Tackling Student Loans as a New Lawyer
Like many of you, I had to take out student loans to finance my legal education. Every year, when it was time to complete my financial aid paperwork, I did so, but with little thought about the ways that my student loans would impact my future. In typical 22-year-old fashion, I had a “just put it on my tab” attitude. I knew that I wanted to be a lawyer, so this was the means to the end. Calculating my “tab” came a few months after graduation, when it became time to finally pay the piper, or, you know, Sallie Mae.
In 2015, the Wall Street Journal reported that law students typically graduate with around $140,000 in student loan debt. Even if your total is nowhere near that amount, your loan will be a monthly bill that you will need to address. A student loan payment is particularly frightening if you are hanging your own shingle because it creates additional pressure above the typical business expenses. Not only do you now need to generate enough income to cover your living and office expenses, but you may be making the equivalent of a mortgage payment in student loans. Here are some simple but practical tips for tackling the beast.
Wrap Your Mind Around It
One of the most difficult aspects of having a mountain of student loan debt to go along with that J.D. is that the debt is now yours, for better or worse. Student loan debt is not easily discharged, so more likely than not you will be responsible for repaying your student loans for a long, long time.
Presumably you had some pretty good reasons for going to law school. When you feel discouraged, remember that without those loans you would not be able to be a lawyer. You may second-guess your decisions and think to yourself, “Without all this student loan debt, I could have opened that brewery with my brother, been a stay-at-home mom, traveled the world or afforded a nicer car.”
But at the end of the day, wouldn’t you always regret not going for it? You would not be able to enjoy the thrill of convincing opposing counsel that they are wrong. You would not be able to stand before a judge and argue your case. You would not have the thrill of success when the jury comes down on your side. And let’s be real: You would not have the income potential that you do thanks to those letters you earned after your name. For the sake of your sanity, just embrace it, live with it, and consider your student loans as part of the cost of doing business.
Pay Off Private Loans First
Several companies offer private student loans, which means that the federal government does not back them. These loans can be used a stop-gap if, for example, the amount that you can borrow in federal student loans is not enough for you to be both a full-time law student and pay your rent, bills and other expenses. Private student loans are commonly used to finance those expensive study courses or to provide money for living expenses while you study for the bar exam for eight to ten weeks.
These loans are necessary in some circumstances, but they come at a cost. Private student loans are based on your credit score and typically carry a much higher interest rate. In fact, the interest rate may be as much as or more than that on a credit card. That means that you should consider tackling these loans first. Private student loans cannot be consolidated with your federally backed student loans, so you’ll be making a payment directly to the company you borrowed from, giving you at least two student loan payments per month. Pay as much as you can as quickly as you can toward your private student loans. The ultimate goal is to pay off private student loans as quickly as possible to avoid throwing away thousands of dollars in interest. Don’t just make that minimum payment!
Check Out Repayment Plan Options
There are a number of repayment plan options available, depending on the type of loan you have. Some include a graduated repayment plan, where your payment starts lower and increases incrementally over time, or an income-based repayment plan. These plans may be better than, for instance, the “standard” plan, because as a brand-new lawyer, it may take some time for you to build your business and therefore have the income to make a massive student loan payment each month. If you can afford it, always pay more than your minimum payment amount, which reduces the overall length of your loan and the total amount that you pay in interest. By using an alternative repayment plan, you may have the flexibility to pursue starting a solo or small practice, but you will still be capable of affording your monthly payment.
Explore Other Opportunities
Maybe you have been dreaming for a long time about starting your own practice, but if student loans make affording to do so impractical, then it might be time to explore other opportunities. Just because you are not financially able to open up shop the day after you pass the bar does not mean that you have in some way failed. Gain some experience, make a great business plan, and put your name on a sign when the time is right. But what ever you do, make sure you pay those student loan back as aggressively as possible.
Jared Pierce hung his own shingle right out of law school and has spent every minute since then discovering the joys and difficulties of chasing success. Anyone who has ever met Jared will tell you h