10 Things I did well in Planning for, Applying to, and Financing Law School

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In my last post, we explored all of the ways I messed up in planning for, applying to, and financing law school. Ouch! I’ve made a lot of mistakes. Today I want to talk about some of things I did well before law school that have helped to set me up for financial success during and after law school.

 

Most of what I did well involves saving money early and often. I have always been a saver. I remember my parents walking my sister and me across the street from the store they owned to the local bank to have us set up our first savings accounts. I was probably 4 years old and I was extremely excited. There was a multi-colored stair stepper that they pulled up to the counter to let my sister and me feel like real customers. I got to climb up the stairs, put my money down on the counter, watch the bank teller take the money and open a bank account for me, and was handed my very first bank statement. I recently asked my father about this and he also remembered the multi-colored stairs – it left an impression on all of us!

 

I also remember transferring money to the local bank when we moved. For opening a new savings account with them, my sister and I each got to pick a rubber ducky off of a display to get a bonus amount added to our accounts. I believe I won $20. At the time I was disappointed that I didn’t pick the $100 jackpot ducky, but now I’d love to have someone gift me $20 in the form of a rubber ducky!

 

Maybe they should change the song to:

 

Rubber ducky, you’re the one!

You make saving so much fun!

No? Just me? Okay okay, fine.

 

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Photo by Andrew Wulf on Unsplash

 

A lot of my savings habits are most likely inherited from my parents, both of whom were accountants and still work in finance-heavy roles. My parents started us out with a $1.00 allowance per week around the same time we opened our first bank accounts, but we only got 50% of it to spend. The other 50% went straight into the bank. My sister often spent her other half (called out!), but I almost never spent my own money – a fact my father still teases me about often. We would occasionally venture over to the bank together and I would plop down the second 50% of my $1.00 allowance to grow my bank account even faster.

 

As we got older, our allowances increased incrementally along with our bank accounts. When I was in college, I wanted to study abroad, but I also played a varsity sport. Since our season spanned both semesters, my only study abroad option was during the summer. I talked to my parents, who were graciously paying basically all of my expenses in college (thanks again, Mom and Dad!). Since the trip wasn’t going to help me graduate any earlier and it was fairly expensive (you had to pay tuition even though we were actually working rather than traditional international studying in a classroom), my parents weren’t willing to foot the $10,000 tuition bill.

 

All of those $1 bank deposits paid off though (not to mention odd jobs and a waitressing gig in high school), and I was able to comfortably fund my study abroad trip myself. The summer I spent in South Africa was worth so much more than the $10,000 (even if I’m still a little bitter about having to pay tuition to work). I learned so much about the country and culture, gained a huge appreciation for wine (a bottle of delicious, local Pinotage was cheaper than a bottle of water over dinner!), met lifelong friends, and did some meaningful work at a non-profit in which I still very much believe. After law school, my investment in my study abroad program is probably the best (and biggest) investment I’ve ever made, and I wouldn’t have been able to afford it without careful saving and those countless 50 cents deposits.

 

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A very playful elephant I never could have met without many 50 cent deposits

 

1. Saving Enough to Pay for Half of Law School Out of Pocket (Saving Way More than Anyone Tells You)

 

Pretty much every law school graduate’s financial goal is to pay off his or her usually extraordinary debt. Law school tuition costs, much like other higher education, have increased 516% since 1985 for private schools, beating inflation over the same time period of only 127%. Public law schools fared even worse in the same time period, increasing tuition by 740% for non-residents. Columbia Law School, the most expensive law school in the country and my law school, currently costs $67,564 just for tuition (excluding the not insubstantial cost of living in New York City) and someone who expects to pay full tuition and cost of living (like me) can expect to accumulate over $343,000 in student loan debt. For comparison, the average private law school costs $46,329.

 

Some will look at these numbers and decide that a school like Columbia just isn’t worth it. Others will think it’s a no-brainer to go to an in-state public school and take on significantly less debt. In most cases, those people are wrong because of the quirk in the legal profession known as the bimodal salary curve – but that’s a post for another day.

 

Even with the recent raises in big law associate salaries, law school debt is extremely daunting. For instance, if someone received no financial aid or scholarship to Columbia and used loans for the entire experience, they would owe roughly $3,950 per month upon graduation. This doesn’t include any debt from undergrad. This debt obligation is more than most Americans can expect to earn each month until they are at least 35.

