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About half of American college students underestimate their debt levels, according to the Brookings Institution. It’s especially easy to see why this can be the case for law students, who face high costs over multiple loans to cover three full years of school. With finals approaching, it’s a great time to take stock of your debt load and make a plan for repayment when graduation arrives. If you’re reluctant to pull out your loan statements and do the math, we’ll do it for you by examining two common law school debt scenarios.
Scenario 1: Attending Public School In-State
First, consider a lawyer who attended public school and paid in-state tuition with loans. Let’s say that tuition is $34,000 annually, and we’ll further say this person has a scholarship worth $4,000 annually. Assume tuition rises 5%, but the scholarship does not, for each year of law school. Add up the bills for all three years – $34,000, $35,700 and $37,485 – and subtract the scholarship for a total debt load of $95,185. Note that amount assumes the lawyer covers all other costs besides tuition with savings.
Scenario 2: Attending Private School Out-of-State
Next, the lawyer who attended private school with an annual tuition of $55,000 and a one-year scholarship for $15,000. With the same tuition rate increase assumptions, that student will graduate $158,388 in debt.
Both lawyers will also pay interest on this debt. Given the borrowing limit on the low-rate Direct Unsubsidized Loan program, the students could very likely have six different loans by the time of graduation, or two per year. This means repaying different portions of the debt at different interest rates and loan terms, e.g., 10-year versus 15-year loans.
For easy numbers, let’s say the graduates are each paying back a 10-year loan with an interest rate of 6.5% for their respective borrowed amounts. How much interest will each borrower accrue?
Borrower 1: $34,512 in interest over the life of the loan on top of the $95K debt load for a total of $129,697.
Borrower 2: $57,428 in interest over the life of the loan on top of the $158K principal for a total of $215,816.
What are ways to get on top of these mounting costs? The first is refinancing your debt to a lower rate in order to cut what you pay in interest, which you can do after graduation.
For example, assume that each lawyer is able to refinance to a 4% APR. How much would each save?
Borrower 1: Saves over $14,000 over the life of the loan.
Borrower 2: Saves over $23,000 over the life of the loan.
Refinancing multiple loans into one, new loan may lower your interest rate and also allow you to lose the headache of managing monthly bills for a slew of different loans. Some lenders, including CommonBond, will honor your grace period following graduation, so you can refinance right away without need to post any payments until six months down the line.
If you intend to go into public service or nonprofit role, you may want to consider keeping your federal loans and looking into whether you’re eligible for one of the government’s income-based repayment plans or even loan forgiveness.
Whatever your financial situation may be, mounting interest costs mean you should not put off thinking about your loans – the faster you act, the more you’ll save!
Kaitlin Butler is Content Manager at CommonBond, a student lending platform that provides a better student loan experience through lower rates, superior service and a strong commitment to community. CommonBond is also the first company to bring the 1-for-1 model to education.
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