| Topic Name: |
Law School Debt |
| Message Name: |
Please!!!Get Real |
| Date Posted: |
04/23/2002 |
| In Reply To: |
ChrisBax, you got a big mouth so let me give you a lesson in the time value of money, a la Wharton style. But allow me to first address your foolish and arrogant post. I'm a finance major from Wharton, I don't know where the heck you learned the time value of money but it was either a bad teacher, or the lesson didn't take. Finally, don't ever be so arrogant, it's kind of like shooting yourself in the foot.
On to the numbers: I never said your monthly payments are incorrect. What I questioned is your $292,000 figure. $1600 a month for 180 months is NOT $292,000. You seem to have missed that your paying a loan back needs to be Present Valued using an annuity factor. What your figure claims is that paying a $1 a year for a million years is equal to $1,000,000. Even your puny math brain can see the absurdity of that statement.
As far as discretionary income goes --that's not exactly an econ term (which I have a Bachelor of Science in.) While you may consider a beer every once in a while with a friend, discretionary, I do NOT. It's a matter of lifestyle and preference, so don't scare the kid.
Finally, what I find most abhorrent about your post is that you took advantage of this poor OP, using your little knowledge of finance to scare the crap out of him with an outlandish and untrue figure like ~$300,000.
I hope you'll learn to watch your mouth on this board. |
| Message: |
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Please post the Time Value formula that you learned at Wharton....Compare it to the one I posted. You'll find mine is correct.
The payment is $1622 per month.
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$1622 per month x 180 months (12 months per year for 15 years) = $291,960. Use a calculator. By the way, you don't need a degree from Wharton to get that math correct. It rates about 4th grade.
When you graduate, you have $160,000 in real debt. Just so you understand...Your first monthly payment will be composed of $1,200.00 in interest and $422.83 in principal. Your monthly payment doesn't change until payment 180. At that point the payment is $1,609.45 to close out the loan. Total interest paid is $132,096.02. Total principal paid $160,000. Total loan paid is equal to $292,096.02.
If you want to get cute and discount the future value back to present dollars using annual inflation of 4% it works out close to $222,000. As a result, the $292,096.02 you pay over the course of the loan will only be $222,000 in today's dollars.
But since you don't have the money now you have to pay the interest. You will pay $132,000 +/- in future interest ($60,000 in today's dollars**) for the privilege of borrowing the $160,000 today.
**Because you are delaying the payment, each year inflation makes the money seem less because it takes more money to get the same value.
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Recheck the post. I said english not econ. Discretionary income is at your discretion. Food, shelter and clothing are necessities. Everything else is discretionary.
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Preference is a choice. The fact that you can make a choice defines it as discretionary moron. Webster says: left to or regulated by one's own discretion or judgement.
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If more people would use their head to make a decision you wouldn't find so many unhappy lawyers. Foolish kids who went to law school because the grew up on LA Law or the Practice.
The cost of a legal education can be expensive or it can be inexpensive. This post asked for advice about the amount of debt one should incur to pursue a goal. Misleading someone by telling them that incurring huge debt is OK is simply irresponsible.
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