 

I mentioned in an earlier post that before attending law school, I saved much of my income – often more than 50%. In the four years that I worked between undergrad and law school, I was able to put away enough money that I could cover the cost of about half of law school out of pocket. This will significantly reduce my law school debt load and will help me pay off my loans that much faster once I start working again. This is probably the single more important thing that I did to prepare myself for financial success during and after law school.

 

Although I consider this a huge win, one question has always plagued me: would it have made more sense to take out loan for my first year and keep that money invested? We’ll have to consider that in a future post.

 

2. Starting to Save Right After College Graduation, and Taking Advantage of Tax-Advantaged Accounts

 

Part of the reason I was able to save enough for half of law school is because I started saving as soon as I started working after college. Even though my company did not offer a 401k plan (but did offer alternative retirement financing vehicles), I still saved as though I had one. I set up direct deposit into my bank and automatically transferred a set amount of money into my brokerage account each pay period.

 

I then created a budget through mint.com with the leftover funds and lived on that budget each month. I simply pretended that the money flowing into my brokerage account each month didn’t exist. I was typically under my budget each month, so the leftover funds would serve as a buffer for the next month. Once that buffer reached a certain level (say $5k or $10k), I would transfer much of it into my brokerage account as well.

 

Most of my bonuses and other windfalls also went directly into my brokerage account as savings. I would typically reserve some amount of each bonus for a nice thing or experience I’d been wanting (a handbag or a great dinner at Bacchanalia when I lived in Atlanta), and the rest I would simply pretend did not exist, similar to what I skimmed off the top of my checks each pay period.

 

Finally, each year I would take advantage of my Roth IRA by maxing it out. I would typically do this in one fell swoop since it was limited to a relatively little amount of money ($5,500 this year). I would often save up my “buffer” funds at the end of the year, or part of my end of year bonus from the year before to take full advantage of my Roth IRA as soon as I could in January.

 

For those of you who aren’t familiar with the difference between a Roth IRA and a Traditional IRA, here’s a quick refresher. For a Traditional IRA, you put money into an account income tax-free. That means your Adjusted Gross Income (AGI) on your tax return for the year will be lowered by the amount you put into your Traditional IRA. This could keep you from bumping up into the next tax bracket or simply lower the overall amount of tax you owe. However, when you go to withdrawal the money in your retirement, you must pay income tax as you withdrawal money. This includes paying taxes on the interest accrued and compounded since you made the initial investment.

 

A Roth IRA, on the other hand, is taxed as normal income on the year in which you place the money into the account. However, the money then grows tax-free in your Roth IRA and you never pay income taxes on it again (but you will likely have to pay capital gains taxes). When you go to retire, you will not be responsible for income taxes because you’ve already paid income tax on the money when you placed it in the account years ago. The best part is that you also don’t have to pay income tax on the interest that grew in your account!

 

I chose a Roth IRA over a Traditional IRA for several reasons. The most important reason is that all of that juicy compounded interest is going to be mine tax-free when I need it in retirement! Since I don’t plan to draw down on the account for several decades, the interest will likely be the vast majority of what’s in my account when I need it. The Roth allows me let it grow without fear of an impending tax bill once I’m on a fixed income in retirement.

 

Secondly, I was lucky enough to be relatively comfortable with my salary and didn’t have an issue paying the taxes on this $5k or so each year. I’m relatively conservative financially, so I didn’t want to risk not having that same comfort level later in life and being stuck with a huge tax bill.

 

Finally, personal taxes in the United States are relatively low (I know, I know…they don’t feel very low, do they?). For the most part, effective tax rates mostly only go up (this past year being somewhat of an anomaly . . . depending on who you are). If I had to bet, I think it’s likely that the tax rate will be higher in 30 years than it is today. By paying my taxes now, I won’t have to worry about increasing tax rates in the future. Along similar lines, I hope that my income will be higher after law school than it was before (it will probably increase if I marry as well), so I was able to pay income tax in a lower bracket when I was early in my career rather than chancing being in a much higher tax bracket when I need to draw down on those accounts.

