Let's Talk About Debt

I've been meaning to write a post about this for a while, but thinking about my impending debt gives me a major case of the sads. Like death or what my scrambled eggs actually are, I find life is more enjoyable if I don't think about it too much.

But graduation approaches and the gig is up. And I face an important choice.

As some commenters have noted, my class (the class of 2012) will be the last Boalt class to enjoy a "pure" LRAP program. By pure, I mean not dependent on new federal programs like IBR and PSLF. So on the pure LRAP program, Boalt would help me make my loan payments for my law school debt, up to $100,000, so long as I do approved legal work and am within a certain income level. In ten years, my $100,000 of debt would be paid. If I left the program at any time (for a private sector job, presumably), I would then be on my own to make payments, but my debt would be smaller, because of all those LRAP payments already made.

The problem, of course, is that I won't have $100,000 of debt. I consider myself lucky because I don't have significant undergraduate debt. And I guess I'll be "lucky" to escape Boalt with a bill around $160,000... errrr make that $170,000. But for LRAP, that's not a pretty scenario.

While LRAP would make payments for $100,000 of my debt, I would need to make payments on the remaining $70,000 or so. The nice lady in financial aid handed me kleenex as she explained this to me. It works out to be about $800 a month.

I've done some math, and this is definitely possible. But it would probably only be possible if I left the bay area for a better cost of living, and if I were lucky enough to land a public sector job paying in the $40-$50,000 range.

The alternative option for me (and the only option for the classes of 2013 and beyond) is to use IBR or PSLF in combination with LRAP (if I'm doing approved legal work). This means I enroll in either IBR or PSLF, which both allow you to make very small monthly payments on your loans. If I'm doing public sector legal work, LRAP will make those tiny payments for me. Which means no monthly payments! Woo! But it also means my debt is rapidly getting bigger over time. And if I leave PSLF at any point, I will have to pay off a lot more debt than when I started. No bueno my friends.

I'm pretty committed to a career in the public sector, but no level of commitment can make me feel totally comfortable with eliminating any private sector work as an option for me in the next ten years. Not to mention the concern that IBR and PLSF could be eliminated in this spending-cuts-only political climate. Dean Edley told some concerned students that he thinks the elimination of the programs is unlikely. I'm sure he'll forgive me for being skeptical. Would we be grandfathered in? I have no idea. Do you?

None of this is to whine. I know so many of my classmates who have it worse. And I'm really grateful that there is something in place that makes it possible for me to pursue a public sector career. I chose this path. Financial cushion is something I knew I was giving up in exchange for doing the kind of work I find fulfilling. But the two options certainly don't leave me feeling at ease. In case you're interested, I'm leaning towards traditional LRAP (and if any graduates have wisdom to share, I will gladly take it).

Future Boalt students pursuing public sector work won't even have my daunting choice to make. They have to use the IBR/PLSF + LRAP option. That's something I hope incoming public sector students are aware of.

