You are considering a law school education, and you know it’s a good investment for your future. But, you may not be sure exactly how to finance the cost of a 3 year education that can top more than $40,000/year in expenses. Our experts explain the options available and outline the financial aid process, including federal and private loans, grants and scholarships and how best to prepare financially to continue your studies. As well as the podcast, to seek further help, you may want to find out more here on how you can get a loan that suits your repayment profile. For the time being, listen to what law school deans who work with students at various stages of the financial aid process have to say; we talk with one dean who helps students put the financing together to pay for school and with a career services dean who helps place students in the jobs that will help them pay back their debt. We hear from experts with FinAid.org, Fastweb.com, and Sallie Mae, to get insight that will help you get started on your financial strategy to pay for law school. Also whether or not using a private student loan from somewhere like SoFi could be the better option for you. We also take a look at what changes in the federal student loan program might mean for law school applicants and students.
- Mark Kantrowitz, Publisher of FinAid.org and Fastweb.org
- Stephen Brown, Assistant Dean for Enrollment Services, Fordham University School of Law
- Mike Spivey, Assistant Dean for Career Services, Strategy and Marketing, Washington University of St. Louis School of Law
- Patricia Nash Christel, Sallie Mae Specialist on Saving, Planning and Paying For School
Welcome to Law School Podcaster, your source for inside information and advice about the law school application process. I’m Bonnie Petrie.
One of the most significant factors in your analysis of which law school is right for you may be financing. How are you going to pay for this investment in your future? There is your own money, there is free money in the form of grants and scholarships, and there are loans. What’s available to you? How do you figure out how much debt you can reasonably take on? How do you pay back your loans when you graduate? We spoke to the Assistant Dean of Enrollment Services at Fordham School of Law, the Assistant Dean for Career Services at Washington University Law School, the publisher of two essential financial aid information and planning websites FinAid.org and Fastweb.org, and Sallie Mae’s expert in Saving, Planning, and Paying for college. They run down everything you need to know about paying for your law school education. That’s all coming up in this show, “Financing Your JD.”
It comes as no surprise that law school is expensive, and many of those considering attending have got to tackle right up front the issue of financing and taking on student loans. Let’s consider what that means. “A typical law student will graduate with over $100,000 in debt when you combine undergraduate and graduate education.” Mark Kantrowitz is the publisher of FinAid.org and Fastweb.org, two websites that will be essential tools for you as you seek to fund your education, which is more than a degree. Assistant Dean of Enrollment Services at Fordham School of Law, Stephen Brown, says it’s an investment and you should treat it as such. “It can be a good or bad investment, depending on what you’re looking to do with your life, depending on your choices. So pay attention to this as you would at any other investment. You find people to do more research on cars than law school, so that’s important.”
Brown says that’s where you begin. Before figuring out how you’re going to finance this degree, figure out what you want to get out of this investment. “Look at a crystal ball. Imagine yourself three years down the road or four years after graduation. Imagine yourself five or ten years down the road. What are you doing?” When you know that, Brown suggests you go to a website with which you’ll become quite familiar, if you aren’t already. “The best place to start is The Law School Admission Council. As part of the law school admissions process, students are applying to the Law School Admission Council (LSAC), creating an account, visiting the website, getting prepared to take the Law School Admissions Test, the LSAT®. The LSAC website, lsac.org, has great information on the basics of financing law school, and that’s a good place to start.”
Brown also says Mark Kantrowitz’ website will help you. “The FinAid.org page, now owned by Monster, but that has just about any information one could want on federal as well as state financial aid as well as other sources.” Patricia Nash Christell is Student Lender, Sallie Mae’s expert in Saving, Planning and Paying for College. She says you can approach figuring out how to finance your education methodically. “We always advise families to follow what we call the “one- two- three approach” to paying for college. So first, tap as much free money as you can. That means filling out the FAFSA to access needs-based grants, researching and applying for any scholarships, and of course, using your own income, savings, and then there’s something else called a monthly tuition payment plan that may be available to you as well. Second in the “one-two- three approach” would be to explore federal student loans. These offer low fixed interest rates, flexible repayment options, and through a Stafford Loan program, and for graduate students the Plus Loan Program, you really can finance up to the total cost of attendance for law school. Then third, if there is a gap, for example, when you’re studying for your bar exam, fill that gap with private education loans. These two are convenient and designed to meet the needs of students.”
