Freaked out about loan situation... Forum

[Anonymous User]

3L at CCN. Will be doing 2-year clerkship starting September. 200k in debt (Grad plus, stafford).

My school's LRAP basically covers your IBR payments for 10 years. But the more I research it, the more it looks like it's not a great deal. My IBR payments will only be like $550/month on my 1st year clerk salary (and probably the same or a little more my second year). I don't even think that begins to cover the interest accumulating. More than anything I want to make sure I don't let interest accumulate on my loans while I'm clerking.

Plus, apparently when you leave IBR, they do something funny with the interest and you get hit with a huge capitalized interest? Can anyone explain this?

If I do IBR, can I make payments above the minimum IBR payments (which my school will be paying) so as to not let interest accumulate, or if I do that will they force me to do a standard payment plan?

My school, unbelievably, doesn't even have a financial person we can talk to to discuss these things, and I'm really freaked out about it. I feel like I will never recover from these loans.

[Renzo]

You can always prepay your federal loans without penalty.

If you switch from IBR to standard repayment, they don't do anything involving interest or capitalization, they just re-amortize the balance you have left over the life of the original loan term remaining, and that's your payment (but it can never be less than it would have been if you had stayed on regular repayment from day one).

You are not at NYU (they don't cover clerkships, and they have an army of people to talk to about repayment), so I don't know the specifics of your school's plan. But generally, they are designed so that if you take a qualifying public interest job, and enroll in IBR, the combination of the two will make your payments for ten years, then the government forgives the balance.

[luthersloan]

The point above about NYU not covering clerkships is not true. If you swear in blood you will do PI after you clerkship, they will pay you loans during you clerkship, but they want the money back if you don't go in to PI.

[Renzo]

The point above about NYU not covering clerkships is not true. If you swear in blood you will do PI after you clerkship, they will pay you loans during you clerkship, but they want the money back if you don't go in to PI.

True. But for some reason, something about the OP makes me assume that he/she doesn't have long-term PI plans. Otherwise they would know that there's no chance they are ever getting out from under $200k in loans.

[wiseowl]

I hate to be the debbie downer, but maybe clerking isn't the best idea for you? I mean, congrats, clearly you're a rock star, but it just sounds like circumstances aren't going to work.

Keep in mind also that there's a great chance if a certain someone wins the presidential election that IBR might not be long for the world to begin with.

[Ded Precedent]

Keep in mind also that there's a great chance if a certain someone wins the presidential election that IBR might not be long for the world to begin with.

This kind of sounds like you're talking out of your ass.

[wiseowl]

Keep in mind also that there's a great chance if a certain someone wins the presidential election that IBR might not be long for the world to begin with.

This kind of sounds like you're talking out of your ass.

No, I don't have the secret plans of the nominee. Busted.

It's called an opinion. I'm welcome to one, as are you. I'm just saying it doesn't take a lot of dot-connecting to see that this will at least be discussed. The Paul Ryan budget rolls back IBR and Romney's actions have suggested he and Ryan are big buddies.

I don't intend to derail this thread. Sorry.

[Eco]

He's right actually- Mitt Romney winning will be a disaster for law students because of their dependency on student loans.

[nyf]

Whoever said clerking is not a good idea is an idiot. Are these federal? Are you doing big law after? Bonus?

[wiseowl]

Whoever said clerking is not a good idea is an idiot. Are these federal? Are you doing big law after? Bonus?

Sweet anon bro.

Anyhow, he says "More than anything I want to make sure I don't let interest accumulate on my loans while I'm clerking."

All I'm saying is that that sentence is not compatible with two years of clerk salary in a high CoL area.

Clerking is a good idea in general. It may not be a good idea for this particular person given his financial goals and financial situation.

[luthersloan]

Certainly, if your sole criteria is preventing interest accumulation, a clerkship might be a bad idea. But I think you should think seriously about the relevant costs and benefits, two years of clerking could produce significant returns over the course of your career, and those returns could be well worth some extra interest.

[bk1]

Whoever said clerking is not a good idea is an idiot. Are these federal? Are you doing big law after? Bonus?

The bonus isn't going to cover the fact that OP will be losing money by clerking (50k bonus+2x60k salary is still short of the 2x160k salary+bonuses/raise). Not to mention that even if the bonus did cover the difference, OP would be losing money due to interest since he/she couldn't pay down as aggressively to start.

[Anonymous User]

The only people I know who (1) thought clerking would be fun, (2) had the AIII credentials out of law school, and (3) didn't clerk, and (4) didn't regret that decision, are the ones that went back and clerked after practicing a few years. Often at significant professional cost.

Seriously. Unless you know absolutely for sure that you want to do transactional work and are not interested in academia or USAO, do the damn clerkship. It's a year of your life, and not doing it will feel like a conspicuous black mark for the rest of your career. (I speak from personal experience.)

