The Reality of Law School Debt And Planning For It

I’m going to tell you this plainly: I know of a lot of people whose lives are substantially and negatively impacted by law school student loan debt. We aren’t talking here about people taking one fewer Mediterranean vacations per year. We are talking about serious, lifelong financial ramifications. I have known people whose student loan debt has contributed to the end of their marriages. I have talked with dozens and dozens of people who have delayed buying homes because of student loan debt.

In fact, for over ten years I have counseled any prospective law students who have bothered to ask me to not to go to law school because of the burden of law school debt. The reality of law school is that it is very expensive, that on average you’ll have a huge amount of law school debt that you cannot discharge in bankruptcy, and that you cannot count on a six-figure salary. (Heck, a few times over the past decade you couldn’t count on a five-figure salary!)

But, if you’ve already made the decision to go to law school and if there’s no backing out, then you need to be brutally honest with yourself about the realities of law school debt.

And you must do everything in your power to keep your law school debt as low as possible.

How Big is the Law School Student Debt Problem?

It has been notoriously difficult to get accurate information on how much debt the average law student graduates with, but the website Above The Law pegs the average borrowed amount at around $112,000 in 2017, and the Law School Transparency blog says it’s about $115,000. That’s the average borrowed amount. A lot of people will borrow far, far more than that.

And remember that interest on unsubsidized loans accrues during law school and during that sweet 6-month forbearance after graduation. When you make your first payment, all that accrued interest capitalizes, too. So remember that the actual average law school debt will be higher than the average amount borrowed.

What does this mean for the average law student? Well, let’s assume that you’re a law student who manages to graduate with slightly less than the average amount of borrowing, but with capitalized interest your debt sits at $120,000. Stafford Loans are currently at 6.6% and Graduate PLUS loans are at 7.6%. (These rates can change from year to year; for example, when I graduated from law school I had student loans at 6 different interest rates.) But let’s assume interest is an average of 7.2%. Using an online payment calculator, I get a monthly payment of $945 for 20 years or $1406 a month for 10 years.

Let those numbers sink in. Now think about rent/mortgage. Cell phone. Internet. Electricity/gas. Water and sewer utilities. Car insurance? Car payment? Renters insurance?

If you don’t already know how to budget, you better learn.

Debt Forgiveness Programs

The crushing reality of our student loan debt crisis has led to the creation of loan forgiveness programs. The big three are the Income-Based Repayment Plan, the Pay As You Earn Repayment Plan, and the Public Service Loan Forgiveness Program, as well as Loan Repayment Assistance Programs offered by various states and law schools. You can read more about these programs at the American Bar Association.

These programs are subject to limitations and are not cure-all. In each case, these forgiveness plans require either 1) extremely long-term commitments that, if not met, disqualify the participant from forgiveness; 2) greatly increased total costs; 3) a heck of a lot of faith in the US Congress to follow through with promises it has made; or 4) future tax liability on written off debts.

Read up on debt forgiveness programs and take advantage of them if you find one that meets your needs, but don’t count on it or make a decision to attend law school relying on these programs.

Keep Your Costs Low

The best way to make student loan debt manageable is to limit student loan debt. You should do everything you can to take out as little student loan debt as possible.

First, lower your costs when choosing a law school. When choosing a law school, consider the cost and whatever financial assistance the school is offering. Just a little bit more “prestige” and just a little bit higher “ranking” are worth something, but they aren’t worth as much as you would think. If your choice is between a school ranked 43 and a school ranked 47, but you’re getting a full ride at that 47^th ranked school? Yeah, go to the lower ranked school. Now, if you get in to a top five program, well that might be worth a bit more debt.

While in law school, do everything you can to lower costs.

• Make your own food. Eating out is the single greatest non-tuition driver of costs in law school. Learn to make food at home and save a ton of money.
• Always buy used textbooks, or even rent if you can, and sell them back. Just trust me on this one. Previous students’ notes aren’t terribly annoying and you will never ever need your textbooks after law school.
• Use university facilities instead of commercial. Are you a gym rat? You probably have those facilities at your school included in tuition and fees; use them and cancel your private gym membership.
• Don’t study at coffee shops. This one is close to my heart. I studied almost exclusively at coffee shops when I was in law school and I paid for it…and paid for it…and paid for it…and paid for it. A $3 cup of coffee is a great treat! But a $3 cup of coffee bought with money borrowed at 7.2% repayed over 10 years is an extremely expensive cup of coffee.
• Read up on cost-cutting strategies. With a bit of research and planning, it’s possible to live a good life without breaking the bank.

If you’re planning to attend law school or if you are attending law school, then here are some podcasts that you ought to listen to.

• Real Talk About Student Loan Debt (with Financial Expert Travis Hornsby)
• Handling Law School Finances (with Lyssa Thaden of Acesslex)
• Saving Money in Law School