A Lawyer’s Guide to Student Loan RefinancingMarch 20, 2020
When Matt Sembach, an assistant public defender, graduated from law school, he had a mix of both private and federal student loans — some with interest rates as high as 10.75%.
By Kat Tretina
Kat Tretina is a freelance writer based in Orlando, Florida. Her work has been featured in publications like The Huffington Post, Entrepreneur, and more. She is focused on helping people pay down their debt and boost their income.
“In terms of law school, I took out an estimated $135,000,” he said. “When I graduated from law school, I owed about $147,000. The $147,000.00 figure is higher than the amount that I actually took out because my big loan was unsubsidized and the interest was accruing while I was still in law school.”
Sembach’s situation isn’t unusual. According to the AccessLex Institute, the vast majority of law school graduates borrow money to pay for school. On average, they leave school with $142,870 in student loan debt.
While attorneys take on a significant amount of debt, their earning potential is immense. The National Association for Law Placement reported that the overall median first-year salary in private practice was $155,000 in 2019, a $20,000 increase from 2017.
With large balances but six-figure incomes, lawyers are good candidates for student loan refinancing, especially if you have high-interest student loans.
When refinancing law school debt makes sense
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.
While refinancing isn’t for everyone, it’s a good idea in the following scenarios:
1. You have high-interest student loans
As Sembach found out, graduate, professional, and bar exam loans can have extremely high interest rates. Over time, those high rates can cause your loan balance to balloon, adding thousands to your loan cost.
When you refinance your debt, you can qualify for a lower interest rate and save money over the life of your loan.
2. You want to pay off your loans early
If you refinance your loans and qualify for a lower interest rate, more of your monthly payment will go toward the principal rather than interest charges. If you keep making the same payment that you had before you refinanced, you can pay off your loan months or even years early.
3. You want to simplify your payments
If you’re like most graduates, you had to take out a number of different loans to pay for school.
“When I graduated law school, I had 10 to 15 different loans that I needed to consolidate,” said Sembach.
Unfortunately, that’s very common. Graduates often have several loans to manage, with multiple payment due dates and loan servicers to remember.
By refinancing your debt, you consolidate your loan together. After that, you have just one loan and one payment to handle.
4. You want to reduce your monthly payments
If your payments are currently too expensive, refinancing may provide you with some relief. When you refinance your debt, you can extend your repayment term. For example, if you are currently on a 10-year repayment plan, you could opt for a 20-year repayment plan. You’ll pay more in interest charges with a longer term, but your monthly payments will be much more affordable.
5. You aren’t eligible for loan forgiveness
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’re a public defender or work for a legal aid organization, you could be eligible for loan forgiveness through Public Service Loan Forgiveness (PSLF). But if you refinance your loans, you’ll lose your eligibility.
However, lawyers who work in private practice or who have loans from private student loan lenders don’t qualify for PSLF. In that case, refinancing can make good financial sense.
How to refinance your loans
Refinancing law school debt is surprisingly easy. Just follow these three simple steps:
1. Check the eligibility requirements
Before refinancing, make sure you meet the lender’s eligibility requirements and collect the necessary documentation to speed up the process. With ELFI, you must meet the following criteria:
- You must be a U.S. citizen or permanent resident
- You must have at least $15,000 in student loans
- You must have a bachelor’s degree or higher
- You must have a credit score of 680 or higher
- You must have an income of $35,000 or higher
- Your credit history must be at least 36 months old
- Your degree must be granted by an approved post-secondary institution
If you don’t meet the criteria on your own, you may still be able to get a loan by adding a co-signer to your application. A co-signer is usually a parent, relative, or friend who applies for a loan with you and is responsible for making the payments if you fall behind. Adding a co-signer increases your chances of qualifying for a loan and securing a lower interest rate.
2. Get a rate quote
Before submitting your application, get a rate quote. With ELFI’s Find My Rate tool, you can get an interest rate estimate and view loan terms without affecting your credit score.* Once you find a loan that works for you, you can proceed with the application process.
3. Submit your application
To complete the application, you should be prepared to enter personal information about yourself, including your name, address, Social Security number, employer information, and income.
You’ll also need to submit documentation, including:
- A copy of a government-issued ID, such as a driver’s license
- Proof of income, like a W-2 or recent tax return
- Bank account information if you’re signing up for automatic payments
- Current billing statement or payoff letter for each current student loan
Alternatives to 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, there are other ways to manage your debt more effectively.
1. Apply for PSLF
One option is to pursue loan forgiveness through PSLF. For many borrowers, like Sembach, PSLF can be a powerful debt relief tool. Previously, Sembach worked in private practice. But he switched career tracks to take advantage of PSLF.
“I pursued PSLF to help get rid of the debt,” he said. “I took a $10,000 pay cut when I left private practice to become a public defender, but I took the pay cut because of PSLF.”
To qualify for PSLF, you must have federal student loans and work for a qualifying non-profit organization or government agency 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.
2. Apply for an income-driven repayment plan
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 income-driven repayment (IDR) plan. Under an IDR plan, your loan servicer extends your repayment term and sets your monthly payment at a percentage of your discretionary income.
You can apply for an IDR plan online or by contacting your loan servicer over the phone.
3. See if you qualify for repayment assistance
Some states try to attract talented attorneys by offering student loan repayment assistance programs. They will repay some or all of your student loans in exchange for a service commitment.
For example, attorneys in Vermont who work for certain civil legal aid organizations can qualify for up to $5,000 per year in student loan repayment assistance from the Vermont Bar Foundation.
The American Bar Foundation 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.
Repaying your student 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.
To find out how much you can save by refinancing law school debt, use the student loan refinance calculator.*
*Subject to credit approval. Terms and conditions apply.
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