In article <d6gnk7$or9$1[at]gnus01.u.washington.edu> ,
Ram Samudrala <ram[at]sp1.compbio.washington.edu> wrote:

- quote -

I agree that it is nice to get lots of education. People should
expect to be learning their entire life as technology continues
to move forward at breakneck speed.

However, at the current time, the good paying jobs are evaporating
and moving overseas, leaving a huge glut of people that formerly
were at the top end of the job market. At the same time, the
education system is flooding the market with kids who have so
much student loan and credit card debt that they will never, ever
be able to pay it off.

In the case of the original poster, there is a very good chance
that after 3 years of law school, he will never see a job in
the legal industry. Just like the computer industry in the 90's
and the engineering field of the early 2000's, the law industry
is rapidly going off shore and being staffed by JD's and PHD's
in India who earn $9 an hour. At the same time, he is going to
be sufficated by having well over $100K in debt. It is nothing
short of insane to take on that kind of debt without having a
pretty good chance of a positive outcome.

This is not like a corporate money decision where you take a
chance on a new product, and if it fails, you reorganize or
file for bankruptcy. With student loan debt, you wear that
for the rest of your life since bankruptcy doesn't get rid
of it anymore.

People can and do go back to school. It happens all the time.
I am living proof. And I have found that those who go out in
the real world for a few years are far more successful when
they finally do go back to school. Why? They have real world
experience on how to compete and survive that the fresh out of
high school kids do not have.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

The off-shoring of legal work is not a real threat. Certain types, such as
estate planning specialists are in short supply.

The point for the OP to consider is what kind of law he'll practice in. If
tort reform ever happens, many personal injury specialists will be out.

"John A. Weeks III" <john[at]johnweeks.com> wrote in message
news:john-9BFEEE.06441819052005[at]ip-lcc.supernews.net...
- quote -

bc2 wrote:
- quote -

I don't think it makes since to incure any more interest expense than
you absolutely have to.

If your investments were very likely to give you returns substantially
higher than the interest rates on your loans then maybe it would be
worth taking on more debt and leaving all of your savings invested.
However, investments (both stocks and bonds) are not really generating
a very exciting rate of return these days, and the fundamentals of the
US economy are not particularly rosy (in my opinion). So if I was in
your shoes I would keep enough savings to serve as an emergency fund
(maybe just 5K since you have access to relatively low rate loans so
you don't need a big emergency fund) and use the rest to finance as
much of your education as possible.

Actually, if I was really in your shoes I would restructure my expenses
and plans in such a way that I could get through law school with a lot
less debt; maybe go to the state school where you are a resident and
live a very frugal lifestyle. Once you have been practicing 3 or 4
years and have established a track record no one is going to care very
much on where you went to law school. They will just want to know how
many hours you billed last year and whether you are willing to put in
14 hour days 6 days a week for them.

Andy

Historically, as an educator, I've found that only a small percentage
of people who enter the workforce and say they'll go back actually do
go back (which is sometimes depressing to me). I think education is a
huge factor in one's quality of life and overall long term financial
health. So I totally recommend the opposite: get as much formal
education as you can and keep learning the rest of your life.

--Ram

John A. Weeks III <john[at]johnweeks.com> wrote:

- quote -

John A. Weeks III wrote:

- quote -

I think this is bad advice. The average starting salary for a new
business grad this year is $38,254 (source: CollegeAmerica News April
2005). The average starting salary this year for a lawyer in my area is
$83,002 (source: HotJobs.com). Ignoring salary increases in both cases,
it will take less than 3.5 years to make up the lost years of salary,
and a little over 2.5 additional years to make up the 118k in additional
debt. Add a couple of years to make up the interest on his debt and
your looking at well under 10 years to break even. Everything is gravy
after that. Besides which, the OP may actually want to be a lawyer...

-Will

- quote -

You should only hold on to a stock market investment if you still
perceive sufficient upside. Investing is balancing risk and rewards.
Others will tempt you to make a common mistake -- just throw an
investment aside and forget about it. Let's say your future loans cost
you 5% per year. Do you really expect your stock investment to return
better than that? That's the question you should ponder. Because by
leaving your 'savings' (they're not savings really, they are risky
investments) untouched you are saying you expect your investments to
substantially outperform the interest you pay on your loan.

Myself, I would lean towards selling investments that have already
performed well and using that cash to pay down the total debt. I am a
young guy in a professional field myself and am entirely debt free, it
feels great to have income go to my pocket, rather than bank payments.

bc2 wrote:
- quote -

If you could find a summer job that lets you in their retirement plan
from Day One that'd help - that's pretty rare though.