Assistant Dean of Enrollment Services at Fordham University School of Law, Stephen Brown, agrees: familiarize yourself with the FAFSA. “Free Application for Federal Student Aid, they’re available online at fafsa.ed.gov. The forms are free. Those can be filled out January 1st of the year in which were planning on attending school. The other institutional forms really vary depending on the school.” Brown says generally, law schools don’t offer awards before you are admitted because they have so many more applicants than they will eventually accept. Mark Kantrowitz at FinAid.org says, FAFSA may be time consuming, but it is not something you can skip. “It takes most people anywhere from one to four hours to complete that form, but it is the first step to financial aid from the federal government, also possibly financial aid from the state government, and sometimes the colleges themselves. There may be supplemental financial aid forms for financial aid from the college, and some law schools do have their own financial aid programs.”
We’ll go into more detail on the federal loans in a few minutes, but neither Brown nor Kantrowitz wants you to overlook the completely free money that’s out there. This can be an overwhelming process. Kantrowitz says his website, Fastweb.org, can make finding free money a little less daunting. “There are a variety of fellowships available to help pay for law school, and the best way to find out about these awards is to search the Fastweb scholarship database, which includes not only undergraduate scholarships but also awards for graduate and professional students. This will match your background against each of the awards and show you a list of the awards for which you are qualified. Then it’s up to you to apply for them and hopefully get them. For example, I am aware of some law awards for minority students who are typically underrepresented in law schools.”
Some of these scholarships may be so small it seems like it’s not worth the trouble to apply. Fordham’s Brown says it is. “It adds up. Even if it’s $500 or $1000, its money that the student doesn’t have to earn on his own or borrow. Look under or sign up for the scholarship searches, poke around, ask around, really use the web as a resource for that. Anything to reduce debt is a good thing.” There is also the possibility you might qualify for or win a grant. “On a need basis or merit basis, and those very much vary by school, but some schools are offering lots of need money, some offering lots of merit money, and some places in between.”
Now once you’ve exhausted all of your free money resources, Brown says it’s time to start looking at loans. “The first loans to look at, the best loans out there, are the Federal Stafford Loans or the Federal Direct Ford Loans. Those are educational loans. There is a needs test. They are for US citizens or permanent residents, maximum $8,500 a year, interest-free while the student is in school, and then a 6.9% interest rate after graduation.” Brown says these subsidized loans won’t get you very far. “$8,500 is not a lot. In fact, it doesn’t cover tuition at any law school in the country, but the next level up is the unsubsidized Stafford or Ford Direct Loans. Unsubsidized loans maximum $20,500 a year, less anything the student receives in the subsidized loan. So if the student receives a full $8,500 in subsidized loan, the unsubsidized loan would be $12,000.”
Some of you may be wondering if your parents’ income or assets will impact your eligibility for these loans. No. “Parents’ information does not count. All students who are graduate and professional students are considered independent for federal financial aid. Students can be 17 living with their parents, but in law school, having completed a bachelor’s degree, they are independent. Students can have millionaire parents who are supporting them fully, and they’re considered independent for federal aid purposes. So when the graduate student or law student completes the FAFSA form, only the student’s information and that of his or her spouse, if he or she was married, is included on the form.”
But your assets do count. “Assets, I believe are taxed at 70%, so it is not a good thing to have an asset. Home equity does not count in the federal aid formula nor do retirement accounts. Home equity does not count in the federal formula, retirement accounts do not count in the federal formula. Institutionally, at schools, the types of assets that count may vary.”