[Na_Swatch]

It can't be denied that there still will be a large financial cost to clerking though.. I mean if you are interested in litigation I say go for it, but here's the basic calculation:

1st Year: 200k * 1.07 (average interest) - 550*12months = 207.4K
2nd Year: 207.4K * 1.07 -550*12 = 215.38K
3rd Year: Paying back 215k*1.07 with say a 3rd Year Associate Salary (185k) + Clerking bonus (~50k)
So 230k of Loans versus a Salary of 185k and 50k Clerkship Bonus pre-tax

Straight to Biglaw:

1st Year: 200k * 1.07 - (10 Yr Payment plan is 28k a year, Aggressive would be 35K-45k) = 174k with 40k/yr payment
2nd Year: 174k * 1.07 - (40k-50k 2nd Year) = 141.8k
3rd Year: Paying back 141k * 1.07 on a 3rd Year Associate Salary, no Clerking Bonus.

So here its pretty evident that 2 years of compounding interest and no principal pay down has a pretty large effect. Still, if you're talking about a career over 20+ years and if you enjoy clerking then a difference of 70k in loans isn't as significant over that time period.

[Anonymous User]

OP here.

The clerkship is federal (d ct) in a mid-high CoL area. I've obviously already accepted it, so there's no going back there. I want to be a litigator, and I've been told it's a good career move.

I'm not sure I want to go to a firm after the clerkship, but it seems like with the loan situation, I'd have no other choice. The clerkship bonus (especially if I got extra for doing a 2-year clerkship) could go directly to my loans. Plus, I think I may want to do USAO, which would require a few years of experience after my clerkship anyway.

My main question is, which I think was answered but I want to be sure- the reason the gov't lets you do IBR is that your income is low relative to your debt. So, if I choose IBR, but make substantially larger payments than IBR requires (e.g. school pays monthly IBR, which is approx $550, I then put in another $1000/month), would they take me off of IBR? this is important because my school will only give me that monthly $550 if I'm on IBR- it won't work if I'm on a standard or graduated repayment plan.

Does anyone know how much I would have to pay monthly to prevent interest from accumulating? Basically I've resigned myself to the idea that I'm not going to make any dent in the principal for the next 2 years- but the idea of letting interest capitalize freaks me out.

thanks for the advice so far

[Na_Swatch]

OP here.

The clerkship is federal (d ct) in a mid-high CoL area. I've obviously already accepted it, so there's no going back there. I want to be a litigator, and I've been told it's a good career move.

I'm not sure I want to go to a firm after the clerkship, but it seems like with the loan situation, I'd have no other choice. The clerkship bonus (especially if I got extra for doing a 2-year clerkship) could go directly to my loans. Plus, I think I may want to do USAO, which would require a few years of experience after my clerkship anyway.

My main question is, which I think was answered but I want to be sure- the reason the gov't lets you do IBR is that your income is low relative to your debt. So, if I choose IBR, but make substantially larger payments than IBR requires (e.g. school pays monthly IBR, which is approx $550, I then put in another $1000/month), would they take me off of IBR? this is important because my school will only give me that monthly $550 if I'm on IBR- it won't work if I'm on a standard or graduated repayment plan.

Does anyone know how much I would have to pay monthly to prevent interest from accumulating? Basically I've resigned myself to the idea that I'm not going to make any dent in the principal for the next 2 years- but the idea of letting interest capitalize freaks me out.

thanks for the advice so far

You'll have to check with your school's program to see if they allow payments on top of the IBR.

However your 2nd question is a lot easier to answer. If you don't want interest to accumulate (beyond what has accumulated during the 3 years you were in law school), you would have to pay whatever percent is being charged on your loans each year.

Rough estimate: 200k loans at around 7% average rate (so combining the Gradplus and Stafford rates gives you about that) would mean you need to pay ~14k a year to prevent interest from accumulating..

14k a year/ 12months = approx. $1200 a month in loan payments

[anongoodnurse]

I've been told it's a good career move.

It certainly is. My guess is that 75% of the people saying otherwise are median T14 2Ls and 3Ls who are trying to justify the fact that they don't have good enough grades to get Article III clerkships themselves.

(Yes, 25% of you really, really want to do corporate work, and you're just not interested. I acknowledge that. Intellectual exercise: Pick your favorite TTT law school. See who is teaching the contracts/corporations/securities classes. How many did federal clerkships? My guess is 50%+. It's a signal that you did well in law school. Period.)

[TheFactor]

I've been told it's a good career move.

It certainly is. My guess is that 75% of the people saying otherwise are median T14 2Ls and 3Ls who are trying to justify the fact that they don't have good enough grades to get Article III clerkships themselves.

(Yes, 25% of you really, really want to do corporate work, and you're just not interested. I acknowledge that. Intellectual exercise: Pick your favorite TTT law school. See who is teaching the contracts/corporations/securities classes. How many did federal clerkships? My guess is 50%+. It's a signal that you did well in law school. Period.)

sweet use of the anon feature bro

[09042014]

Just pay as much as you can. It's not a big deal. Interest is probably ~16K. If you want to pay it off just live frugally. You can afford 16K out of 60 unless you are in a really high cost of living area. And even then, commute from a cheaper place.

