How To Tackle Student Loan Debt

If the first big hurdles coming out of law school are passing the bar exam and landing a job, the next one is how to tackle student loan debt that, for many graduates, can run well into the six-figure range.

Adding to the challenge is that while student debt loads for law school graduates have been climbing sharply, salaries not only have failed to keep up, they’ve been heading in the opposite direction.

Back in 2004, you could expect to graduate from law school with $88,634 in student debt, on average. According to the New America Foundation, that figure had climbed to $140,616 for the class of 2012.

After peaking at $130,000 in 2009, median starting salaries for graduates who landed at law firms slid precipitously during the recession, bottoming out at $85,000 for the class of 2011. Although median starting law firm salaries for the class of 2013 rebounded to $95,000, they stayed there last year, according to the latest numbers from the National Association for Law Placement Inc. (NALP).

According to NALP, the median starting salary for all jobs taken by law school graduates — including academic, business, government, private practice, and judicial clerkships — fell from $72,000 in 2009 to $63,000 for the class of 2014.

There are a number of approaches to tackling bigger student loan payments on a smaller salary, including income-driven repayment plans, loan forgiveness, or refinancing student loan debt to take advantage of lower rates.

Income-driven repayment plans

Federal student loan borrowers are eligible to enroll in a number of income-driven repayment plans, which cap monthly student loan payments at as little as 10 percent of discretionary income.

Stretching out payments over many years reduces the monthly payment, but may increase the total amount of interest paid over the life of the loan.

The latest income-driven repayment plan, Revised Pay As You Earn (REPAYE), also includes loan forgiveness — but for grad school loans, it doesn’t kick in until you’ve been paying your loans down for 25 years.

“While income-driven repayment may not be the best or most affordable choice for all borrowers, it is a critical option for borrowers who are struggling to manage their monthly payments,” advises Oakland, California-based The Institute for College Access & Success (TICAS).

Loan forgiveness

Enrolling in an income-driven repayment plan isn’t the only way to have student loan debt forgiven.

There are many public service employment opportunities for lawyers, and those pursuing a career in the public sector may be eligible for loan forgiveness through programs offered by the federal government and some law schools.

Federal loan forgiveness programs forgive the remaining balance of federal loans for full-time employee with qualifying public service positions who have made timely repayments for 10 years.

Qualifying positions may include work for the government or a non-profit. There are also a number of federal repayment assistance programs offered on a state level to help bring public service lawyers to underserved populations across the United States.

In addition to federal programs, many law schools offer loan repayment assistance programs, or LRAPs. LRAPs help graduates repay their loans when they take qualifying public interest or low paying service positions in the legal field. Each school has their own eligibility requirements and LRAP terms, but many legal public servants drastically reduce their debt obligation with the help of these programs.

Refinancing

The student loan refinancing market has exploded in recent years, and many private lenders are offering loans at rates that can beat the rates on government student loans. Interest rates are at historic lows and qualifying borrowers may save thousands over the life of their loan by refinancing.

Most law school graduates finance at least part of their education with federal PLUS loans. Unfortunately for grad students, PLUS loans have a significantly higher interest rates than federal student loans for undergraduates. PLUS loans for 2015-2016 carry an interest rate of 6.84 percent, while subsidized undergraduate loans for the same period carry an interest rate of 4.29 percent.

If you’re earning a steady income and have good credit, you can lose your high interest PLUS loan by refinancing and securing a lower interest rate. An interest rate just 1.5 percentage points lower will save you thousands of dollars over the life of your loan. Many refinancing lenders offer benefits that can help keep you on top of repayment and provide assistance if you experience financial hardship.

Keep in mind that private loans may lack some borrower protections provided by government loans, such as loan forgiveness for government employees and public-interest lawyers once they’ve made 10 years of payments.

But it’s not unusual for private lenders to provide benefits like a grace period for repayment and protections against loss of income.

If you’ve decided that refinancing with a private lender could save you money, do shop around to find which lenders offer the best deal. Underwriting decisions are made on a case-by-case basis, and lenders offer products that vary in rates and terms.

One place to compare competitive loan offers from private lenders is Credible.com. Credible is a multi-lender marketplace that lets borrowers fill out one form, receive and compare personalized offers from vetted lenders, and choose the offer that best suits them.

You can get a good estimate of how much refinancing might save you in about 30 seconds at Credible.com.