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

[albpert]

Housing loan percentages at all time lows - get some investment properties going.

Didn't realize you were trolling Johann, my bad for answering seriously.

Tell me more about how, as a 1L, I should use my assets to become a landlord 3 years prior to knowing where I will have the opportunity to work long term. Tell me more about how I should become a house flipper in law school, instead of just paying for my education.

[Johann]

(spy up 6% in last 6 months)
Or just sit on the cash in case the market crashes if you think that's gonna happen to get super cheap stock
Or sit on the cash and when you go to your target market after graduation use the money towards buying investment properties / a house so you don't have to rent.
It's really hilarious how everyone in these finace threads talks about getting like saving 5000 of interest and fees a year but not the 200k windfall if you go govt/PI. It's always hardest to make your first million.

[albpert]

(spy up 6% in last 6 months)
Or just sit on the cash in case the market crashes if you think that's gonna happen to get super cheap stock
Or sit on the cash and when you go to your target market after graduation use the money towards buying investment properties / a house so you don't have to rent.
It's really hilarious how everyone in these finace threads talks about getting like saving 5000 of interest and fees a year but not the 200k windfall if you go govt/PI. It's always hardest to make your first million.

Especially if your strategy is to go into a job paying $50k longterm. Going "govt" isn't going to net you a "$200k windfall" in loan forgivness, btw. Congrats on claiming to be a multimillionaire too, doesn't make what your saying any less wrong.

Again, if you're clairvoyant and reliably know when the market peaks/has bottomed out why are you a lawyer/law student?

Also, Clemenceau, get in here! There's new hyperbolic strawmen that need outrage directed at them

[starry eyed]

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)

[ChemEng1642]

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.

[starry eyed]

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)

[ChemEng1642]

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.

[lacrossebrother]

I don't think you guys know how interest rates and loan forgiveness works.
Here is a math problem:
If your principle is $100k, it grows at 6.7%, but after forgiveness 20 years later, you paid 200k in total, what is your effective annual interest rate?

[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.

[Kinky John]

I don't think you guys know how interest rates and loan forgiveness works.
Here is a math problem:
If your principle is $100k, it grows at 6.7%, but after forgiveness 20 years later, you paid 200k in total, what is your effective annual interest rate?

Is it a little bit less than 8%?

Question to those in this thread: would you ever recommend taking private loans at, say, 4% instead of fed loans at 6.8%?

[ChemEng1642]

I don't think you guys know how interest rates and loan forgiveness works.
Here is a math problem:
If your principle is $100k, it grows at 6.7%, but after forgiveness 20 years later, you paid 200k in total, what is your effective annual interest rate?

Assuming you pay off none of this loan in between?

[ggocat]

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)

I think what albert is saying is that if you think you can virtually guarantee a 7% annualized return, you should be running a hedge fund and earning millions of dollars.

I don't necessarily agree with albert's conclusions about whether to borrow, but I have to agree that the relevance of your last 5 years of gains is minimal. You may have beaten the market by taking on additional risk with an "actively" managed portfolio, but that doesn't mean you'll beat it in the next downturn. The S&P 500 is up over 85% in the past 5 years. For the preceding 5-year period, the S&P 500 was down 2%.

[ChemEng1642]

I don't think you guys know how interest rates and loan forgiveness works.
Here is a math problem:
If your principle is $100k, it grows at 6.7%, but after forgiveness 20 years later, you paid 200k in total, what is your effective annual interest rate?

Is it a little bit less than 8%?

Question to those in this thread: would you ever recommend taking private loans at, say, 4% instead of fed loans at 6.8%?

It depends whether or not you are interested in public interest. If public interest is even a remote possibility, you should take out the fed loan that the school can repay for you.

[UnicornHunter]

I don't think you guys know how interest rates and loan forgiveness works.
Here is a math problem:
If your principle is $100k, it grows at 6.7%, but after forgiveness 20 years later, you paid 200k in total, what is your effective annual interest rate?

Is it a little bit less than 8%?

Question to those in this thread: would you ever recommend taking private loans at, say, 4% instead of fed loans at 6.8%?

It depends whether or not you are interested in public interest. If public interest is even a remote possibility, you should take out the fed loan that the school can repay for you.

This sounds right. The potential windfall of taking out loans and ending up on PSLF is huge. The potential downside of taking on loans is paying 5, maybe low 6 figures extra in origination fees and interest, which won't be a big deal if you go big law and have that extra €€€ in the bank.

[Kinky John]

Question to those in this thread: would you ever recommend taking private loans at, say, 4% instead of fed loans at 6.8%?

It depends whether or not you are interested in public interest. If public interest is even a remote possibility, you should take out the fed loan that the school can repay for you.

Are you suggesting that someone aiming for private sector employment might consider taking private loans?

That feels like bad advice but I'm curious to hear your reasoning

[ChemEng1642]

Question to those in this thread: would you ever recommend taking private loans at, say, 4% instead of fed loans at 6.8%?