 

When I moved to the Bay Area, my new employer did offer a 401k plan, of which I immediately partook. There are Roth and Traditional 401k’s, which mimic the Roth and Traditional IRA’s explained above, but my employer offered only a Traditional 401k. Nevertheless, I plowed as much money into as possible, maxing it out each year I worked there – even if I didn’t work there a full year – because of the massive tax benefits of having that money in those accounts. Now that I’ve left, I’ll probably roll over bits and pieces of it into my Roth IRA (which means I’ll have to pay taxes as though that money is my income this year) since my taxable income is virtually non-existent these days and the tax bill will be relatively small.

 

As I mentioned in my last post, I wish I had taken more advantage of tax-advantaged accounts, such as the 529 account before deciding to attend law school. However, I think my savings rate and the tax-advantaged accounts that I did utilize were excellent tools to take advantage of at the time.

 

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Photo by Fabian Blank on Unsplash

 

3. Increasing Savings Incrementally and as my Income Increased

 

Lifestyle inflation is real, y’all. The biggest cost-driver in your budget is likely your housing, especially if you live in an area where real estate is in high demand. I graduated from college in Atlanta and lived there for several years on a very modest housing budget (I shared a house with three other girls for $650 / month (the most expensive room in the house!) – and it was one of the best living situations I’ve ever had). When I moved into a one-bedroom apartment in Atlanta, my rent doubled. When I moved to Palo Alto a few years later, my rent doubled again even though I took on a roommate.

 

My move to the Bay Area definitely shook up my budget. I took a pay cut to work for a company that I thought had a cool idea and an amazing culture – and I loved every minute of it and have never regretted my choice. But, my budget definitely took a hit with a slightly reduced salary and a wayyyyy higher cost of living (not to mention taxes). However, no matter where my budget started in each of my jobs, I increased my savings rate incrementally over time and as my salary increased from promotions and raises.

 

I typically did allow myself some extra buffer in my budget as I received raises (usually to satisfy my extreme appetite for eating out), but the vast majority of each raise got skimmed off the top along with the rest of my savings. I always set this up through automatic bank transfers so that I never even had the opportunity to spend the extra money. This ensured my lifestyle inflation stayed low and I socked away enough money for my more important financial goals, like the most expensive law school in the country.

 

4. Keeping Track of My Credit Score

 

It’s important to keep track of your credit score for a couple of reasons. Most importantly, the government uses it to decide if you’re eligible for Direct PLUS loans. If you’re not, you may need to take out private loans, which are considerably more expensive and will depend heavily on your credit score.

 

Secondly, you should monitor your credit score and report because there are sometimes errors on it. I’ve found an error every few years that have included listing accounts that don’t belong to me, not listing credit card accounts that do belong to me, and various other small errors. You want to catch these errors before it becomes harder to remove them and because they could potentially damage your credit score unfairly (harming you in all kinds of financing transactions).

 

Keeping track of your credit score sounds pretty lame, and admittedly, it’s probably not the most fun activity on the planet. However, it’s painless as long as you follow some simple rules.

 

Never pay to check your credit. By law, you can get a free credit report from each of the three credit bureaus each year. This means you should really never need to pay for those services that constantly monitor your credit score. I remember when I first started monitoring my credit, I signed up for one of those check-your-credit-for-free-for-three-months services. I set an alert on my calendar to cancel after three months, which I did. They still charged me the next month. When I called and told them that I had already canceled, they actually tried to tell me that they were unable to refund me for what I’d already paid. You’d better believe I sat on that phone demanding to speak to every person in the call center until they finally relented, refunded my money, and canceled the service for good. Lesson learned: don’t take no for an answer when you know you’re entitled to something! Especially from what’s clearly devolved into a sleazy scam.

 

Check your credit score regularly. Since you can get a report from each of the three major bureaus each year, you can keep a pretty good eye on your credit score by checking one of the three every four months. I set a recurring calendar reminder for myself, review the report for errors or changes, and print off a copy for my records. For the average person, this should be sufficient.

 

5. Applying for Financial Aid

 

This is probably a given, but when you’re applying for a very expensive law degree, one of the easiest ways to offset the cost is through institutional funding of scholarships, grants, and financial aid. As I’ve mentioned before, I got a big fat $0 check from my law school, but I’m still glad that I applied and appealed the decision. I can now rest easy that I did what I could to reduce my debt load going into school. Of course, I should have started earlier and worked harder to get those scholarships.

