The Ultimate Guide to Refinancing Law School Loans

law school loans

School doesn’t come cheap these days, and law school is absolutely no exception to the rule. If you’re one of the many lawyers in the U.S. who invested six figures of student loans into your education, pay attention.

While you still have to pay on those loans, there are ways you can make your payments more manageable. In fact, there’s even a way to make it so you can pay them off faster. Here’s how.

Where do you stand based on average law school debt?

After making it through law school, studying for the bar, and then eventually working long hours when you find employment, it’s understandable if your law school debt was the last thing on your mind.

That said, it’s important to understand exactly what you’re dealing with. Here are some recent statistics from Earnest on average law school debt to help you compare where you stand:

  • Current average law school debt is hovering at $139,900.
  • Law school graduates have some of the highest debt-to-income of the most popular graduate degrees.
  • Where you got your JD can impact how long it takes to repay your law school loans.
law school loans

Image Credit: Earnest

Why should you refinance law school loans?

If you want to ease the burden of your law school debt, one strategy is to refinance your law school loans.

Refinancing enables you to see if you can get a lower interest rate. And a lower interest rate will free up more of that money you’re working around the clock for to go straight to your principal balance.

But that’s not the only benefit of refinancing your loans. Doing so could also help you achieve a more favorable repayment plan, depending on what that means to you.

For example, if you want to get out of debt as soon as possible and have the income to manage it, you can opt for a shorter repayment plan. Or, if you’re looking for more flexibility in your repayment, you can opt for a longer repayment plan that might lower your monthly payments.

Of course, there’s always the hybrid option: choose a longer repayment plan and then apply any extra money to your student loan payments on top of the minimum amount due. For instance, you can use your tax refund, your bonuses at work, and any gift money you get from loved ones.

This strategy enables you to have a lower monthly payment so you don’t feel financially stretched. It also makes it possible for you to pay extra and get out of debt faster than your repayment plan suggests.

In short, refinancing your loans can help you achieve a better interest rate and repayment terms that work for you.

How much can you save by refinancing law school loans?

The question that remains is whether or not the time put into refinancing will end up being worth it for you. You can find the answer to this question pretty quickly by plugging your student loan numbers into our Student Loan Refinancing Calculator.

But for fun, let’s run through a few scenarios.

Scenario 1: Refinancing on a 20-year repayment plan

Let’s say you’re right at the average of law degree student loan borrowers. You have:

  • $140,000 in federal loans
  • An average professional degree interest rate of 5.31%
  • A 20-year repayment plan.

At this rate, you’re going to pay an additional $87,539 in interest on top of you $140,000 in student debt.

But, let’s say you decide to refinance and end up with a fixed interest rate of 3.37%. With that new rate and a 20-year repayment plan, you will:

  • Pay $52,629 in interest, saving you $34,910.
  • Decrease your monthly payment from $948 to $803, saving you $145 a month.

Scenario 2: Refinancing on a 10-year repayment plan

Now let’s imagine that you have more room in your monthly budget and want to get really aggressive on your debt payoff. Instead of a 20-year repayment plan, you opt for a 10-year repayment plan with that same 3.37% fixed interest rate.

With your new plan:

  • You’ll only pay $25,107 in interest, with a savings of $62,244.
  • You get out of student loan debt 10 years faster.
  • Your payment would go up from $947 to $1,376.

Even though your monthly payments will go up, if you have the room in your budget and you want to get out of debt ASAP, then it might be worth it.

After all, you’d be saving more than $60,000 in interest by refinancing with a 10-year repayment plan. Imagine what else you could do with $60,000 besides paying student loan interest.

How to refinance your law school loans

If you’re considering refinancing your law school debt, just know that you can see what you might qualify for without having to take a hit on your credit score. Plus, if you’re earning a high income and have a good credit score, you have a good chance of approval.

1. Compare offers

Many private student loan refinancing lenders do what’s called a soft pull on your credit score. This means they can see what you prequalify for before actually requesting your credit report. So you can collect multiple offers and only apply for the best one for you.

To see what you might prequalify for, check out some of the top private student loan refinancing lenders. You’ll be able to see most of their eligibility requirements along with the range of rates and terms they offer.

2. Choose the best loan for your payoff goals

If you do a few preliminary applications to compare offers, then you’ll want to think carefully before you choose a winner. It might be tempting to go with the lowest interest rate, but there are other important factors to consider as well.

Here are a few things to think about as you choose the right loan for you:

  • Is the interest rate lower than what you have now?
  • Does the lender offer other benefits, such as auto-pay interest rate deduction, unemployment protection, interest-only payments if you hit a financial snag, or co-signer release?
  • Can you afford the monthly payment amounts for your preferred plan?
  • Is your main goal to lower your payments or your amount of years in debt?

3. Remember that you’ll lose federal loan benefits

Finally, there’s one more thing to think about: are you okay with losing federal protections on your student loans?

Whenever you refinance a federal student loan, you’re effectively paying it off with a private student loan. That means you lose access to income-driven repayment plans, forgiveness options, as well as forbearance and deferment.

If you can reasonably assume you won’t need protections like these in the future – or if you earn enough to pay your student loans off before any huge life changes might happen – then perhaps that’s not an issue.

But, if you’ve started your own practice or question your career safety in your firm or the business you’re working for, then losing federal student loan benefits is something you should weigh carefully.

Other options for managing your law school debt

While refinancing is one of the most effective ways to save money on interest and pay off law school loans faster, it’s not the only option you have.

If you’re a lawyer who opted to work for the government or non-profits rather than a firm, you might be frustrated with your debt to income ratio and your ability to get approved for refinancing. But if your law school loans are federal loans, then you’re in luck.

People who work full-time for government organizations and 501(c)(3) non-profits can potentially qualify to have their student loans forgiven through Public Service Loan Forgiveness (PSLF).

How it works is you would first enroll in an income-driven repayment plan to lower your monthly payments to a certain percentage of your income. Then you can apply for forgiveness under PSLF after you make 120 qualifying PSLF payments.

However, keep in mind that you may have to pay taxes on the remaining balance that’s forgiven.

One other note about PSLF. It’s a useful tool for a lawyer working for qualifying companies and who needs a break on their monthly payment amounts.

If you’re just starting out in law school, don’t go crazy on student loans just because you think this program will be available to you. The laws around student loans can change at any time, as many would-be PSLF borrowers recently found out.

Take control of your law school loans now

Whether you opt for a student loan refinance or other options for handling your law school loans, just make sure you, well, handle them.

Here’s some advice on student loan repayment from a lawyer in the same boat.

“I’d encourage anyone who is passionate and strategic about the law to do real financial planning so that they can make an informed decision on their true ROI,” said immigration lawyer Renata Castro. “Invest in yourself, this is the only investment where you have true control of the outcome!”

By taking your student loans by the reins now, you have an opportunity to optimize your repayment and pay them off much faster than a standard repayment plan offers. Plus, it will feel like you get an instant pay raise when you see all the money that was going to your loans go straight to your bank account instead.

Handle your loans now so you can build the future you’re dreaming of and focus on what you really care about: practicing law.

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