How to Manage Your Law School Debt in 2018

With average tuition and fees running around $38,000 a year, most law students take out student loans. And then there are books, fees, transportation and living expenses to consider. Even students who find high-paying summer associate positions may wind up with six-figure student loan debts to repay after graduation. That’s a lot of debt, but … Continue reading How to Manage Your Law School Debt in 2018The post How to Manage Your Law School Debt in 2018 appeared first on MagnifyMoney.

Posted 3:19 p.m. Aug 13, 2018 — Updated 3:19 p.m. Aug 13, 2018

That’s a lot of debt, but it doesn’t need to be unmanageable. Attorneys can also find high-paying positions, and those looking to go into lower paying legal work may be eligible for a range of student loan forgiveness and repayment assistance programs.

In this guide, We’ll cover:

Law school debt in the U.S.

Law school forgiveness and repayment programs

4 strategies to pay back your law school debt

Law school debt in the U.S.

The average student loan balance can vary greatly depending on the school you attend. U.S. News and World Report publishes a list of law schools with the average indebtedness (among those who took out law school loans). At the high end in 2017, graduates from the Thomas Jefferson School of Law in San Diego had an average of $198,962 in student loans. The least was for graduates from Brigham Young University (Clark) in Provo, Utah who had $53,237 on average.

How much debt do law students have?

Among all law schools, the average student loan debt is near or above the six-figure mark according to Law School Transparency (LST), a nonprofit that analyzes and shares data about the legal profession. It shared the average amount of federal student loans borrowed by 2017 law school graduates based on their type of school:

Nonprofit private law schools: 74.9% of graduates had federal loans. On average, they borrowed $130,224.
Public law schools: 76.2% of graduates had federal loans. On average, they borrowed $92,997.
For-profit private laws schools: 85.8% of graduates had federal loans. On average, they borrowed $122,296.

You also might wind up graduating with more than you borrowed as interest can accumulate if you defer payments while you’re at school. Students may have also taken out private student loans in addition to federal loans, and graduates could still be paying off undergraduates loans.

Starting salaries for a lawyer

According to a 2018 LST report, the median entry-level salary for the class of 2016 was $66,499. However, as with the cost of school, your earnings can vary greatly depending on where you went to school and whether you work in the private or public sector.

The National Association for Law Placement, Inc. (NALP), an association of legal career professionals, found that the median private-sector starting salary for first-year associates was $135,000 in 2017. On the high end, top candidates may be able to start at $180,000 a year.

Public-sector salaries paint a different picture. NALP reported the median entry-level salary in 2018 was just $48,000 for attorneys who work in civil legal services and $58,300 for public defenders. While pay increases with experience, even public defenders with 11 to 15 years of experience make $96,400 on average.

Is law school worth the cost?

A law degree can certainly pay off and may provide a secure and stable job in the future. The U.S. Bureau of Labor Statistics projects employment of lawyers will grow 8% by 2026, slightly higher than the average 7% projected growth for all professions.

A law degree isn’t a guarantee of a job, though. The American Bar Association (ABA) found that among 2016 and 2017 law school graduates, 7.9% are unemployed and seeking work. Others are employed but only working part time, or have short-term contracts with an employer or temp agency.

Whether a law degree is worth the cost isn’t simply a question of economics. Although you can use a JD to work in a wide variety of industries and professions, the debt you take out could push you toward higher-paying work even if you’re not particularly excited about it. In the end, statistics can help you determine possibilities, but determining if a law degree is worth it is a highly subjective question.

Law school forgiveness and repayment programs

While attending law school can be expensive, attorneys may also be eligible for federal student loan forgiveness programs and school, state, employer and federal student loan repayment programs (SLRPs) or loan repayment assistance programs (LRAPs). You may be able to significantly decrease how much money you repay by using one or more of these programs.

John R. Justice Student Loan Repayment Program

The John R. Justice (JRJ) student loan repayment program offers aid to eligible full-time state and federal public defenders and state prosecutors who agree to remain a prosecutor or public defender for at least three years.

If you qualify, you could receive up to $10,000 per calendar year, and up to $60,000 total. The money will be sent directly to your loan servicer and can be used to pay for federal Federal Family Education Loan (FFEL) and direct loans that are in good standing. The money may be considered income for tax purposes.

You must register for the Office of Justice Programs Grants Management System and submit an application to be eligible. Availability for grants can vary depending on state allocations, and the 2018 application period ended on May 21, 2018.

Department of Justice Attorney Student Loan Repayment Program

The Department of Justice Attorney Student Loan Repayment Program (ASLRP) is for Department of Justice (DOJ) employees who agree to at least a three-year service obligation. The program may be competitive as it’s intended to help the DOJ attract and retain high-quality attorneys.

You must have at least $10,000 in student loans to be eligible for the ASLRP. If you get it, the DOJ could match up to $6,000 in student loan payments that you make each year, with a cumulative maximum benefit of $60,000. Only federal student loans are eligible, and the payments you receive are considered income for tax purposes.

Check the key dates page to see when application periods open and close, and a timeline of the important ASLRP-related events throughout the year.

Herbert S. Garten Loan Repayment Assistance Program

The Legal Services Corporation (LSC) offers the Herbert S. Garten LRAP to eligible attorneys who are working at an LSC-funded legal services program. About 80 eligible attorneys are chosen each year through a lottery system, and if you’re chosen, you’ll be issued forgivable loans for up to three years.

The LSC will issue you an LRAP loan to repay your student loans, and if you fulfill a year of service the debt will be forgiven. You can choose to continue in the program for a second and third year if you want.

You must have at least $75,000 in outstanding law school loans and be below the annual income and net worth threshold ($62,500 and $35,000, respectively, for continental U.S. employees). The LRAP awards up to $5,600 a year, which you’ll receive in two disbursements and can use to repay federal and private law school and bar loans.

