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Hi everyone,

I will be starting law school this fall, and am in the fortunate position of getting need based aid, merit aid, and parents that have some assets (not super rich, just saved much). I was planning on financing my education by taking out loans from my parents and paying them back in a "federal type fashion" and giving them a little extra in interest, nowhere near the amount the fed places on their loans. However its been nagging at me whether or not it'd be somewhat advantageous to take out federal loans in conjunction with some loans from my parents...i.e debt forgiveness/interest deductions on tax returns. However I'm not really too sure how that would work.

can anyone tell me if there are any advantages to taking out fed loans vs parent loan?

Also I am getting need based aid, and I think i saw a thread earlier asking if taking out loans from your parents would affect your need based grants. Please let me know! Thanks!

Depends on your relationship with your parents.
I am very close with mines so they let me "borrow" $70k np, pay back whenever.

reasonable person wrote:Depends on your relationship with your parents.
I am very close with mines so they let me "borrow" $70k np, pay back whenever.

I mean the point of my post was to assume lets say I had to pay them back, it would be a 0 percent interest loan pretty much unless I wanted to give more. Now if there was a chance I didn't get quality employment I asked them if we could work out fed standards of payment such as "debt forgiveness", Paye programs, etc which would be fine too. I also know that they would be willing to forgive a large amount of it if needed.

But lets assume they wont forgive, is there any advantage to taking out fed loans? Are there ANY benefits? Keep in mind I also get need based grants, so I'm not sure if that really will affect me, but I feel as though my need based situation would get better in the sense that when I applied I had income and assets. However those assets will be gone, and I will have no income. Thanks for the response!

Post removed.

MistakenGenius wrote:

theincredibleTM wrote:

reasonable person wrote:Depends on your relationship with your parents.
I am very close with mines so they let me "borrow" $70k np, pay back whenever.

I mean the point of my post was to assume lets say I had to pay them back, it would be a 0 percent interest loan pretty much unless I wanted to give more. Now if there was a chance I didn't get quality employment I asked them if we could work out fed standards of payment such as "debt forgiveness", Paye programs, etc which would be fine too. I also know that they would be willing to forgive a large amount of it if needed.

But lets assume they wont forgive, is there any advantage to taking out fed loans? Are there ANY benefits? Keep in mind I also get need based grants, so I'm not sure if that really will affect me, but I feel as though my need based situation would get better in the sense that when I applied I had income and assets. However those assets will be gone, and I will have no income. Thanks for the response!

I don't know of any benefits of taking out fed loans. Use your parents.

Thanks, I guess the only thing I'd see a benefit to fed loans would be the whole debt forgiveness if I wanted to go the public interest route. That would mean my parents wouldnt really have to touch their money at all to help finance my education and would essentially get some of that debt paid for free. Maybe if by the end of 1L year i relaly want to do public service, i can take on the fed loans then?

Also would interest deductions be a benefit to taking out fed loans?

Easy question: Fed Gov pays you an exponentially increasing amount of $ for each month you are in default. They reason that you need the money if you aren't making enough to pay your loans, so they consider is an allowance and then write it off on their Gov-accounting-books. Parents prob won't do that right? Probably best to go with the Gov...

daleearnhardt123 wrote:Easy question: Fed Gov pays you an exponentially increasing amount of $ for each month you are in default. They reason that you need the money if you aren't making enough to pay your loans, so they consider is an allowance and then write it off on their Gov-accounting-books. Parents prob won't do that right? Probably best to go with the Gov...

This is if I only go the public interest route tho correct?

theincredibleTM wrote:

daleearnhardt123 wrote:Easy question: Fed Gov pays you an exponentially increasing amount of $ for each month you are in default. They reason that you need the money if you aren't making enough to pay your loans, so they consider is an allowance and then write it off on their Gov-accounting-books. Parents prob won't do that right? Probably best to go with the Gov...

This is if I only go the public interest route tho correct?

They will still give you some if you're private, just not as much. I forgot what the multiple was.

daleearnhardt123 wrote:

theincredibleTM wrote:

daleearnhardt123 wrote:Easy question: Fed Gov pays you an exponentially increasing amount of $ for each month you are in default. They reason that you need the money if you aren't making enough to pay your loans, so they consider is an allowance and then write it off on their Gov-accounting-books. Parents prob won't do that right? Probably best to go with the Gov...

This is if I only go the public interest route tho correct?

They will still give you some if you're private, just not as much. I forgot what the multiple was.

