Not All Debt Is Created Equal
Law school is expensive. Too expensive, probably, since graduates have an average debt of over $140,000. However, different types of loans have different advantages and disadvantages, and once you understand what you’ve got, it’s important to know that there are both good and bad ways to consolidate them.
The different loan types:
Federal Direct Stafford Loans
– For students who submitted FAFSA
– Usually $20,500 is allocated
– $8,500 in subsidized funding, which means students can postpone interest payments while still taking classes
Federal Perkins Loans:
– Awarded to universities, not students
– Universities allocate them to students based on financial need
– Usually around $5,000 per student and part of his or her financial aid package
– Low interest rate
– Given to law students by law schools
– Funding comes from various sources
– Intended to subsidize a student’s financial aid package
Federal Direct GradPLUS Loans:
– To cover law school-related expenses that don’t get covered by the three types of loans listed above, e.g. tuition, books, or living expenses
– Private loans for law students to assist with costs like Bar exam prep, study materials, and living expenses
– An option to be considered when the other options are exhausted
Once you’ve got your loans, and you owe money to lots of people, it might make sense to consolidate everything into one payment with a fixed interest rate. This isn’t the right option for everyone, of course, since the interest rate is the weighted average of all your federal loans, rounded up to the nearest eighth of a percent.
– Do the math. If you have a loan with a low interest rate, it might be best to keep it separate. On the other hand, it might lower the average rate significantly, so pick whichever option is best for you.
– Once consolidated, the interest rate is fixed until the loans are fully repaid. However, you should know whether your original interest rates are fixed or variable, because variable interest rate loans will change every July, and you might want to consolidate variable rate loans separately.
– Read the fine print. Some private loans come with incentives, like fixed-rate refinancing. Lenders may also give a 0.25% rate discount if you agree to let them deduct your payments electronically from a bank account.
– Law graduates qualify for new federal options. These options include forgiveness after 10 years for those who work in non-profits and forgiveness after 20 or 25 years for those with income-based repayment plans.
Source: Above the Law