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Old 04-24-2011, 10:55 AM   #1
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Hello! Looks like I am moving against the tide:-)

Hi,

I'm a long time lurker and a big fan of this site!

I am about to invest 210k in a professional education(bad decision, I know, since I had other less expensive options, but I am convinced this is the right move for me). I will greatly appreciate your opinions on the financing options we are considering. Please share any other options you think we should consider as well. It's kind of scary/funny that I am getting into debt while others are trying to get out :-0



-Federal student loans for the full cost: The advantage of federal loans is they get forgiven if I die prematurely. I am comfortable with this option because I don't want to leave my husband with such a huge liability. The disadvantage of federal loans is the interest rates are enormous(about 60k will have an interest rate of 6.8% and 90k will have an interest rate of 8.5%).

-A mix of federal student loans and savings: We could probably use about 120k(40k a year to be saved during the next three years) of our savings and take out 90k in federal loans(about 60k at 6.8% and 30k at 8.8%). The disadvantage with this option is that if I die without using the degree, my husband would lose 120k in savings(money we plan on saving for a new house after I graduate from school). I was considering this as a cheaper option if we could find some life insurance to cover the used savings in case I die prematurely, but I have very limited knowledge on the reliability of life insurances(the student loans will almost certainly be forgiven if I die; will the life insurance be almost certainly be paid out to my husband if I die?)

-A home equity loan or line of credit: I still have a lot of research to cover on this option, but the interest here should be cheaper than the interest on student loans. We fully own a small house worth about 150k. Again, this option requires life insurance on me.

Other than this 210k, we have no debt, and I plan to work during the summers to either reduce the loan amount or cover babysitting if we have a child in the years while I am at school. With my husband's salary, we plan to save about 10k in his TSP account while I am in school and to save 35k a year towards a new house we plan to get when I finish school. Besides the planned future savings of 35k a year, we have a year's worth of my husband's salary in checking accounts and CDs for emergencies.

Thanks for your help!
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Old 04-24-2011, 12:10 PM   #2
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Have you calculated the projected return on your investment? This had better be a high earning career you're getting edumacated for!
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Old 04-24-2011, 12:21 PM   #3
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I'd suggest one step further:

When do you anticipate being able to fully pay off the majority of the loans? (like 80%)?

Take that time frame and shop around for a term life policy for yourself. Term is pretty cheap for a 10 or 20 year policy - look at the annual cost for that (probably in the neighborhood of $300/year for $250,000, but that's just a wild guess). A $250k policy would just about pay off your student loans and provide some 'replacement' for the money you took out of savings.

Then compare the Federal interest rate to the cost of other financing options (private student loans, HELOC, etc.) adding in the cost of the term life insurance policy. My bet is that loans amounting to $100k+ wouldn't need much of a rate differential to be worth simply buying term life insurance (i.e. just 1% interest rate difference on a $100k loan is $1,000....probably far more than a 10 or 20 year term life policy would cost).

And yes, life insurance policies are guaranteed to pay out - although there are the common few lines of fine print about hiding known health conditions, suicide within the first several years of taking out a policy, etc. that vary by state and would nullify the policy....but they're not a crazy amount of them.
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Old 04-24-2011, 12:31 PM   #4
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Well, I am sure you've read the law school threads, so no need to repeat that. Yes, basically all you can do is take loans, and get as good a job as you can in the summers. The subsidized stafford loans are worth taking, they are 0% while in school, then 6.8% 6-months after that. They could stay at 0% if you had no income. That's only going to be about $40k or so though. A re-finance would have a lower interest rate, though in the unlikely scenario you defaulted, they'd foreclose the house.

Make sure this is worth it as well, we aren't talking about community college here. For me, professional school shaves off 1-5 years from how long I would have to work to reach my goal, so it was probably worth it. It is a gamble though, you invest money in the hopes you get good grades and can find a good job that makes the investment worth it.
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Old 04-24-2011, 01:06 PM   #5
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IMO - I would not go deeply into debt unless there was a pot of gold waiting that would more than make up for the investment!


What is the professional field? Will you be able to quickly land a really high paying job once you graduate?

Consider looking at that cost (and the interest on the debt) as an investment. When will you break even? What will be your return?

