Worst-Case-Scenario SURVIVAL Plan Post-Law School? Forum

[scifiguy]

Let's assume a person attends a relatively good law school (we'll choose a T20 to make it realistic): Vanderbilt.

Let's also assume this person was decently wise in not putting himself or herself at "too much" loan debt risk and got out at under $100K. Let's be realistic again here and assume this person leaves law school with $90K law debt ($45K from living expenses and $45K from law tuition - just assume they had a scholly from being a good undergrad student and got a pretty good LSAT).

Suppose our "top" law school grad, who was wise enough to go without incurring over $100K debt, graduates from law school and was unable to secure biglaw, a federal clerkship, or other PI or gov't job that would enable them to have a high enough salary or LRAP to start paying back their loans.

So, our person who tried to do everything right is in a worst-case scenario position.

Suggest a plan of survival for our recent, unemployed law grad? With $90K loans, a JD from a good school, but just unable to land that great position. What options would this person have?

What types of jobs or plan could this person immediately take to avoid missing loan payments and possibly ending up on IBR? How long does this person have before the loan payments start becoming due? How long of under/unpayed loan payments before this person may have to go on IBR for the rest of their life?

I'm wondering in the worst of the worst cases for someone who may have done things "right," what can that person do? I'm asking beacuse tihs could be a realistic scenario for TLS'ers.

You have roughly six months after graduation before your loans are due. Interest starts running immediately after graduation and is capitalized after the six-month grade period. Your payments will be around $1100 per month (I have around 100K in debt).

You need to spend three months studying for the bar, unless you are abandoning law. During this period you could work part-time, I did.

Otherwise, you need to find a job. Any job. Your loan payments are $13200 per year on the ten-year schedule. Do the math on the salary you need to live. Remember that your most likely scenario is 40-60K small law.

Thanks dude! Pretty helpful actually!!

Yeah, I think $50K salary is reasonable if assuming small law from what I've read online here. Of course, that's assuming you're able to get a legal job in small law. We could do a calculation using $50K first.

And then we could do a calculation assuming no legal job. That's harder to do. But maybe a worst case scenario like waiting tables at Olive Garden for $35K/year would be interesting to see.

In terms of the annual loan payments, do they get deducted from your taxes? So, if you make $50K, do you have to take taxes out first and then also take out thsoe loan payments? Or do you get some kind of tax break from your loans?

Once I get some numbers straight, I'll try to run a calculation based on different geographic locations. In a big city, I think $50K/year salary + $13,000K loan payments would be very difficult to live on.

[A. Nony Mouse]

Student loans aren't deductible; the interest you pay on student loans is, subject to certain requirements (see http://blog.turbotax.intuit.com/2011/06 ... eductible/). But yes, you get paid (taxes taken out), then you pay your loans, then figure all the rest of it out at the end of the year when you do your tax return.

[Icculus]

Interest starts running immediately after graduation and is capitalized after the six-month grade period the loan is disbursed.

No subsidized loans for grad school anymore, every loan has interest accruing as you go through school.

[scifiguy]

Interest starts running immediately after graduation and is capitalized after the six-month grade period the loan is disbursed.

No subsidized loans for grad school anymore, every loan has interest accruing as you go through school.

Hmm, what wuold $90K loans be after 3 years then? I'm stickign with my OP debt amt. assumption for convenience and because it would seem reasonable for many people.

After year one at 7% interest, I get $96.3K.

After year two at 7% interest, I get $103K.

After year three at 7% interest, I get $110.2K

Feel free to check my math guys. So, how would that get amortized over 10 or 20 years? ...The $13.2K/year loan payments would be bumped up...but by how much?

Is tehre a law school loan calculator thing you guys goto?

[scifiguy]

Please fill in the blank for where you live and identify the location (can be a general category like "large city" or specific one like "Ann Arbor, Michigan"):

ANNUAL COST OF LIVING:

Housing/Rent: _______
Food: _______
Transportation (car payments, car insurance, gas, & repairs/service): _______
Health Insurance: _______
Utilities: _______
Household Supplies: _______
Clothing: _______
All Other Stuff (e.g. doctor's visits, prescriptions, Christmas gifts, etc.): _______

hey, if I forgot any categories up there lat me know! My mom and dad pay for all this stuff, so I dunno.

