Editor’s note: This is Part 2 of a two-part series on paying for law school. Part 1, “Law school loans: everything students need to know,” covers law school loan options. Click here to download both articles as a PDF file.
Earning a law degree can lead to a career with a high salary, but many new attorneys struggle with hefty student loan payments. According to the American Bar Association, you may graduate with $88,000 to $127,000 in law school loan debt, depending on whether you went to a public or private school.
However, there are law school loan assistance programs and alternative repayment plans to help you manage your debt. Used strategically, these assistance programs, repayment plans or law school loan refinance offers can save you money over the life of your loans.
Law school loan repayment assistance programs
Depending on where you went to school, the amount of your debt and your career path, you may be able to take advantage of one of these repayment options:
- Loan Repayment Assistance Programs (LRAPs): LRAPs are available to law school graduates from over 100 different universities. Eligibility for many of them is based on your income and whether you work in some form of public service, such as serving as an attorney for a non-profit organization or legal aid (See our list of schools offering LRAPs and requirements).
- Federal repayment assistance: Under the John R. Justice Student Loan Repayment Program, state and federal public defenders and state prosecutors are eligible for loan repayment assistance if they stay in public service for at least three years. According to Equal Justice Works, an organization that supports law graduates interested in the public sector, public defenders and state prosecutors may qualify for up to $10,000 a year in assistance. To apply, you need to work with your designated state agency.
- State repayment assistance: Some states offer assistance programs, as well. Annual awards can range from $650 up to $10,000, depending on the state and your unique situation. Each state has different criteria, but most require public service, such as providing legal aid to low-income residents, working in education or with a non-profit organization. Check your state’s availability to see what you may be eligible to receive.
Repayment options for government law school loans
If you do not qualify for one of the assistance programs or need additional help making your payments on your federal student loans, there are alternative payment plans that may help. The Department of Education’s Office of Federal Student Aid offers the following alternatives to the standard 10-year repayment term, depending on your circumstances:
- Extended repayment: With an extended repayment plan, your payments may be fixed or graduated and spread over 25 years, reducing your monthly payment.
- Revised Pay As You Earn plan (REPAYE): With REPAYE, your monthly bill is capped at 10 percent of your discretionary income. For borrowers with law school debt, it takes 25 years to qualify for loan forgiveness.
- Pay As You Earn (PAYE): With PAYE plans, your payment is 10 percent of your income, but will not exceed what your bill would be under a standard repayment plan. With PAYE, you must make payments for 20 years before you can qualify for loan forgiveness.
- Income-Based Repayment plan (IBR): With IBR, your payment is capped at 10 percent of your income, and you will make payments for 20 years.
- Income-Contingent Repayment plan (ICR): With ICR, you pay the lesser of 20 percent of your discretionary income or what would you pay with a fixed plan over the course of 12 years.
Under income-driven repayment plans, your payments are based on calculations that take into account several factors, such as your income, marital status and whether you have dependent children. Every year, you need to submit a new application, so if you have fluctuations in income or your family size changes, your payments can increase or decrease, as well.
Law school loan forgiveness
In some circumstances, your loan balance can be forgiven, either through public service or after making regular payments on an income-driven repayment plan.
- Public Service Loan Forgiveness (PSLF): After making 120 monthly payments, your balance is forgiven as long as you worked for a tax-exempt nonprofit or government organization. For lawyers, this typically includes working as a state prosecutor, public defender or working in a legal aid office for underserved or low-income individuals.
- Income-driven repayment plan forgiveness: If you are on an income-driven repayment plan, such as REPAYE, after making your payments for the entire repayment period — usually 20 or 25 years — any remaining balance is forgiven. While that can be a huge benefit, it does come with one major caveat: unlike forgiven loans under PSLF, the amount that is eliminated is taxable as income. That can add a big chunk to your bill when your taxes are due.
Pros and cons of income-driven repayment plans
Extended or income-driven repayment plans can significantly reduce your monthly payments. But because you are paying interest for a longer period, you can end up spending thousands more over the course of your loan, particularly if you end up paying off your loans before you qualify for loan forgiveness.
The easiest way to grasp the different outcomes is to compare the total repayment costs of each repayment plan. The chart below illustrates how much a borrower with $140,616 in direct federal student loans would pay back in nine government repayment programs (that’s the amount of combined undergraduate and law school debt that the New America Foundation estimates law school grads take on).
Monthly payment and total repaid under government repayment plans
|Repayment plan||Monthly payment (first, last)||Repayment period||Projected loan forgiveness||Total amount repaid|
|Extended fixed||$897||25 years||$0||$269,234|
|Extended graduated||$691-$1,360||25 years||$0||$293,053|
|REPAYE*||$552-$1,800||22 years, 7 months||$0||$285,669|
|IBR*||$827-$1,554||15 years, 4 months||$0||$225,692|
|IBR for new borrowers*||$552-$1,539||20 years||$52,184||$233,194|
|ICR*||$1,202-$1,733||10 years, 8 months||$0||$193,899|
*Plans marked with an asterisk are income-driven repayment plans, with monthly payments tied to a percentage of disposable income. Source: Department of Education repayment estimator.
