Savanna Hoffman
Law school is notoriously expensive, with many graduates leaving with six-figure debts. The average law school graduate borrows about $112,776 to finance their degree, and the median starting salary for a law school graduate working in the public sector is $57,500, rising to $200,000 in the private sector. With such high debt and competitive job markets, many law students are concerned about their ability to pay off their student loans. There are various strategies for paying off law school debt, from frugal living to refinancing and loan forgiveness programs. Some graduates may never pay off their debt, and it can impact their career choices and life goals.
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What You'll Learn
Law school debt repayment strategies
Law school can be expensive, and graduates often accrue significant debt. While attorneys can earn a generous salary, law school debt can still be challenging to repay. Here are some strategies to help law school graduates manage and repay their debt effectively:
Early Repayment:
Getting a head start on repayment can help reduce interest costs over time. Some loan types, such as Direct Unsubsidized and Direct PLUS Graduate loans, accrue interest right after disbursement. Making early payments can lower the overall interest burden.
Income-Driven Repayment Plans:
Income-driven repayment (IDR) plans, such as REPAYE (Revised Pay As You Earn) and PAYE (Pay As You Earn), tie monthly payments to the borrower's income. These plans can be advantageous for those with high debt-to-income ratios, as they offer flexible and manageable payments. IDR plans may also provide interest subsidies for eligible borrowers.
Public Service Loan Forgiveness (PSLF):
PSLF is a valuable program for attorneys working in the public sector or for nonprofit organizations. After making 120 qualifying monthly payments, borrowers may be eligible for loan forgiveness. PSLF can be a powerful tool for those seeking public interest legal careers.
Loan Repayment Assistance Programs (LRAPs):
LRAPs are available through various sources, including state programs, the Department of Justice's Attorney Student Loan Repayment Program (ASLRP), and even some employers. These programs provide assistance or matching contributions toward loan repayment, helping to reduce the overall debt burden.
Refinancing:
Refinancing student loans can be a strategic move when interest rates decline, potentially reducing interest costs. Refinancing can also allow borrowers to change their repayment terms, such as extending the loan term to lower monthly payments. However, refinancing should be approached carefully, as it may result in higher costs over the loan's life.
Maximizing Income and Budgeting:
For those with high incomes, utilizing their earnings to aggressively pay down debt can be a viable strategy. This may involve maximizing retirement contributions, eliminating consumer debt, maintaining an emergency fund, and budgeting to allocate a significant portion of their income toward loan repayment.
It's important to note that the best strategy depends on individual circumstances, such as income, debt amount, and career goals. Seeking guidance from a student loan advisor or financial professional can help law school graduates make informed decisions about repaying their debt.
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Loan forgiveness and tax implications
The Public Service Loan Forgiveness (PSLF) program is a viable option for law graduates to consider. The PSLF program allows graduates to pursue public sector legal jobs, which generally pay lower salaries than private sector jobs. This strategy may be beneficial for those who value career options and public interest law over a high salary.
Forgiven loans are typically treated as taxable income, which can result in a substantial tax bill. However, there are strategies to minimise the tax impact. For instance, borrowers can time their loan forgiveness to coincide with a year of lower income, thus remaining in a lower tax bracket. This strategy can be particularly effective with the help of a tax advisor, who can provide insights on legislative changes and help estimate tax liabilities.
Additionally, borrowers can increase their income withholding throughout the year to set aside more funds for taxes, reducing the burden when forgiveness occurs. It is also worth noting that, under the American Rescue Plan, federal loan forgiveness is temporarily exempt from taxes through 2025.
While the PSLF program offers benefits, it may not be the best option for all law graduates. Those with high incomes and the ability to make substantial repayments may find that refinancing their loans and becoming debt-free sooner is a more advantageous strategy.
For graduates from top law schools, the high debt-to-income ratios may make it impractical to ever repay their educational debt, especially if they work in the public sector. In such cases, long-term loan forgiveness programs may be their only viable option.
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Cost-saving techniques and scholarships
Law school is a significant financial investment, and it can be challenging to figure out how to pay for it. Here are some cost-saving techniques and scholarship opportunities to consider:
Cost-saving techniques:
- Assess your finances and create a financial plan: Understand your financial situation, career goals, and debt tolerance. Create a budget and stick to it.
- Work while studying: Consider working a few hours a week or during breaks to earn money. Explore job portals, informal networks, or websites like care.com and Rover.com for flexible jobs such as tutoring, giving music lessons, or pet-sitting.
- Save on textbooks: Instead of purchasing textbooks, check if your school offers a rental option, which is usually cheaper. Utilise your school's library or digital resources to access required readings for free.
- Prepare your own meals: Instead of eating out or relying on convenience food, dedicate time to prepare meals in bulk that you can enjoy throughout the week.
- Cut down on non-essential expenses: Evaluate your spending habits and cut down on unnecessary costs, such as frequent purchases of coffee or tea.