[20130312]

Feel free to check my math guys.

The interest doesn't compound, so your math is a little off. Interest accrues only on the principal while you're in school. After you graduate (and any time you come out of forbearance), the interest that has accrued while in law school (or during the period of forbearance) will capitalize (fancy way of saying it gets added to the principal and will accrue interest going forward).

[scifiguy]

Feel free to check my math guys.

The interest doesn't compound, so your math is a little off. Interest accrues only on the principal while you're in school. After you graduate (and any time you come out of forbearance), the interest that has accrued while in law school (or during the period of forbearance) will capitalize (fancy way of saying it gets added to the principal and will accrue interest going forward).

Got it. Appreciate that! $90K at 7% after 3 years is: $108.9K ($90K + $18.9K)


So, here's an ANNUAL COST OF LIVING for my mid-sized city (think Atlanta-ish).

Housing/Rent: $9,600 ($800/mo)
Utilities: $1,800 ($150/mo)
Transportation: $6,075
~~Car Payment ($200/mo, $2,400/year)
~~Auto Insurance ($1,800/year)
~~Gasoline ($1,675/year)
~~~Service/Repairs ($200/year)
Food: $3,600 ($300/mo)
Phone/Internet: $1,440 ($120/mo)
Household Supplies: $600 ($50/mo) (Didn't know how to calculate, so just threw out a seemingly reasonable monthly. But I could be way off, since I don't check my credit card receipts. My parents pay them for me.)
Clothing: $750 (I also had no idea how to calculate this, since I shop randomly. But this seems low, since most people buy at least a couple pairs of shoes and a few dress outfits, which would blow this amt. already.)
Other Stuff/Misc.: $1,500 (Entertainment, Technology, Medication etc. ...)
Savings: ???

**I threw out health insurance due to Obamacare and/or private health insurance.
***I dunno how to do savings, because I dunno if my calcs are right for everything else.

Grand Annual Total: $25,365

Am I way off?

WOW!!! If the law school loan payments are $14K-ish per year, then that's already $40,000...(no savings even included yet in my calcs above). Even at $50K salary, this person will struggle (haven't done taxes yet)! How can you buy a house or have kids?

[scifiguy]

I'm starting to get scared.

[Tiago Splitter]

I'm starting to get scared.

IBR keeps you from paying $13,200 on a 50K salary. You'd only be required to pay a few thousand a year. Of course, that means the principal keeps growing (although interest doesn't compound under IBR) and you'll have this ballooning debt hanging over your head.

[timbs4339]

Feel free to check my math guys.

The interest doesn't compound, so your math is a little off. Interest accrues only on the principal while you're in school. After you graduate (and any time you come out of forbearance), the interest that has accrued while in law school (or during the period of forbearance) will capitalize (fancy way of saying it gets added to the principal and will accrue interest going forward).

Got it. Appreciate that! $90K at 7% after 3 years is: $108.9K ($90K + $18.9K)


So, here's an ANNUAL COST OF LIVING for my mid-sized city (think Atlanta-ish).

Housing/Rent: $9,600 ($800/mo)
Utilities: $1,800 ($150/mo)
Transportation: $6,075
~~Car Payment ($200/mo, $2,400/year)
~~Auto Insurance ($1,800/year)
~~Gasoline ($1,675/year)
~~~Service/Repairs ($200/year)
Food: $3,600 ($300/mo)
Phone/Internet: $1,440 ($120/mo)
Household Supplies: $600 ($50/mo) (Didn't know how to calculate, so just threw out a seemingly reasonable monthly. But I could be way off, since I don't check my credit card receipts. My parents pay them for me.)
Clothing: $750 (I also had no idea how to calculate this, since I shop randomly. But this seems low, since most people buy at least a couple pairs of shoes and a few dress outfits, which would blow this amt. already.)
Other Stuff/Misc.: $1,500 (Entertainment, Technology, Medication etc. ...)
Savings: ???

**I threw out health insurance due to Obamacare and/or private health insurance.
***I dunno how to do savings, because I dunno if my calcs are right for everything else.

Grand Annual Total: $25,365

Am I way off?

