Financial Aid

Law school debt management is more important than ever today. Find out how to begin to take charge of your finances.

By Ursula Furi-Perry, Esq.

Richard Matasar is deeply concerned about the staggering load of debt that law students face.

“It’s like the perfect storm,” said Matasar, dean of the New York Law School who also serves on the board of directors of Access Group. A high level of debt, a high cost of capital when students borrow and a soft job market create that storm.

As with any other big purchase, the high cost of financing a law school education during a less-than-stellar economy may make some students think twice about going to law school.

“Everyone is more concerned about whether they can afford a particular purchase, and a law school education is [expensive],” said Heather Jarvis, senior program manager for Law School Advocacy and Outreach at Equal Justice Works.

The National Jurist explores ways in which you can minimize your debt load, financing and loan repayment options and how to budget and manage your finances efficiently.

Minimizing your debt load

Minimizing debt and financing your legal education begins with thorough research about your options. Experts emphasize that students have to do their part in getting informed about their finances. For example, students should become experts in their own student loans and should be aware of all their repayment options, said Jarvis. They also must do their research on various financing options and loan terms.

Students can start in their law school’s financial aid office.

“Every student’s financial situation is different,” explains Marc Berman, director of financial assistance at Thomas Jefferson School of Law.

While some students are 100 percent dependent on student aid, others come to law school with some outside resources. Plus, students’ financial needs may vary depending on their work, family and personal situations.

And that makes individual financial counseling all the more important. Law school financial aid officers can help students assess their need, discover and research options, come up with a budget and apply for aid. They can also provide financial counseling. Moreover, financial aid officers can help when something unexpected comes up during the school year, said Berman. Rather than turning to credit cards, students may be able to adjust their aid packages if the unexpected event increased their cost of attendance.

For D. Chad Johnson, part of finding the right combination of aid meant looking for in-state tuition and scholarships. Like most law students, the third year at Indiana University Maurer School of Law — Bloomington was concerned with minimizing student loans when he started law school, particularly as his wife gave birth to the couple’s first child while Johnson was in school. Staying in-state was Johnson’s first step in minimizing his post-graduation debt.

Federal work-study programs can provide another option for minimizing debt loads, said Berman. Working during law school in general can help students to ultimately borrow less, whether it’s part-time work or a full-time job combined with part-time law study. In addition, working can help build students’ resumes and help them network, Berman adds, which can ultimately lead to increased career opportunities.

Finding lower-cost alternatives may be one other way to minimize students’ ultimate debt load. So, if you’re accepted at a school that has lower tuition costs but is generally regarded similarly by employers as your higher-priced alternative, going with the less expensive alternative will allow you to have less debt at the end,
said Matasar.

Still, both Matasar and Jarvis recommend that before enrolling at a school, students look not only at the school’s price tag, but also the amount of aid the school may provide.

“Many excellent schools provide financial aid for those with need,” said Jarvis. “It’s not always true that the most expensive law schools are the most costly in the final analysis. It’s important to do enough research to understand that the cost of the law school can be offset by the
financial aid.”

To get informed and minimize debt:

— Research any scholarships that your school may offer, along with any private scholarships from other organizations that may be available to you.

— Look carefully at your financing options and research ways to minimize your borrowing.

— Consider lower-cost alternatives, but factor financial aid offered by a school — not just the sticker price — into your final analysis.

— Consider working while you’re in law school, if applicable.

— Meet with your school’s financial aid officers for help.


Financing options

But while scholarships are out there — for most students — law school loans will still be the primary source of financing their legal education.

One myth about law school finances is that there is no money available, said Matasar, along with myths that law school is either a terrible deal or a great deal. The truth is that for many — if not most — law students, law school will offer a sound education that will eventually lead to a job. And when it comes to financing that education, students do have options.

Most law students will opt for federal student loans, such as the Grad PLUS loan, Berman said. Under that loan, students can borrow the maximum cost of their attendance, using a fixed interest rate and ending up with generally more advantageous repayment terms than many private loans.

For some students, private loans are still an option, though Berman cautions that many private lenders have tightened their credit requirements in response to current economic pressures, and some have even left the market. Matasar and Berman both caution against using credit cards to pay for any costs associated with attendance.

Whatever loan you ultimately select, make sure you understand the financial terms of the loan before you take it out. Also understand what will be required of you when it’s time to repay the loan.

When borrowing, consider also the interest rate and what you can do with your money in other places, advises Berman. For example, if a student is borrowing excess money at an 8 percent interest rate and then putting it into a checking account to pay living expenses, that loan is accruing interest without providing any return for the student. For that reason, Berman recommends that students borrow as they need — that they look at their anticipated expenses at the beginning of the school year and plan to take out loans as those expenses are incurred.

Johnson has another solution. He said he puts his loan proceeds in a high-interest savings account until he needs to
use them.

To navigate your financing options:

— Consider the most attractive loans available to you based on your financial situation.

— Familiarize yourself with loan terms before you take out the loan, and understand what will be expected of you when it’s time to repay the loan.