Assuming it is not a life calling... what are your other options... How might they stack up?
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Old 04-24-2011, 02:16 PM   #6
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Thanks so much for the replies. I should start shopping for life insurance policies :-)

@chinaco and meadbh: you are right! This is probably a bad financial investment(I have spent several sleepless nights going over the possibilities). I hope to do better than break even, but we have decided that as long as we can maintain our current lifestyle, we will not regret the decision. So I am preparing(should I say hoping?) to at least break even. It's a top 3 law school and at our current lifestyle, I should probably be able to pay off the loans in 3 years and pay for babysitting costs(if we have a kid while I am in school) with summer earnings. During school and during the first few years out, we would be on the same income we should have been on if I was a stay at home mom. I hope to continue working in high paying jobs after paying off the loans so we can see a return on the investment, but we have agreed that it is not necessary. We have discussed our expectations a lot, and my husband is completely on board(I will not go if he is uncomfortable with the decision).

@plex:I don't qualify for subsidized stafford loans because of my husband's income and our savings/house/TSP account. If I work hard and if I am lucky, this should either shave off time we need to retire or provide us with more retirement money.

@MooreBonds: We had decided that I should pay off the loans as soon as I graduate. The original plan was to spend my entire income from the first three years paying off the loans. But lately, I have been considering spreading it out as long as possible and paying off our future house in my first three years since the mortgage will be a liability if I died and the loans will not. But if life insurance payments are guaranteed, then the original idea of paying off the loans in 3 years makes sense. If life insurance on 250k is that cheap, then using our savings to finance school seems like the best way to go. We were planning to keep the savings in CDs for five years. The interest rates of CDs these days are much lower than the fed student loan interest rates of 6.8% and 8.5%.
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Old 04-24-2011, 03:18 PM   #7
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tic tac,
You've mentioned the "if I die" thing a couple of times. You didn't state your age or health condition, but since you mentioned possibly getting pregnant, I assume you're not very old or infirm. The chances of your death in the next 10 years are probably very small, and should only factor into this education financing choice to a tiny degree. In fact, if you do have children and then die, that would be a bigger $$ burden on your DH than your student loans. And, life insurance could be purchased to help cushion that blow.

The likelihood that you'll become disabled and unable to work/repay the loans is a higher risk than dying. There's insurance for it (once you get employed) but it's not cheap (reflecting the higher risk than dying).

And, looking, ahead: If you can save almost all of the income you earn after you get a high paying job and pay off your loans, you'll be way ahead in three ways:
1) You'll (obviously) quickly build up a very nice retirement account together.
2) You'll get used to standard of living that is lower, and more easily supported by a lower withdrawal rate from your savings in retirement.
3) You guys will not be in dire straits if one or the other looses their job temporarily, since you're already living on one income. When a couple needs both incomes to keep paying the basic bills, then the two-income couple is more at risk financially than a couple depending on a single wage earner.
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Old 04-24-2011, 05:21 PM   #8
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tic-tac:

Let me suggest that "seeing a return on our investment" should not be a substantial factor in your decision to go to law school. In the first instance, that return is speculative. Even going to a "top 3 law school" does not guarantee that, upon graduation, you will obtain a job that will generate the earnings necessary to pay back the loans as aggressively as you believe you will. Similarly, the days of huge, high-paying, big firm summer associate programs are in the past; you may not be able to contribute as much as you think to the family coffers while you are in school.

For most people, law school is a stressful and difficult endeavor. You will be competing for class rank with people who have big plans just like yours and who have always been successful (as I'm sure you have been). If you are solely in it for a financial return, are you certain you can stick it out when the going gets tough? If, as you indicate, you think you might have children during law school, it will only be more difficult to manage.

And that is only the beginning of the grind. If I read your post correctly, paying back your loans on the schedule you expect assumes that you will probably be working for a big firm, as those are almost the only jobs that pay well enough to make this possible. Put simply, being a junior associate at a large law firm is brutally difficult for most people. You will be spending unimaginably long hours, under unrelenting stress, working for unreasonable people, on tight deadlines. You will have no personal life. And you will not be able to quit because you'll need to pay back your loans. Some of the most miserable people I have ever met were in precisely that position.

However . . . if you are deeply interested in the study of law as an intellectual endeavor, if you want the mental stimulation that can come from trying to extract meaning from often obscure legal sources, if you value the challenge of competing with some very intelligent and driven people, if you want to work in areas of business, academia or government that require a law degree as a basic qualification, and, most importantly, if you think you would enjoy law school even without the promise of a high paying job at the end of it, then you should consider attending.

