Loan Advice Forum

[gerrydawg]

Hey All-

Looking for some loan advice. Starting at Duke in the fall. Total CoA is about 135k. I've got 65k of my own money to use towards school, but the rest is going to be loans. In regards to the interest rates, I know that the general trend and expectation is that interest rates are lower than they should be now and will continue to rise over the next few years, which will make the cost of taking out loans significantly more expensive, since the rate is 3.6 + 10 year treasury yield as of June 1 for that year. I projected a .8% increase in the interest rate each year. The way that I see it, I have two options:

Option 1:
- use all my own money before I take out loans
- 1L: fully covered, no loans
- 2L: max out Stafford loans (20,500 @ interest rate of probably 7%), I can cover the rest.
- 3L: All Loans- Stafford loans maxed out (20,500 @ 7.8%), then the rest PLUS Loans (about 30k @ 8.8 interest)
- PROS: Interest starts accruing later since I don't take out loans my first year.
- CONS: I have to take out about 30K in Grad PLUS loans my last year at what projects to be a very high interest rate- I would obviously target paying them first, and the good news would be that interest on them would have been accruing for the shortest period of time. More of my loans will be taken out at a higher interest rate.

Option 2:
- spread out my money over the three years while maxing out the Stafford loans all three years
- 1L: 20,500 Stafford @ 6.21, rest covered by my money
- 2L: 20,500 Stafford @ 7.0, rest covered by my money
- 3L: 20,500 Stafford @ 7.8, rest of my money spent, then approx. 10K in PLUS Loans @ 8.8 interest
- PROS: Have to take out minimal PLUS loans. Also, would be able to take out more of my loans at a lower interest rate.
- CONS: Loans start my first year, so interest starts accruing earlier.

According to LST, the debt at graduation projects to be about the same- approx. 80K in debt at time of repayment. Does anybody have any sage advice for me?

[M458]

Are you aiming for big law? If so, that's potentially $20k+ that you'll make during your 2nd summer that can be applied towards 3L year. Obviously you can't count on it, but Duke places well enough that it might make option 1 more attractive.

[gerrydawg]

Are you aiming for big law? If so, that's potentially $20k+ that you'll make during your 2nd summer that can be applied towards 3L year. Obviously you can't count on it, but Duke places well enough that it might make option 1 more attractive.

True- good point. Yes, I am hoping to get a job in biglaw. If I am able to do that and put it towards 3L, that could potentially bring down the 30k in PLUS loans to 10K in PLUS loans, which would lead to the same financial plan as Option 2, albeit with fewer loans overall since I would not have taken any out my 1L year.

[Mal Reynolds]

I would put it all towards your tuition and cost of living. Then hopefully use your SA cash to do the same thing third year. I'm not sure if that's the 100% financially prudent thing to do but for peace of mind that's the route I would go. Coming out of school with less than 100k in loans would be a great place to be. Plus you're saving a shitton in loan interest that never had to accrue.

[gerrydawg]

I would put it all towards your tuition and cost of living. Then hopefully use your SA cash to do the same thing third year. I'm not sure if that's the 100% financially prudent thing to do but for peace of mind that's the route I would go. Coming out of school with less than 100k in loans would be a great place to be. Plus you're saving a shitton in loan interest that never had to accrue.

So you're agreeing with M458 that I should just use all of the money I have first, then start taking out loans my 2nd year with the hope that I won't have to take out as many higher-interest PLUS loans my 3rd year by using potential SA money?

[Mal Reynolds]

I would put it all towards your tuition and cost of living. Then hopefully use your SA cash to do the same thing third year. I'm not sure if that's the 100% financially prudent thing to do but for peace of mind that's the route I would go. Coming out of school with less than 100k in loans would be a great place to be. Plus you're saving a shitton in loan interest that never had to accrue.

So you're agreeing with M458 that I should just use all of the money I have first, then start taking out loans my 2nd year with the hope that I won't have to take out as many higher-interest PLUS loans my 3rd year by using potential SA money?

Yeah that's what I said.

[badaboom61]

You should crunch the numbers in Excel and figure out exactly what your total debt at graduation will be and at what interest rate under each option. Don't forget that Stafford loans have a 1% origination fee and Grad Plus have over a 4% fee.

My guess is that it will be better to put all your money up front, but that's something worth taking the time to verify.

[gerrydawg]

You should crunch the numbers in Excel and figure out exactly what your total debt at graduation will be and at what interest rate under each option. Don't forget that Stafford loans have a 1% origination fee and Grad Plus have over a 4% fee.

My guess is that it will be better to put all your money up front, but that's something worth taking the time to verify.

Law School Transparency takes all that stuff into account when calculating the CoA, and both scenarios come out to about 80K. I'll play around in excel

[Mullens]

Here's a great calculator that's stickied in the choosing a law school thread:

http://www.top-law-schools.com/forums/v ... 1&t=225195

[NYSprague]

Dont spend all your savings. You should keep enough for emergencies, moving, apartment down payments,etc. It will be a while (3-4 years) before you can add significantly to your savings. If something comes up, you want to know you can cover it. Even if your family will help you, you still need savings of your own.

[gerrydawg]

Dont spend all your savings. You should keep enough for emergencies, moving, apartment down payments,etc. It will be a while (3-4 years) before you can add significantly to your savings. If something comes up, you want to know you can cover it. Even if your family will help you, you still need savings of your own.

Its not all- the 65K is half of my savings and half from my family. So I'll still have half of my savings (30k) that I'm not touching.

[NYSprague]

^^^^
Smart. I think you have a good plan. Good luck at Duke.

[redsox]

Even if your family will help you, you still need savings of your own.

Explain.

[NYSprague]

^^^^^
You can't rely on having emergency money if you have to get it from somewhere else. You should have your own savings. Stuff happens. Spending all your savings would be a mistake.

