LAW SCHOOL LOANS

For many borrowers, it’s best to take out federal student loans before turning to private options. That’s because federal loans generally come with more protections, such as specialized repayment plans, forgiveness opportunities, standardized interest rates, and more flexible deferment and forbearance options.

The type of law you hope to practice may also be a consideration. If you plan to work for a nonprofit or the government (as a public defender, for example), you could qualify for federal Public Service Loan Forgiveness (PSLF). This program discharges your remaining debt after you make 120 qualifying payments while working for an eligible employer.

Law students who expect to earn lower incomes may also qualify for federal income-driven repayment (IDR) plans, which base your payments on a percentage of your discretionary income and forgives any remaining balance after 20 or 25 years. Only federal loans are eligible for IDR and PSLF.

However, private student debt could be better in some instances. For example, federal Grad PLUS Loans had a fixed interest rate of 7.54% for the 2022-23 academic year, plus an origination fee of 4.228%. If you have good to excellent credit, you may be able to get a lower rate (and no origination fee) with a private lender.

Ultimately, it’s going to be a question of the path you plan on taking in your legal career and your estimated earnings after graduation.

The process is the same as it is for undergrad students: Fill out the Free Application for Federal Student Aid (FAFSA) when it becomes available on October 1 annually. Your school will review your financial information and determine what federal loans, grants, and work-study programs you qualify for. If you aren’t able to borrow enough in federal loans, you might turn to private loans to cover any funding gaps.

Tip: Before you commit to any type of borrowing, apply for as many grants and scholarships as possible — these awards typically don’t need to be repaid. You might also consider more drastic pivots, such as attending a lower-cost school or finding a paid internship or job to help pay tuition out of pocket.

There are two types of federal loans that law students are eligible for:

• Direct Unsubsidized Loans: You can borrow up to $20,500 per year. There was a fixed interest rate of 6.54% for grad students in the 2022-23 school year, plus a 1.057% origination fee.
• Grad PLUS Loans: These loans have a more generous limit, allowing you to borrow up to the school-certified cost of attendance. Rates for these loans were set at 7.54% in 2022-23, plus a 4.228% origination fee.

Yes, you can use student loan money to cover living expenses, including on-campus dorm fees, off-campus rent, food, transportation, textbooks, and miscellaneous personal supplies.

However, be sure you’re only spending loan money on necessities. While you could use the cash for vacations, noneducational tech purchases, or concert tickets, remember that you have to repay it all with interest. Save your loan funds for must-haves (and return any extra money you don’t need to the lender) — use your savings or other income for luxury items.

There are several strategies to support yourself during your education, but the best ones will allow you to succeed and pass the bar. After all, that’s what’s going to make those law school loans worth the cost.

For example, you could seek out a part-time job, which can provide some much-needed financial cushion while you’re in school (or during breaks). If you served in the military, there are educational benefits that you may be eligible for. And merit-based scholarships — which wouldn’t have to be repaid — are another excellent option if you come from a lower-income background.

There are several benefits of federal loans that law school students should seriously consider:

• Fixed interest rates: While private loans can come with variable rates, federal ones always have fixed rates that stay the same over the life of your loan. These rates are also standardized so all eligible borrowers receive the same rate, regardless of their credit score.
• Borrower protections: Federal loans have protections — like more accessible forbearance and deferment — that can help if you’re suddenly unable to make your payments. Federal loans are also the only debts eligible for the current student loan repayment pause.
• Loan forgiveness: There are several paths to forgiveness, including income-driven repayment plans and programs like PSLF.

Some drawbacks of federal student loans for law school include:

• Lending limits: Direct Unsubsidized Loans (which have a lower interest rate than Grad PLUS Loans) are limited to just $20,500 per year. In addition, these loans have a lifetime limit of $138,000, which may not be enough for some — the average law school grad is $130,000 in debt for their undergrad and graduate education.
• Higher interest rates: If you (or a cosigner) have excellent credit and a reliable income, federal loans may have higher rates and fees than you could qualify for with a private lender.
• You can only lower your rate through refinancing: Federal loan rates are determined by the Department of Education, and they are the same for the life of the loan. If you want a lower rate after graduation, you’d have to refinance with a private lender. (Keep in mind that this would remove your access to all borrower protections associated with federal loans.)

You’ll want to consider several factors, such as:

• Interest rate: Your interest rate is the largest cost of borrowing — the lower it is, the better.
• Repayment terms: A longer term gives you a lower monthly payment, but it typically means you’ll pay more in interest overall.
• Loan amounts: Some lenders have lower maximum borrowing limits than others, so make sure you can access the amount you need.
• Fees: These can add up, so you’ll want to keep an eye out for any origination or late payment fees that come with each lender.
• Discounts: Many lenders offer autopay or loyalty discounts, which can help lower your total costs.
• Hardship programs: You may be paying your law school loans for a decade or more. Review the help each lender can offer if you suddenly have trouble affording your payments.

In general, the first step is to shop around and compare lenders. From there:

• Pick several lenders of interest and prequalify with them to view your potential interest rate and terms. (Bonus: Prequalifying doesn’t impact your credit.)
• Compare the terms, perks, and costs associated with each lender to find the one that aligns best with your needs. A student loan interest calculator could come in handy.
• Apply for a loan with your chosen lender online. You’ll typically need to provide information about your school, contact details, and income to complete the application.
• Once processed, the lender will tell you if you qualify, and if so, you can sign the loan documents. The lender will typically send the money to your school first, which will disburse any leftover cash to you after your tuition and fees have been paid.