It depends whether or not you are interested in public interest. If public interest is even a remote possibility, you should take out the fed loan that the school can repay for you.

Are you suggesting that someone aiming for private sector employment might consider taking private loans?

That feels like bad advice but I'm curious to hear your reasoning

Yes that is what I'm saying. But it is entirely dependent on your situation (parental contribution, currently available assets, etc.) I've discussed my situation a few posts up and why it makes sense for me. I'm not saying EVERYONE aiming for Biglaw should (in fact most people shouldn't) but there are some cases in which I personally think it would make sense.

EDIT: Note, I'm an 0L so take this with a grain of salt. Who knows, maybe in 3 years the market will crash and I'll be crying myself to sleep every night. But given where I am going to law school and my background, that risk is not worth the extra amount I would be paying in interest to take out loans. I personally would not be able to use that tuition money to invest.

[Kinky John]

Question to those in this thread: would you ever recommend taking private loans at, say, 4% instead of fed loans at 6.8%?

It depends whether or not you are interested in public interest. If public interest is even a remote possibility, you should take out the fed loan that the school can repay for you.

Are you suggesting that someone aiming for private sector employment might consider taking private loans?

That feels like bad advice but I'm curious to hear your reasoning

Yes that is what I'm saying. But it is entirely dependent on your situation (parental contribution, currently available assets, etc.) I've discussed my situation a few posts up and why it makes sense for me. I'm not saying EVERYONE aiming for Biglaw should (in fact most people shouldn't) but there are some cases in which I personally think it would make sense.

In other words, in what situation would the difference in interest rate be worth more than the safety net federal loans would provide?

[Johann]

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.

[Johann]

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)

I think what albert is saying is that if you think you can virtually guarantee a 7% annualized return, you should be running a hedge fund and earning millions of dollars.

I don't necessarily agree with albert's conclusions about whether to borrow, but I have to agree that the relevance of your last 5 years of gains is minimal. You may have beaten the market by taking on additional risk with an "actively" managed portfolio, but that doesn't mean you'll beat it in the next downturn. The S&P 500 is up over 85% in the past 5 years. For the preceding 5-year period, the S&P 500 was down 2%.

So with a crash the market is up 85% over 10 years?

[ChemEng1642]

Question to those in this thread: would you ever recommend taking private loans at, say, 4% instead of fed loans at 6.8%?

It depends whether or not you are interested in public interest. If public interest is even a remote possibility, you should take out the fed loan that the school can repay for you.

Are you suggesting that someone aiming for private sector employment might consider taking private loans?

That feels like bad advice but I'm curious to hear your reasoning

Yes that is what I'm saying. But it is entirely dependent on your situation (parental contribution, currently available assets, etc.) I've discussed my situation a few posts up and why it makes sense for me. I'm not saying EVERYONE aiming for Biglaw should (in fact most people shouldn't) but there are some cases in which I personally think it would make sense.

In other words, in what situation would the difference in interest rate be worth more than the safety net federal loans would provide?

Ahh that I can't say. For me, since my interest rate is 0%, the difference of 6.8% is worth it. But really it will depend on your personal situation, the employment outcomes for the school you are attending, and the job you are aiming to get. I would go ahead an calculate the difference in repayment for your two scenarios (there are some really good spreadsheets on this website that can help), and then go from there. If I were to just speak out of my ass though, I'm going to go ahead and say there is not much difference between 4 and 6.8% - especially if you can get that federal loan refinanced (not that I know much about that either).

Good luck!

[lacrossebrother]

I don't think you guys know how interest rates and loan forgiveness works.
Here is a math problem:
If your principle is $100k, it grows at 6.7%, but after forgiveness 20 years later, you paid 200k in total, what is your effective annual interest rate?

Is it a little bit less than 8%?

Ummm...no.
If you pay 200k in total on a 100k principal, you've effectively paid an average of 3.6% interest annually.

And if you start off with $100k in loans only making $80k, and expect a 2% raise for all 20 years...your all in for PAYE, including the 35% tax bomb, should be around $152k. That's like 2.15% over 20 years.

[Kinky John]

I don't think you guys know how interest rates and loan forgiveness works.
Here is a math problem:
If your principle is $100k, it grows at 6.7%, but after forgiveness 20 years later, you paid 200k in total, what is your effective annual interest rate?

Is it a little bit less than 8%?

Ummm...no.
If you pay 200k in total on a 100k principal, you've effectively paid an average of 3.6% interest annually.

And if you start off with $100k in loans only making $80k, and expect a 2% raise for all 20 years...your all in for PAYE, including the 35% tax bomb, should be around $152k. That's like 2.15% over 20 years.

100k at 8% annually = ~200k paid total over 20 years

What am I missing?

[lacrossebrother]

I'm guessing you're missing compound interest?

[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

[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.