You might find law firms willing to pay you as an independent contractor
for short-term work, some might prefer it. And the placement offices
sometimes post jobs that would fit, they pay a lump sum for doing some
project. You might network around and dig these up yourself. [Hint:
mentioning that you have a (free) Westlaw student account that you might
need some practice with could make you appealing for doing research
projects for a small firm or sole practitioner located close to school,
on a contract basis. The Westlaw access alone could be worth more than
they'd need to pay you. After 1L you'll know enough to do useful work.]

Or heck, mow lawns, or paint houses, or teach swimming classes, or tutor
students, or god knows what. It's not an awful idea to get a couple
semi-fun jobs before facing the gauntlet of partner track...

- quote -

If if if you understand and accept all the risks involved in doing this.
This is focused on long-term tax planning with your investments, and
involves RISKS. Otherwise, yeah: keep your debt to a minimum.

-Tad

In article
<f4e8a07e1a618a595f8f9e1fda330778[at]localhost.talkaboutinvestments.com> ,
"bc2" <hoppytoad11[at]yahoo.com> wrote:

- quote -

Skip law school and go get a job right now. Pay down your debt.
Return to school when you can afford it, and you are debt free.
The way you are set up now, you will never break even going to
law school since your increased income will never make up for
the lost years of work.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

when you are young- take risks. So yes, I advocate keeping money
invested and racking up debt. Student loan debt is "good debt".
Credit card debt is "bad debt". Just don't blow the 30k on a
girlfriend or boyfriend, OK? Tad's idea takes this another level
further and is something I wish I knew 10 years ago.

Thank you for taking my questions so seriously. Your response was very
thorough and well thought out. To answer your question, I do intend to go
the greedy lawyer way and do big firm work if I can get it. And I realize
that my grades are most important. While I entertain no law review
expectations, that certainly is the goal. As such, anything beyond my bit
of weekend work seems out of the question. The 1099 idea is intriguing,
but I have no idea how to set anything like that up. The summer may be a
possibility for work of that kind, though. Do you know of any other ways
to get the rest of my savings into the Roth?

So, your advice also seems to be to not utilize my current savings, but
rather take on more debt. This is interesting because I think I was
expecting the opposite answer.

bc2 wrote:
- quote -


I should make clear: I'm not advocating anything, just throwing out an
idea - it's up to you to decide. You of all people can come back and sue
my ass in three years!

If prime did skyrocket, what would your Roth and salary do? Would
interest rates be coupled with wage inflation, so your earnings
compensate for the higher loan carrying cost? Might not be much of an
issue though wages of course can stagnate while interest rates rise.

But remember you would have the Roth to tap back into in that scenario.
Would you choose investments that do well, or that do poorly, alongside
high interest rates? If the rate is enough of a concern you could
perhaps put the Roth into short-term fixed income investments, somewhat
hedging the risk of your loan. This reduces the advantages temporarily,
but if prime goes up quickly while you're in school, or you have a cash
crunch within the years after graduation, you could take your
contributions back out of the Roth and pay down the debt that amount.
You're probably not all that much worse off at that point, vs. if you
hadn't put the dollars in the Roth.

Essentially, you need to weigh the risks of the debt vs. the advantages
of starting your career with a big Roth. There's no set answer to this
because it's based on unknowable things. Money wise Roth dollars are
hands down the most preferable to have on the personal balance sheet of
a high-income, high-wealth individual. If you take tax in law school
you'll see that there really isn't anything quite like a Roth. Sure
there are other tax-exempt things out there, but none quite so flexible
(and low-cost) as the Roth. Opened through a brokerage firm, it can hold
an incredible variety of investments. Unlike a traditional IRA,
distributions aren't taxable, and you aren't required to take
distributions from the Roth when you retire. Roll $30k forward for 30 or
40 or 50 years and it's likely to become a lot of money, especially at a
tax rate of 0%.

Should your tax bracket rise to the top levels, all of these features
are going to look very attractive. If you play your cards right your
earnings are going to grow much faster than your debt even under some
nasty prime-rate scenarios. And remember, that's one down side of the
Roth currently...a lot of people who would like to use them can't
because of income limits. If you plan to be one of those people in the
future, you might decide to stuff the larder now, while you can.

That is, of course, a big "if"...and the conservative thing to do would
be to leave law school with as little debt as possible. Up to you...

-Tad

- quote -


So, you are advocating maintaining my savings and coming out with around
140k in total student debt?

I guess one of my chief concerns with the variable rate private loans is
that they are tied to Prime, which seems to be tied to the Federal Funds
rate, which looks to be increasing in the short-term. So, that 6% prime
rate could become 8% or 9% relatively quickly. And there is no rate cap.

bc2 wrote:
- quote -

Very direct question: do you plan to make a lot of money after you
graduate, or work, you know, legal aid?