WOW!!! If the law school loan payments are $14K-ish per year, then that's already $40,000...(no savings even included yet in my calcs above). Even at $50K salary, this person will struggle (haven't done taxes yet)! How can you buy a house or have kids?

Like a boomer. You take on a shitload of debt to live beyond your means and hope that in 40 years you can pay it all off with home equity.

[andythefir]

A middle ground this site doesn't discuss a lot is the 25 year repayment plan, which cuts 10 year payments in half and is not pegged to income. It would avoid the tax bomb that comes with IBR.

[Icculus]

A middle ground this site doesn't discuss a lot is the 25 year repayment plan, which cuts 10 year payments in half and is not pegged to income. It would avoid the tax bomb that comes with IBR.

Though under that plan you are probably going to be paying 2-3 times the interest so really IBR would probably be saving you money in the end.

There is also the 10 year graduated repayment plan, but that assumes you would have a job that would allow you to increase your payments as you went through.

How can you buy a house

You can't buy a house. Though to be fair, someone with $200K+ and a $160K job is likely not buying a house either since it is unlikely they could secure the loan.

[scifiguy]

A middle ground this site doesn't discuss a lot is the 25 year repayment plan, which cuts 10 year payments in half and is not pegged to income. It would avoid the tax bomb that comes with IBR.

Tell me more my friend.

Would the annual loan payment be $7K-ish then from what you're saying and no matter how much my income fluctuates (even if I became a millionaire, say, seven years post-graduation) that plan would be locked in?

That might give more breathing room. But, still, could I own a house and start a family? I guess I could do some calcs on that plan if I get the details right. Good to know!

You can't buy a house. Though to be fair, someone with $200K+ and a $160K job is likely not buying a house either since it is unlikely they could secure the loan.

True. $200K is just scary.

[scifiguy]

A middle ground this site doesn't discuss a lot is the 25 year repayment plan, which cuts 10 year payments in half and is not pegged to income. It would avoid the tax bomb that comes with IBR.

Though under that plan you are probably going to be paying 2-3 times the interest so really IBR would probably be saving you money in the end.

There is also the 10 year graduated repayment plan, but that assumes you would have a job that would allow you to increase your payments as you went through.

How bad is the greater interest vs. tax bomb of IBR? Which provides the most "live-ability?"

With these plans, can you change form one to antoher? I would imagine that if you're situation changes that certain plans would be more advantageous. Or do you get locked in?

[andythefir]

Right, the 25 year plan cuts the 10 year payment in half and is a real payment plan unlike IBR (which forgives the balance after 20 years). You would waste an insane amount of money vs paying it off in 10 years (or earlier), but it's not an entitlement which means Congress can't cut it in budget negotiations and you don't need to go through the rigamarole of applying for it.
Personally if I was unemployed at graduation I would start out on the 25 year plan then kick over to the 10 after getting a real job.

[scifiguy]

Right, the 25 year plan cuts the 10 year payment in half and is a real payment plan unlike IBR (which forgives the balance after 20 years). You would waste an insane amount of money vs paying it off in 10 years (or earlier), but it's not an entitlement which means Congress can't cut it in budget negotiations and you don't need to go through the rigamarole of applying for it.
Personally if I was unemployed at graduation I would start out on the 25 year plan then kick over to the 10 after getting a real job.

Appreciate the info. I'll look into it and maybe do some calcs later (going to campus now for class). But a big thing for me is home ownership.

[hobie2515]

Right, the 25 year plan cuts the 10 year payment in half and is a real payment plan unlike IBR (which forgives the balance after 20 years). You would waste an insane amount of money vs paying it off in 10 years (or earlier), but it's not an entitlement which means Congress can't cut it in budget negotiations and you don't need to go through the rigamarole of applying for it.
Personally if I was unemployed at graduation I would start out on the 25 year plan then kick over to the 10 after getting a real job.

Appreciate the info. I'll look into it and maybe do some calcs later (going to campus now for class). But a big thing for me is home ownership.

I just PM'd you.

