Kyle W. Nageotte
Over 80% of California’s new lawyers enter the workforce with some kind of student loan debt. This debt, which in many cases is in excess of $100,000, can be crippling on a young attorney’s finances, and significantly influences the profession’s ability to provide legal services to California’s diverse population.
While discussing student loan debt may be uncomfortable, it’s important for new attorneys to do their research, make a plan, and act swiftly to ensure they receive the benefits of the various public and private loan repayment options. The following are a few items new attorneys should consider while getting started.
- Get Organized
It’s crucial for new attorneys to understand what their total debt load is, who their loan servicer is, and what types of loans they have in order to make the best-informed decisions regarding loan repayment.
The first issue many debtors face is the issue of consolidation. Consolidating student loans puts all of your existing qualifying loans into the Federal Loan Forgiveness Program with the United States Department of Education. Consolidation allows a borrower to pay a single monthly payment, have a single loan servicer, and access alternative repayment plans. Consolidating student loans, however, can change your interest rates, grace periods, and loan servicers. It’s important to consider and understand all of the terms and conditions associated with any consolidation before moving forward.
A great resource for many borrowers is their current loan servicer(s). Staying in contact with your loan servicer(s) is important, especially if you are seeking forbearance or claiming financial hardship. Dealing with your loans sooner, rather than later, can help avoid many painful consequences, which may affect your ability to take advantage of the federal repayment programs, as well as adversely affect your credit score.
- Repayment Options
The Federal Loan Forgiveness Program has several different repayment plans to help you manage your loans, which in turn will allow you to concentrate on your practice. A useful tool is the “Repayment Estimator,” which is available on www.studentloans.gov. This estimator displays all of the repayment programs you qualify for, your estimated monthly payment for each repayment program, and the estimated amount of time it will take to pay off your loans based on your income and family size.
Depending on the amount of your loans, family size, and income, you may have the option to select among the standard, graduated, extended, income-contingent, and income-based repayment plans. It is important to understand the terms of each repayment plan, the monthly payments (which can increase or decrease based on changed circumstances), and the tax consequences associated with any loan amounts forgiven at the end of the repayment plan.
A wonderful option for new lawyers entering the public or non-profit sector is the Public Service Loan Forgiveness Program (“PSLF”). The PSLF encourages attorneys to enter into and continue full-time public service employment by forgiving the remaining balance of their Direct Loans after they have made 120 qualifying payments while employed full-time by a public service organization. Presently, the amount forgiven under the PSLF is not considered taxable income by the I.R.S. A major issue that borrowers should consider, however, is that Congress may change or discontinue the program at any time.
- Permanent Forbearance
Most student loans must be repaid even if a borrower does not finish his/her education, can’t find a job, or is unhappy with the education he/she received. There are, however, several circumstances that may lead to the permanent forbearance of a borrower’s loan(s), including the “Closed School Discharge,” the “Total and Permanent Disability Discharge,” and the “Death Discharge.” It is very rare for student loans to be discharged in bankruptcy, so it is important for borrowers to keep in touch with their loan servicer(s) in order to understand all of their options should they face financial difficulties.
- Private Loan Options
Another option for new lawyers is to leave the federal system and refinance their loans with a private lender. This option may lead to lower interest rates and additional repayment options. As with the federal repayment plans, borrowers should research all of their private options to find the best fit for them. Some well-known private lenders include SoFi, Darien Rowayton Bank (“DRB”), Charter One Bank, CommonBond, and Education Success Loans.
While student loan debt may not be something most new lawyers want to deal, especially while just getting started in their careers, it is important that you do your research, know your options, and address your debt earlier, rather than later. There are countless resources available online, at local bar associations, and from the State Bar of California. Don’t be afraid to ask your friends and colleagues how they’re handling their loans. While it may be uncomfortable at first, there is some comfort in knowing that we’re all in the same boat.