While trying to avoid student debt is always a great idea, it’s hard to do if you’ve chosen a career in law.
The average law school tuition at public universities is $27,160, and it’s $47,754 for private universities. Even at the cheapest law schools in the U.S., you’ll end up paying quite a bit — and that’s after paying for a bachelor’s degree.
The truth is it’s very hard to graduate without taking out at least some law school loans. The latest stats from the National Center of Education Statistics show that the average law student graduates with over $145,000 of student debt.
While it may be difficult to avoid law school loans altogether, you can be strategic about the specific law school loans that you choose. Let’s take a look at the best law school loans available today.
Direct Subsidized and Unsubsidized loans: They’re great, but they won’t last long
When it comes to federal student loans, Direct Subsidized and Direct Unsubsidized loans offer the best terms by far. For undergraduates, the interest rates for both are 4.53%, and they have modest loan fees of 1.059%.
The biggest difference between the two is that the government will pay your interest for you at certain times with subsidized loans, whereas you’re always responsible to pay the interest yourself on unsubsidized loans.
Watch out for the limits
The problem with Direct Subsidized and Unsubsidized loans is that they come with many caps and restrictions. For instance, some students may not qualify for any subsidized loans if they aren’t able to demonstrate financial need.
But, perhaps the bigger problem is that subsidized loans are only available to undergrads. So law school students are left out in the cold on Direct Subsidized loans altogether. Once you’re in law school, Direct Unsubsidized loans are your only option, and they have annual borrowing limits of $20,500.
Because nearly all law schools will cost more than the borrowing limit per year, most law students will be unable to pay for law school using only Direct Subsidized and Unsubsidized loans. There will simply be a funding gap.
Let’s take a look at two ways to fill that gap, starting with Grad PLUS Loans.
Direct Grad PLUS law school loans: The pros and cons
Grad PLUS loans come with a few notable advantages. First, they’re federal loans, so they are eligible for benefits like income-driven repayment (IDR) and federal student loan forgiveness options.
And, second, they don’t come with a hard-and-fast borrowing limit. Instead, students can borrow up to the cost of attendance. So, yes, despite how expensive law school can be, it can be completely funded on federal loans if you take the Grad PLUS path.
But here’s the downside to taking out Grad PLUS law school student loans. They’re really expensive. Currently, the interest rate on a Grad PLUS loan is 7.08%. And they also come with a massive 4.236% loan fee.
Private loans for law school students
Private loans for law school won’t typically be able to compete with Direct Subsidized and Unsubsidized loans, especially if you don’t have a cosigner. But things get a little more interesting when comparing private student loans and Grad PLUS loans.
The interest rates on private lenders’ law school loans vary, but variable rates can start at 3%, and fixed rates can start as low as 4%. If you’re able to land a law school loan in that range, it could save you a lot of money in student loan interest.
If you graduated with $100,000 of Grad PLUS law school loans at 7.08%, for example, you’d pay $139,330 over the life of the loans. But if you were to take out $100,000 of private student loans at 4.5%, you’d pay $124,366. That’s a savings of nearly $15,000.
Most private lenders don’t charge origination fees either, which is an added savings. And some private lenders offer additional perks like a six- to nine-month grace period and deferment during clerkship.
Direct Grad PLUS vs. private loans: How to choose
So, we’ve already established that you should start with Direct Subsidized and Unsubsidized law school student loans. But Direct Grad PLUS loans and private loans each have their own pros and cons.
How do you choose between the two? The biggest thing that you need to consider is the type of work that you want to do.
Do you plan to work as a public defender or prosecutor?
If you plan to become a public defender or prosecutor, you should definitely stick with Direct Grad PLUS loans because they’ll be eligible for Public Service Loan Forgiveness (PSLF).
If you plan to work in the private sector, however, then the PSLF strategy goes out the window. At that point, you need to consider something else.
Related: Student Loan Forgiveness for Lawyers
Do you plan to work for a BigLaw firm or a smaller, local practice?
There is a growing discrepancy between the salaries that BigLaw attorneys earn compared with the rest of the legal field. If you end up working for a smaller firm at a lower starting salary, you might want to choose Grad PLUS loans because they’re eligible for IDR.
But if you think that you have a legitimate chance to be hired by a BigLaw firm, you could be looking at a starting salary of $180,000 or more. In fact, our internal data at Student Loan Planner shows that it’s not unusual for BigLaw attorneys to make well over $200,000 per year.
Here’s the problem with IDR: The higher your salary, the less you’ll benefit from it. For this reason, if BigLaw work is in your future, you may want to choose a private loan instead and save as much on interest as possible.
Shopping for the right private loan to pay for law school
If you do plan to take out private student loans to pay for law school, you’ll want to make sure that you’re getting the best deal.
Begin by checking out our Complete List of Private Lenders for 2019. We compare each of the best lenders today on factors like interest rate, origination fees, payment flexibility and requirements.
And if you’ve already graduated with law school student loans, you might be able to save a lot of money by refinancing. Check out the 12 Best Banks to Refinance Student Loans and see if you qualify for a cash bonus!