[scifiguy]

Right, the 25 year plan cuts the 10 year payment in half and is a real payment plan unlike IBR (which forgives the balance after 20 years). You would waste an insane amount of money vs paying it off in 10 years (or earlier), but it's not an entitlement which means Congress can't cut it in budget negotiations and you don't need to go through the rigamarole of applying for it.
Personally if I was unemployed at graduation I would start out on the 25 year plan then kick over to the 10 after getting a real job.

Appreciate the info. I'll look into it and maybe do some calcs later (going to campus now for class). But a big thing for me is home ownership.

I just PM'd you.

Thanks!

[sinfiery]

How much does small law make after 10 years, or even 25? Going on IBR assumes you'd have the same salary or below x amount for all 25 years for it to be worth it which I can see being a reasonable assessment only if your in PI.

Also, if interest isn't compounded in school, 90k debt is 36751+34347+32100=~103198 due at graduation at 7%.
1200/month for 10 years.
You'd pay ~40k in interest. I believe ~2k per year can be returned via tax writre offs if you make sub 50-70k. So that becomes 10k a year.

Under you calculations, you'd need roughly 40-50k pretax to survive. Your insurance is high. Get a used car. Should help. Especially the used car. KIAs now come with 100k warrantys on ALL their cars. A new one is only.~17k, you could definitely save money there.

If your paying 800 for rent, a 300k house will only cost 1100 a month on mortgage. Albeit it other home owning costs will arise.
If you get that 50k job, life will be fine. And comfortable after 10 years.

The biggest X factor is can you get that 40-50k job and if you can, what will your salary be in 10 years?

[scifiguy]

How much does small law make after 10 years, or even 25? Going on IBR assumes you'd have the same salary or below x amount for all 25 years for it to be worth it which I can see being a reasonable assessment only if your in PI.

Good question. Probably depends. The big trial lawyers could have dramatically higher incomes. But a personal bankruptcy lawyer or family lawyer I'm guessing wouldn't make "that much." It'd be great to know actually all the avg. salaries for diff. types of small law (new research goal!...hey, this is fun, btw, calculating this stuff.)

But, in terms of IBR, I guess my fear would be not finding that good job by the time those loan payments start rolling in. My parents probably couldn't help much at all on that end. So, everything would be on me to find a job that could a.) allow me to survive + b.) make those loan payments (whether 10-yr plan or 25-yr plan).

Anybody know what happens if you miss a few payments in a row? Can the government start taking away your property/assets, garnish wages, etc.? The interest would soon balloon, right? Hypothetically, if I graduate in 2018 from law school and then 6 months later didn't have a job, then I would be in trouble. My parents might be able to pay my loan payments for maybe...3-4 months (I'm guessing it's like $1,200/mo or so?). After that I'd be in trouble.

One option would be to move home with them (major SUCK!...it would be embarassing too) to save on housing, utilities, food, etc. And from there I could maybe then find a job in retail or fast food..waiting tables, etc. (assuming they don't think I'm overqualified). Anything to make that loan payment and not miss.

Question: IF I actually did miss, what happens? How fast before you spiral out of control?

Also, if interest isn't compounded in school, 90k debt is 36751+34347+32100=~103198 due at graduation at 7%.
1200/month for 10 years.
You'd pay ~40k in interest. I believe ~2k per year can be returned via tax writre offs if you make sub 50-70k. So that becomes 10k a year.

Ok, thanks. But it's actually $12K/year, because it's $14K/year in loan repayment. So, $2K write-off still nets $12K to repay.

Under you calculations, you'd need roughly 40-50k pretax to survive. Your insurance is high. Get a used car. Should help. Especially the used car. KIAs now come with 100k warrantys on ALL their cars. A new one is only.~17k, you could definitely save money there.

The biggest X factor is can you get that 40-50k job and if you can, what will your salary be in 10 years

Actually, that insurance rate is about right for me (age, car type, accident history, etc.). But it could go down a little bit. But it's not too far off. I'll double-check wtih my mom later (*sigh* I don't pay these things).

My current used Honda is about equivalent to the Kia.

Yeah, if I don't get a good job, then that changes the game. Also, I'm worried that if I didn't get a $50K job and worked as like a waiter, then would I be damaged goods to future employers for ever getting a legal job again? I know if you miss biglaw it's more or less impossible to get back in after OCI/SA. But, if you miss small law and work in some job like bartending or waiting tables out of desparation, will that kind of kill my chances at small law work later? And I'm guessing the government and PI wouldn't want me if I worked at Olive Garden, say, as a waiter after law school.

