Law School Student Loan RefinancingMarch 20, 2020
Updated October 22, 2020
Law school is expensive, but the silver lining is that you can expect a strong return on investment. Most lawyers make six-figure incomes, even when they’re getting started.
High incomes make lawyers fantastic candidates for student loan refinancing. Because many lawyers have a low debt-to-income ratio, it’s easy to qualify for low interest rates when refinancing. Especially if you have a large amount of student loan debt, cutting back the interest on your loans by refinancing is a great way to reduce the total amount you’ll pay.
Average Law School Debt & Earnings Statistics
The legal industry continues to enjoy steady growth, according to the Bureau of Labor Statistics. Averaging an expected growth rate of 4% per year from 2019 to 2029, it matches the average growth rate for all occupations nationwide.
While lawyers do make high starting salaries, they often pay even higher tuition while attending school. After graduation, while most lawyers are in a stable financial place, it’s hard to reap the benefits of your hard work when you’re still covered up with student loans.
Below are statistics Credible compiled featuring law school debt, expected earnings and student loan repayment periods as of February 2020:
- Average law school debt: $134,600
- Average education debt after law school: $148,800
- Median earnings with a law school degree: $120,910
- Average earnings with a law school degree: $144,230
- Average time to repay law school debt: 18 years
With a high expected salary and steady industry growth, most lawyers can expect to lower their interest rates with student loan refinancing.
When You Should Refinance Law School Debt
When you refinance your law school debt, you take out a loan from a lender like Education Loan Finance for the amount of your current debt. The new loan has different terms, including interest rate and length of repayment.
The primary goal of refinancing your student loans is to lower your interest rate and pay your loans off more quickly. Especially if you work in the private sector and aren’t eligible for student loan forgiveness, student loan refinancing is an exceptional option.
Here are a few of the benefits of student loan refinancing:
- Ability to lower your interest rate: When you refinance your debt, you can qualify for a lower interest rate and save money over the life of your loan.
- Option to change your law school loan repayment term: You can shorten your student loan repayment term to decrease the amount of interest you’ll pay over the life of the loan. You can also increase your repayment term to lower your monthly student loan payment expenses.
- Option to refinance again if your financial situation improves: Even if you’ve refinanced once, you can do so again if your credit score or debt-to-income ratio improves. You can also keep an eye on interest rates and refinance again if they drop.
- Consolidation can simplify your payments: By refinancing your debt, you consolidate multiple federal and private loans to make a single payment. Consolidating your law school loans makes your payments easier to manage.
- Ability to lower your law school loan payment if you aren’t eligible for student loan forgiveness: Lawyers who work in private practice or who have loans from private student loan lenders don’t qualify for Public Service Loan Forgiveness. In that case, refinancing can make good financial sense.
- Ability to lower your payment if you aren’t enrolled in any federal student loan benefits: While student loan refinancing can be an effective tool for managing your debt, one of its biggest drawbacks is that you lose out on federal benefits when you refinance federal student loans. If you aren’t currently relying on any federal student loan benefits, you won’t need to worry about losing them.
How Much Can I Save by Refinancing Law School Loans?
The amount you can save by refinancing your law school loans depends on a few factors.
First, if you have a strong credit score, you’ll be more likely to receive a low interest rate estimate from refinancing lenders. Additionally, lenders take your debt-to-income ratio into account. If you’re making a steady income that can cover your monthly payments without a problem, then you’ll likely receive a better rate, as well.
If you have a high-interest loan, refinancing may save you more than if you’re refinancing an already low interest rate. For example, let’s say you have a 10-year repayment term with law school debt of $134,600 at a 6% fixed interest rate. If you made all payments on time, your monthly payment would be $1,494.34 and you would pay $179,320.31 over your loan term, with $44,720.31 of that total being interest alone.
If you refinanced to a 10-year term with a 4% interest rate, your monthly payment would fall to $1,362.76 per month and you would pay $163,531.15 over your loan term, with just $28,931.15 of that being interest. You would save $131.58 per month and $15,789.16 in interest costs over your loan term.
To input your own numbers with ELFI’s current rates, try our Student Loan Refinance Calculator.*
Alternatives to Private Student Loan Refinancing
Refinancing can help you save money and pay off your debt early, but it’s not a great solution for all attorneys. If you don’t think that student loan refinancing is right for you, here are a few alternatives for managing your student loan debt:
1. Apply for Public Service Loan Forgiveness (PSLF)
One option is to pursue student loan forgiveness for lawyers through Public Service Loan Forgiveness (PSLF). To qualify for PSLF, you must have federal student loans and work for a qualifying government agency or 501(c)(3) non-profit organization for at least 10 years. During that time, you must make 120 qualifying monthly payments. If you meet those requirements, your remaining loan balance will be forgiven tax-free.
For lawyers, examples of positions that may be eligible for PSLF are working as a public defender or as a state prosecutor.
2. Apply for an Extended or Income-Driven Repayment Plans
If you can’t afford your monthly payments and you have federal student loans, you may be able to reduce your payments by applying for an extended or income-driven repayment (IDR) plan.
Extended repayment plans have fixed monthly payments for up to 25 years. These monthly payments can be as low as $50. Under an IDR plan, your loan servicer extends your repayment term and sets your monthly payment at a percentage of your discretionary income.
Examples of IDR plans include:
- Pay As You Earn (PAYE): Each month, you’ll pay 10% of your discretionary income, divided by 12. PAYE plans have a repayment period of 20 years. You’re only eligible for this plan if you borrowed your loans after October 1, 2007.
- Revised Pay As You Earn (REPAYE): Similar to the PAYE plan, you’ll pay 10% discretionary income divided by 12 each month. If any of your loans are grad school loans, your repayment period will be extended from 20 to 25 years. This plan does not include a borrowing or disbursement date restriction.
- IBR: Each month, you’ll pay 15% of your discretionary income, divided by 12.
- ICR: On an ICR plan, you’ll pay either a fixed-rate monthly amount with a 12-year repayment term or 20% of your discretionary income divided by 12. You’ll pay whichever monthly total is lower between the two.
If you’re on an IDR, you may be eligible for income-driven repayment plan forgiveness. Once you’ve reached the end of the agreed-upon term for your repayment plan, for example, 20 or 25 years, your loans may be forgiven. However, you’ll likely still have to pay tax on the forgiven amount.
If you’re interested in an IDR plan, you’ll need to apply and re-apply annually to ensure you remain eligible. Eligibility is based on factors including income, marital status and dependent children. You can apply for an IDR plan online or by contacting your loan servicer over the phone.
3. Investigate Repayment Assistance Programs
Choosing a career path that offers student loan repayment assistance can be a great way to jumpstart your repayment process. Several different repayment assistance programs are available, including:
- Loan Repayment Assistance Programs (LRAPs): Attorneys who work for certain programs and organizations can qualify for student loan assistance through Law School LRAPs. The American Bar Association hosts a database of student loan repayment assistance programs available all over the nation. You can search the database to find programs you may be eligible for near you.
- John R. Justice Student Loan Repayment Program: This repayment assistance program provides loan assistance to eligible state and federal prosecutors, as well as public defenders.
- Employer student loan assistance: Some employers will either contribute monthly or pay off a certain amount of your student loan balance after a specified amount of time. Discuss the availability of these benefits with prospective employers.
Should I Refinance My Law School Loans?
As a lawyer, you likely have a significant amount of student loans. While your loan balance can be a burden, student loan refinancing can help you save money and lower your monthly payments.
Several options, including student loan refinancing, are available to help you pay off your debt more quickly. To learn more about refinancing your student loans with ELFI, visit our student loan refinancing page.