 

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Photo by Ehud Neuhaus on Unsplash

 

6. Matriculating into the Right School….for Me

 

I’ve also mentioned before that NYU (an already cheaper law school than Columbia) offered me $10k off of tuition to attend law school there. Even though Columbia refused to match that offer, I’m still glad that I chose Columbia. There are probably the same number of opportunities at NYU and Columbia and the schools are virtually identical in so many ways (basically the same ranking, similar cost, same city, similar quality professors, and you can even cross-list in the others’ classes). Would I really have had such a different experience at NYU that it justified more than $10,000 more? Maybe, maybe not.

 

However, it was important to me that I was comfortable at the school I chose. I personally chose Columbia because it had slightly better facilities, it was in a quieter neighborhood, and had a real campus. I have several friends at NYU who chose it for the exact opposite reasons, not to mention their lower tuition bill.

 

All of this to say, cost of attendance is only one factor in deciding which law school to attend. If you get into only one top tier school, you should definitely pick that one, but if they’re similarly ranked, a lot of times it comes down to feel and culture fit. Don’t let $10k (which isn’t even guaranteed each year) be the deciding factor in your choice. It’s a lot of money, but in comparison to the full cost, it’s but a drop in the bucket.

 

7. Taking Advantage of Subsidized Law School Housing

 

Once you’re in law school, many schools offer subsidized on-campus housing. This is particularly relevant for people living in cities like New York or San Francisco where the cost of living is astronomical and the subsidy can make a big difference. Before I came to law school, I read the book “1L of a Ride” by Andrew McClurg. His top financial recommendation was to take on a roommate, which can significantly reduce your debt load. I completely agree – not only do you reduce your overall debt, but you also meet people from different sections, class years, or even programs.

 

Housing will likely be your biggest living expense in law school. Do what you can to reduce it by taking advantage of subsidized housing through the school (or their recommendation on location if they don’t subsidize or offer housing) and taking on a roommate or two.

 

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Photo by Timothy Buck on Unsplash

 

8. Sticking (Basically) Within the Allocated “Cost of Living” Budget Given by the Law School

 

Each school publishes a cost of living amount for their school each year. This is usually the maximum amount of federal-sponsored loans that you can take out, which I mentioned in a previous post. Personally, I found Columbia’s cost of living budget to be fairly accurate. While I spent just slightly less than their budgeting housing cost, I spent more on food than they expected, which I knew would be a problem going in (it’s New York, people!). As I mentioned previously, I went a few hundred dollars over the yearly budgeted amount and need to reduce my monthly spending by about $50 during the upcoming academic year to stay within the allocated Columbia budget (not to mention my rent increased 3% – and 3% of a lot is a lot!).

 

1L year can be really stressful, especially if you’ve been out of college for a few years like I was. It takes a little while to get back in the habit of living with a budget but no income, studying until all hours of the night, and figuring out what to do with this new “law” stuff. Plus, you’re meeting a ton of new people and developing new friendships while also looking for a summer internship, learning how to network with law firms, and a myriad of other things. My first year, I didn’t pay super close attention to my monthly spending, but spent what felt reasonable and then saw how I did at the end of the year.

 

I probably could have checked on my progress during the winter break, but I still didn’t do so badly. I mostly stayed within the budget and can probably reduce my weekly Chinese take out orders to accommodate a stricter budget in the coming year.

 

9. Take Advantage of “Freebies” at the Law School

 

At Columbia, no one has class between 12:10 and 1:10, and everyday multiple student organizations sponsor lunch time talks about a myriad of topics – sometimes they’re relevant to the type of law I want to practice, but often it’s fun to attend talks about subjects I’ll likely never take classes on or practice just to see what’s out there. No matter who’s talking, there’s always one thing – free lunch.

 

I went to a lunch talk almost everyday of 1L and took advantage of the free food and usually interesting conversation. This definitely reduced my budget. While I often skipped these talks to study as finals drew near, they were often a great break from class or studying and usually decent food.

