How Much Law School Debt Is Reasonable?
As part of your “cost of attendance” or COA, it’s essential that you remain aware of your total educational expenses. Bonito suggests under-borrowing at first and then revisiting debt levels throughout the year.
If you have your eye set on a particular job, research how many graduates hold it and their salaries. Also take a look at outside scholarships available to graduate students that could apply towards law school costs.
1. Look at your current income and expenses
As your future earnings will ultimately decide the amount of debt you can afford to carry, it is vital to understand your current financial status and income. Examine what kind of debts you currently carry as well as any spending habits which may have led to its accumulation.
Your income goals and job type are also key considerations after law school; for instance, if your plans include practicing big law and eventually climbing its ranks, income-based repayment programs such as PAYE or REPAYE could potentially lower monthly payments while eventually leading to loan forgiveness after 20-25 years of employment.
If your career will include public service and will earn a high salary in time, the PSLF program might be right for you. With its strategy of early loan repayment, this program requires that you start saving as soon as possible to reduce loan balances faster.
2. Estimate your future income and expenses
Law school debt averages $145,500 on average – this may seem daunting at first, but if it leads to your desired salary and job offer upon graduation it could prove worth your while.
Consider your other financial obligations when determining how much to borrow for law school. For instance, you’ll have to cover undergraduate loan payments and living expenses while attending law school as well as prepare and take the bar exam after graduating. In addition, other consumer debt or mortgage obligations could exist that need to be fulfilled as well.
Make sure that your future income doesn’t overestimate itself through borrowing too much debt, using tools such as NALP’s annual salary studies or ABA data to understand typical salaries earned in your specialty and make informed borrowing decisions.
3. Make a realistic budget
Gray recommends taking into account all variables that could have an effect on your debt-to-income ratio when deciding how much to borrow, such as merit scholarships (often determined by LSAT and GPA metrics) or ABA data that provides insight into expected salaries by region, job type and law firm size in order to make an informed decision about your borrowing needs.
Experts typically recommend that law school debt be less than your annual salary; however, many graduates find their debt-to-income ratio is much higher than this benchmark.
Miranda, a recent graduate who works for a small regional law firm with $200,000 of student loan debt, is trying to manage expenses and save for retirement while making monthly student loan payments that exceed half her income. To reduce this debt more effectively, Miranda could consider income-based repayment plans such as PAYE or REPAYE that provide lower monthly payments while offering the possibility of debt forgiveness in 20-25 years.
4. Seek out financial aid
At law school, reducing debt is achievable through financial aid. By filling out the Free Application for Federal Student Aid (FAFSA), you’ll gain access to grants, scholarships and work-study opportunities that make legal education more cost effective. Furthermore, savings or income earned from employment may help offset additional costs during summer sessions between years as well as when studying for and taking the bar exam after graduation.
As part of your law school financial aid strategy, it’s also crucial that you communicate your specific circumstances to law school financial aid offices. They may be able to guide you through the complexities of FAFSA and make your education more financially manageable. A general guideline in student lending states that one should never borrow more than they anticipate earning after graduation – this rule may seem straightforward but law schools make this task increasingly challenging with many early career lawyers having debt-to-income ratios well in excess of 2.63 which exceed what would normally be considered acceptable by lenders.
