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If you are planning to go to law school, consider education costs, employment opportunities, law school loan rates, and your debt-to-income ratio to ensure a bright financial future.

Editor’s note: This is Part 1 of a two-part series on paying for law school. Part 2, “Law school loan refinance, forgiveness and repayment options,” covers repayment strategies. Click here to download both articles as a PDF file.

When Chris Miller was in high school, everyone told him he should be a lawyer. He had a passion for debate and had a gift for persuasive speech.

“My parents, guidance counselors — everyone was convinced I should go into law,” Miller says. “Not only did they think I’d be good at it, but they said I would always have an excellent salary and job security. It sounded perfect.”

Miller worked hard in college and was accepted into law school. After graduation, he landed a job quickly with a boutique law firm, albeit at a lower salary than he initially imagined.

“I was one of the few from my graduating class who had a job within three months of leaving school, so I was lucky,” said Miller. “I thought I was set.”

However, the grace period on his law school loans ended and payments came due. Like thousands of others, Miller was shocked to find that his law school loan payments ate up such a substantial part of his salary.

“I went from dreaming of retiring early to worrying about how I was going to pay my rent,” said Miller.

Miller is just one of thousands of law school graduates who were taken by surprise by a competitive job market and changing debt and income landscape. As the cost of law school has risen — pushing up average student loan debt for law school graduates — more new attorneys are facing hefty student loan debt and lower-than-expected salaries.

If you are planning to go to law school, consider education costs, employment opportunities, law school loan rates, and your debt-to-income ratio to ensure a bright financial future.

Average student loan debt in law schools

Pursuing your dream of becoming a lawyer is not cheap. According to the American Bar Association, nine out of 10 law students rely on student loans to pay for their education. For those who choose to go to public universities, average law school loan debt is about $88,000. If you instead decide to go to private school, law school loan debt averages $127,000. 

Factor in undergraduate debt, and the debt burden can be even greater. The New America Foundation estimates that law school graduates carry an average of $140,616 in total student loan debt, requiring payments of $1,187 a month.

U.S. News & World Report’s law school graduate debt rankings demonstrate that where you choose to go for your law degree can significantly affect your student loan debt. For instance, if you decide to go to a top-tier law school like Columbia University in New York, you can expect to leave school with an average of over $154,000 in debt. But if you went to a less prestigious institution, such as Brigham Young University in Utah, you might expect to have have only about $54,000 in law school loan debt after graduation.

Salaries in law and legal services

While the debt associated with law school loans may seem very high, most students expect to make an excellent income as a lawyer, which would offset the expensive loans. We tend to think of lawyers as high earners with a flashy lifestyle, but actual wages can vary widely.

The U.S. Bureau of Labor Statistics lists the national average salary for attorneys as $115,820 a year, but that does not capture the extreme variations within the field. According to the National Association for Law Placement (NALP), it’s not unusual for graduates of top-tier law schools to sign on with a major firm with a starting salary of $160,000, while the median entry-level salary at public interest organizations is $47,000.

Additionally, while it used to be that a fresh law school graduate would field multiple offers, the market has become much more competitive. After the recession in 2008, entry-level jobs were much harder to get, even in the lower-paying public sector. According to research by the NALP about 87 percent of members of the law school class of 2015 landed jobs, with others continuing to look for work long after graduation.

When evaluating whether or not your potential income can justify the expense of law school, it’s important to consider your debt-to-income ratio, a key indicator of your overall financial health. Calculating your ratio can tell you if you can afford to take on loans, or if you will have to pursue alternative options. To calculate your debt-to-income ratio, divide your monthly debt payments by your expected gross monthly income. The National Foundation for Credit Counseling advises that you shoot for a ratio of 36 percent or less — the lower the number, the better your financial outlook.

Current rates of law school loans

With law school easily costing over $150,000, paying for it can be difficult. A majority of students end up looking for law school loans, whether federal and private, to finance their education. According to the U.S. Department of Education’s Office of Federal Student Aid, you have the following options available to you for a student loan for law school:

Federal direct unsubsidized: Law students can borrow up to $20,500 each year from the U.S. Department of Education in federal direct unsubsidized loans. Because these loans are unsubsidized, interest begins to accrue as soon as the loan is disbursed to you. For direct unsubsidized graduate school loans issued during the 2016-2017 school year, rates will be fixed at 5.31 percent for the life of the loan. There is a grace period of six months where you do not have to make payments while you search for a job, but interest will accrue on your loan. These loans are eligible for deferment and different repayment plans, such as income-driven plans.

