Idealy, one should only incur three types of debt throughout their lives – student loans, mortgages and cars. Credit card debt should also be avoided whenever possible.
Many aspiring attorneys aiming for Big Law careers can avoid incurring significant student loan debt by winning a merit scholarship based on LSAT and GPA metrics.
The Debt-to-Earnings Ratio
Law schools continue to increase tuition, forcing students to incur significant debt. Some observers argue that such debt acts as an obstacle in entering GPI careers; recent scholarship has focused on its effects (Ryan 2021; Albiston et al 2018).
However, this scholarship suffers from two significant methodological limitations. First, it predated tuition increases and student debt accumulation that could have altered graduates’ financial calculations regarding GPI employment opportunities.
Schrage has formed private funds to incentivize career risk-taking. Orrick, for instance, in 2016 began offering new associates monthly contributions that will be forgiven after five years if they remain working in public service or government – this venture can help offset tuition and student debt costs while furthering public service careers. LRAP programs also help mitigate this effect.
The Debt-to-Income Ratio
Utilizing education department data, we compare median earnings to median amount borrowed for law school graduates from various law schools. While debt and income don’t always correlate perfectly (entry-level lawyer salaries tend to fall into bimodal distribution), the ratio provides a starting point when planning financial futures.
Debt can still be an obstacle for lawyers despite earning substantial salaries; according to the Consumer Financial Protection Bureau’s advice, debt payments should not exceed 36% of income.
If your law school debt load is substantial, considering making payments while in school or exploring PSLF/IDR plans. Or refinancing them through ELFI may help reduce your overall debt load and monthly payments while speeding up payback of student loan balances faster. Speak with an expert today for customized advice!
Paying Down Your Loans
Before taking out loans to pay for law school, a careful consideration should be made of your financial needs and future earning potential. A loan calculator is an invaluable resource in this regard as it estimates monthly payments based on different amounts owed.
Repaying loans quickly is also an important consideration. On average, it takes the average Whittier graduate around 19.1 years to repay their federal student loans using a repayment plan that places 25% of their income towards repayment without resorting to forbearance or deferment; this does not include interest accrual over that time frame.
Refinancing options exist for private loans to lower rates and potentially save you thousands in interest charges over time. These may be available from banks and online lenders; it’s wise to investigate them prior to graduating; adding more financial responsibilities onto your plate just compounds problems further.
Refinancing Your Loans
As most law school attendees must rely on student loans to cover costs, these loan debts follow you into their careers and can restrict you from meeting other financial goals (like buying a home).
Refinancing law school loans could save money and accelerate repayment by refinancing to a lower interest rate. Consolidating multiple federal and private loans into one payment may also help make refinancing more manageable.
Public sector lawyers wishing to qualify for PSLF might benefit from refinancing their loans and selecting a shorter repayment plan, so as to achieve their goal faster. Otherwise, it makes more sense to focus on paying down high-interest loans first using any spare cashflow; this strategy is known as the “avalanche approach”, and is considered the quickest way to lower overall costs of borrowing and return your debt-to-income ratio to normal levels more quickly.
