How To Pay For Law School | Student Loan Planner

What is the best way to pay for law school? Here's something that you need to know. First of all, before we even talk about how to pay for it, here's how to know if it makes sense to fundamentally just go in the first place. So the worst case scenario is you take out a ton of student loans for law school, and you have to pay that back on an income-based repayment plan. Most of the repayment plans these days, the best ones, only ask for about 10% of your income. Once you account for deductions and write-offs and things like that, it works out to about, really, 8% effectively of your income. On top of that, you're going to have to save for a potential tax bomb in the future. Usually, this is about 6% to 7% of your income that needs to go into mutual funds after graduation to cover the taxes on forgiven debt in the future. That is the worst case scenario, which means, worst case scenario, you go to law school, you basically have to lose 15% of your income for about 20 to 25 years. If you are not comfortable with that trade, then you shouldn't go to law school. However, if you are comfortable with that trade, and you think you actually want to be a lawyer or do legal work, then going to law school could be a defendable good decision. So with that in mind, here's how to think about what loans you should take out when you're paying for law school. The only loans that are eligible for income-driven repayment options and forgiveness are federal student loans, which means that if you take out private student loans, you will have to pay those back in full. A big question mark is, when you graduate, are you going to pay off all of your loans, or are you going to go for a forgiveness option? Those are the two choices. Let's talk about the first one. If you're going to pay off your law school loans in full, then here's a couple things you want to think about. You want to minimize the interest that grows while you're still in school. This is the only time that you would use private loans for law school, is under these circumstances. So first, let me explain the kind of federal loans that you would take out. The first is Stafford loans. Basically, you get to borrow about $20,000 a year of Stafford loans, and then anything above that, you have to take out under something called a Grad Plus loan. What's the difference between a Stafford and a Grad Plus loan? Stafford loans cost roughly 6%, it kind of varies with what the government borrows at, and then Grad Plus loans cost about 7%, or about 1% more than Stafford loans. Also, those kind of federal loans have what's called an origination fee, which is basically just an upfront fee for borrowing. For Stafford loans, it's 1%. For Grad Plus loans, it's over 4%. So if you compare those interest rates to private student loans, private student loans for law school, you can sometimes get 5.5% to 6%, with some of them even with no upfront fees. So while that is a lower interest charge, the thing that you need to be aware of is, again, those do not come with forgiveness options at all for private student loans. So if you're 100% sure that you're gonna pay your loans off and you're gonna work in the private sector and make a bunch of money, and that you could easily, easily afford to pay 1% of the total amount you're gonna leave school with every month, then go ahead and consider taking out some private loans for law school. If you are wanting to compare private lenders, studentloanplanner.com slash private has a list. Now, most people should not be taking out private loans. In fact, I would really probably only take out a private loan to replace a Grad Plus loan. So if I was going to law school, say at my in-state university, and I needed to borrow $30,000 a year for three years, the first $20,000 is gonna come under Stafford loans. That's gonna be 6% with a 1% origination fee. And then for that next $10,000, rather than borrowing it like seven with a high upfront fee with a Grad Plus program, I would probably consider taking out a private student loan if I could qualify my own or through a cosigner. So that's if you're gonna pay your loan off in full. If you're not gonna pay your loan off in full, how will you know that? Basically, if you're going to owe more than 1 1⁄2 times your income, or you're gonna work in a not-for-profit or government employer, either one of those scenarios means that you need to take out only federal student loans. Luckily, for students going to law school, you can borrow up to the cost of attendance, which means you can borrow as much as you need to get through a school up to some maximum basically set by the school, which is somewhat arbitrary, in my opinion. Which means that all you need to worry about is in the not-for-profit or government space, your cost of your education is basically just your income-driven repayment amount. Whatever that is, you do that for 10 years, your loans are forgiven tax-free, that's it. In the private sector, say you're working at a small firm, doing family law, making $70,000 in the D.C. suburbs, and you have $200,000 of law school debt and going to a private law school, well, that kind of a person's gonna have to make their loan payment, and they're gonna have to save for that tax bomb because they're in the private and not public sector. And forgiven student loan debt is currently taxed as if it was income after the 20 to 25 years worth of payments that you make. So that is in detail how you pay for law school. If you are considering going to law school or you're going to law school and you're trying to come up with what you should do, we actually make plans for people, studentloanplanner.com slash pre-debt, and we'll tell you what we think is the best option for financing and show you what your options would look like. So anyhow, for people going to law school, just remember, if you're going to pay the loan off in full, then consider private loans. Most people, probably 80%, should be taking out only federal student loans because there's all kinds of protections, and there's even interest subsidies when you graduate. If you have a low income, you can sign up for the revised Pay As You Earn program and get up to half of your interest covered for what your required payment does not cover. And that's the best option to finance your law school education.