Federal direct PLUS loans for graduate students: If you don’t have any adverse events in your credit history, you may qualify for a federal direct PLUS loan. If you have issues in your credit file such as bills that are more than 90 days late, or a bankruptcy or foreclosure within the last 5 years, you will need an endorser. With PLUS loans, you can borrow as much as you need to cover your school expenses, minus other forms of financial aid or grants you receive. PLUS loans for graduate students also have a grace period, but begin to accrue interest as soon as they are disbursed. PLUS loans issued during the 2016-17 school year will carry an interest rate of 6.31 percent.

Private loans: If you are not eligible for federal loans, are looking for more competitive interest rates and options, or need postgraduate loans while you study for the bar-review, private loans can be an option. Terms for law school loans made by private lenders can vary widely regarding grace periods and repayment terms, so consider all of these factors before choosing a certain lender.

Private loans vs. federal law school loans

Keep in mind there’s a $138,500 lifetime limit on federal direct loans to professional and graduate school students in non health-related fields like law. That’s an aggregate total for your undergraduate degree and law school. To fund remaining expenses, you can turn to private loans or federal PLUS loans, up to the total cost of attendance at your school.

When reviewing your options, including deciding between federal and private law school loans, make sure to evaluate the interest rates available for each type of loan. Government loans can be surprisingly expensive — particularly when you hit limits for federal direct loans, and must consider taking out PLUS loans.

For loans issued during the 2016-2017 school year, rates on federal direct unsubsidized loans for grad students will carry 5.31 percent interest. Rates for PLUS loans issued for 2016-2017 will be 6.31 percent. Additionally, PLUS loans also carry a hefty 4.3 percent disbursement fee that is due up front when you receive the loan, adding to the overall cost. This fee effectively adds nearly a full percentage point to the annual percentage rate (APR) of a PLUS loan, bringing it close to 7.29 percent.

With law school, where many borrowers end up taking on six-figure student loan debt, the high interest rates can add significantly to your total repayment cost.

With private lenders, you may be able to get a more competitive interest rate, saving yourself thousands of dollars over the life of your law school loans. Before taking out a grad PLUS loan, you can use Credible.com to get personalized rate quotes from different private lenders to compare your options.

For example, one of the lenders competing for business through the Credible platform, Citizens Bank, offers fixed-rate loans with no fees at rates between 3.74 percent and 11.75 percent.  If you opt instead for a variable rate, you can get an initial interest rate as low as 2.49 percent, with no upfront fees. Citizens will loan up to $170,000 to qualified borrowers, at rates that depend on your credit history and the size and length of your loan.

Law school student loans and cosigners

If you are going to law school and are not working, have a modest salary or lack a strong credit history, you may need a cosigner to qualify for a private student loan and get the most competitive interest rates. If you have a parent, relative or loved one with a good credit score, that can help you save money in the long run. Credible’s analysis of rate requests submitted through the site’s student loan marketplace revealed that:

  • 56 percent of graduate students received rate quotes if they had a co-signer, compared with 45 percent who received a rate quote without one.
  • For graduate students with a cosigner, their loan quotes had an average interest rate of 4.59 percent. Those without a cosigner averaged 6.21 percent.

But asking loved ones to serve as a cosigner is a big request; by adding their name to your loan, they agree to fulfill your obligation to repay the loan if you do not do so. While they do not get the benefit of the education you receive, if you miss payments, they are responsible for picking up the slack.

One thing to keep in mind is that with private loans, you have the option of removing the cosigner later on. Many lenders will release the cosigner once the primary borrower has established a history of timely payments and can prove a reliable income. Private loans can give you more tailored options to suit your needs, rather than federal loans which are the same across the board, regardless of the individual’s situation.

Choosing the right path for you

After law school, you may have thought your biggest challenges would be acing the bar exam and finding the perfect job at a choice law firm. But tackling your law school loans can be challenging and overwhelming, too. Before heading off to school, carefully assess your options, including what school you will attend, what kind of job you want to pursue after graduation and what it will pay, what kind of loans you will need. By being proactive and developing a repayment strategy, you can manage your loans and maintain a healthy debt-to-income ratio.

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.

Credible is a multi-lender marketplace that allows borrowers to get personalized rates and compare loans from vetted lenders, without affecting their credit scores.