Let’s turn now to a relatively new resource on the law school financial aid front and a great option for many students struggling to finance their education, the Grad PLUS Loan. You may be familiar with the PLUS Loan or Parent Loan for undergrads, “Beginning in 2006, Congress changed the eligibility for these loans so that graduate and professional students, with an absence of bad credit, may apply for the loans. The absence of bad credit includes no accounts that are currently 90 days past due, no credit accounts, and no accounts in the past five years that have write-offs, charge-offs, bankruptcies, foreclosures, or owing a refund on a Tile IV Loan.”
Brown says this loan is so exciting because you can pay for your entire education with it. That’s right, your entire education. “Provided you have an absence of bad credit, you can cover your entire law school costs and reasonable education costs, the cost of attendance or student expense budgets which reflects the annual cost to attend law school. It does not cover credit card debt, it does not cover excessive rent, it does not cover spouses or children, but living expenses, books and tuition expenses for the time that the student is in school.” Which means you can finance your education at any law school in the country, even private schools where tuition and living expenses can total more than $40,000 a year. That’s exciting. “And scary at the same time, because the debt over four years, or three years rather, could be as high as $200,000.”
That’s the rub. It can be dizzying to have access to all that money, but we’re talking about loans. Patricia Nash Christell at Sallie Mae says, when you’re considering how much debt to take on, remember you’ll have to pay it back. “That’s right. It’s important to note that whatever you borrow is something that is an obligation to the future. It means that every dollar you don’t borrow is a dollar you don’t need to repay. Everything you do sign up for, be aware of it. That’s a responsibility that you are signing up for. It’s typically an investment if you’re planning how to do it.”
So how much debt should you reasonably take on? Here’s Mark Kantrowitz at FinAid.org. “The general rule of thumb is that you should not borrow more than your expected starting salary for your entire education. So, if you expect to be earning $100,000 a year after you graduate, then you can borrow up to $100,000 and easily afford to repay that debt in a ten-year term, which is a standard repayment term. However, let’s suppose that you’re intending to go into public service law, such as civil legal service attorney or public defender or a prosecutor where your salary might be much lower than $100,000. In that case, there is a new repayment plan called “income-based repayment” that bases the monthly payments not on the amount you owe but rather on your discretionary income.”
Kantrowitz says this program dovetails nicely with another program that makes financing your JD far less frightening if you hope to go into the kind of law that may not start at six figures, “Loan Forgiveness.” “For students who enter into public service and are working full-time in public service for a period of ten years, and their loans have to also be in the direct loan program, at the end of that ten-year period any remaining debt is forgiven. So you can use “income-based repayment” to reduce the monthly payments to an affordable level. For most borrowers, this will end up being less than 10% of your gross income and to prevent the loans from hanging over you for the rest of your life, there’s forgiveness at the end of ten years. If you don’t participate in Public Service Loan Forgiveness, then the forgiveness occurs in “income-based repayment” after 25 years. The forgiveness after ten years is not taxable. Under current law, the forgiveness after 25 years is taxable, but there’s a chance Congress may change that.” Fordham’s Stephen Brown is very excited about these new loan repayment options. “This is an amazing program for people who are absolutely sure they will spend ten years in government or the non-profit world. If you do not spend ten years in government or non-profit work, there are penalties and this could become a very expensive program. If you spend ten years, this is the greatest program anyone could imagine for young people working in government or working in non-profit. It’s not just lawyers, its schools of education, social workers, doctors, people who are going into public interest. The gardener at your local town hall can qualify for this.”
Kantrowitz says the whole point of these programs is to offer law students flexibility. “This is specifically intended to encourage law students who want to go into public service, but the debt previously would have prevented them from pursuing a public service career to enable them to follow their dreams.” So, you need to have some idea of what your starting salary might be upon graduation to determine how much you can reasonably borrow, using Kantrowitz’ rule of thumb that you should borrow no more than $100,000, for example, if you expect your starting salary to be $100,000.