Wait can you please clarify? Are u specifically referring to paye program? Thanks.

if shit doesn't pan out, i'd feel a lot better about not paying back the government than my parents retirement fund. you should diversify at least somewhat and take out 50% govt loans imo. i'd go 90-100% fed loans.

daleearnhardt123 wrote:Easy question: Fed Gov pays you an exponentially increasing amount of $ for each month you are in default. They reason that you need the money if you aren't making enough to pay your loans, so they consider is an allowance and then write it off on their Gov-accounting-books. Parents prob won't do that right? Probably best to go with the Gov...

is this supposed to be a joke?

JohannDeMann wrote:if shit doesn't pan out, i'd feel a lot better about not paying back the government than my parents retirement fund. you should diversify at least somewhat and take out 50% govt loans imo. i'd go 90-100% fed loans.

Is this amount of money no big deal to your parents? Is loaning you the money crippling there retirement or quality of life?

JohannDeMann wrote:if shit doesn't pan out, i'd feel a lot better about not paying back the government than my parents retirement fund. you should diversify at least somewhat and take out 50% govt loans imo. i'd go 90-100% fed loans.

yeah, but this isnt really a matter about feels though...i mean, not being able to pay the government back ruins your credit, crap you have to go through as opposed to your parents sort of understanding there will be hardships. so you would in all honesty take out all 100 percent federal loans even if your parents had the power to loan you money. Im thinkin of doin some diversification, maybe like 25 fed, 75 parents. I only want to take out stafford loans obviously, and no grad plus..but I have enough of a scholarship where I wouldn't need grad plus. thanks for the advice, trust me i get it...i don't like takin money from my parents even if it were a loan knowing there may be a chance i may not be able to pay the whole thing back. shit i feel terrible when my mom gives me 10 bucks once in awhile for food or something.

Gooner91 wrote:

JohannDeMann wrote:if shit doesn't pan out, i'd feel a lot better about not paying back the government than my parents retirement fund. you should diversify at least somewhat and take out 50% govt loans imo. i'd go 90-100% fed loans.

Is this amount of money no big deal to your parents? Is loaning you the money crippling there retirement or quality of life?

no the loan will not cripple my family, i think right now its more a barrier of just feeling guilty..and to convince myself there is some sort of advantage to fed loans. and the ONLY advtg i can think of is debt forgiveness, where if i were intersted in that route anyways i could have just taken out a bunch of fed loans and no parent loans, and be able to be forgiven in 10 years/and make ends meeet with an lrap/paye program. what do you think? is what im saying correct?

also does anyone know how the interest works on a stafford loan? do you just basically get charged your monthyly interest and then it recapitalizes to the back of your loan each month? or do they put the interest in some sort of holding, and at the end of your graduation they put all that on the back end of your loan...so like basically what im trying to get at is do they basically charge you interest on the interest while you were at school and within the six month grace period.

Borrow from your folks. If you feel guilty, use the money you save on interest to help them out when they retire.

I'd say do a mix. Don't discount the feeling of guilt that comes from taking large amounts of $$$ from your parents. "Oh going to the bar tonight...well, I mean I guess I should be more responsible. This is the money my parents saved and loaned to me." gets real old after a while. I mean I know that sounds bad but it's true. I'd borrow from your parents for the essentials - rent, tuition not paid through aid, books. But for the other CoL expenses I'd do gov't loans. Then you get some tax write off and some guilt write off.

theincredibleTM wrote:

JohannDeMann wrote:if shit doesn't pan out, i'd feel a lot better about not paying back the government than my parents retirement fund. you should diversify at least somewhat and take out 50% govt loans imo. i'd go 90-100% fed loans.

yeah, but this isnt really a matter about feels though...i mean, not being able to pay the government back ruins your credit, crap you have to go through as opposed to your parents sort of understanding there will be hardships. so you would in all honesty take out all 100 percent federal loans even if your parents had the power to loan you money. Im thinkin of doin some diversification, maybe like 25 fed, 75 parents. I only want to take out stafford loans obviously, and no grad plus..but I have enough of a scholarship where I wouldn't need grad plus. thanks for the advice, trust me i get it...i don't like takin money from my parents even if it were a loan knowing there may be a chance i may not be able to pay the whole thing back. shit i feel terrible when my mom gives me 10 bucks once in awhile for food or something.

You have enough to not take out grad plus loans? So then what's your COA <60k? Biggest thing to realize though, is that at my school, you have to take out the max Stafford loans before merit aid will kick in. If that's true, you might be taking out way more from your parents because you'll lose merit aid. If your total loans are actually less than 60k, I wouldn't be worrying about defaulting. You have to be in a pretty hard situation to not pay back either your parents or the government.