 

In addition to lunches, firms and other potential employers came to campus often and always sponsored a mixer with heavy hors d’oeuvres and drinks. These mixers can almost always serve as dinner, another huge win, especially for someone who spends a significant chunk of her budget on food (this girl!).

 

Take advantage of all of the freebies both to learn something or meet someone new, but also to help you stay within that allocated budget each month!

 

10. Having a Buffer

 

I was lucky in my first year of law school to not have to worry a ton about finances. Since I had saved zealously when I had an income and live in a place that offers $1 pizza on basically every corner, I was able to focus more on my studies and new life at law school and a little less on finances. Having a buffer of a little bit of money beyond the allocated cost of living dictated by the school helped reduce my stress and let me take advantage of opportunities like the US Open (nosebleed seats) and the occasional splurge dinner.

7 Mistakes I’ve Made in my Law School Finances (So Far)

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Photo by Estée Janssens on Unsplash

In my first blog post, I mentioned that I have already made multiple mistakes in financing law school. I mentioned that I applied for law school and financial aid late in the process, I forgot to consider the capital gains taxes that I would need to pay on the money I removed from the stock market in order to pay tuition, I probably didn’t save as much as I could have before coming to law school, and I didn’t open a 529 College Savings Plan even though I knew I would probably be going back to school at some point.

 

Given that the point of this blog is for us to learn together about financing higher education and personal finance, it seems appropriate to begin with some of the mistakes (and lessons) I’ve learned along the way thus far. Hopefully this information will help some of you avoid the same mistakes that I made in paying for law school.

 

This is by no means an exhaustive list of all of the many financial mistakes I made this past academic year (and before) in paying for law school and everything that goes along with that. I’d love to hear your thoughts about the mistakes you’ve made in paying for higher education and the lessons you’ve learned from those mistakes!

 

1. Applying late in the process.

 

I’m still kicking myself for this one. I applied to law school at pretty much the last possible moment. My top choice school was in California, where I could stay close to my friends and my pre-law school life, but I was only accepted to the New York City schools to which I applied.

 

Applying to law school (or any higher education) late in the process is not only bad for your chances of acceptance, but also for your chances at financial aid from the university itself – your best bet for help in paying for higher education expenses. The reasons for each are similar – first, when admissions and financial aid are first going through applications, the entire class needs to be filled. The further along within the process you enter, the fewer spots within the class need to be filled and the less financial aid money is available to be given out as scholarships and incentives to enroll in that particular school. This is especially true for schools that use rolling admissions processes.

 

If you’re like me, you might need a deadline in order to motivate yourself to accomplish something as big as applying to law school (or, you know, to make lunch), so set a deadline for yourself, find an accountability partner, or push out applying to law school for an extra year in order to be first in the door with your application – the bottom line is do whatever you need to do in order to get that application in as early as possible to give yourself the best chance of admission and a great financial aid package that goes along with it.

 

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Photo by Mpho Mojapelo on Unsplash

 

2. Not appealing my financial aid package.

 

Okay, so I actually tried to do this one. I was just unsuccessful at it. Probably because of how late I applied. Once I was accepted to Columbia (extremely late in the game – as in, too late to go to the formal, full-process admitted students weekends for absolutely no valid reason), I quickly applied for financial aid. I thought I had an advantage in being an “older” student because FAFSA considers those older than 25 entirely independent from their parents and, therefore, does not require financial information from a student’s parent. WRONG! I quickly discovered that most schools, including Columbia, ignore such a distinction, and still require parental financial information when applying for financial aid – even if your parents have no intention to help defray the costs of school.

 

After applying for financial aid, Columbia responded by graciously offering me a whopping $0 in aid. I was shocked given how expensive Columbia is and, though I had saved a decent amount of money for law school, I was nowhere close to being able to pay for the entire endeavor out-of-pocket. Additionally, my parents (fairly) made it very clear that I was on my own for graduate school after they generously paid for my undergraduate education (thank you, Mom and Dad!!).

 

I was lucky in that the other school to which I was accepted had offered me a $10,000 scholarship, so I thought I could use the offer as leverage to convince Columbia to offer me more (i.e. some) money. I immediately called the Financial Aid Office and explained that I desperately wanted to attend Columbia, cost was a consideration for me, their neighbor to the south had offered me $10k, and asked if there was anything that she could do to help me choose Columbia. She responded that I must want to appeal my financial aid decision and explained the process to do so, which basically involved writing an e-mail begging for reconsideration.