For more information on that, I spoke with the Assistant Dean for Career Services at Washington University in St. Louis School of Law, Michael Spivey. He counsels soon-to-be-graduates of Washington University Law School on their employment options using the amount of debt they’ve taken on as one of many factors that will influence their choices. “Every student thinks, maybe for the right reasons, but they think that they’re going to go in to be in the top 10% to 15% to 20% of the class and start making the market demand salary for people from a top 20 law school in the top 15% of their class, which is $160,000. If you start making $160,000 a year, you can take on significant debt. But there’s bimodality in market salary in that the vast majority of students graduate from the vast majority of law schools, and receive about $50,000 to $60,000 to $70,000 a year. There are now 200 ABA-approved law schools, and that number is ever growing, and there are more and more students with bright eyes who look at the $160,000 salary and, I think, fail to note that most students are only making $50,000 to $60,000 to $70,000 upon graduation.”
So what realistically can you expect to make when you graduate? “Law firms, I think that the vast majority—and I am speaking now specifically of law schools nationwide because, as a top law school, we tend to do better that this—but for the vast majority of students, I would say 70% to 85% are looking at starting salaries that are around $60,000 to $90,000. I wish I could draw you a picture, but when I talk about a bimodality of starting salaries, you have a large tip normal bell-shaped curve for that amount of people, so about 80% to 85% are making $70,000 to $92,000. Then you have a steep spike into $160,000, but that’s very steep because there are not many people who are making that amount, so you’re looking at $70,000 to $90,000.”
Washington Law School’s Michael Spivey agrees with Fordham’s Stephen Brown that you should think carefully about what you want to do with your JD before you start signing loan papers. “Do they really want to work for a law firm, for example, or would they be more interested in prosecutorial roles, as prosecutors. The starting salary there is $50,000 a year. That’s the 2008 medium starting salary, but even that has grown 51% since 1996, and some people are much, much happier in litigation roles than they are working for large firms. Judicial clerkships, that’s another position where people, some students really are excited about, and that starts at $50,000. So we try to couple, keeping up on financial burdens. We try to couple how much financial debt they have with what sort of lifestyle they want to lead, whether they want to work for legal services or they want to work for a judge or they want to work what I would call nontraditionally or asymmetrically, and we counsel them what the lifestyle is at a big law firm. Some people love that, some people don’t want to jump on that boat.”
Brown says one way to keep a realistic sense of how much debt you’re taking on is to get online and do the math. “The Department of Ed website, www.ed.gov, you click on Higher Education, has calculators. The FinAid.org website has some good calculators as do many of the student loan lenders. You put in the amount you’re looking to borrow, the interest rate, and the length of the payment, and they will calculate out monthly payment.”
Sallie Mae’s Patricia Nash Christel says their website has some really helpful calculators, and she advises you not only to think about financing the first year of law school. “So a law school program is typically three years for full-time, maybe four years if you’re going part-time. Make sure you’re building a plan that will include the entire cost of that program. So often too many people start out and they figured out how to pay for that first semester, maybe the first year, and then it gets tougher after that. So you want to make sure that you can take advantage of the success that the degree can bring you, and that means getting through the program to completion. Sallie Mae offers a free online tool called Education Investment Planner. It’s available at www.salliemae.com/invest, and Education Investment Planner will take you through a series of questions. You could compare colleges and universities across the country to build your own budget for how are you going to cover the full cost of your degree.”
Now some students may decide they want to apply for a private loan to pay for at least part of law school. Mark Kantrowitz at FinAid.org and Fastweb.org says you’ll need good credit for that. “They are not only going to be looking at your credit score, but they will also look at your employment history, what your debt-to-income ratio is and other factors. Many of them are now requiring a credit worthy co-signer anywhere from 2/3 to 7/8 of the borrowers, depending on the lender, must have a credit worthy co-signer. But on the other hand, they look at the higher of the two credit scores when determining eligibility. So if you have a very bad credit score on your own, but your parents have a very good credit score they could co-sign the loan, which makes them a co-borrower. Saying this though, even if your credit score isn’t at it’s best, there are always options such as looking to get personal loans for bad credit. Even speaking to an adviser could help make it easier to make a decision on how to pay for the remainder of the tuition fees.