Interesting thread. I've been wondering the same thing, except I saved 100k of my own money. I'm not sure if I should keep it invested and take out more loans or spend it all and take out less loans. I want to go into DOJ or something similar. Penn's TollRAP program will pay all payments as long as you qualify for IBR or PAYE (15% of income over 150% of the poverty line, or 15% over 18k) and go into public interest. Let's say my monthly payments are $1100/mo (if I spend my money) that means I qualify if I make up to 106k. If I spend no investment money, payments are $1750/mo, meaning I qualify if I make up to 158k, and Penn pays it all. Since I'm not going to make anywhere near that in the short term, why not just take out more loans and let the school pay?

This all seems too good to be true, so I feel like I'm missing something here. Can anyone tell me if I'm right or wrong?

Again, all hinges upon the "going into public interest" thing.

This thread is colossally stupid. You'd rather take out fed fucking loans? At 7-8% with ORIGINATION FEES?!? this adds up to 10s of thousands over a zero interest loan for someone who pays sticker. And even for 60k it's many many thousands of dollars. The things are downright fucking predatory. You're a moron if you'd take them just to spare yourself some idiotic guilt. Assuage your guilt by, as one poster said, applying a portion of the amt you save in interest and origination to your parents retirement.

As for the poster who is debating investing/saving their savings and taking out fed loans, good effin luck finding an investment that beats 7-8% ROR. And that's without even considering the origination fees.

gobosox wrote:Interesting thread. I've been wondering the same thing, except I saved 100k of my own money. I'm not sure if I should keep it invested and take out more loans or spend it all and take out less loans. I want to go into DOJ or something similar. Penn's TollRAP program will pay all payments as long as you qualify for IBR or PAYE (15% of income over 150% of the poverty line, or 15% over 18k) and go into public interest. Let's say my monthly payments are $1100/mo (if I spend my money) that means I qualify if I make up to 106k. If I spend no investment money, payments are $1750/mo, meaning I qualify if I make up to 158k, and Penn pays it all. Since I'm not going to make anywhere near that in the short term, why not just take out more loans and let the school pay?

This all seems too good to be true, so I feel like I'm missing something here. Can anyone tell me if I'm right or wrong?

Again, all hinges upon the "going into public interest" thing.

Yeah the part where you probably won't end up in govt because it's hard as hell to get a job and getting biglaw is comparatively easy. You aren't going to get a job at DOJ. Since it's your savings it's a little different than OP though, I would use your savings over three years to keep your PLUS burden down hopefully close to 0 but max out your Staffords where the origination fees and interest aren't as bad.

daleearnhardt123 wrote:This thread is colossally stupid. You'd rather take out fed fucking loans? At 7-8% with ORIGINATION FEES?!? this adds up to 10s of thousands over a zero interest loan for someone who pays sticker. And even for 60k it's many many thousands of dollars. The things are downright fucking predatory. You're a moron if you'd take them just to spare yourself some idiotic guilt. Assuage your guilt by, as one poster said, applying a portion of the amt you save in interest and origination to your parents retirement.

As for the poster who is debating investing/saving their savings and taking out fed loans, good effin luck finding an investment that beats 7-8% ROR. And that's without even considering the origination fees.

There are so many factors you are failing to consider. Spending 100 k of real money is even dumber than borrowing 1 million from the fed govt with the current programs in place. For sure dumber than borrowing 250k.

JohannDeMann wrote:

daleearnhardt123 wrote:This thread is colossally stupid. You'd rather take out fed fucking loans? At 7-8% with ORIGINATION FEES?!? this adds up to 10s of thousands over a zero interest loan for someone who pays sticker. And even for 60k it's many many thousands of dollars. The things are downright fucking predatory. You're a moron if you'd take them just to spare yourself some idiotic guilt. Assuage your guilt by, as one poster said, applying a portion of the amt you save in interest and origination to your parents retirement.

As for the poster who is debating investing/saving their savings and taking out fed loans, good effin luck finding an investment that beats 7-8% ROR. And that's without even considering the origination fees.

There are so many factors you are failing to consider. Spending 100 k of real money is even dumber than borrowing 1 million from the fed govt with the current programs in place. For sure dumber than borrowing 250k.

Yeah I gotta agree with Johann on this one. I'm pretty sure you would have beat the loans in interest on ROI if you had put the money in an index fund this year (could be wrong about this though, since I don't actually have thousands laying around to invest).

The interest rates and origination fees are high, but the loans are pretty flexible. If you strike out, or get some 40k shitlaw job, you can do PAYE (and in some cases avail of your school's LRAP). I think it's also reasonable to note that having a lot of assets AND a lot of debt is a lot more flexible than having neither. What if the guy with 100k wants to buy a house? What if he strikes out? What if he hates big law? The 100k is a pretty nice cushion IMO.

