Three Keys to Managing Student Loans

Vol. 42 No. 2

By

Heather Jarvis is an attorney and student loan educator and is the founder of askheatherjarvis.com.

Although law school is expensive and most law students graduate with significant student loan debt, reducing the costs that are within your control, choosing federal over private loans, and understanding your repayment options will go a long way toward successfully managing your debt.

Ideally, your total debt would be less than your expected starting salary, but law students often need to borrow significantly more. Lawyer starting salaries tend to cluster around the $40,000 to $65,000 range (source: NALP), and a typical law student borrows about $75,000 to attend a public law school or $125,000 to attend a private one (source: ABA).

Develop a detailed budget and save money where you can

When you are spending borrowed money, you are essentially spending your future income. To minimize how much you borrow, develop a detailed budget that accounts for all the costs of earning a law degree. In addition to tuition and fees, plan for the cost of books, housing, food, utilities, transportation, health insurance, and other living expenses. Think about which expenses you can control. The cost of housing is a major expense, so deciding how much to spend on housing is a smart place to start. Consider whether living with roommates makes sense. Some students don’t need to own a car and can save money on gas, parking, and auto insurance.

Choose Federal Student Loans over Private Student Loans

Law students borrowing to finance education should look first to federal student loans. Federal student loans (including Stafford Loans, Grad PLUS Loans, and Perkins Loans) come with important borrower protections and flexible repayment provisions.

Many law students borrow private student loans to fund their post-graduate bar review expenses. Private student loans present significant risks to student borrowers and are typically more expensive than federal loans. Private student loan interest rates are usually variable and will almost certainly go up over time. Because private loans lack the repayment options, discharge, and forgiveness provisions of federal student loans, it’s smart to be particularly cautious about borrowing only what you need.

Understand Your Repayment Options

In general, the longer it takes to repay debt, the more the debt costs over time. For those who need low monthly payments, the income-driven repayment plans for federal student loans can help. There are currently three repayment plans that allow reduced monthly payments for borrowers whose incomes are relatively low as compared to their debt: Income-Based Repayment, Pay As You Earn, and Income-Contingent Repayment. Don’t wait to get a sense of what it will take to repay your loans. After developing your detailed budget and saving money where you can, figure out how much you will need to borrow each year and calculate how much you will owe when you graduate. Then check out the Department of Education’s calculators for estimating repayment amounts under the different repayment plans: http://studentaid.ed.gov. n

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