Finally, let me suggest that, if you do attend law school, you direct your studies and your job search to something that truly interests you, regardless of how well it may pay. Life is too short to do something you hate just for the money. It is quite possible, of course, you will find that what interests you may only be found in a big law firm, where you will do precisely the sort of work you find both challenging and fascinating, while making a very good living at it. I did.
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Old 04-24-2011, 05:51 PM   #9
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Semclem:

Thanks for the looking ahead points. This is the way I hope things will work out.

I have not even considered disability. Scary! I need to research this as well.

If I left him children, he would at least have something to show for our marriage(kidding :-). My additional concern with the school loans/cost is that, unlike children, additional education is not a necessary part of our lives. We will have children at almost any cost. Hence I will not be peaceful in my grave if he had additional financial burden because of my school expenses. Now, it would be horrible if I left him with both depleted savings and children.

We should take out life insurance beyond just the cost of the used savings and loans. I am 27 and in good health so term life should be cheap.
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Old 04-24-2011, 06:14 PM   #10
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Good luck tic tac. Term life insurance will be fairly inexpensive. I recently picked up a policy for my wife at wholesaleinsurance.net. The process was painless. You can use their online estimator for a policy.

Be sure to research scholarships, grants, etc. Depending on your undergraduate studies, is it worth considering part time law school while working... assuming your employer has some type of tuition reimbursement program.
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Old 04-24-2011, 06:40 PM   #11
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Thanks for the advice Gumby!

We have decided that law school is worth it as long as we do not have to pay off the loans using my husband's income. I added the babysitting costs because I think it is fair that I cover the costs we will not incur if I stay home. So as long as I make about 60k(24k loans a year and 20k babysitting a year), we will consider the investment worth the risk.

If I am fortunate enough to get a job at a law firm, I plan to enjoy a career working there(I know it's possible since you and other people have). However, if I end up working under totally unbearable conditions, or if my interests turn out to be in low paying areas, I am certain I can stick with it long enough to pay off my loans :-)

I know law school and beyond will be tough, but I believe that's part of life(or part of the life I am choosing). I am just scared of my husband paying off a debt not backed by an asset if I am unable to work for any reason.
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Old 04-24-2011, 06:41 PM   #12
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I think that your house would be one of your most inexpensive sources of funds for your studies. If you took out an 80% mortgage that would raise over half of what you need, at low current interest rates. The $120k mortgage on the $150k property and the savings from your husband's work should be sufficient to fund your education without any student loans. Also, the home mortgage interest would be tax deductible (but subject to phaseout if you and your husband have the financial success you seem to be heading towards but phaseout is arguably a nice problem to have :>)

You should also explore 20 year term life insurance for both you and your husband so that your student loans and all debt would be gone if either of you were to die (probably at least 250k on each of you should be affordable given your ages). And disability income insurance for each of you as well so you would be protected in the event either of your were disabled.

Also, as Gumby indicates, don't underestimate the quality of life aspects of being a newly minted 30 year old lawyer - depending on where you end up, the job can be a 24/7 high pressure grind - some people thrive on that, but for many it gets old real quick. It is hard to do that and have children as well without something breaking down. I'm not trying to discourage you, but want to make sure you have your eyes wide open as to the challenges you'll face.

Best of luck.
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Old 04-24-2011, 07:06 PM   #13
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Originally Posted by Aiming_4_55 View Post
Good luck tic tac. Term life insurance will be fairly inexpensive. I recently picked up a policy for my wife at wholesaleinsurance.net. The process was painless. You can use their online estimator for a policy.

Be sure to research scholarships, grants, etc. Depending on your undergraduate studies, is it worth considering part time law school while working... assuming your employer has some type of tuition reimbursement program.
Thanks Aiming!

I will look into the wholesaleinsurance.net

Scholarships are very limited, but I will keep looking. Part time school is not a good option for us. The work load is even greater than full time school(between work and school) while the career options and school choices are limited.
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Old 04-24-2011, 07:39 PM   #14
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Because you brought the subject of children up several times, I'll ask this question. Are you going to be trying to get pregnant while you are in law school? Or are you just planning for things that can possibly happen...like death, something else you brought up?
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Old 04-24-2011, 08:08 PM   #15
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I'm not sure how conducive being a newly minted lawyer working at a top firm would be with having young children.