If you plan to make a lot of money you might have a mind-set and
financial plan based on that. It's the riskier way to go and can blow
up, of course, because it presumes future income that might not appear.
If you're comfortable with that there's a tax benefit you should
consider - you already mentioned it above.

For someone who is planning a career that will land them in the top tax
bracket my suggestion is: crank up that Roth. You might quickly be
disqualified from using Roths much after you graduate, and a Roth is one
of the very few ways to create truly tax-exempt investment dollars. Roth
contributions are phased out at higher income levels, as are conversions
of traditional IRAs.

So if you have $30k sitting in taxable accounts, you might think of law
school as a time to strategize how you are going to shift as much of
that money as possible into the tax-exempt Roth. As you wrote,
contributions can accomplish part of this, as long as you have some
earned income each year.

I would consider going one step further...during school, do work where
you get 1099 income (i.e., you work as an independent contractor rather
than an employee, reporting that income on Schedule C of your tax
retrun). Set up a 401k for your business through a cheap provider, and
defer as much of the income as possible into it (hypothetically this
could be over $40k per year, but if you're making money at that rate,
you'll be getting Fs in Torts). You could have this 401k even while
making annual Roth contributions, as long as your earned income is high
enough to allow them.

Then terminate the business before the year in which you plan to
graduate (and score a six figure job with a white shoe law firm). Use
that tax year to roll the 401k into an IRA, then covert that IRA to a
Roth, either in whole or in part.

If the numbers work out it could very well be a tax-free conversion and
look at where you end up. Let's say you're able to defer your other $15k
in savings into the 401k, which is rolled over to an IRA and converted
to a Roth (as I said, hypothetically it could be much larger than that).
A student converting a $15k Rollover IRA to a Roth, with a little
Schedule C income, isn't going to pay much if anything in taxes.

So the end result is: you could end up with say $15k in Roth
contributions and an equal amount in Roth conversion dollars. Factor in
some gains an you might graduate with $35k that can forever be invested
tax-free, next to - you predict - $140k in debt. And you got that $35k
in there without paying any taxes - you shifted savings from a taxable
to a tax-free account.

The numbers could be a lot higher of course, it's not hard to earn more
than $5k a year during law school. If you earn more you can defer more,
or of course use that money to avoid taking on additional debt.

This is a risky plan in that if you don't score a job, you have some
whopping student loans to deal with. And god forbid you have a sickness
or disability, or flunk out, or need to leave school to take care of a
family member, or who knows what. This isn't the conservative route,
it's more like "gaming the tax code while taking on some risks."

If you're comfortable with those risks and the down sides don't
materialize, this kind of thing will probably look good to you 10 or 15
years from now when you're paying someone a lot of money to figure out
how to invest while avoiding taxes.

Final comment: keep in mind that your primary investment at this point
is in your own earning capacity - by far that's going to produce the
biggest return. Don't work some crappy job if it at all compromises your
law school experience. If you go the law firm route, fifteen years from
now they'll still be asking for a copy of your transcript and asking if
you were on law review.

-Tad

think of the loans as an investment in your education. 80k in loans
can be aggressively paid off in around 10 years (I did 80k in 7 years-
and I wasn't making a lawyer's salary).

I'd leave the 30k intact if possible- the earlier you start, the easier
it is to save.

I am 32 years old and nearly debt free. My last student loans will be
paid off before xmas of 2005. My credit card will also be paid off at
that time. I have accumulated a small savings while paying down all my
debt.

I have a rather specific scenario that I would like some advice on...

I am graduating from college this year and entering law school in the
fall. I currently have around 30k in various index funds/etfs. I have
around 22k in debt from undergrad (all was government interest subsidized)
that I will be consolidating at a fixed 3.875% very soon. I couldn't pass
up the low rates and subsidized interest.

The real question is about law school loans. I have determined that, after
all government loans, I will still need around 15k/year (for 3 years).
Government loans are 18.5k/year. Add that to the 22k I already have and I
am looking at over 80k in government loan debt when I graduate. The way I
see it, I have three options:

1 - Maintain my savings and take out private loans that are variable in
interest rate and typically something like prime + .25%. This would leave
me with around 140k in debt at graduation, but with my present savings of
30k intact.

2 - Use my savings to cover the first two years and then take out private
loans for the third year. This would leave me with around 100k in debt at
graduation, and no savings.

3 - Use my savings to cover the first year of private loans while putting
the rest into a Roth IRA over the next three years (yes, I will have just
enough "wage income" every year to accomplish this). This would leave me
with 120k in debt at graduation and 15k put into a Roth IRA, but no other
savings.

Given my situation, what would you do? I have no debt other than education
loans and really nothing else to pay for but school right now. Which of
those three options is best? Or is there an option that I may have missed?
Sorry for being so long-winded...