At some law schools, class of 2018 graduates who borrowed student loans to pay for school incurred average debt upward of $100,000, according to U.S. News data. Considering the standard 10-year repayment schedule, someone with…
At some law schools, class of 2018 graduates who borrowed student loans to pay for school incurred average debt upward of $100,000, according to U.S. News data. Considering the standard 10-year repayment schedule, someone with $125,000 in loans would have a monthly payment of about $1,400 for 120 months and end up paying more than $45,000 in interest, with an average interest rate of 6.6 percent. For many, this is like a second mortgage.
As current and prospective law school students look for ways to reduce their student loan debt, it’s important to know what options are available.
Some lawyers can qualify for Public Service Loan Forgiveness. To qualify for this government program, borrowers must make 120 payments on their student loans and work full time for a qualifying employer for 10 years. Qualifying employers include government and nonprofit organizations.
The payments do not have to be consecutive. For instance, you could work for a nonprofit for three years while making payments, switch employers for a year and then return back to a qualifying employer and resume the final seven years.
It’s important to apply and submit all required certification forms yearly; nearly a quarter of applications are denied because of missing information, according to data released from the Department of Education. Note: This only applies to federal student loans. Any private loans used to pay for law school would not qualify for this program.
As of September 2018, only 206 out of more than 40,000 people who applied for PSLF have completed the 10 years and received loan forgiveness totaling $12.32 million.
Loan repayment assistance programs have emerged to help lower-paid public sector lawyers. According to the American Bar Association, there are various types of loan repayment assistance programs, or LRAPs, administered by law schools, state bar associations and foundations and federal and state governments.
Equal Justice Works, a nonprofit organization founded by law students, offers an e-book that provides more information on LRAPs, including a comprehensive list of these programs offered by state and school and a listing of resources available through the federal government.
LRAPs are different from federal income-driven repayment plans because instead of lowering the borrower’s monthly payment, they provide funds that can be used to make those payments, according to the e-book. They can also be used to help borrowers who may not qualify for or benefit from income-driven repayment plans or Public Service Loan Forgiveness, such as public service employees who graduated before 2007 and who may have high private loan debt or have been paying their loans for years.
Some LRAPs may be used to repay private student loans, but most federal government and state funded programs are only for federal student loans. Law students and practicing lawyers should reach out to the dean of their school or to the Legal Services Corporation for more guidance and information on what programs may be available.
Federal law regulates LRAPs for federal agencies. Participating agencies determine their own program requirements in addition to the federal regulations, which say agencies are authorized to provide up to $10,000 per employee per calendar year with a lifetime limit for a single employee of $60,000. Recipients of federal government loan repayment assistance must agree to a three-year service obligation.
Lawyers with private student loans have more limited options. While there may be fewer programs that tackle private student loan debt, more employers are adding student loan repayment assistance as an employee benefit comparable to 401(k) matching. For information about LRAPs that work for private loans, check for programs that are available through specific law schools and employers.
Be sure to ask questions about any LRAP. Each LRAP has its own specifications for qualification, and its own restrictions and benefits. Some borrowers may be able to qualify for more than one LRAP, and it’s important to know if each will affect the individual’s ability to qualify for other programs, and which is a better option if you can only participate in one. The e-book also offers a more comprehensive list of questions to ask as you consider any employer’s LRAP.
Even before researching LRAPs, prospective law school students should consider any scholarship opportunities and weigh the costs of each school to which they apply, which can vary greatly. It’s also important to consider the average starting salary for the position the student aspires to have upon graduation. To borrow wisely, consider the cost of attendance and weigh the benefits before taking on student loans that may be difficult to repay based on the expected salary.
The Student Loan Ranger also recommends borrowers consider asking their employer if there are any programs or incentives in place. If not currently employed, consider asking this in job interviews. It’s important to consider the pros and cons of each decision made after graduation and how your salary will influence the ability to repay student loans.