How to recover from your law school student loan debt faster
Don't let this debt control your life or career any longer than it must
With increasing tuition expenses and student loan debt at a never seen high, the average law school debt has risen dramatically. If you’re wondering how you will crawl out from underneath the burden of law school student loan debt, you’re not alone.
Consider the following statistics:
- The average collective debt among law school graduates is $160,000
- Over 74 percent of law school students graduate in debt
- $118,400 is the average amount law students borrow to attend school
The good news is, there are several steps you can take to pay off your student loan debt faster. Don’t let this debt control your life or career any longer than it must. Follow these top five tips to pay your law school student loan debt quicker.
Create and Follow a Financial Plan
Creating and following a financial plan is something everyone should do, no matter their debt, career, or education. Not only will this help you pay off your student loans quicker, but it will also help you manage all of your finances more effectively.
First, determine all your sources of income and your bills and expenses. Be sure to identify and include your annual or seasonal bills, such as HOA dues or car insurance payments. These are the types of costs that people often forget about, putting an unexpected strain on their budgets.
Skipping a payment on rent, utilities, or a mortgage can have more immediate and severe consequences. Student loan payments are frequently the first to take a hiatus when there are financial strains. It might be tempting to skip a loan payment or two to handle these expenses but keep in mind that late fees and interest will only compound your student loan debt.
Instead, be better prepared for these infrequent expenses and emergencies to avoid skipping student loan payments. Calculate how much money you will need to set aside from each paycheck to take care of seasonal or annual expenses. Include them in your monthly budget. For the same reasons, you should also save money to pay for any unexpected financial emergencies.
A realistic budget should guide your spending decisions. Create a spending and savings plan and stick to it. If you can follow your financial plan, you’re in a better position to pay off your student loan sooner.
Consolidate Student Loan Debt
If you have more than one federal loan, it can be challenging to juggle multiple payments and payment dates. Multiple federal student loans can be combined into one federal loan. You’ll only have one servicer and one payment going forward.
When consolidating this debt, you’ll have the option to extend the loan terms up to 30 years. It’s essential to note that doing so will increase the amount of interest you pay and keep you from paying off your loan sooner. If possible, it’s best not to extend your due date, so you have extra money towards the loan principal and not interest.
Make Additional Loan Payments
Make additional payments on your student loans whenever you can. You aren’t penalized for paying your loans back early or paying more than the minimum amount due. However, student loan servicers might apply any additional monies towards your next month’s payment.
You want to tell your servicer to apply your overpayments to the current balance. Although, using the overage towards the next month’s payment will help you pay down your loan sooner and decrease the amount of interest you pay.
You can make extra payments at any point in your billing cycle or pay an additional amount with your regular monthly payment by the due date. Either way, you can save a substantial amount of money and pay your loan off sooner. If you receive any windfalls, such as a bonus, tax returns, inheritance, or financial gifts, consider using at least a portion towards your loan to accomplish your goal.
For instance, let’s say someone owes $10,000 with a 4.5 percent interest rate. By paying an extra $100 every month, they would pay off the loan more than five years ahead of schedule if they were on a 10- year repayment plan.
Income-Based Repayment Plans
Many professionals fresh out of law school school don’t have high incomes. An income-based repayment (IBR) plan might be ideal if you fall into this category and have federal student loans. Unfortunately, private lenders don’t offer income-driven repayment plans. Still, an IBR is a viable option whether you are in the private or public law sector.
IBR plans use the borrower’s earnings and family size to determine their eligibility to pay. Your monthly payment is typically calculated at 10 percent of your discretionary income or 15 percent if you’re not a new borrower after July 1, 2014. After making payments for 20-25 years, the federal government forgives your student loan’s remaining balance. The only drawback at that time is that the forgiven amount isn’t tax-exempt.
Take Advantage of Any Available Loan Forgiveness or Assistance Programs
There’s no faster way to pay off your student loans than to have them forgiven. If you work for the government or a nonprofit, you may qualify for a loan forgiveness or assistance program. You can check to see if your current job offers any help with student loans or search out jobs that offer help paying for student loans. Programs specific to law school debt to consider include:
- The Herbert S. Garten Loan Repayment Assistance Program
- The John R. Justice Student Loan Repayment Program
- The Department of Justice Attorney Student Loan Repayment Program
- Public Service Loan Forgiveness Programs
The way you manage your law school student loan debt now and into the future will have a significant impact on nearly every area of your life. When executed correctly, it can be a path to financial freedom and many lifestyle opportunities.
If you need help managing your student loan debt or your other finances so that you can pay your loan sooner, don’t hesitate to reach out for help from knowledgeable financial experts.
Mark Candler and Dave Owens of Maia Wealth are go-to wealth advisers for lawyers and law firms in Colorado. Specializing in debt reduction, investment management, retirement efficiency, and legacy planning, Mark Candler and Dave Owens are trusted professionals for attorney-focused wealth management strategies in the Denver metro area