 

After appealing the financial aid decision, Columbia again came back with the frustrating amount of $0. I probably could have written a more compelling letter about why I deserved a match of NYU’s offer, but my best guess is that it was so late in the admissions process that they had already met their goals for matriculation and weren’t particularly concerned about ensuring I attended. Oh well.

 

I’m still glad that I appealed the decision, as now I know that I exhausted the formal avenues to gain financial aid through the university and won’t spend the 10 years (20 years? 30 years?) after graduation wondering if my monthly student loan bill could have been a little bit lower.

 

Even if you are awarded money, it’s worth it to talk to the Financial Aid Office (if you can get in the door; see my first post) about whether there are any additional grants or aid for which you’re eligible. It never hurts to ask, and this is the easiest way to reduce the overall ticket price of higher education. It also highlights just how important it is to apply early both for admission and financial aid.

 

3. Not budgeting my expenses carefully.

 

You can find the listed cost of attendance for each school on their website. This is typically the maximum amount of federal loans for which you’re eligible as a student at that school. In my first year, I found Columbia’s listed cost fairly spot on. While I didn’t spend a ton of time over the academic year pouring over my budget, I checked at the end of the year and found that I spent about $500 over their listed cost of attendance. This is a bit disappointing as my housing costs are slightly below their budget (but not much), and I spent most of that additional money on Amazon purchases (a shoe rack and jewelry holder were both definitely necessary for my awful dorm-like room) and food (let’s be real, it was all on food).

 

This coming year, I think I can safely stay under the budget, partly because I won’t need to buy many of the aforementioned Amazon purchases that made our apartment a tiny bit more like a home and because I’ve lived in the neighborhood long enough to know where to buy groceries and food on a regular basis. I’ll need to reduce my average monthly spending by about $50 in order to hit the goal of coming in at or under the cost of living this upcoming year. I’ll post here perhaps after the first semester to check in on how I’m doing with this budget goal.

 

4. Failing to consider capital gains tax for removing brokerage funds

 

I have invested in the stock market since I started working after college graduation. I was fortunate to have taken a senior seminar in my undergraduate business school that was dedicated to personal finance and taught by a wealth manager at one of the top consumer banks in the country. He gave us a basic investment strategy that he uses for most of his clients that I’ve followed ever since. I’ll write more about this investment strategy in a future blog post.

 

For our purposes today, the important thing to keep in mind is that I saved a decent chunk of my income each month and the vast majority was put into a brokerage account with low fees (I use Vanguard – not an affiliate link). My first company provided a trust that served as retirement funds and, therefore, did not offer a 401k. I maxed out my Roth IRA (we’ll discuss the difference between Roth and Traditional 401k’s and IRA’s in a later post) each year, but the limit is so low that I merely put that money in a target date retirement fund and left it alone (i.e. it wasn’t included in my retirement investment strategy calculations).

 

Since a good chunk of my savings was tied up in the stock market when I decided to go to law school, I had to take out that money to pay my first year’s tuition. The problem was that I stopped working in June and needed to start paying tuition in August, meaning I had to take money out in the same year that I still earned a significant amount of money (January – June). If I could have stockpiled enough cash to get me through December tuition and other education costs without drawing down my brokerage accounts until January, I could have avoided a significant capital gains tax bill (but would have also avoided the crazy bull market in 2015). I still received a small refund from my taxes (I was taxed at a much higher tax bracket since I stopped working halfway through the year, had a few donations, and was able to deduct my expenses for moving across the country for law school, which all helped), but I had planned for a much larger refund because I forgot to consider capital gains tax on the money I pulled out of my brokerage account.

 

There were several ways I could have avoided such a large capital gains tax bill. The easiest solution would have been to stockpile about $60,000 in cash rather than stuffing it away in my brokerage accounts. There are a couple of downsides to this solution, however. The first such problem is that it would have required a decent amount of foresight to start saving $60,000 in cash, which I very much lacked prior to law school (see also, my lack of foresight in applying to school early). Secondly, I would have missed out on a decent chunk of dividends, compounding interest, and organic investment growth by leaving $60,000 out of my brokerage account and letting it sit in cash or a near-cash-equivalent starting a bit more than a year (roughly the time it would take me to save that much money at my former job) before I actually started law school. I haven’t calculated out the difference between those gains and the taxes, but I think I probably still came out on top. However, there was a pretty significant market correction just before I had to take out some money to cover my tuition bill, which definitely hurt me as well.