@Butthurt pumos, plenty of people chose not to clerk. Even more choose not to clerk right away.

[ColtsFan88]

The point above about NYU not covering clerkships is not true. If you swear in blood you will do PI after you clerkship, they will pay you loans during you clerkship, but they want the money back if you don't go in to PI.

True. But for some reason, something about the OP makes me assume that he/she doesn't have long-term PI plans. Otherwise they would know that there's no chance they are ever getting out from under $200k in loans.

I think if the op was committee to PI he would be out from under his loans in roughly (exactly) 10 years.

If the op isn't doing PI, why is he using IBR? Just pay off your loans. 10% of a biglaw salary sucks.
Edit: 10 years in PI and having all of his 200k forgiven sounds like a pretty sweet payment plan. Why wouldn't he be able to get out from under his debt?

Editx2: PSLF also counts clerkships as PI, so its really 8 years in PI (for the op) before his 200k is wiped out.

[sunynp]

I think this is an interesting question. I think IBR was designed because you can't make more than minimum payments on your salary. Is the question what the school will do if he pays more- how will they know? Or will the lender do something about it? It is very unclear how this IBR works as a practical matter. I get the overall plan.

And I think OP is correct to not assume he will stay in a PI job for ten years after graduation. He may not want to live like that for 10 years and he may not be able to find a qualified job after his clerkship ends.

I hope you find some experts in IBR and some people who have been on the program to give you advice. Maybe you can ask the current clerks from your school how they have handled debt repayment. I've heard that the lenders make it difficult to stay on IBR, filing paperwork is problematic, etc. But I have no personal experience with it.

PS. OP I understand your freaking out about debt. It is a huge amount of money.

[ColtsFan88]

To be fair, clerkahips are considered public service under PSLF, so its 8 years after the clerkahip is over.

Also, I highly doubt someone with an Article III clerkship can't find PI work that allows them to use PSLF, considering being a high school public school teachers qualifies for it (PSLF doesn't even need to be law related to qualify).

Honestly though, if your going into the private sector and expecting to make the big bucks, you shouldn't use IBR. Your loans don't get forgiven till year 20 ( or 25 in some cases) and each year you pay 10% of your income.

[forty-two]

OP here.

My main question is, which I think was answered but I want to be sure- the reason the gov't lets you do IBR is that your income is low relative to your debt. So, if I choose IBR, but make substantially larger payments than IBR requires (e.g. school pays monthly IBR, which is approx $550, I then put in another $1000/month), would they take me off of IBR? this is important because my school will only give me that monthly $550 if I'm on IBR- it won't work if I'm on a standard or graduated repayment plan.

No, they won't kick you off IBR if you pay more than the minimum. From the website:

Unpaid Interest

Borrowers who are concerned about the potential for negative amortization, where the amount owed grows because the payments are less than the interest that accrues, always have the option of increasing the payment to at least the interest since federal education loans do not have prepayment penalties.

[concurrent fork]

I've been told it's a good career move.

It certainly is. My guess is that 75% of the people saying otherwise are median T14 2Ls and 3Ls who are trying to justify the fact that they don't have good enough grades to get Article III clerkships themselves.

(Yes, 25% of you really, really want to do corporate work, and you're just not interested. I acknowledge that. Intellectual exercise: Pick your favorite TTT law school. See who is teaching the contracts/corporations/securities classes. How many did federal clerkships? My guess is 50%+. It's a signal that you did well in law school. Period.)

Where did anyone say that? Are you a booster for the federal judiciary or something?

OP's question had nothing to do with academia or the merits of clerking, yet you and the other anon above (maybe same) are raging on these issues.

[Anonymous User]

OP here

Thanks again for all the advice and suggestions. (Also, just because it bothered me a little bit to be referred to by the male pronoun, I'm a girl )

To answer someone's questions, the reason I want to do IBR is so I can take advantage of my school's LRAP. otherwise I would certainly do the graduated plan.

I don't think I'll enjoy working at a big firm (I did it last summer and it was kind of meh), and I can see myself staying in government for 10 years. But, I can't count on that, and I feel like I should go to a firm for a few years after the clerkship to take advantage of the bonus (is it really 50k? of course more like $30k after taxes I assume) and to get experience I could parlay into a job at the USAO. The alternative route I see myself taking is trying to get into the DA's office after my clerkship, but I understand it isn't a given that I could get that job, and I don't know what the pay's like- plus, though I'm not inclined to think Obama will lose the election, I am a little worried about IBR's long-term future.

Anyway from what you guys are saying, it seems like I can do IBR, get the money from my school, then try to pay another $1000/month on top of that from my clerkship salary, which should at least take care of the interest. Then when I'm done the clerkship I can focus on the principal.