My understanding of the situation is if you are fortunate enough to get such a position you are going to be flogged to death to get billable hours so how much time would you actually have to spend with any children you may have?

Personally I think you need to consider what type of parent do you want to be? Hands on or leave that up to the nanny? How will you feel missing their first steps, etc.? I have a friend who recently had a baby who is very career minded and has struggled with going back to work because she would prefer to be with her child.

Curious as to why you are so gung-ho on law school? Is it a childhood dream? Is there a particular type of law you are eager to practice?
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Old 04-24-2011, 08:12 PM   #16
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Thanks Aiming!

I will look into the wholesaleinsurance.net
Assuming good health & non-smoking F, 250k policy, 10 year term, I would estimate about $150 a year, but just a guess. They will send someone to your home to take a quick physical and draw blood, 20 minutes.

Compare that to your loan options, perhaps refi your home as interest can be a deductible depending on your tax situation. Investigate your options and cost. 15 yr fixed rates are still very low, I'm looking at a possible refi 15yr note, no closing cost at about 4.25%.
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Old 04-25-2011, 05:48 AM   #17
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Thank you all very much for your help! We'll do some more research into term life insurance and disability insurance. We are leaning towards using those with a combination of savings and loans or with a combination of savings and a mortgage(we will speak to our tax accountant about tax breaks on the mortgage).

Thanks for raising very valid concerns. We think about these daily. Currently, the decision is still for me to go.

Buckeye, I mentioned babysitting costs because we have not yet decided on postponing children until after law school. I have heard that the second and third years can be manageable with discipline, so having children then may be feasible.

Our future children will have a lot of family members in the area(both sets of grandparents, several aunts, all within a 40 minute drive from us). My aunt currently works and attends school full time, and my dad, mom, and
other aunts babysit her kids at least thrice a week. My mom worked full time and attended school when I was a child. Until last year, she has always worked very long hours. We were raised by a lot of people-my mom, my dad, nannies and several family members. I think my siblings and I turned out fine. We love my mom, and we have a very close relationship with her. If I ever decide my career doesn't allow me to spend enough time with them, I'll find a career with fewer hours or stay home after I've covered the cost of law school.

My mom is actually eager(she has no grand kids yet) and offered to move in with us if we have kids while I am in school. While we can't afford her services(she is not asking for anything but she would give up a lot of income if she helped us full time), we know that she and the rest of our family will assist. However, I think my kids should have a full time sitter when my husband and I are unavailable so that family members will not be obligated to help. My husband usually works 8 hour days, so at least one of us will have an ok. schedule.

DangerMouse: Sometimes, the grass is greener on the other side. I have older friends who chose to stay home with their children and deeply regret it. I have also met professional mothers who have high paying 9-5 jobs, choose to take on second jobs and feel very comfortable spending limited time with their children.

I am not sure where I will fall. Only time will tell.

On another note: I read some threads here that mentioned the CFA exams, and I decided to try to take those. I will try to take level 1 in December. I'll register and start preparing now. Hopefully, I can be ready come December.
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Old 04-25-2011, 07:21 AM   #18
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Is it easier to pursue your dream and work on the problems it may cause later?

Or is it better to modify your dream and avoid current “challenges” and possible problems in the future?

Every current decision has a future "price" to be paid.

I'm not going to give you my opinion (based upon my/DW's life); only you (and DH) can answer that question. Just something to think about - from an old phart that has been there ...
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Old 04-25-2011, 08:17 AM   #19
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Reading this thread is making me feel exhausted. I used to have that kind of enthusiasm and stamina, but not any more. My career thrashed that out of me. Now I want to FIRE. I think I will stop following this thread for the sake of my health.

Good luck with your career, tic tac.
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Old 04-25-2011, 08:22 AM   #20
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I did a miniature version of what Tic Tac is proposing in 1988 when I went back to school full time to get an MS degree in engineering. At the time, I managed to get my employer, HP, to pay for 1 quarter of tuition + full salary at Stanford. I had made the decision that if I didn't get some financial help, I wasn't going to go. I finished the MS degree in mechanical engineering with a specialization in Control Systems. In 2005 having this degree was pivotal in my getting a new job in a different company working on unmanned aerial vehicles. I don't believe that I would have got this job without that MS degree. Now, all of a sudden, the value of that degree has become very significant: $100K at least? My hindsight is that if I had to do it over again, even if HP hadn't contributed a penny, I would do it again.
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