| Topic Name: |
Law School Debt |
| Message Name: |
Who's the fool??? |
| Date Posted: |
04/24/2002 |
| In Reply To: |
1622*180=291960
That's not the point you idiot.
Paying 1622 per month is NOT the same as paying 291960. You have to discount the value of the monthly payments since you get the money now and you pay it back over time. AND you have to discount it by more than 4%... inflation is not the only consideration.
In business, the most generous interest rate used to discount money is 7%. The reason is that's about 3-4% for inflation (which you remembered you idiot,) plus another 3-4% which is the riskless interest rate value of money.
Under these assumptions your PV is only $180,457. So you are only paying $20,457 for the right to borrow $160,000 with nothing but your word to back it up. I don't find that at all distressing or unfair. AND it is a far cry from your $222,000 and even farther from $291,960.
Finally my original post just rounded your incorrect figures, that really isn't an issue 'cause your numbers are wrong anyway.
AND... these are conservative assumptions. Most people can get more out of their law degree than the riskless 3% APR. Most people can get more than that out of janitorial work.
Finally, you are an even bigger idiot for restating and defending your WRONG numbers.
And so you see that your 292G figure and your 222G figure are both exagerated and incorrect.
The only thing worse than being wrong, is being arrogant about it. |
| Message: |
1. The original post was asking if $160K in debt is too much risk.
It is.
2. My point about the debt used a simple TVM equation to show the total amount of money paid over the life of the school loan.
Indisputably $292,000.
3. The likelihood that someone who joins a BIGLAW firm will stay and make partner is slim. 3-6 years is the average cycle. After that, it is very likely that this persons wages will go flat or decrease for a period of time.
4. This poster isn't even sure if BIGLAW or corporate law is even interesting to them. Taking on $160K in debt chains them to a career that they aren't even sure about.
5. Investment not debt makes the economy run. Extraordinary debt nearly strangled the country in the late 70s and 80s. Business investment in the 90s drove the greatest ecomomic expansion in recent history.
6. Getting cute with financial calculations doesn't change the end result. Choosing debt of this magnitude doesn't pay. See the next post.
7. The risk-free interest rate of 3-4% is not additive to inflation. They have to be normalized to a "real discount rate" by dividing by inflation 1.04/1.03=0.97
8. Aaronb17 was right to include opportunity costs. This guy was asking if he should incur debt. Its not a forgone conclusion yet.
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