 

That market correction brings me to another point. It was probably a mistake to have almost all of my money in the stock market just before I needed to use it. Since I lacked significant foresight about when exactly I would be attending law school, I didn’t think much about plowing all of my money into the market, but when you’re going to take out a significant chunk (I took out about $25,000 a few times over the academic year for tuition bills), market corrections can really hurt you. Just imagine if I’d needed to make a withdrawal on September 30, 2008 – yikes! Of course, I could have always left the money in the brokerage account and taken out federal loans instead.

 

Another option that I should have considered before removing my money from the market was to borrow enough money from my parents or friends at a low (possibly non-existent?) interest rate until I could remove the money in January (and in a year where I will have virtually no income) to reduce the capital gains tax. Perhaps some of my tax law friends can chime in on whether this would be kosher, as I am not familiar with these particular nuances of our tax law yet.

 

Ultimately, I probably could have benefited from the $150 or so that it would have taken to talk to a tax attorney or financial planner before taking out so much money from the market and triggering such a large tax bill. I would suggest anyone in a similar situation spend a little bit of money upfront getting professional advice about such a decision.

 

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Photo by Lou Levit on Unsplash

 

5. Not saving more than I did while I was working

 

I thought that I was doing fairly well with my savings rate before law school. At my first job out of college I was saving roughly 50% of my income on top of what my employer was putting away for my retirement (another 20%, but I didn’t spend the 7 full years there that it took to vest, so I walked away with only about 40% of what I ultimately could have vested). When I moved to the West Coast and my rent doubled for the second time in about a year, I wasn’t able to save quite as much, but it was still a healthy rate. One of these days I’ll sit down and calculate exactly what my savings rate was to share with you.

 

However, I’ve since come across blogs like Retire By 40 and Afford Anything that regularly profile people who save more than 70% of their income. I certainly could have hustled more outside of my job or increased my savings rate through some pretty minor adjustments. I guess no one ever thinks they save too much.

 

6. Failing to open a 529 “College Savings Account”

 

I thought about opening a 529 account a year or so after I started working. This is essentially a tax-advantaged account that can be used for educational expenses. The typical recipient is your child. However, a lesser known advantage is that the designated beneficiary can be anyone – yourself, your spouse, your niece or nephew, your grandchildren, your best friend’s mom, anyone!

 

Since I knew I would probably pursue higher education at some point, it would have made sense for me to open a 529 with myself as the recipient (you can always change the recipient later if plans change) to shield some of that money from the tax repercussions. If by some chance I ended up never attending school, I could have named my children or someone else as the recipient of that money.

 

7. Failing to open an HSA

 

I’m not actually positive if I was eligible for this option at either of the places I worked before law school because I’m not sure if our health insurance plan’s deductible was high enough to qualify. If it was, I missed out on some stealth super-savings because the HSA is triple tax-advantaged. Not only do you contribute to the HSA with pre-tax money, but the growth is not taxed (similar to a Roth IRA), and withdrawals aren’t subject to federal income tax if used for certain qualified medical expenses.

 

Given the limitations on the usage of this money, I wouldn’t really have been able to better pay for law school by opening an HSA. However, I still might have missed out on a really great savings opportunity, so it’s definitely still a mistake! And, since I ended up having very significant expenses last year when I had surgery, I could have used probably as much money as I could’ve put in an HSA to pay those medical bills.

 

Wow. So I made a lot of mistakes when planning, applying, and financing law school. That’s life. I also did a lot of things well, which I can cover in another post. The point is that we’re sitting down to think about the things that we didn’t do so well in the past and trying to learn from our mistakes. Hopefully this has saved you from at least one of my mistakes and saved you a decent amount of money. Share in the comments your biggest mistake in financing your education and let’s keep the learning coming!

Hello, World!