— If applicable, consider taking out money as you need it in order to minimize interest costs.

Loan repayment options

The biggest buzz of the year in law student financial aid is the College Cost Reduction and Access Act, a new federal income-based loan repayment and loan forgiveness program which will be available to graduates starting this July. Under the Income-Based Repayment program, grads can lower their monthly payments, which will be capped at 15 percent of discretionary income. All Federal Direct loans and federally guaranteed loans are eligible. Both Jarvis and Berman advise students to at least check into income-based repayment after graduation to see if they qualify.

For many students, a loan deferment can also be a life-saver. For example, students who are studying for the bar exam may use a deferment based on economic hardship or unemployment, Berman said. Those who are continuing on with their education, such as by enrolling in an LL.M. program, can also benefit from deferring their loans.

Loan consolidation programs have become less popular. Berman said the mantra of “graduate, consolidate” that was so prevalent in the recent era of variable interest rates, is no longer the norm. Still, consolidation may make sense for some grads. For example, Berman said that for some students, consolidation can serve as a debt management tool, simplifying repayment if they have several different types of loans. In some loan forgiveness programs, consolidation may even be required.

In order to understand repayment options, students must be familiar with the terms and requirements of their loans. Jarvis recommends consulting the National Student Loan Data System, the central database for student aid run by the Department of Education. She adds that students should also get a copy of their credit reports and be familiar with the terms of their private loans and other debt.

And what if you’re having trouble with payments?

“For people who are struggling with their student loans, there are options for managing that debt,” Jarvis said. “I would encourage people to educate themselves and work with their lenders before they miss a payment.”

Your lender may, in turn, work with you towards more favorable terms that will allow you to stay current on your loan.

When it comes to loan repayment, you may have options:

— Look into income-based repayment to see if you qualify for reduced payments.

— Understand the terms and requirements of your student loans.

— Consider a deferment based on economic hardship or unemployment, if applicable.

— If you’re having trouble paying back student loans, try to work with your lender early on — before you start missing payments.

Budgeting and financial management

One last important piece of advice in law student finances? Live like a student!

First and foremost, create a budget as early as possible (during the spring or summer before the school year begins), and update that budget at least once a year and whenever your financial situation changes. Include your tuition costs, books and study materials, living expenses (such as your rent or mortgage, food, utilities, transportation and entertainment), insurance and medical costs and any other fees charged by your school and/or
your lender.

Don’t forget to budget for costs that may not be readily apparent in your cost of attendance, Berman said. Two examples are professional clothing and the costs of paying off any prior debts, such as credit card payments.

Johnson recognizes that budgeting isn’t exactly entertainment, but says that for him, it’s been an essential step in staying financially sound.

“We hate to sit down and do it; it’s not fun, but I think it’s something you have to do,” he said. “A lot of times, we know those good, sound pieces of advice…but it’s hard to implement them.”

In creating a budget, Johnson said he keeps track of where he and his wife spend their money. He also said he’s learned to cut out the “latte factor” — those little expenses that can add up to significant financial trouble. For example, Johnson said he packs meals ahead of time rather than spending more on take-out, accounting for the fact that law school gets stressful and that he — like many other students — often needs to eat on the run.

After you’ve created your budget, stick to it and try to minimize your costs, Matasar said. For example, he recommends that students live at home or with roommates if possible, watch their everyday spending, avoid credit card use whenever possible and only finance what’s necessary.

“Students should never treat the loan market as a way to live a [lavish] lifestyle,” Matasar said.

The importance of budgeting and sound financial management also extends to the beginning of your legal career.

“It’s important to live within your means and to understand that you have likely paid for your education with some of your current earnings,” Jarvis said.

For careful budgeting and sound financial management:

— Come up with your budget early and revise it at least once a year. Include all of your anticipated expenses.

— Stick to your budget and live within your means. As one person put it, if you live like a lawyer while you’re a law student, you’ll likely live like a law student when you’re a lawyer!

Loan Forgiveness Update

Also quickly taking hold are loan forgiveness programs. Under the federal government’s forgiveness program, which is part of the College Cost Reduction and Access Act, Jarvis said students must enter employment in government or nonprofit public interest work and work full-time for ten years, and they must make 120 monthly loan payments; the rest of the loan is then forgiven by the federal government. Only federal direct loans are eligible, Jarvis said, but many people may be eligible to consolidate their other loans in order to take advantage of the program.

In addition to the federal program, Jarvis adds that many law schools, states, and even employers offer their own loan forgiveness programs.

“Make sure you understand the terms of the repayment program,” said Jarvis, as well as what’s required of you before you can take advantage of the program.

Matasar cautions that many law schools don’t have adequately funded loan repayment programs. As with any other financial decision or option, Matasar says it’s essential for students to do their research—find out how many people are helped by the program, what participation entails, what the terms of the program are, and what conditions are attached.

To navigate loan forgiveness programs: Research your options early. Become familiar with the terms of the programs that interest you, including any specific steps you need to take in order to take advantage of the program.