge your student loans, you can discharge other debt, so I’d imagine most creditors aren’t going to be dumb enough to not realize that (and lend you additional money). I’d be surprised if you could even get a car from one of those scam infomercial dealers who claim to approve everyone (at heinous interest rates) with $190K in debt @ 8% interest and a job that only paying $45k /year or less.
IMO, non- all-or-nothing LRAP programs are a much better deal than PI IBR because if your plans change and you want to do something besides public interest 6 years out, you can without having something like $500K in student debt remaining that you have to repay. For example, if you have a few kids and decide you want to move into the private sector to increase your income, you would not be able to do that with 10 year PI IBR without getting stuck paying the entire remaining principal (which will be substantially larger than what it was when you left law school). Granted the 10 year repayment period does not have to be continuous, it is still 10 years, and you still have to make large loan payments those years you are not working in PI (and also are forced to return to PI at some point to get the loan forgiveness).