They’re on the hook for repaying the loan if you don’t repay the loan, but that can lead to a substantial decrease in the interest rate because if you change the FICO score by about 100 points, that can typically result in a 1% to 1.5% decrease in the interest rate on the loan, and that can save you a substantial sum of money over the life of the loan.” And Kantrowitz reminds you that, unlike federal loans, private loans do not have fixed interest rates. “So if you’re borrowing from a private student loan program, you need to be aware that even if you have a low interest rate now, a few years from now when the interest rates increase to back to the historic averages, you will probably see at least a 3% to 5% increase in the interest rates on your loans. So be very careful about being seduced by a teaser rate on these loans. Their rate might be 5% right now, if you have outstanding credit or if you have a co-signer with outstanding credit, but that interest rate might be 9% a few years from now or even higher. So generally speaking, the federal loans are better because they have fixed rates, and those rates are fairly low.”
How does a law school determine who they will help finance? Stephen Brown is the Assistant Dean of Enrollment Services at Fordham School of Law. “Some schools make decisions on the basis of need, some on the basis of merit, and some both. At Fordham, about half of our aid to entering students is need-based and about the other half is merit-based. Need, we collect information on the students and the students’ parents income and asset information and make an award on that basis. On the merit aid—although Fordham has a long history of admitting students who are really interesting, who may not have the highest grades in schools—the merit aid, the focus is more on grades and scores, the LSAT® scores and undergraduate GPAs.”
There is something else to keep in mind as you seek to keep your law school costs down. Mark Kantrowitz says there are tax credits. “Congress provides three education tax benefits: the Hope Scholarship, the Lifetime Learning Tax Credit, and the Tuition and Fees Deduction. The Hope Scholarship is limited to the first four years of post secondary education, which usually rules out the graduate and professional students. So if you happen to have completed your undergraduate degree in only three years, you might have an additional year of eligibility for that tax credit. That tax credit is up to $2,500. It’s 100% of the first $2,000 and 25% of the next $2,000 in tuition and fees. The Lifetime Learning Tax Credit is 20% of the first $10,000 in tuition fees paid by the student, and if you happen to have borrowed to pay for the tuition fees that does still count. But if you’re using a College Savings Plan like a 529 College Savings Plan, that’s to pay for the expenses, that doesn’t count because there are anti-double-dip requirements to prevent you from getting tax-free treatment on your 529 plan distributions and, at the same time, obtaining a tax credit.”
When you graduate and it comes time to pay your loans back, you may be worried that you won’t find a job right away. Sallie Mae’s Patricia Nash Christel says you’ll have options, but repaying your loans is important. “We hope that there is a lot of flexibility built into repayment plans to work with you. The standard repayment plan is typically based on a ten-year repayment for federal student loans, but certainly you don’t want to get behind because your credit score is important to you. It can affect many aspects of your life both while you’re in school and beyond. It can be used when you’re renting an apartment or signing up for a cell phone. It can even be used by prospective employers to judge what they might consider your degree of responsibility. So it’s really important to be aware of your credit score and how that can affect many, many aspects of your life.” Christel says your loan provider can often work with you if you run into financial trouble. One option Sallie Mae offers is Income Based Repayment. “Income Based Repayment Plan assists those who might be experiencing financial difficulty by limiting your monthly payment to no more than 15% of your discretionary income. But what’s really important is being aware of your options and the cost over the total life of the loan, and Sallie Mae offers a free repayment calculator. It’s available at www.salliemae.com/repaymentcalculator, and it let’s you plug in your information about all of your different loans and compare repayment plans and the total cost over the life of the loan.”
