How to Handle Law School Debt

This article was originally published for SoFi and is used with permission.

Going to law school has long been a way to earn a professional degree and kickstart a rewarding and lucrative career. The hours are long and the competition is stiff, but for students drawn to the art of negotiation and persuasion, it might be a logical next step after undergrad.

Since the recession, however, law students have faced soaring education costs and an ever-changing job market. Many graduates leaving law school spend several months searching for a good position to immediately start making a return on their student loan investment, which usually comes with an obligation to work high-pressure nights and weekends. Juggling long hours on top of high-interest loans often lead to less dedicated graduates leaving law altogether.

Law students have faced soaring education costs and an ever-changing job market in recent years. Many graduates leaving law school spend several months searching for a good position to immediately start making a return on their student loan investment, which usually comes with an obligation to work high-pressure nights and weekends. And according to a recent Gallup pool , only 23% of law graduates who went to school between 2000 and 2015 said that law school was worth it.

However, there are signs that things are beginning to turn around thanks to a smaller graduating class and a strengthening economy. According to the American Bar Association , 75% of the class of 2017 was able to secure full-time work relevant to their degree within 10 months of graduating.

So, how can you better set yourself up for success when dealing with law school loans? One obvious choice is to confront your debt situation directly. Here are some tips to help you get your law school debt in order, so you can focus more on the career portion of your life.

Average Law School Debt

Law school debt balances aren’t exactly conservative. A 2018 graduate from American University in Washington D.C. had an average debt load of $167,039 . And graduates who opted for public universities over private institutions are still struggling with considerable student debt; for example, the average debt balance of a law student who graduated from the University of Massachusetts, Dartmouth in 2018 was $102,245.

This debt may seem crazy, but when you consider the fact that getting a law school degree is now way more expensive it makes a bit more sense.

For example, comparing the cost of a law school degree in 2018 versus 30 years prior, it has increased quite a bit. Public law school cost is now over five times as expensive as it was in 1985. Adjusted for inflation, getting a private school law degree is almost three times as expensive as it was 30 years ago.

How Much Does Law School Actually Cost?

The cost of tuition and fees for law school vary dramatically depending on where you choose to go to school. According to U.S. News & World Report , the average annual cost of tuition and fees at a private law school for the 2018 to 2019 academic year was $49,094. Attending a public university costs an average of $27,591 for in-state students and $40,725 for out-of-state students.

Reducing Your Law School Loan Debt

Before we jump into ways to handle your student loan debt, we just want to touch on a couple options for reducing your debt burden.

One way, of course, is to take out fewer loans. If you’ve already finished law school, you aren’t going to retroactively qualify for scholarships, but if you’re reading this before you take out loans for your final year of law school, there’s still time.

Schools typically offer enticing fellowship and scholarship packages in order to recruit top students to their programs. In addition to merit- and need-based scholarships offered by your school, a quick online search could yield many outside scholarships offered by nonprofits and community organizations that you can take advantage of.

You could also look into forgiveness options for federal loans after graduation. For those starting jobs in government, public service, or the nonprofit sector, the Public Student Loan Forgiveness program offers federal loan forgiveness after 10 years of eligible payments under a qualifying repayment plan. If you have a steady, eligible career with a relatively low salary, loan forgiveness programs are definitely something to consider.

How Law School Debt Can Snowball

The unfortunate reality of debt is that it can snowball—particularly if you have loans from your undergraduate years.

For example, if you have unsubsidized loans from undergrad that you deferred while in law school, those loans accrued interest while you were becoming a lawyer. When you graduate from law school, the accrued interest is added to the principal amount you owe. That means your undergrad loans could have accrued three year’s worth of interest while you were in law school, which is now compounded on your principal balance

What Are Some Solutions for Handling Law School Debt?

If you’re passionate about having a career in law and are confident in your abilities, don’t let the costs of your education deter you from investing in a rewarding profession. Managing law school debt might seem overwhelming, but having a strategy can help you pay off your debt.

Here are several solutions to consider:

Making Interest Payments While in School

While under the federal student loan deferment program, you aren’t required to make any payments while you’re in school, paying at least the amount of interest that is accruing on your loans each month can help keep your student debt from snowballing. And if you are able to pay more than just the interest, it’s a smart idea. The faster you pay down your loans, the less they’ll generally cost you over time.

Picking a Repayment Plan that Fits Your Budget

Once you graduate and start working, you’ll likely have a few financial priorities competing with your student loan repayment. In general, it’s a good idea to pay down law school debt as soon as you have a steady income, but paying down your loans too aggressively can leave you without enough in savings.

Building up an emergency fund can provide you with a buffer in case you have unforeseen expenses. It can also be a good idea to start putting a percentage of your income toward a retirement fund to take advantage of potential long-term gains. You may want to factor your savings goals into your budget and pick a student loan repayment plan that fits your cash flow.

Putting any Extra Funds Toward Your Debt

Alternately, you can make paying down debt your top priority and put any extra income you have toward your highest-interest loans. Of course, if you choose this route, you may want to make sure you have a financial safety net in place first. This law school debt repayment strategy is typically called the avalanche method.

Essentially, while making regularly scheduled payments on all your loans, with the avalanche method you’d make additional payments on your highest interest loans first. This method helps reduce the amount of total interest you’re paying. And by paying your loans down early, you could save on interest payments over the years because the faster you pay off your student loans, the faster you can stop paying interest on your debt.

Cutting Back

Relating to the strategy above, you could try to cut back on your monthly expenses and put that extra money toward your debt payments. While no one enjoys having to stick to a budget, it can be a smart idea to do so in order to stay on track with your spending.

Can you cut back on certain expenses each month? You may have to make a few sacrifices (within reason), but you probably don’t need to cut back on everything. See what simple changes you can make to your budget to find extra money to put toward your law school debt. Paying more than the minimum monthly payment on your student loans can go a long way towards getting out of debt faster and, therefore, making fewer interest payments.

Making Your Loan Payments Cost Less

What if instead of taking that job at a top law firm, you opt to go into public defense or spend a year traveling? If you find yourself looking for a way to make your federal loan payments more manageable, income-driven repayment plans can also lower your monthly payment by capping the amount you pay based on your discretionary income and household size.

With these plans, you may pay more interest over the life of your loans. But if your monthly payments are too high, income-driven repayment plans can bring them down.
Another way to make your loans cost less (in one way or another) is to refinance your student loans with a private lender, like SoFi.

Refinancing Your Law School Loans

When you refinance, a private lender gives you one new loan to pay off your existing student loans (including your law school debt and the undergraduate debt you may still have). Your new loan will have new terms and a new (hopefully lower) interest rate.

Instead of paying on multiple student loans, you’ll just have to worry about paying off one loan. If you qualify for a lower interest rate and shorten your loan repayment term, you may pay significantly less in interest.

Refinancing federal student loans with a private lender means you’ll no longer be able to take advantage of the benefits that come with federal loans, like income-driven repayment plans, deferment, and forbearance.
If you have a steady income, solid credit, and don’t plan to take advantage of those federal programs, refinancing could be the right option for you.

Not only that, but refinancing can allow you to combine your private and federal loans, which can seriously simplify your repayment process.