• Faster application process: To qualify for federal loans you must submit the FAFSA, and it can take several months to see what aid you qualify for and complete your loan. Private lenders have a simpler application process, and generally can process your loan in several weeks.
• Higher loan amounts: Many private lenders offer higher limits than you’ll find with some types of federal loans. Typically, you can borrow up to your school’s cost of attendance.
• Lower interest rates: If you have good or excellent credit, you may qualify for lower interest rates than you’d find with federal loans, which are set by the Department of Education.

Good to Know: Despite their credit requirements, private loans are also sometimes more accessible than federal loans. If you’re an international student with a valid visa, for example, you could gain approval for a private loan, particularly if you have stateside cosigner support.

• Fewer options for poor or no credit: Private loans are approved based on your credit, so those with poor or limited credit may not be able to qualify (at least not without a creditworthy cosigner). In addition, poor credit borrowers who do qualify will likely receive rates higher than those offered by federal loans.
• No federal benefits: Private loans are offered by private lenders, so they don’t offer the same protections that federal loans do, such as loan forgiveness.
• Lack of repayment options: Income-driven repayment plans are also only guaranteed with federal loans. Each private lender sets its own repayment policies, and few offer income-based options.

Tip: If you have poor credit, a student loan cosigner can help you qualify for better rates and terms.

Exact criteria varies by company, but most lenders require the following:

• Good credit: The minimum acceptable score depends on the lender, but in general, you’ll want a FICO credit score that’s in the mid- to high-600s or greater.
• Verifiable income: Lenders use your income information to assess your ability to repay the loan, and may impose minimum incomes for applicants.
• Low debt-to-income ratio: The less existing debt you have, the better your chances of qualifying for a private student loan.
• U.S. citizenship Many lenders require applicants to be a U.S. citizen or permanent resident — or have a cosigner who is.
• Qualifying enrollment: Your school will likely have to verify your enrollment status before you can be approved for a loan. You may also need to be enrolled at least half-time to qualify.

Federal Direct Unsubsidized Loans don’t require any sort of credit to qualify. Grad PLUS Loans do require a credit check, but only borrowers with “adverse credit” are disqualified.

You may have adverse credit if you had a delinquent debt in the last two years or a foreclosure, repossession, or wage garnishment in the last 5 years. If you can’t qualify on your own, adding an endorser, similar to a cosigner, can help.

Private student loans do require good credit, though the exact minimum score depends on the lender. A good FICO score is 670 or higher, and most student lenders look for scores starting in the mid- to high-600s. The higher the score, the better your rates will be.

It depends on the type of loan you take out:

• Direct Unsubsidized Loans: $20,500 per year, up to a lifetime maximum of $138,500 for graduate students
• Grad PLUS Loans: Up to the cost of attendance (as determined by your school)
• Private student loans: Varies by lender, but you can often borrow up to your school’s cost of attendance, pending each lender’s aggregate borrowing limits

Federal student loan rates are set by the Department of Education. Here were the 2022-23 interest rates for grad students:

• Direct Unsubsidized Loan: 6.54%
• Grad Plus Loans: 7.54%

Private student loan rates, on the other hand, are based on your creditworthiness and the terms you select when you apply. As of March 23, 2023, rates on 10-year fixed-rate student loans averaged 7.66%, while 5-year variable-rate loans averaged 11.56%.

Improving your credit, such as paying down your existing debt, can help you qualify for private loans. Otherwise, adding a cosigner can be a useful strategy — just keep in mind that they're on the hook if you stop making payments.

It depends on your repayment plan. For federal loans, repayment can range from 10 to 25 years. Private loan terms are set when you apply and sign your loan documents, but generally range from five to 15 years.

Of course, you can always pay off your loans ahead of schedule if you can afford it. Prepayment fees don’t apply in student lending, and paying your loans early can save you thousands of dollars in interest.

If you have federal loans, then there are several forgiveness options that you may qualify for:

• Public Service Loan Forgiveness: You may qualify if you work for the government or an eligible nonprofit. After you make 120 qualifying payments, your remaining balance is discharged.
• U.S. Department of Justice (DOJ) Attorney Student Loan Repayment Program: Through this competitive program for DOJ employees, recipients can receive $6,000 annually towards their student loans in exchange for their service.
• Perkins Loan cancellation: If you work in a qualified profession or role, such as as a public defender or volunteer, you may qualify to have up to 100% of your Perkins Loan forgiven.
• State loan repayment assistance programs: These state programs offer financial aid to lawyers who work in the public-interest sector, the government, or other low-paying areas of the legal profession. You may need to work a number of years in a high-need area to qualify.

Private student loan forgiveness is rare, though private debt may be eligible for state-based aid or private loan assistance programs, including employer-sponsored repayment matching. You might also refinance private loans to a lower rate or shorter term, which can reduce your overall costs.

For many borrowers, the best lender may be the Department of Education, because federal loans offer a competitive combination of repayment plans, forgiveness options, and borrower protections.

But if you need additional funding or aren’t eligible for federal aid, a private lender is still a solid option, provided you can qualify based on your credit (or that of a cosigner). Consult Credible’s list of vetted partner lenders above.