A New Law Student’s Guide To Federal And Private Loans

Congratulations! You were accepted into law school.

After thinking you had messed up those impossible logical questions while pressed for time on the LSAT about school bus seating plans, you actually did it!

Now comes real work.

You will likely need loans, and that means deciding which type is best for you: government or private.

Read on for guidance on how to make the right decision for your specific situation.

Uncle Sam’s generosity

According to Juno’s Practical Complete Guide to Student Loans for Law School, most students pursuing a Juris Doctor, Master of Laws, or Master of Studies in Law who opt for federal government loans will receive either Direct Unsubventioned Loans or Direct PLUS Loans – Also known as the Degree PLUS Loans – or a combination of both.

Direct, unsubsidized loans do not have a credit score requirement, and the requirements for PLUS loans are low. Most applicants qualify.

These loans are available to US citizens as well as certain eligible non-citizens, and interest rates may vary. The interest rates are based on the 10-year Treasury Notes interest rate in mid-May and apply to loans paid out after July 1st of each year. For a deeper look at federal loan interest rates, click here.

Of the two types of loans, Direct Unsubsidized are cheaper, with lower interest rates and lower fees than PLUS. However, you can only use these loans for your first $ 20,500 for a given academic year. So if you’ve got admission to one of these top notch private institutions, you’ll likely need Direct PLUS with a higher interest rate and higher commitment fee.

You also need to keep in mind that both the direct unsubsidized loans and the direct PLUS loans are “unsubsidized,” which means that the federal government will not pay the interest while you are in school. Interest is instant and capitalized – added to your principal – unless interest payments are made.

This distinguishes these loans from the state loans received by most undergraduate students, for which the federal government pays subsidized interest payments for up to six months after graduation or until they are below mid-term in college.

Don’t make the mistake of believing that on the day you graduate, your law school loans will have the same balance as they were on the day you received them, unless you make those interest payments.

The private sector

You can also take out loans from private banks and lenders. Each source has their own application process and credit requirements. You can also take advantage of a free service like Juno (formerly LeverEdge) that compares and researches loans for you and works with a wide variety of lenders.

Such services use collective purchasing power to negotiate interest rates significantly lower than you could get yourself.

Personal loans can be used to fund law school upfront or year after year, but many new lawyers also turn to the private sector for their scary, I can’t believe I am so deeply in debt once they get their loan amount get first job.

With pay slips – you usually need about three – you can get a significantly lower rate of interest from refinancing like this, depending on what’s going on in the world.

As you would expect, each private lender has their own underwriting process and standards for student loan applicants to help them decide whether a loan is to be granted to a person and at what rate. All private lenders require a credit check to assess your repayment ability. If your credit score is in the 600 range, you will likely qualify. In general, the higher your score, the lower your interest rate.

Not only can you keep your credit score high by paying off all of your debts in a timely manner, but you can also lower your interest rate even further by adding a co-signer, often a parent. You don’t need a co-signer to get a loan – especially if you have good credit – but it’s a good option if you’re young and haven’t had time to develop a great credit score.

After submitting your application, with or without a co-signer, and your personal student loan has been approved, you will be asked to choose between a variable or fixed rate and a repayment period. A floating rate is often lower initially, but there is a chance it could go up based on prevailing interest rates in general. If you choose a fixed rate, it will not change over the term of your loan.

Make sure that you are given a detailed explanation of the interest rates, plus any fees and charges.

The pros and cons

If you’re still struggling to choose between government and private loans, think about the pros and cons of each loan. (And check out Juno’s student loan calculator if you want to run out some numbers.)

As for the federal government, one advantage is that these loans are easy to come by.

Also, federal loans offer protection if you end up in a low-paying job as you can apply for an income-based repayment plan. If you also opt for the less lucrative public service – such as legal assistance or the public prosecutor’s office – your loans can be canceled after a certain period of time. Check out Juno’s guide for more information on this type of thing.

Fraud? Higher interest rates, mainly because of the less stringent credit check. If you don’t qualify for an income-based repayment program or public employment agency, you can pay much more over the life of your loan.

With private lenders, you should toss the coin. Their usually lower interest rates often result in lower monthly payments and a lower total amount paid over the life of the loan. If you are planning to find more lucrative employment – for example, commercial disputes in Biglaw – personal loans can be particularly beneficial. You will likely never qualify for the federal income-driven programs designed to keep payments manageable. You will not be forgiven of your debts either.

When it comes to private student loans, note that not everyone is eligible. Banks and other private lenders check your creditworthiness and assess your financial situation.

So, if you are still struck by your undergraduate loans, then you should probably stick with Uncle Sam.

source https://collegeeducationnewsllc.com/a-new-law-students-guide-to-federal-and-private-loans/