Financial concerns about attending law school.

December 28, 2006 1:10 PM

I will be starting law school next fall, and I have some financial concerns.

I recently started a job that allows me, for the first time in my life, to put away a decent sum of money every month. I'd like to have this money available for living expenses, etc. during law school. However, I really don't want to be in a situation where I manage to save e.g. $15k, only to have to fork all of it over for my first semester's tuition.

My question is this: what do law schools consider fair game when it comes time to evaluate the student's financial need and expected contribution? In other words, I understand that if I write in my FAFSA that I have $15k in my savings account, I am expected to part with it in order to cover my tution. However, what if that money is in a Roth IRA? A non-IRA mutual fund? Money market account?

Any help would be appreciated.

posted by Pontius Pilate to Work & Money (9 answers total)

Best answer: From a previous thread:

Loopholes in the FAFSA

According to this site, you can put the money into an IRA (a Roth, as you say) and it won't count as an asset in your FAFSA calculation. However, if the money's been in the Roth for less than 5 years, withdrawing it counts as income for the purpose of next year's FAFSA - i.e. you can't hide money in a Roth right before you file your FAFSA and then pull it out right after.

So for the purpose of the FAFSA, it might make sense to put some of that money in a Roth IRA. You can put $4000 into your 2006 Roth IRA any time before April 15th, 2007; and you can put $4000 into your 2007 Roth IRA any time on or after Jan 1, 2007.

Non-IRA investment vehicles are assets, if you look at that page, with a couple of exceptions. You might want to look into speaking with an insurance agent about life insurance or a variable annuity, as these are listed loopholes and you'd eventually be able to get your money back out. ("Life insurance!?," you say; but as rich people know, money invested into life insurance is subject to many favorable tax and asset-calculation loopholes, often making it a very attractive investment in situations like yours.)

I'm not a professional financial adviser and this isn't financial advice. Consult a pro.
posted by ikkyu2 at 1:44 PM on December 28, 2006

Er, most law schools do use the FAFSA for the purpose of figuring out the answer to your question; if yours doesn't, my advice might be completely invalid.

If it does, though, and you haven't looked at the FAFSA yet, it's time to take a look at it.
posted by ikkyu2 at 1:48 PM on December 28, 2006

Your law school may very well use other, more stringent qualifications for financial aid than the FAFSA, especially if it's a private school. Also, any non-merit based "financial aid" will probably be in the form of loans, so it doesn't make much sense not to use your savings anyway.
posted by footnote at 2:06 PM on December 28, 2006

I recently started a job that allows me, for the first time in my life, to put away a decent sum of money every month.

Then why go to law school?
posted by norm at 2:43 PM on December 28, 2006

Response by poster: Then why go to law school?

Because I don't want to do this job for the rest of my life.


Thanks to all who've answered so far. A follow-up question that I meant to include in the original, but forgot:

I still have ~ $10k in subsidized federal loans from my undergraduate years. Should I pay them off with my savings before filing the FAFSA?
posted by Pontius Pilate at 2:55 PM on December 28, 2006

Are you paying interest on the loans?
posted by acoutu at 3:00 PM on December 28, 2006

Response by poster: Yes, but it's minimal - under 5% (I don't recall the exact percentage).
posted by Pontius Pilate at 3:40 PM on December 28, 2006

Best answer: Should I pay off my subsidized loans?

No - that's almost free money, the interest is tax deductible, and the loans are taken into account on your FAFSA. You'd be crazy to pay them off now. Defer as long as possible and pay 'em off when you've got a job as a working lawyer.
posted by ikkyu2 at 4:12 PM on December 28, 2006

put the money in someone else's name--particularly your parents b/c once you start law school--you shouldn't have to take into account any thing in your parent's names--at least i didn't have to for med school and i took out the maximum amount of loans i could . . . . .
posted by uncballzer at 5:53 PM on December 28, 2006