Scholarships:
- Institutional scholarships: Many law schools offer merit-based or need-based scholarships to attract top students. Performing well on standardised tests like the LSAT or GRE can increase your chances of receiving merit aid.
- External scholarships: Numerous organisations and foundations offer scholarships for law students. For example, the New Silver Fintech Scholarship awards students for submitting essays on specific topics. The IABA Foundation grants scholarships to law students committed to advancing the Iranian-American community.
- Law School Scholarship Databank: This resource offers over 800 vetted scholarship opportunities and writing competitions, providing more than $3 million in aid.
- Summer internship scholarships: Some scholarships are specifically for students pursuing summer internships, externships, or clerkships in public interest organisations, government agencies, or judicial clerkships.
Remember to stay organised and be proactive in your scholarship search, as application processes and deadlines vary.
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Debt-to-income ratios at top law schools
The "debt-to-income" ratio is a common-sense rule in student lending that advises students not to borrow more than they expect to earn after their first year of work. However, this rule is difficult to follow for law school graduates, as law school tuition is expensive.
According to data released by the U.S. Department of Education in 2020, the median amount borrowed by law school graduates exceeded the median earnings by 63%. This data, however, only reflects the earnings of graduates who borrowed.
A graduate with a debt-to-income ratio of 2.63 has borrowed more than two and a half times what they earn, indicating significant financial hardship. A "manageable" debt load is considered to be when debt is about equal to expected income at graduation, resulting in a ratio of 1.00 or lower. Only 20 law schools meet this definition.
Some law schools with high salary-to-debt ratios include:
- Brigham Young University's J. Reuben Clark Law School (2.56-to-1)
- Temple University's James E. Beasley School of Law (1.90-to-1)
- University of Utah's S.J. Quinney College of Law (1.49-to-1)
- George Mason University's Antonin Scalia Law School (1.45-to-1)
Vanderbilt University Law School graduates get the best deal in terms of debt-to-income ratios, with a mean starting salary of $205,000 and an average amount borrowed of $151,118.
It is important to note that the debt-to-income ratio is just one metric, and there are other factors to consider, such as interest rates and loan terms. Additionally, law graduates tend to have higher earnings and faster salary growth compared to typical borrowers.
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The impact of career choices on debt repayment
Law graduates' career choices influence their debt repayment experience in several ways. Firstly, the type of legal career greatly impacts repayment. Graduates working in the private sector generally have higher starting salaries, enabling faster debt repayment. For example, a lawyer in the private sector may take 9.9 years to repay loans, while a public sector lawyer may take 19.1 years following CFPB guidelines. Graduates from top-tier universities are more likely to secure high-paying jobs at prestigious law firms, positively affecting their debt repayment journey.
Secondly, the income-debt ratio varies across employers and practice areas. Graduates from certain universities, such as Brigham Young University, benefit from lower debt-to-income ratios, making debt repayment more manageable. In contrast, graduates from schools with higher debt-to-income ratios, like the Pontifical Catholic School of Puerto Rico, may face challenges in repayment.
Thirdly, career choices influence the availability of loan forgiveness and repayment assistance programs. Graduates opting for public service legal jobs can pursue federal Public Service Loan Forgiveness (PSLF) or law school repayment assistance programs, which can provide debt relief. However, these opportunities are limited and may not always be available.
Additionally, career paths outside traditional legal employment can impact debt repayment. Some law graduates may choose entrepreneurship or other non-legal careers, which can offer higher incomes to tackle debt more aggressively. However, they may also face the challenge of repaying debt with a limited or inconsistent income stream.
Finally, career choices can impact the financial planning and lifestyle of law graduates. A well-paying career may allow for a more aggressive debt repayment strategy, while a lower-paying public interest career may require budgeting and a longer repayment timeline.
In summary, the career choices of law graduates have a profound impact on their debt repayment journey. The type of legal career, income-debt ratio, availability of loan forgiveness programs, non-traditional career paths, and financial planning are all influenced by the career decisions made by law school graduates.
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Frequently asked questions
The average law school graduate borrowed about $112,776 to finance their degree. However, this amount varies depending on the law school attended. For example, graduates of Brigham Young University have a median debt of less than $50,000, while graduates of the Pontifical Catholic School of Puerto Rico have an average debt of $106,290.
The time it takes to pay off law school debt depends on various factors, including the graduate's income, the repayment plan, and the interest rate. On average, it takes about 16 years for a law school graduate to fully pay off their debt. However, this can range from 5 years to 44 years depending on the individual's financial situation and repayment strategy.
There are several strategies that law school graduates can use to pay off their debt:
- Utilizing income-driven repayment plans, such as REPAYE or PAYE, which offer long-term loan forgiveness options.
- Applying for loan forgiveness programs, such as Public Service Loan Forgiveness, especially if working in the public sector.
- Refinancing loans to take advantage of lower interest rates and better terms.
- Creating a budget and living frugally to maximize debt payments.
- Pursuing scholarship and financial aid opportunities during law school to minimize debt.