[redsox]

^^^^^
You can't rely on having emergency money if you have to get it from somewhere else. You should have your own savings. Stuff happens. Spending all your savings would be a mistake.

Depends on what sort of network of friends/family you have to rely on. I'm gonna burn through pretty much everything in law school. I mean, I'll probably always have at least a few thousand on hand at any given time, but not like a real 6 months of expenses type of emergency savings account. Not worth 8% interest to be sitting on cash I don't need, especially with no dependants/financial responsibilities.

[Mal Reynolds]

Limit your accrued interest as much as possible. Plenty of people get through law school without significant savings. Sounds like you're gonna plan accordingly for moves and stuff like that since you're already thinking along the right lines for financing tuition.

[NYSprague]

I would put it all towards your tuition and cost of living. Then hopefully use your SA cash to do the same thing third year. I'm not sure if that's the 100% financially prudent thing to do but for peace of mind that's the route I would go. Coming out of school with less than 100k in loans would be a great place to be. Plus you're saving a shitton in loan interest that never had to accrue.

So you're agreeing with M458 that I should just use all of the money I have first, then start taking out loans my 2nd year with the hope that I won't have to take out as many higher-interest PLUS loans my 3rd year by using potential SA money?

Yeah, OP said he was going to use all the money he had. That is what prompted my comment. I understand how hard it can be to rebuild a nest egg so I feel spending all of it is a mistake. If your family can give you the money you need for an apartment in NY or for bar loan, whatever, fine. Not everyone has that option.

[gerrydawg]

I would put it all towards your tuition and cost of living. Then hopefully use your SA cash to do the same thing third year. I'm not sure if that's the 100% financially prudent thing to do but for peace of mind that's the route I would go. Coming out of school with less than 100k in loans would be a great place to be. Plus you're saving a shitton in loan interest that never had to accrue.

So you're agreeing with M458 that I should just use all of the money I have first, then start taking out loans my 2nd year with the hope that I won't have to take out as many higher-interest PLUS loans my 3rd year by using potential SA money?

Yeah, OP said he was going to use all the money he had. That is what prompted my comment. I understand how hard it can be to rebuild a nest egg so I feel spending all of it is a mistake. If your family can give you the money you need for an apartment in NY or for bar loan, whatever, fine. Not everyone has that option.

Yeah, my fault for the miscommunication. When I said "all of my money" for option 1, I meant all of the money I had allocated, which is 30k of my own money and 35k from my family, while at the same time having another 30K in savings that I am not touching for law school. Based on what everyone is saying and my number-crunching, I'll probalby use all of the money I allocated up front. I'd rather not let any interest accrue for all three years if I don't have to let it, and the decent chance that I can get something in biglaw from Duke means I'll probably only have to take out about 41K in Stafford and 10K in PLUS (the 3rd year).

[Mal Reynolds]

I have no idea why if you have an extra 30k lying around, you just don't out that into our loans. Unless you have some killer investment strategy that nets you ten percent you are better off putting that towards your loans.

[M458]

I have no idea why if you have an extra 30k lying around, you just don't out that into our loans. Unless you have some killer investment strategy that nets you ten percent you are better off putting that towards your loans.

Yeah, I agree here. I understand leaving some $ for emergencies, but 10k is more than necessary unless you have some expenses we're not aware of (mortgage, obscene car payments, taking care of family, etc.). Use the other 20k to minimize the debt you go into.

This advice goes out the window if that money's in a retirement account. In that case, the tax-deferred space and penalties for withdrawal make it so that leaving the money untouched makes more sense.

[gerrydawg]

I have no idea why if you have an extra 30k lying around, you just don't out that into our loans. Unless you have some killer investment strategy that nets you ten percent you are better off putting that towards your loans.

Yeah, I agree here. I understand leaving some $ for emergencies, but 10k is more than necessary unless you have some expenses we're not aware of (mortgage, obscene car payments, taking care of family, etc.). Use the other 20k to minimize the debt you go into.

This advice goes out the window if that money's in a retirement account. In that case, the tax-deferred space and penalties for withdrawal make it so that leaving the money untouched makes more sense.

About 10K is in checking and another 20k is invested. I've got other money in a retirement accout, but didn't even think of that when considering CoA payments. I'll think about it, but I wanted to keep a good chunk of money invested and growing.

[Mal Reynolds]

Unless your adding regular monthly payments to a retirement account, ~25-30k isn't going to do much for you, at least in the sense that it won't grow appreciably. Once you have income I would start aggressively saving. And you'll have a much better chance at that if you have close to zero debt. That is a ridiculous position to be in post graduation. There is seriously no reason for you to have 30k stashed away. I mean good for you and at the end of the day 50-70k in debt is nbd on a big lawyers salary. But I would rather save money on the front end with lower interest accrual. But that's just me.

[gerrydawg]

Unless your adding regular monthly payments to a retirement account, ~25-30k isn't going to do much for you, at least in the sense that it won't grow appreciably. Once you have income I would start aggressively saving. And you'll have a much better chance at that if you have close to zero debt. That is a ridiculous position to be in post graduation. There is seriously no reason for you to have 30k stashed away. I mean good for you and at the end of the day 50-70k in debt is nbd on a big lawyers salary. But I would rather save money on the front end with lower interest accrual. But that's just me.

Understood. I'll give it some thought. I don't think I would use all of hte 30k, but it may make sense to use enough of it so I won't have to take out any Grad PLUS loans my third year, period.

[NYSprague]

^^^^^
It might be smart to wait and see if you have a big law offer. So waiting until 3 L makes sense to me. You haven't even had a class yet, much less an exam. I wouldn't assume big law is a certainty. (Not that you are, but plenty of 0Ls do.)