3 Financial Aid Tips for Law Students

It is easy to conclude that law school is not a good idea. Hopefully my posts are not reinforcing that idea. I believe that in many cases going to law school is a great investment. But one has to think of it as exactly that, an investment. Below are some tips for maximizing your investment:

1. Take out only federal loans. Currently you can take out a maximum of $20,500 in subsidized and unsubsidized Stafford loans per year for a total of no more than $138,500. The interest rate is locked at 6.8%. Your credit score is not a factor in obtaining this loan. As long as you are attending an ABA accredited (either fully or provisionally accredited) law school you are eligible. These loans are distributed directly to your law school with any remaining money then distributed to you for living expenses. The majority of public law schools can be financed via these loans. I recommend signing up directly for these loans with the Department of Education instead of with private lenders such as Sallie Mae, Nelnet, etc.

Still need more money for tuition? Don't turn to a private lender! Grad Plus loans are federal loans of 7.9% or 8.5% of up to the annual cost of attendance at your school. (Minus Stafford loans.) Your credit will be checked but based on anecdotal evidence as long as you are not in collections you are okay.

2. Calculate your money payment before you enroll. I made a big mistake here. I was keeping track of my overall debt but not aware of how much I would have to pay each month after I graduated. Luckily there are many calculators available online to estimate payments:

Finaid.org
Many different calculators are available. I linked above to the basic calculator. Add in number of years to repay, and interest rate and it gives you the monthly payment.

Bankrate.com
Little more sophisticated calculator. Shows the full repayment table, the effect of extra payments, and gives the exact date of repayment.

College Board
Truly the Cadillac of student loan calculators. Step by step process for adding in undergraduate and estimated graduate loans. I should have used this calculator when I was 18.

Short mine-jarring example:
According to the American Bar Association in 2007 the average amount borrowed at a public law school was $57,000 and $87,000 at a private law school. For shock value let's use the 87k figure (and most law schools are private).

Under a 10 year payment plan 87,000 at 7%, a conservative number and not including any fees, is $1010 a month! According to finaid.org:

It is estimated that you will need an annual salary of at least $121,216.80 to be able to afford to repay this loan. This estimate assumes that 10% of your gross monthly income will be devoted to repaying your student loans. This corresponds to a debt-to-income ratio of 0.7. If you use 15% of your gross monthly income to repay the loan, you will need an annual salary of only $80,811.20, but you may experience some financial difficulty.This corresponds to a debt-to-income ratio of 1.1.

(bold added.)

3. Do not use your credit card in law school. Should be common sense, but so easy to forget. I ran up at $10,000 debt on my card during school. Ironically much of this expense was not for frivolous "stuff" - car insurance, food, etc. It can be tempting to try to borrow unrealistically low living expenses from your federal loans, but trust me repaying at 6.8% is much better than 20-30% on a credit card.