For 2L SAs: How will you finance 3L? Forum

[SpiteFence]

For those of us fortunate enough to have an SA spot lined up, I am curious if you plan on changing you financing plans if you receive an offer. For me, I've done all federal so far (no private loans except for a little ugrad one). If I get an offer at the end of the summer though, the likelihood of me ever needing IBR goes down substantially. I assume this would be the case for most SAs who accept a 140-160K offer. Because of this, I would consider getting a private loan to finance 3L year while interest rates are low, with the expectation that I can pay it off fairly quickly if the rates go to high. I'm curious what you all are planning to do if you receive an offer?

[Renzo]

I'd stick w/ federal loans. The insurance rate matters far less if you pay off the loan early, and making biglaw money there's little reason not to do so. Yes, even if you pay early, you could save some money by going with private loans, but that small amount is worth the insurance of having the possibility of IBR, deferrment, etc. in case of disaster (disability, job loss, etc.).

[SpiteFence]

I'd stick w/ federal loans. The insurance rate matters far less if you pay off the loan early, and making biglaw money there's little reason not to do so. Yes, even if you pay early, you could save some money by going with private loans, but that small amount is worth the insurance of having the possibility of IBR, deferrment, etc. in case of disaster (disability, job loss, etc.).

You still maintain this even if you project a 3.5 year repayment schedule?

[Renzo]

I'd stick w/ federal loans. The insurance rate matters far less if you pay off the loan early, and making biglaw money there's little reason not to do so. Yes, even if you pay early, you could save some money by going with private loans, but that small amount is worth the insurance of having the possibility of IBR, deferrment, etc. in case of disaster (disability, job loss, etc.).

You still maintain this even if you project a 3.5 year repayment schedule?

For me, yes. If you have 3.5 year repayment instead of 10, the interest rate matters much, much less, because the principle will be shrinking so dramatically early on.

[Sup Kid]

Question: When filling out your FAFSA your 2L year, won't you have to say your projected income? If so, you'll be putting down $30k, which I'd imagine will shrink the amount of federal loans you can take out. Does anyone know how much a $30k income will impact the amount of federal loans you are eligible for? Do they just subtract 30k from your "normal" total amount, or is it done on a proportional basis? Thanks for your input!

[swc65]

Question: When filling out your FAFSA your 2L year, won't you have to say your projected income? If so, you'll be putting down $30k, which I'd imagine will shrink the amount of federal loans you can take out. Does anyone know how much a $30k income will impact the amount of federal loans you are eligible for? Do they just subtract 30k from your "normal" total amount, or is it done on a proportional basis? Thanks for your input!

It won't affect how much. You can take out COA-other aid. The only thing it could affect would be the interest rate (sub v. unsub . perkins). Also your FAFSA is backward looking. What matters is what you made the previous year, bot what you will make next year. I am not sure if they ask projected income (though I am sure some schools do ask on separate forms), but the bulk of the FAFSA is disclosing current assets and the prior years income.

[Nom Sawyer]

Check out the guide to Law School Loans in the articles section if you want a breakdown of how private loans and federal loans stack up...

For some cases (maybe this one) private loans can be a better deal.

[Anonymous Loser]

I'd stick w/ federal loans. The insurance rate matters far less if you pay off the loan early, and making biglaw money there's little reason not to do so. Yes, even if you pay early, you could save some money by going with private loans, but that small amount is worth the insurance of having the possibility of IBR, deferrment, etc. in case of disaster (disability, job loss, etc.).

You still maintain this even if you project a 3.5 year repayment schedule?

For me, yes. If you have 3.5 year repayment instead of 10, the interest rate matters much, much less, because the principle will be shrinking so dramatically early on.

For some reason, this principle is often overlooked when students are considering private loans. It's really hard to justify taking on a private loan over a federal loan--the savings are so minimal when compared to what a private loan borrower is forced to give up.

[vanwinkle]

You still maintain this even if you project a 3.5 year repayment schedule?

For me, yes. If you have 3.5 year repayment instead of 10, the interest rate matters much, much less, because the principle will be shrinking so dramatically early on.