Live Blogging the 3L "How do I be a grown-up?" Meeting

5:38. Decided to liveblog the private sector meeting
5.39: Jason De Lo*enzo, who is apparently the "3L Adviser" Nix that, GL Adviser is talking
5:39. JDL, the GL adviser, is kinda hot, right?
5:40: We're talking about Law Career Economics, IBR, Targeted Repayment, and Strategic debt reduction and other goals -- I assume by this he means not being miserable
5:41. Did you know, in 1992 average debt was 37K, now 109K -- yeah, that's my debt ...
5:42. People seem to have had a lot of hot dogs at the event before this
5:43. I'd say there's like 40 or so people here, pretty good showing. glad to have Johnica back from YouSeeDeeCee
5:44. We are now talking about IBR -- his slides are going to be available to us and I'll send them out to the 2011 list-serve.
5:46. Joe Ro*e is kind of ridiculously smart
5:47. None of this makes any sense to me -- Oh, Tall*y is talking! He asked if there were tax implications of taking an IBR subsidy. No one knows. WHERE IS GERG*N?!
5:49. Note that IBR applies to subsidized, unsubsidized, and grad plus loans
5:50. This is way above my head right now
5:55. Sorry, spent the last 5 minutes trying to find pictures of this guy on facebook -- successfully I may add
5:56. The most important thing to to w/ IBR is in your first year making sure that your adjustments are based on your actual returns b/c your pay stub is an inaccurate measure of your first year ability to pay. Really, this thing that he's talking about is really great.
5:57. Also, don't get married. What's that? You're gay? You win this round!
5:58. Everyone is laughing now b/c on his most recent slide the max debt they are even considering is 150K
5:58. Sara G* ftw: "I feel like I missed the pre-req for this."
5:59. Oh, note that the little trick at 5:56 only really helpf you for the first two years.
6:01. Oh, sweet, his thing now is talking about how to get rid of our expensive loans first. You're lender will generally put ALL of your loans onto the same cycle -- be SURE to put your high interest ones first.
6:03. Should we invest in stocks? Statistically, the stock market (S&P) has yielded 7.4% since 1940 whereas you get an 8.1% benefit by paying off your loans -- risk averse? Don't invest.
6:05. Should I buy a home? And if I do, what's the difference b/t putting 10% down and 0% down. The premium for putting 0 down used to be TINY, now, it's much higher (stupid financial crisis). It's a difference between $800 a year vs $9K/year now
6:07. Oh heeeey Prof. Bart*ett
6:07. Note that you can get out of IBR payment whenever you want, and you can also go back int it whenever you want.
6:08. So, this dude works for this: http://www.gladvisor.com/ (based on his facebook profile which I totally didn't stalk ...)
6:09: TALL*Y: you are deferring interest in using IBR, but by so doing it is simple interest accrual NOT compound. WOW!
6:15. What about consolidation? If you consolidate, you lose the targeted reductions benefit.
6:15. TALL*Y: how many people in here would want to consolidate? Answer from everyone: ZERO
6:16. And, now the profs: (also, this guy is coming back in April) Now Tall*y: both him and Bobby (heart) had a much lower "real debt burden" (oh, Ta*lor with the party foul)
6:21. Tall*y: at what point do you take a slow route to repay in order to invest? You want the spread to be pretty decent, and that you REALLY want to diversity over time . Variable rates over time even out for those of us who are young (oh great, so all those straight through gunners get to benefit from this ... but then again, they never had a life and never will, so, you win some you lose some)
6:25. Consume things with durable appreciation value -- although if you understand what that means, you're probably fine
6:28. Check our firms 401K program and see if they have matching -- to the extent they have it, use it to the full! And to the max! Note that those contributions also reduce adjusted gross income. Once you don't get matching, it's not necessarily worth doing it in the first few years b/c our taxes are lower now than they may be when we are thinking of taking it out
6:30. Tall*y out, Bobby in: his experiences paying off his loans at Gunders*n. The secret to his success was that he drove a "68 Bel Air. He's also wearing jeans, I think? WORRY ABOUT THE GOLDEN HANDCUFFS! Firms want to make love to you, in that not lovey way. Speaking of lovey, hellllo professor.
6:34. Bobby: house as piggy bank. It's work, but it's worth it. Also, it's WAY easier to get used to new income than to downgrade, so don't upgrade until you actually have the money.
6:36. His first mistake, taxes his first year (he payed a "shit ton"): if you don't own a house you have very little to shelter your income. USE THE MED FLEX PLAN. HAVE BABIES! oh wait, DON'T have babies. Babies ≠ net gain.
6:37. Oh, also, you something about withholdings -- that I really don't understand.
6:38. W4 is your friend -- he changes each month (that's more often than I change my toothbrush, or sheets . . . err).
6:40. But watch out, your tax bill is going to give it to you really hard if you don't stay on top of this game -- a la Tall*y who got stiffed with a 15K tax bill
6:43. Get used to having a real budget ... boring ...

Oh, that's all folks. Hopefully this was helpful. We'll get you the slides and notes from this and from the public sector one. The videos will go up somewhere.