It feels like a lot rides on getting that minimum survivable job straight out of law school to handle loans and have any chance at a future growing legal career.

If your paying 800 for rent, a 300k house will only cost 1100 a month on mortgage. Albeit it other home owning costs will arise.
If you get that 50k job, life will be fine. And comfortable after 10 years.

But by my calcs, I don't even have enough for savings. At $50K, I would have no savings/year it seems. It seems I'd be barely surviving. Let me see...

Alright, let me grant you a few things. I'll knock off a few bucks from things like car insurance and the $2k from the loan write-off. But I can't see where I'd be able to knock off much more. I kind of feel I'm underspending on the clothing part too for a professional job. But I'll still do the calcs based on that. Here we go:

Annual Loan Repayment: $12,000K
Annual Cost of Living: $23,500K (knocked off a little)
Annual Income Taxes (off $50K): $8550K - $2K = $6550K
Grand Total: $42,050K

Ok, if this is right, then I'd have about $8K left for savings. That wouldn't cover the monthly mortgage amt. you proposed though. But it would be some savings at least.

[A. Nony Mouse]

Missing student loan payments is a very, very bad idea. If you have no income at all (or probably a really small one), you can arrange to go into deferrment. But don't just stop making the payments.

[scifiguy]

If your paying 800 for rent, a 300k house will only cost 1100 a month on mortgage. Albeit it other home owning costs will arise.
If you get that 50k job, life will be fine. And comfortable after 10 years.

But by my calcs, I don't even have enough for savings. At $50K, I would have no savings/year it seems. It seems I'd be barely surviving. Let me see...

Alright, let me grant you a few things. I'll knock off a few bucks from things like car insurance and the $2k from the loan write-off. But I can't see where I'd be able to knock off much more. I kind of feel I'm underspending on the clothing part too for a professional job. But I'll still do the calcs based on that. Here we go:

Annual Loan Repayment: $14,000K
Annual Cost of Living: $23,500K (knocked off a little)
Annual Income Taxes (off $50K): $8550K - $2K = $6550K
Grand Total: $44,050K

Ok, if this is right, then I'd have about $6K left for savings. That wouldn't cover the monthly mortgage amt. you proposed though. But it would be some savings at least.
--------------------------------------Quote-----------------------------------------

OOPS, I took the $2k out twice, so fixed it above......$6K in savings. Yeah, not enough. It's like I'd be working in fast-food.

How long wjold I have to work before I could qualify for that mortgage if I coudl show them I had a $50K salary? What min. down payment needed?

[sinfiery]

Rent is 800. House is 1100. 3600 is less than your savings. Buy a nice house. (300k is nice.)

Or if you are confident setup a ballooning payment option on your house where your payments rise dramatically after 7/10 years when you can afford to throw an extra 1200 a month at the mortgage


There was a reason banks gave everyone a mortgage for a house. If you have 50k income, you may need a decent down payment but you can find a way.

[scifiguy]

Rent is 800. House is 1100. 3600 is less than your savings. Buy a nice house. (300k is nice.)

Or if you are confident setup a ballooning payment option on your house where your payments rise dramatically after 7/10 years when you can afford to throw an extra 1200 a month at the mortgage
There was a reason banks gave everyone a mortgage for a house. If you have 50k income, you may need a decent down payment but you can find a way.

I need to rsearch how much a down payment would be and also how long I'd have to show employment at $50K (big if, because I can't guarantee I'd get that salary or even a job in law).

Could a person working 1 or 2 years literally just show that to the bank and get a mortgage for a $300K house? More research questions. But stuff I want to know.

But ...for now, I need to get back to reading my Wittgenstein on philosophy of language! Another quizzzzzzzzz....thanks and feel free to do more tinkering with calcs if you like.

[scifiguy]

Also, from what my mom told me, the cost of maintaining a house can be a huge hidden fee people don't realize. You have constant stuff breaking...have to buy furniture...lawn mower....just stuff to upkeep.