It’s no surprise that law school is expensive. According to U.S. News, the average annual cost for tuition and fees at a private law school was $49,095 and $27,591 for an in-state public university.
With such a large bill, you likely had to take on a significant amount of student loan debt to pay for your law degree. In fact, Law School Transparency reported that 75% of law graduates in 2018 took out student loans.
The average amount borrowed? A staggering $115,481.
With such a large balance, you may be wondering how to pay off law school debt. If you want to get rid of your loans once and for all, student loan refinancing can be an effective strategy.
Here’s what you need to know about refinancing and what you should do before you refinance law school loans.
Benefits of refinancing law school debt
When you refinance your loans, you apply for a loan from a private lender for your total existing debt. Instead of having multiple loans, your loans are combined together (or —consolidated”).
You’ll have just one loan to manage, with entirely different terms than your old ones. Why is that a good thing?
Student loan refinancing offers three significant benefits:
1. You can reduce your payments
With such a big balance — lawyers often have $100,000 or even $200,000 in student loans — your monthly payments can eat up a big chunk of your budget.
If you can’t afford your payments, student loan refinancing can make them more manageable. You can extend your repayment term when you refinance your debt, reducing your monthly payment.
For example, let’s say you had $115,481 in student loans at 7% interest. On a 10-year repayment term, your monthly payment would be $1,341 per month.
If you refinanced your loans and opted for a 15-year loan term — and had the same interest rate — your loan payments would drop to $1,038 per month.
Refinancing would free up $303 per month in cash flow.
The longer loan term would cause you to pay back more in interest in the long run. But that may be okay with you to have more breathing room while your career is just getting started.
2. You can save money over time
If you want to save as much money as possible, refinancing can be a smart way to achieve that goal.
As a lawyer, you likely make a good salary. You could qualify for a lower interest rate, allowing you to save money over the length of your loan.
If you had $115,481 at 7% interest and a 10-year repayment term, you’d repay $160,900 in total over the length of your loan. Interest charges would cost you over $45,000.
But let’s say you refinanced your debt and qualified for a 10-year loan at just 5% interest. Over 10 years, you’d repay just $146,983.
By taking a few minutes to refinance your loans, you’d save nearly $14,000.
3. You can get out of debt earlier
If you consolidate your debt and qualify for a lower interest rate, more of your monthly payment will go toward the principal instead of accrued interest.
If you keep making the same payments as you were before, you can cut down on your repayment term, paying off your loan months or even years ahead of schedule. Getting rid of your debt can be a huge relief, freeing up money to achieve your other goals.
How to refinance law school loans
If you think refinancing sounds right for you, you can complete the process in just a few simple steps:
- Gather your information: To speed up the process, make sure you have some basic information on hand. Have your current loan information nearby, including your loan servicer’s name, your loan account numbers, and your current loan balance.
- Compare rates from multiple lenders: Compare rates from multiple lenders using Purefy’s free tool to find a loan that works for your needs, with no credit check required.
- Apply online: Once you find a lender and a loan that’s a good fit, you can apply for the loan online. Typically, you can complete the application in less than 15 minutes. Be prepared to enter your personal information, including your address, Social Security number, employer address and phone number, and your current income.
When refinancing law school debt doesn’t make sense
In some cases, refinancing your law school isn’t the best choice.
For example, if you have federal student loans and work for a government agency, you’re eligible for loan forgiveness through Public Service Loan Forgiveness (PSLF). But if you refinance your debt, you’ll no longer qualify for that valuable forgiveness program.
If private loan refinancing isn’t an option for you and you’re wondering how to pay off law school debt more easily, there are four smart alternatives to consider for managing your loans:
1. Enroll in an income-driven repayment plan
If you have federal Direct student loans — including Direct Subsidized, Unsubsidized, or PLUS Loans — and can’t afford your payments, you may be eligible for an income-driven repayment (IDR) plan.
The U.S. Department of Education offers four different IDR plans:
- Income-Based Repayment
- Income-Contingent Repayment
- Pay As You Earn
- Revised Pay As You Earn
The particulars of each plan vary slightly, but in general, your repayment term under an IDR plan is extended to 20 to 25 years. Your monthly payments are usually set at a percentage of your discretionary income, and you could see a significant decrease in what you need to pay each month.
If you still have a balance after 20 to 25 years of making payments — depending on what plan you’re on — the remaining loan balance is discharged, but the forgiven amount is taxable.
To enroll in an IDR plan, contact your loan servicer or apply online.
2. Apply for PSLF
While loan forgiveness may sound too good to be true, it’s a very real option for some borrowers.
If you have federal student loans and work for a non-profit organization or government agency, you can qualify for PSLF after working for 10 years for an eligible employer while making 120 qualifying monthly payments. The remaining balance is forgiven tax-free.
3. Make a service commitment with the Department of Justice
If you are an employee of the Department of Justice and an attorney willing to make a three-year service commitment, you may be eligible for the Attorney Student Loan Repayment Program (ASLRP).
Under this program, the Department of Justice will match your loan payments, up to a maximum of $6,000 per year. The total lifetime maximum you can receive is $60,000.
For more information, visit the Department of Justice website.
4. Look for state repayment assistance
To encourage lawyers to live and work in certain areas, some states offer student loan repayment programs. States will help lawyers with a portion of their education debt in return for a service commitment.
For example, the Florida Bar Foundation operates the Loan Repayment Assistance Program for attorneys who are employed full-time by civil legal aid organizations that receive grants from the foundation. Eligible lawyers can receive up to $5,000 a year in loan repayment assistance.
In Texas, the Texas Student Loan Repayment Assistance Program offers up to $6,000 per year in student loan assistance to attorneys who work for legal aid programs that receive funding from the Texas Access to Justice Foundation.
Visit the American Bar Association website to see if your state operates a similar program.
Managing your law school loans
Now that you know how to refinance law school loans, you can make an informed choice about whether or not it’s the right decision for you. If you’re not sure how to get started, check out Purefy’s insider’s guide to refinancing.