Consolidation Options For Law School Grads
With a little foresight, law school students can select the proper loan and create a repayment plan that is best aligned to their career and lifestyle post-graduation.
Ed note: Cedar Ed Private Student Loan Consolidation products enable recent graduates to lower their private student loan rates and monthly expenses into one manageable payment. See more here.
The average debt load of law school graduates is well over $140,000. That’s roughly the cost of purchasing a Maserati, or 88% of your first-year Biglaw salary. Couple that with a notoriously grim employment outlook and law school grads often find themselves tethered to mortgage-sized repayment plans, minus the actual house.
One thing law school doesn’t teach you is the variety of loans that are available and the advantages and disadvantages of each loan type. With a little foresight, law school students can select the proper loan and create a repayment plan that is best aligned to their career and lifestyle post-graduation.
Let’s start by breaking down each type of loan to better understand consolidation after graduation…
Federal Direct Stafford Loans. These loans are available to law (and other) students that submit the FAFSA. Generally, $20,500 is allocated, with up to $8,500 subsidized funding—a perk that allows law students postpone interest payments while taking law classes.
Federal Perkins Loans. Rather than being awarded to students, these federal loans are awarded to universities, which then allocate the funds to students based on financial need. Typically, these awards are part of the greater financial aid package and are given in smaller amounts, somewhere in the $5,000 range per student. These generally have very low interest rates.
School Specific Loans. These loans are given to law students by the law school itself. The funding comes from a variety of sources; these loans are meant to subsidize the greater financial aid package.
Federal Direct GradPLUS Loans. For law students, these loans are generally used to pay for the rest of the costs associated with attending law school—tuition, books, and living expenses—that are not covered by Federal Direct Stafford Loans, Federal Perkins Loans, or School Specific Loans. Law students may borrow enough to fill this gap.
Bar loans. These private loans are designed to help law students with the costs associated with preparing for the bar exam, study materials, and living expenses. Keep in mind that these are private.
Private Loans. These are an option for law students as a supplement and generally should be sought once other options are exhausted.
As is the case with all students planning loan repayment, law students must crunch the numbers beforehand. Fill out and submit a FAFSA and compare interest rates. Higher rates should be avoided in favor of lower rates that offer better options during consolidation and repayment.
Now to the nitty gritty. Law school graduates have some complex options to consider when it comes to consolidation. Here are some tips for recent law school grads:
1.) Use the six-month grace period to think about how consolidation can work best for you. Some students may want to roll all loans into one payment for ease, for example, but it’s not always the best idea. When consolidating federal loans, law school grads should be aware that the interest rate for these loans is the weighted average of all federal loans, rounded up to the nearest 1/8th of a percent.
2.) If one loan has a standout low interest rate, it might be wise to keep it separate. Others might want to throw it into the mix to bring the whole rate lower. Do the math and see which will work best for you.
3.) Keep an eye on whether your interest rates are fixed or variable, because this will also factor into your decision. Loans dispersed before 2006 have a variable rate. Variable interest rate loans will change every July 1 every year unless they are consolidated, for example. So you should think about whether you’d like to consolidate variable rate loans separately, or whether you want to consolidate them with other 6.8% fixed rate loans.
Once consolidated, the rate is fixed until the loans are repaid in full.
4.) Some private loan lenders offer their own incentives, so be sure to read the fine print. A few lenders also offer a fixed-rate refinance student loan option. Keep in mind, too, that many lenders give a .25% rate discount for those who agree to have the repayment deducted from a bank account electronically. There’s no reason not to take advantage of this option.
5.) Finally, law graduates qualify for a number of new options provided by the federal government, including forgiveness after 10 years for those who choose to work for non-profits.
6.) There are also income-based repayment plans under which loans are forgiven after 20 or 25 years; during that payment period, you pay a percentage of your income toward what you owe, which is less if you earn less. And if you make under a certain amount, you pay nothing, but that time period still counts toward your forgiveness period, unlike deferment or forbearance.