The chart above assumes that an attorney has just landed a job out of law school with:
- $25,000 in federal direct subsidized loans taken out to attend a four-year college at a weighted average interest rate of 4.2 percent
- $61,500 in federal direct unsubsidized loans ($20,500 annual limit) taken out to attend three years of law school at a weighted average rate of 5.8 percent
- $54,116 in PLUS loans taken out to pay for the balance of law school at a weighted average rate of 6.8 percent
- Adjusted gross income of $84,000 a year that increases by 5 percent a year
Compare the cost of repaying $140,616 student loan debt under government plans, above, with the chart below.
Monthly payment and total repaid by refinancing high-interest debt
|Balance||Loan type||Interest rate||Monthly payment||Total amount repaid|
|$25,000||Federal direct subsidized loan||4.2%||$256||$30,660|
|$115,616||Private refinance loan||5.0%||$1,226||$147,154|
|$140,616||Combined loans||4.86% (weighted average)||$1,482 (combined payments)||$177,814 (both loans)|
The chart above breaks down the total repayment cost if you refinanced the higher-interest grad school debt (unsubsidized and PLUS loans) into a 10-year, fixed-rate loan at 5 percent interest, while continuing paying off your $25,000 in federal direct subsidized loans at a rate of 4.2 percent in the standard 10-year repayment plan.
Keep in mind you do not have to refinance your entire loan balance. You can refinance a portion of your debt, particularly your higher interest loans, to save money.
As you can see, the total amount repaid after refinancing higher-interest debt — $177,814 — is less than under any government repayment program. Your interest rate reduction save you about $8,678 compared to the standard 10-year repayment plan. Factor in the savings from reducing your repayment term, and you’d pay about $107,885 less than if you enrolled in REPAYE.
Your total monthly payments of $1,482 after refinancing your high-interest loan debt would also be $72 a month less than what you’d pay if you kept all of your loans in the standard government repayment plan without an interest rate reduction.
And while your monthly payments would start out lower in any of the government’s income-driven repayment plans, they would eventually climb, reaching as much as $1,800 a month under REPAYE. Sign up for the government’s graduated repayment plan, and your monthly payment will grow to $2,663 a month before you are through.
Alternative repayment plans make sense when you are really struggling to make ends meet — if you’re at risk of being unable to pay rent or put gas in your car to get to work, for example. Otherwise, if you can meet all of your financial obligations by minimizing expenses like eating out or gym memberships, the sacrifice may be worth the money you save money in the long run.
When you are first starting out, choosing an extended or income-driven repayment plan can be a way to minimize your payments so you can manage your budget. However, as your income increases, consider paying more than the minimum monthly payment to pay off the loan faster. You’ll end up saving yourself thousands in interest payments.
That is a smart way to take advantage of alternative options when you need them early on, then make up for it later as your salary increases.
The Department of Education’s Repayment Calculator is a useful tool you can use to see your options and how your payments affect your total repayment. Keep in mind that it can’t predict your future income — an important component of income-driven repayment plans. It’s most accurate for evaluating your first repayment plan — the longer you’ve been paying back your loans, the less accurate its projections are. The repayment estimator won’t tell you how much you might save by refinancing your student loan debt with a private lender.
Law school loan refinancing
Depending on the specific loans you took out to pay for law school, you could have debt with interest rates ranging from the low 3s to 10 percent or more. While stretching your payments out in a government repayment plan can lower your monthly payments, it won’t get you a lower interest rate.
The only way to get a lower interest rate is to refinance your loans with a private lender. Refinancing can reduce the total amount repaid, your monthly payment, or both.
Refinancing can be a smart decision if your income and credit score qualify you for a more competitive interest rate. If you can afford the payments on a shorter repayment period, you can get a much lower rate and save a substantial amount of money.
However, refinancing your government loans with a private lender is not for everyone. If you intend to work in the public or nonprofit sectors, you can qualify for loan forgiveness. If you refinanced your federal loans with a private lender to get a lower payment or interest rate, you would forfeit the ability to have your loans eliminated. Some private lenders also do not have deferment or forbearance options in case of economic hardship, so keep that in mind if you are in a state with a volatile legal field.
Additionally, if you are struggling to pass the bar or end up taking a job that pays less than you expected as a law school graduate, refinancing may not make sense. Instead, opting for a federal income-driven repayment option can help reduce your payments; after making the qualifying payments for 10, 20 or 25 years, you may have the remaining balance forgiven.
Paying for law school
Dealing with law school debt can be overwhelming and frustrating. With student loans that can easily reach into the six-figures, your payments can outpace your rent. While cutting your monthly payment down or lowering your interest rate may be tempting, it is essential you consider your long-term goals and career interests. If you can find an alternative to extended repayment options, you can save yourself a lot of money over the course of your loans.
Whether extended payment, income-driven repayment or private refinancing is right for you depends on your own unique circumstances.
Download this guide as a PDF file and share with friends! Kat Tretina is a freelance writer in Orlando, Florida. She double majored in English and communications at Elizabethtown College, before going on to earn a Master’s in communications from West Chester University.
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