Mark Kantrowitz at FinAid.org and Fastweb.org says don’t just sign the stack of papers without knowing what you’re signing. This is important: Be meticulous. “A common problem that I encounter is students who figured that they’d worry about their loans after they graduated and ask them who your loan is with, what are the interest rates, how much did you borrow, and they just don’t know the answers. A mistake in which loan you borrow or how much you borrow can cost you severely after you graduate.” But Assistant Dean for Career Services at Washington University Law School, Michael Spivey, says if he were counseling every person listening to this podcast, “Is law school truly their passion? Is practicing law or the JD—is a broad spectrum degree, so not just practicing law—but are they going to law school for the right reasons? Are they going to law school to practice law or further the career they want through a JD? I think that people need to introspect and be objective with themselves because I think as we continue to increase the number of law schools in this country, and the market continues to either be stagnant or even compressed on as far as need for and demand for lawyers, I do think that people who are passionate about law are the people who do well in school and rise to the top, and there are plenty of jobs available for those people.”
And some final words of wisdom on financing your JD from FinAid.org’s Mark Kantrowitz and Fordham’s Stephen Brown, “Just try to minimize your debt. Live like a student while you’re in school, so you don’t have to live like a student after you graduated.” “Live like you’re a student while you’re law school or you will live like a student later. Borrow as little as you can, look for the savings. The student expense budget does not allow for a frequent eating out. It does not allow for students to be dressed in the latest fashion. Students should be frugal and borrow as little as they can during the time at law school, and it will give them lots and more flexibility later on.” It will take some time, leg work, research, and familiarity with your calculator, but if you’re resourceful, you can finance your JD. If you’re conservative in your borrowing, you will be able to pay off your debt and still have some flexibility in your career choices.
That should be the end of this law school podcast, but it’s not. Recently, the US House of Representatives passed the Student Aid and Fiscal Responsibility Act of 2009. “It cuts the costs of the student loan program by eliminating the federally-guaranteed student loan program, and replacing it with 100% direct lending from the federal government. The savings will be used to index the Pell Grant to inflation plus 1% and to expand the Perkins Loan Program and to establish a College Access and Completion Innovation Fund to try to increase the rates at which students graduate from college. FinAid.org and Fastweb.org’s Mark Kantrowitz expects the Senate to pass SAFRA, and he expects the President to sign it. What does that mean to you? “Well, from a practical perspective, there aren’t that many significant differences between the direct loan program and the federally-guaranteed student loan program. Money is green no matter whether it’s coming from the federal government or private financial institutions, same money from either location. As far as the quality of customer service, the direct loan program has a bit of a smoother operation with the making or origination of the loans. The federally-guaranteed student loan program has better quality in the servicing of the loans after they enter repayment.”
If SAFRA becomes law, it would not go into effect until July 1st. So it’s not an issue for you now. “So if you have existing loans from Sallie Mae or any other bank or non-bank lender, you would continue paying your loans to that lender, and any new loans would be through the direct loan program, which means you might graduate with loans from two or more institutions, one set from the federal government and one from the education lenders. You can always consolidate your loans into the direct loan program to have all your loans with a single lender to just get one monthly payment.” But will SAFRA impact the amount of federal loan money to which you have access? Kantrowitz says yes, but in a good way. “The loan limits on the Stafford and Plus Loan programs are the same. The only provision in the Student Aid and Fiscal Responsibility Act that potentially affects the amount of loan money available is the expansion of the Perkins Loan program. The Perkins Loan program provides loans to both undergraduate and graduate students in a targeted fashion, and the schools have the authority to decide who gets those loans. They’re low interest loans with 5% interest rate, and the legislation increases the annual loan volume from 1.5 billion to 6 billion. So there will be more loans available at low interest rates that might have some benefit to graduate and professional students.
This is a developing story, so please add lawschoolpodcaster.com to your list of internet favorites, and we’ll keep you updated on the latest news regarding financing your law school education.
For more information on this show, a transcript, or to register to receive more law school podcasts, visit www.lawschoolpodcaster.com . Look for us on Facebook and Twitter to get the latest news and insght into the world of law school. This is Law School Podcaster. I’m Bonnie Petrie. Thanks for listening. Stay tuned next time as we explore another topic of interest to help you succeed in the law school application process and beyond.