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How to Handle Law School Debt

March 25, 2021 · 6 minute read

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How to Handle Law School Debt

In recent years, law students have faced soaring education costs and an ever-changing job market. Some graduates leaving law school may spend several months searching for a position. Juggling long hours on top of high-interest loans can lead to less dedicated graduates leaving law altogether.

However, there are signs that things are beginning to turn around thanks to a smaller graduating class and a strengthening economy. According to the American Bar Association , 80.6% of the class of 2019 was able to secure full-time work relevant to their degree within 10 months of graduating.

So, how can you better set yourself up for success when dealing with law school loans? One obvious choice is to confront your debt situation directly. Here are some tips to help you get your law school debt in order, so you can focus more on the career portion of your life.

Average Law School Debt

Law school debt balances aren’t exactly conservative. According to the American Bar Association’s 2020 Law School Student Loan Debt report, the average amount of debt borrowed by law students at graduation was around $165,000. This debt may seem crazy, but when you consider the fact that getting a law school degree is now way more expensive it makes a bit more sense.

For example, comparing the cost of a law school degree now versus 30 years prior, it has increased quite a bit. Public law school cost is now over five times as expensive as it was in 1985. Adjusted for inflation, getting a private school law degree is almost three times as expensive as it was 30 years ago.

How Much Does Law School Actually Cost?

The cost of tuition and fees for law school vary dramatically depending on where you choose to go to school. According to U.S. News & World Report , the average annual cost of tuition and fees at a private law school for the 2019 to 2020 academic year was $49,548. Attending a public university costs an average of $28,264 for in-state students and $41,726 for out-of-state students.

Reducing Your Law School Loan Debt

Before we jump into ways to handle your student loan debt, we just want to touch on a couple of options for reducing your debt burden.

One way, of course, is to take out fewer loans. If you’ve already finished law school, you aren’t going to retroactively qualify for scholarships, but if you’re reading this before you take out loans for your final year of law school, there’s still time.

Schools typically offer enticing fellowship and scholarship packages in order to recruit top students to their programs. In addition to merit- and need-based scholarships offered by your school, a quick online search could yield many outside scholarships offered by nonprofits and community organizations that you can take advantage of.

You could also look into law school forgiveness options for federal loans after graduation. For those starting jobs in government, public service, or the nonprofit sector, the Public Student Loan Forgiveness program offers federal loan forgiveness after 10 years of eligible payments under a qualifying repayment plan. If you have a steady, eligible career with a relatively low salary, loan forgiveness programs are definitely something to consider.

How Law School Debt Can Snowball

The unfortunate reality of debt is that it can snowball—particularly if you have loans from your undergraduate years.

For example, if you have unsubsidized loans from undergrad that you deferred while in law school, those loans accrued interest while you were becoming a lawyer. When you graduate from law school, the accrued interest is added to the principal amount you owe. That means your undergrad loans could have accrued three year’s worth of interest while you were in law school, which is now compounded on your principal balance.

What Are Some Solutions for Handling Law School Debt?

If you’re passionate about having a career in law and are confident in your abilities, don’t let the costs of your education deter you from pursuing a rewarding profession. Managing law school debt might seem overwhelming, but having a strategy can help you pay off your debt.

Here are several solutions to consider:

Making Interest-Only Payments While in School

While under the federal student loan deferment program, you aren’t required to make any payments while you’re in school, paying at least the amount of interest that is accruing on your loans each month could help keep your student debt from snowballing. And if you are able to pay more than just the interest, it’s a smart idea. The faster you pay down your loans, the less they’ll generally cost you over time.

Picking a Repayment Plan that Fits Your Budget

Once you graduate and start working, you’ll likely have a few financial priorities competing with your student loan repayment. In general, it can be a smart strategy to pay down law school debt as soon as you have a steady income, but paying down your loans too aggressively could leave you without enough in savings.

Building up an emergency fund can provide you with a buffer in case you have unforeseen expenses. It can also make sense to start putting a percentage of your income toward a retirement fund to take advantage of potential long-term gains. You may want to factor your savings goals into your budget and pick a student loan repayment plan that fits your cash flow.

Putting any Extra Funds Toward Your Debt

Alternately, you can make paying down debt your top priority and put any extra income you have toward your highest-interest loans. Of course, if you choose this route, you may want to make sure you have a financial safety net in place first. This law school debt repayment strategy is typically called the avalanche method.

Essentially, while making regularly scheduled payments on all your loans, with the avalanche method you’d make additional payments on your highest interest loans first. This method helps reduce the amount of total interest you’re paying. And by paying your loans down early, you could save on interest payments over the years because the faster you pay off your student loans, the faster you can stop paying interest on your debt.

Cutting Back

Relating to the strategy above, you could try to cut back on your monthly expenses and put that extra money toward your debt payments. While sticking to a budget can be challenging, it is one tool to help you stay on track with your spending.

Can you cut back on certain expenses each month? You may have to make a few sacrifices (within reason), but you probably don’t need to cut back on everything. See what simple changes you can make to your budget to find extra money to put toward your law school debt. Paying more than the minimum monthly payment on your student loans can go a long way towards getting out of debt faster and, therefore, making fewer interest payments.

Making Your Loan Payments Cost Less

What if instead of taking that job at a top law firm, you opt to go into public defense or spend a year traveling? If you find yourself looking for a way to make your federal loan payments more manageable, income-driven repayment plans can also lower your monthly payment by capping the amount you pay based on your discretionary income and household size.

With these plans, you may pay more interest over the life of your loans. But if your monthly payments are too high, income-driven repayment plans can bring them down.

Another option that can potentially reduce the cost of monthly payments (in one way or another) is to refinance your student loans with a private lender, like SoFi. When you refinance, a private lender gives you one new loan to pay off your existing student loans (including your law school debt and the undergraduate debt you may still have). Your new loan will have new terms and a new (hopefully lower) interest rate.

Instead of paying on multiple student loans, you’ll just have to worry about paying off one loan. If you qualify for a lower interest rate and shorten your loan repayment term, you may pay less in interest over the life of the loan.

Refinancing federal student loans with a private lender means you’ll no longer be able to take advantage of the benefits that come with federal loans, like income-driven repayment plans, deferment, and forbearance.

The Takeaway

Law students can face an extraordinary debt burden when they graduate. Crafting a repayment strategy based on your personal situation can help you to effectively manage your student debt, while embarking on a rewarding career as a lawyer. Some strategies that may make sense, depending on your unique circumstances, include; making interest-only payments while attending law school, crafting a debt repayment plan, and allocating more of your discretionary income toward your law school debt.

Refinancing might be another option to consider, however those with federal loans would lose eligibility for all federal benefits, including PSLF and income-driven repayment plans.

Considering refinancing your law school debt? Learn more about whether SoFi student loan refinancing is right for you.

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External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended to December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since in doing so you will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave up to $10,000 and $20,000 for Pell Grant recipients unrefinanced to receive your federal benefit. CLICK HERE for more information.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.


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