For some reason, this principle is often overlooked when students are considering private loans. It's really hard to justify taking on a private loan over a federal loan--the savings are so minimal when compared to what a private loan borrower is forced to give up.

Agreed. If you pay it all off over 3.5 years, the 2-3% interest you save in that short time won't amount to much, so you're not saving a significant amount if you do things this way. If you end up having to take lower-paying work at some point and can't pay it off that quickly, then there are other benefits to taking the federal loans (mostly IBR and forbearance eligibility) that make them worth it. Either way, you're gambling a lot just to shave a few points off your interest rate.

[SpiteFence]

Ok you sold me on Fed Loans for 3L. But let me suggest the other extreme. Assume I had 10K in Ugrad private loans. Is it better to use my SA income to pay this off instead of reducing the amount I have to borrow for 3L?

[Renzo]

Ok you sold me on Fed Loans for 3L. But let me suggest the other extreme. Assume I had 10K in Ugrad private loans. Is it better to use my SA income to pay this off instead of reducing the amount I have to borrow for 3L?

Depends on the interest rates of each and whether or not any of the undergrad loans were subsidized (meaning the interest doesn't capitalize while you're in school).

[vanwinkle]

Ok you sold me on Fed Loans for 3L. But let me suggest the other extreme. Assume I had 10K in Ugrad private loans. Is it better to use my SA income to pay this off instead of reducing the amount I have to borrow for 3L?

Depends on the interest rates of each and whether or not any of the undergrad loans were subsidized (meaning the interest doesn't capitalize while you're in school).

I think it'd be worth it to pay them off with SA funds either way, as long as they're not eligible for any loan repayment program. Harvard's LIPP will pay up to $10K in undergrad loans off, even private loans, so it'd be better if you're at Harvard to save them and let LIPP pay for them in case you get no-offered and end up going public service for a while.

However, most school LRAPs will not cover private loans or undergrad loans, in which case you want to make sure you get those loans paid as soon as possible. However, if the loan interest is subsidized, you should take your SA income and put it in the bank to earn interest until you graduate, and THEN pay them off. That way you've earned interest on the money (at 4% interest you'd earn $400 in a year) before you paid the loans off.

But if the loans aren't subsidized you'd probably be paying that much or more interest in the interim, so better to pay them off as soon as possible.

[underdawg]

a chase savings account offers a whopping 0.1% interest right now.

[Renzo]

Ok you sold me on Fed Loans for 3L. But let me suggest the other extreme. Assume I had 10K in Ugrad private loans. Is it better to use my SA income to pay this off instead of reducing the amount I have to borrow for 3L?

Depends on the interest rates of each and whether or not any of the undergrad loans were subsidized (meaning the interest doesn't capitalize while you're in school).

I think it'd be worth it to pay them off with SA funds either way, as long as they're not eligible for any loan repayment program. Harvard's LIPP will pay up to $10K in undergrad loans off, even private loans, so it'd be better if you're at Harvard to save them and let LIPP pay for them in case you get no-offered and end up going public service for a while.

However, most school LRAPs will not cover private loans or undergrad loans, in which case you want to make sure you get those loans paid as soon as possible. However, if the loan interest is subsidized, you should take your SA income and put it in the bank to earn interest until you graduate, and THEN pay them off. That way you've earned interest on the money (at 4% interest you'd earn $400 in a year) before you paid the loans off.

But if the loans aren't subsidized you'd probably be paying that much or more interest in the interim, so better to pay them off as soon as possible.

Ah, I didn't think about LRAP-eligible v. non-eligible loans. Good thought.

[edcrane]

I'm doing all federal loans, but only because the private interest rates I've been quoted are now too high (~6%) to justify giving up the benefits of federal loans. I would take private loans if I could get the same deal I got during 1L (prime minus 1%). Keep in mind that in addition to the interest rate differential, grad plus loans (and I think stafford loans) have significant origination fees that private loans do not. Even if you pay off all of your loans in 3 years, private loans with favorable terms are likely to be substantially cheaper than federal loans.