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Written by Stacey Scorza
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Thursday, 18 October 2007 06:23 |
I am of the philosophy that the money you spend on your education is never a waste. However, you cannot blindly dive into the law school abyss without taking some time looking at the numbers. The average law student graduates with a combined graduate and undergraduate debt of $80,754. With annual increases in law school and undergraduate college tuition costs, this cumulative debt number will only rise. Compare this with starting small and medium firm first year associate salaries that have remained low averaging $30,000 to $50,000.
I’m certainly not pointing out these numbers to scare you. I have survived the daunting task of figuring out how to pay for law school, but you need to be aware of the significant financial commitment that presumably at least 80% of you are making. Yes, 80% of law students are in the position where they must borrow funds. Grants, scholarships, work-study and other gift aid will not cover it for most of you. Evening students arguably have it a bit easier because presumably you will be working and can support yourself. Generally, evening students borrow solely for educational expenses including tuition, books, and school supplies. For the majority of law students out there who are full-time day students, it can be more expensive. Unless you are lucky enough to still be living with your parents who are supporting you through law school, you will most likely need to take out private loans to cover your living expenses as well.
Pre-Law School
You should make a projected budget for yourself before applying for aid. Some schools actually prepare template budgets for day and evening students to help you with this process. My school supplied a proposed budget that at the very least helped me familiarize myself with what was financially expected of me once I made the choice to enroll. The budget should take into consideration the basics like tuition costs and fees per semester, and books and miscellaneous supplies. Depending on your situation it may also take into consideration monthly rent for an apartment, weekly groceries, public transportation costs, and other necessary living expenses. The next step is figuring out how to fund it all.
Most schools offer different forms of school sponsored scholarships and grants. Do not rule these forms of aid out for any reason. If you meet the qualifications, then apply. You will find a lot of students choose not to put the extra effort into these applications, so the candidate pool will be smaller and you will be more apt to be granted the funds.
The Federal Stafford loans are the bread and butter of financial aid for law students. Starting July 1, 2007, the annual maximum award amount is $20,500 with a fixed 6.8% interest rate. There are subsidized and unsubsidized Stafford Loans. The federal government pays the interest rates on the subsidized loans while you are in school and also during your six month grace period. Currently, you can borrow a max of $8,500 annually in the Subsidized Federal Stafford Loan program. The interest accrues on the Unsubsidized Federal Stafford loans while you re in school and during your grace period with a maximum annual loan amount of $20,500 less any amount granted through the Subsidized Federal Stafford loan.
Unfortunately, tuition costs can easily be more than the combined total of the subsidized and unsubsidized federal loans. To fill this gap, you will need to look at the private loan market. There is a fairly new federal private loan from Ed Financial where, at the moment, you can borrow up to an additional $18,000 per year. The bonus is that the interest rate on the federal private loan is still relatively low compared with other private student loan providers. In addition, there are Federal Perkins Loans and Federal Graduate PLUS loans available to you if you meet the borrower requirements.
During and Post-Law School
Federal work-study programs are a good way to earn some cash while completing your law studies. The program assists students through part-time employment and encourages students to take community service positions. After you are approved to receive federal work study funds, you must secure a position through an eligible employer. Check out your local career services office for postings and further information.
It is important to know that currently you can deduct up to $2,500 in student loan interest even if you don’t itemize deductions on your income tax return. I did not find this out until my second year of school and had to later file an amended tax return. If you keep a strict budget, your tax refund can save you $2,500 from the amount you have to borrow for the following year.
There are some great government incentive programs that offer student loan forgiveness or partial loan forgiveness in exchange for a certain amount of public service. Most recently, H.R. 2669 was passed by Congress that includes non-profit workers in the loan forgiveness programs. The provision allows borrowers to erase their loan balances after 10 years of payments if they have worked during that time in a “public service” job. Public service jobs include government employees, public school teachers, law enforcement officials, and other nonprofit groups recognized by the IRS as tax-exempt charities. The program would be available to graduates who participate in specific repayment plans that are outlined in the bill and take income into account. It obviously applies only to federal loans, but it can save you quite a bit of money.
The skinny: law school is expensive; a legal education is invaluable; approach cautiously, think it through, try not to stress and you will remain in financial control.
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