Learn more about the Herbert S. Garten LRAP on the LSC website.

Judge Advocate General’s Corps Student Loan Repayment Program

The U.S. Air Force’s JA-SLRP program offers up to $65,000 in student loan repayment assistance if you qualify and agree to at least a four-year active-duty service commitment. The payments will be made over a three-year period which begins at the end of your first year of service.

Federal and private student loans that you took out for undergraduate, graduate and law school are eligible. The payments will be sent directly to your lender, and federal income taxes will be withheld from the payments to the lender.

Public Service Loan Forgiveness

The federal Public Service Loan Forgiveness Program (PSLF) will forgive remaining student loan debt if you make 120 qualifying payments (10 years’ worth) while working full time at an eligible employer. The PSLF only applies to direct federal student loans, although FFEL loans may be eligible if you first consolidate them into a direct consolidation Loan.

Qualifying employers generally include local, state and federal governments, as well as nonprofits. If you’re using one of the student loan repayment assistance programs, which may have similar employment requirements, you could also be making qualifying payments toward PSLF.

Federal student loan debt that’s forgiven under PSLF isn’t taxable.

Income-driven repayment plans forgiveness

If you have federal student loans, you may be able to switch your repayment plan to one of the income-driven plans. With these repayment plans, your monthly payment amount can vary based on your discretionary income, which generally depends on the difference between your income and the poverty line based on where you live and your family size.

With four of the plans, the remainder of your student loan balance will be forgiven after you make qualifying payments for 20 or 25 years (depending on the plan and if the loans were for undergraduate or graduate school). While the forgiven amount is taxable income, you may be able to get a lot of debt forgiven if you’ve been making relatively small monthly payments.

Some of the small-print differences between the plans can make a big difference in how much you pay overall. For example, the revised pay as you earn (REPAYE) plan has an interest subsidy if your monthly payment doesn’t at least cover how much interest accrues each month. Other plans also offer a subsidy, but only during your first three years of loan repayment.

You can use the Department of Education Repayment Estimator tool to see how much your monthly payments could be, and how much debt could be forgiven, with different repayment plans. However, if you’re dealing with a lot of student loan debt and are interested in forgiveness via an income-driven plan, you may want to contact a student loan consultant or attorney who is familiar with the differences between the programs and can advise you of your best option.

School-based programs

Many law schools have funds set aside to help graduates who go into low-paying fields, which often means a public interest or government job. In some cases, you may also qualify if you participate in a fellowship or public service initiative. Equal Justice Works has a directory of more than 100 law schools with such programs.

State-based programs

Your state may also have student loan repayment assistance programs, or you may want to consider moving to a state that does if you could qualify for help with your loans. According to the ABA, there are 24 states offering 26 LRAPs for civil legal aid attorneys or other public interest attorneys. You can find more information on the ABA and Equal Justice Works state LRAP pages.

Employer-based programs

For-profit employers may offer student loan repayment programs or assistance as part of their benefits package for employees. Availability, eligibility and aid amounts can depend on the company and whether you’re a part-time or full-time employee.

4 strategies to pay back your law school debt

There’s no secret trick to quickly getting rid of your student loans, but having a strategy and following through on that strategy could save you money, keep you motivated and help you reach your debt-free goal sooner.

1. Pay as little as you can while working toward forgiveness or assistance

If you qualify for one of the student loan forgiveness or assistance programs, or plan to use one in the future, you may want to pay as little as possible in the meantime. This could mean switching repayment plans or only making the minimum loan payments.

Compared with making extra payments, this method could increase how much interest accrues on your loans. However, if your goal is to repay as little as possible overall, leaving more debt to be forgiven or paid off by someone else could be a sound approach.

2. Use the snowball or avalanche method

You may have multiple student loans from different terms at law school, or even from undergraduate school and law school. If you can afford to pay more than your minimum payments, you could take either the snowball or avalanche method.

The snowball method involves paying off the loan with the lowest principal balance first. Once you pay off one loan, you can put more money toward the next lowest balance loan. Continue the process and you can build momentum as you repay one loan after another.

With the avalanche method, you apply any extra loan payments toward the loan that has the highest interest rate. The avalanche method can help you save money overall, although if your high-interest loans also have high balances, it could take some time before you get to completely wipe out one of your loans.

3. Apply your extra payments to the loan’s principal balance

Whether you’re taking a dedicated snowball or avalanche approach, or just occasionally making extra payments on your loans when you can afford to, you’ll want to review how your loan servicers apply your extra payments. Without instruction, your servicer may apply your extra payment to a future month’s payment and spread it out among all your loans.

You might be able to target your payment to a specific loan’s principal balance if you make a payment online. Or, you could send your servicer instructions on how you want to apply all your extra payments in the future — the Consumer Financial Protection Bureau has a sample letter you can use as a template.

4. Refinancing to a lower rate

If you’ve established a good credit history and found employment (or have income from another source), you may be able to save money by refinancing your student loans. When you refinance your student loans, you’ll take out a new loan and the lender will pay off your current student loans.

Your new loan’s interest rate depends on your creditworthiness, and if it’s lower than your current loans’ interest rates you could save money if you continue making the same monthly payments.

You can pick and choose which loans to refinance, so even if the new loans rate isn’t lower than all your current loans’ rates, you may still be able to benefit from refinancing. However, your new loan will be a private student loan and won’t be eligible for federal student loan programs, including the forgiveness programs. Some of the LRAPs can also only be used to repay federal student loans.

Read more about refinancing and consider all the pros and cons because once you refinance you won’t be able to turn your student loans back into federal student loans. If you decide to refinance some or all of your loans, you can compare lenders to find the best rate and terms.

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