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Photo by rawpixel on Unsplash

The last time I cried in law school, it was the day after my last exam of 1L year. I had just left the Financial Aid Office. It was my first trip to see them, I had no idea what I was doing, and I wanted some information before taking out my first ever loan. It seemed like a reasonable request to someone paying full cost for the most expensive law school in the country.

I expected, probably naively, to be ushered into the office of an advisor, to have the entire loan process explained to me in detail, and to have all of my questions answered in detail and with a smile. I left the office shortly after feeling dejected, condescended to, and without much additional information. I never did get to talk to a financial aid advisor about my specific situation.

So began my journey to better understand the law school finance game. There are so many resources available for personal finance, especially paying down debt, but most of the resources I found giving advice about what to do before taking on $300,000 in debt were vague or unhelpful (“Don’t do it!” wasn’t going to cut it).

My personal favorite bit of unhelpful advice came from an e-mail sent to all law school students by the Financial Aid Office. It contained these exact words – “Tuition and fees will not be finalized . . . until mid-June”. The next sentence was “It is important that you budget carefully and borrow only exactly what you need.” Never mind the fact that tuition is the single largest expense for just about anyone pursuing higher education, coming in at a whopping 68% of total expenses for Columbia Law students for the 2015-2016 year.

The deadline to turn in our paperwork to the Financial Aid Office was May 15th – a Sunday (the office is closed Sundays) and 2 days after the Spring Term ended – not a lot of time to seriously consider the hundreds of thousands of dollars for which you’re about to ask. When a friend of mine called the office to inquire about the Sunday deadline when the office was obviously going to be closed, he told me that they said it was a fake deadline. Cool.

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Photo by rawpixel on Unsplash

Don’t get me wrong – I am incredibly thankful for my experiences and education at Columbia, and I do think that CLS is worth the price in the end. All of this complaining is really just to say – debt is scary and intimidating and stressful, especially now that student loan debt is no longer dischargeable in bankruptcy. The best cure to such stress is knowledge and a plan of action. This 3-year 2-year (Woo 2L!) jaunt I am currently on is probably the second most expensive thing I’m going to buy in my lifetime (and let’s be real, am I ever really going to buy a house? I’m about to have plenty of debt, thank you very much), and I want to make sure I’m setting myself up for financial success as much as possible.

Side Note – Discharging student loan debt in bankruptcy is not impossible, you just practically have to be 65, living off of $13k a year, and exhaust all of your retirement and any other savings. No thank you, please. Let’s work on avoiding bankruptcy altogether, mkay? Okay, great.

I am proud of the fact that I paid out-of-pocket for my first year of law school without touching my retirement savings. I was incredibly lucky and privileged to have amazing parents that paid for my (also absurdly) expensive undergrad (thanks, Mom and Dad!) and to have landed a pretty high-paying job right after college, but it also took a lot of work saving and investing right from the start to be able to pay almost $100,000 for the first year of law school.

I’ve always had an interest in personal finance (fun, embarrassing fact: when I was little I used to balance my Mom’s checkbook for fun), I have an accounting degree from one of the top BBA programs in the country, and I once held an informal personal finance session for co-workers at my last job discussing things like 401k contributions, Roth accounts, and good investment strategies. I thought I had this whole paying-for-law-school-in-a-smart-way thing in the bag – but it turned out to be a lot more complicated and confusing than I thought.

I’ve already made a bunch of mistakes in paying for law school (applying for law school and financial aid late in the process, forgetting about capital gains taxes on the money I took out of the market to pay tuition and rent, not standing my ground in the Financial Aid Office and demanding to speak to an advisor, the list could go on), and I know I’m going to make a ton more along the way. But I’ve also done a couple of things right, like saving more than 50% of my income before law school so that I could pay for the first year in cash and not touching my tax-deferred retirement savings. I’m hoping that over the next few years my wins list will be longer and more impactful than my mistakes list.

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Photo by Nick Morrison on Unsplash

Enter this blog. I’m not an expert on law school loans yet (or blogging, or . . . anything, honestly), but I’m super excited to continue this journey of learning here, and hopefully grow the community into something where we can learn from one another about paying for higher education and personal finance in general.

If you’re interested in learning how to pay for higher education, the process of debt accumulation, paying off student loans, or even personal finance more generally, this blog is for you and I hope you’ll contribute to the community with all of your amazing knowledge along the way!