I can't speak for OP but I personally wouldn't be comfortable with taking a loan out from my parents. I would be comfortable accepting some assistance from them, but not a loan. I would rather default on Sallie Mae than my parent's retirement.

anyriotgirl wrote:

JohannDeMann wrote:

daleearnhardt123 wrote:This thread is colossally stupid. You'd rather take out fed fucking loans? At 7-8% with ORIGINATION FEES?!? this adds up to 10s of thousands over a zero interest loan for someone who pays sticker. And even for 60k it's many many thousands of dollars. The things are downright fucking predatory. You're a moron if you'd take them just to spare yourself some idiotic guilt. Assuage your guilt by, as one poster said, applying a portion of the amt you save in interest and origination to your parents retirement.

As for the poster who is debating investing/saving their savings and taking out fed loans, good effin luck finding an investment that beats 7-8% ROR. And that's without even considering the origination fees.

There are so many factors you are failing to consider. Spending 100 k of real money is even dumber than borrowing 1 million from the fed govt with the current programs in place. For sure dumber than borrowing 250k.

Yeah I gotta agree with Johann on this one. I'm pretty sure you would have beat the loans in interest on ROI if you had put the money in an index fund this year (could be wrong about this though, since I don't actually have thousands laying around to invest).

The interest rates and origination fees are high, but the loans are pretty flexible. If you strike out, or get some 40k shitlaw job, you can do PAYE (and in some cases avail of your school's LRAP). I think it's also reasonable to note that having a lot of assets AND a lot of debt is a lot more flexible than having neither. What if the guy with 100k wants to buy a house? What if he strikes out? What if he hates big law? The 100k is a pretty nice cushion IMO.

I can't speak for OP but I personally wouldn't be comfortable with taking a loan out from my parents. I would be comfortable accepting some assistance from them, but not a loan. I would rather default on Sallie Mae than my parent's retirement.

This states everything I wanted to but was too lazy too fill in the gaps. You're correct about market outperforming interest handedly for the last few years - all of them since the crash to be exact.

JohannDeMann wrote:

anyriotgirl wrote:

JohannDeMann wrote:

daleearnhardt123 wrote:This thread is colossally stupid. You'd rather take out fed fucking loans? At 7-8% with ORIGINATION FEES?!? this adds up to 10s of thousands over a zero interest loan for someone who pays sticker. And even for 60k it's many many thousands of dollars. The things are downright fucking predatory. You're a moron if you'd take them just to spare yourself some idiotic guilt. Assuage your guilt by, as one poster said, applying a portion of the amt you save in interest and origination to your parents retirement.

As for the poster who is debating investing/saving their savings and taking out fed loans, good effin luck finding an investment that beats 7-8% ROR. And that's without even considering the origination fees.

There are so many factors you are failing to consider. Spending 100 k of real money is even dumber than borrowing 1 million from the fed govt with the current programs in place. For sure dumber than borrowing 250k.

Yeah I gotta agree with Johann on this one. I'm pretty sure you would have beat the loans in interest on ROI if you had put the money in an index fund this year (could be wrong about this though, since I don't actually have thousands laying around to invest).

The interest rates and origination fees are high, but the loans are pretty flexible. If you strike out, or get some 40k shitlaw job, you can do PAYE (and in some cases avail of your school's LRAP). I think it's also reasonable to note that having a lot of assets AND a lot of debt is a lot more flexible than having neither. What if the guy with 100k wants to buy a house? What if he strikes out? What if he hates big law? The 100k is a pretty nice cushion IMO.

I can't speak for OP but I personally wouldn't be comfortable with taking a loan out from my parents. I would be comfortable accepting some assistance from them, but not a loan. I would rather default on Sallie Mae than my parent's retirement.

This states everything I wanted to but was too lazy too fill in the gaps. You're correct about market outperforming interest handedly for the last few years - all of them since the crash to be exact.

While the NYSE has grown almost 80% over the last 5 years, I don't quite expect that trend to continue.

Daleearnhardt is failing to consider the benefits of an LRAP. I'm not talking about trying to outperform the loans-- that's insane. I'm talking about keeping my money and getting the loans paid for by someone else. Also, in terms of his response to OP, fails to consider that there are other considerations besides money. I, for one, won't take a dime from my parents, but that's just me. Even if it were a "loan" it's effectively them losing money where they could be making money in the stock market.

While DOJ is really hard to get, there are a myriad of other public interest jobs that interest me. All of them qualify for LRAP and free loans. DOJ may be at the top, but I'm not dumb enough to put all my eggs in such a precarious basket.

Either way, I get BigLaw and make 150k+ and don't care about loans, or I do public interest and get the loans taken care of by the school. (Or I'm unemployed and fucked, but I'm going to work extra hard to make sure that's not me.)