Average Law School Debt and Ways to Tackling Them

Average Law School Debt and Ways to Tackling Them.

Average Law School Debt: You wanting to know what the average Law school debt isn’t a bad idea. Wanting to know if still going through with the thought of enrolling into a law school is a good idea? On this article I will be telling you what the average law school debt is an how to tackle.

Average Law School Debt and Ways to Tackling Them

Average law school debt, including the cost of an undergraduate education, is $145,500, according to the most recent NCES data. Even with an expected six-figure salary, you may want to try tactics to reduce your law school debt before and after school.

In this post:

  • Average Law School Debt
  • Mistakes Made by Lawyers Tackling Law School debt
  • Ways to Reduce Your Law School Debt
  • Questions to Ask While Paying off Your Debt

Average Law School Debt

Seventy-five percent of 2018 law school graduates took student loans, according to Law School Transparency, a nonprofit organization.

On average, these students borrowed $115,481 to pay for their JD alone — $130,900 for graduates of private law schools and $89,962 for those who attended public law schools.

Because law students don’t qualify for subsidized federal loans, which cover interest while you’re enrolled, those balances will increase even more when interest is capitalized at the start of repayment. The debt levels also do not include other money a law student may have taken on to cover expenses, like a bar exam loan.

That heavy debt burden may be worth it to you, if you get the job you want.

Mistakes Made by Lawyers Tackling Law School debt

If you’re a law school grad, you may be wondering will you ever be able to pay off your law school debt. Loan repayment options are confusing and poor guidance from advisors and some loan servicers can cost lawyers a lot of money paying back their student loans.

Here are the most common mistakes you might make;

JDs Who Choose IBR end up spending 50%

Let’s say Monica has $197,000 in student loans at 6.8%. She’s a new graduate making $80,000 per year.  Her salary will grow at 3% a year, and she just started paying back her loans on the IBR (income based repayment) plan.

On the IBR path, Monica will pay 15% of her discretionary income for 25 years. Her payments will change as her salary does. Whatever loan amount is remaining at the end of the 25 years will be forgiven but she’ll have to pay taxes on that balance. Let’s use a 40% tax rate.

With these projections, Monica will end up paying $416,793 to pay back her loans over the next 25 years.  That includes $340,056 in total monthly payments plus the $76,738 in taxes from her loans being forgiven.

Choosing the Extended or Graduated Plan.

Let’s take a look at John. John has been practicing law for 5 years and started on the extended plan after deferment. He still owes $150,000 at 6.5% and is making $120,000 a year. His loans will be paid off in 20 more years on the current path.

If he stays on the Extended Plan, he’d have $275,905 in payments left over the next 20 years. Since his income is decent compared to his loan balance, John could qualify for a 5% loan with a 10-year term at a private company.  His total loan payments over the next 10 years would be $195,118.

That entire $80,000 savings is interest. Instead of paying back a 6.5% loan over 20 more years, he would pay a 5% loan over 10 years.  What could John do with that extra $80,000 in his pocket and without debt payments for those 10 extra years?

Carrying credit card debt while paying back student loans and making low payments on both.

The biggest mistake is that they pick the student loan repayment plan that will give them the lowest payments (often it’s the Graduated Plan) and then they put the bare minimum toward paying off the credit card.

I may even consider putting my student loans into forbearance so I could take that monthly payment and add it to the credit card debt until it’s paid off.  Dollar for dollar, paying back 20% credit card debt will help me save money compared to a 7% student loan.

After paying off the credit card debt in less than 12 months, I’d take my loans out of forbearance and examine my budget to make sure it doesn’t happen again.

Ways to Reduce Your Law School Debt

Ways to Reduce Your Law School Debt

While the cost of law school might be high, you can reduce the amount you have to borrow to attend, as well as reduce the cost of your loans. Here are a few ways to limit your law school debt, before and after you attend school:

  • Seek law school scholarships and grants to pay for law school without debt.
  • Cover as many costs as you can with federal student loans, which offer borrower protections, potentially lower interest rates than private loans, and the possibility of repayment assistance or forgiveness after you graduate.
  • Compare private law school loan options before applying to find the lowest interest rate and most favorable repayment terms.
  • Work part-time during college to reduce the amount of financial aid you need.

Questions to Ask While Paying off Your Debt

Questions to ask yourself while paying off your law school debt;

What are your career goals?

We would talk through why they decided to go to law school.  Was it to work at a major law firm, become a solo practitioner, become a public defender, or to earn a good living?

Depending on the career path and earning potential, we would figure out which would be the better path to becoming student loan free, aggressively paying them off in 10 years or less or maximizing loan forgiveness.

Is PSLF on the table?

We would discuss the prospects and reasoning for taking a government or non-profit job to make sure it was a fit for at least 10 years. Would giving up the private sector salary and the partnership track be worth it?

What are your family plans?

After loan amount and income, marriage is a major factor that could influence their loan repayment strategy. If marriage is imminent, then we need to discuss their future spouse’s income and student loan situation.  If not, then we’d want to build some flexibility into the student loan strategy. And discuss how marriage could impact the plan.

Summary

Summary

Attending law school used to guarantee a solid career path and bright income prospects, but is no longer the case. The cost of getting a JD has risen astronomically according to law school debt statistics.

The silver lining to the high cost of earning a legal degree is the potential for lucrative employment. The median first-year base salary for lawyers in the private sector was $155,000 in 2019, according to a survey by the National Association for Law Placement.

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