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I was offered an "internship" in a small law firm in a city I don't live in, but with the type of law I want to do. This is likely unpaid.

I am struggling if I should take this or if I should take a PI job in my city in order to get fin aid through my school. I want to work in a larger law firm, and I think the experience in the small law firm would be more applicable/make me more hire-able for 2L year. But I would have to move and probably pay my own way, but I have friends in this city that I could live with.

I would love any advice on this.

Congrats on the offer! I think it would be wise to take the small law firm position to get exposure to the area of law you want to work in. It will either confirm or not that you are interested in that area, and I believe it would give you more credibility going into 2L year interviews. That being said, not every firm conducts operations the same way, so depending on the area of law you're in, your experience might not be very representative. I would also ask you to look at your current resume. Does it scream PI? If so, it would be a good idea to balance things out a bit, especially if you came straight from undergrad or another academic degree. Good luck on your decision.

If you're doing legal stuff for a firm, it is illegal not to pay you. They can't call it an "internship" and get around it, unless you're receiving class credit for it.

Also, I doubt it will have any effect on your hireability later on. If they say it's unpaid, take the PI job. What you do as a 1L, except in rare instances, won't really matter much, as long as it is legally related.