Prepping for the bar exam is an essential rite of passage for all lawyers. Test anxiety can cause many to live a hobbit existence, with many young lawyers spending far less time at work or with family and friends. This stress also causes many future lawyers to make the horrible decision of signing up for a bar study loan at an obnoxiously high interest rate.
Once the bar is finished and the first bill arrives, the reality sets in. Borrowing money to study for the bar might have seemed like a good idea, but at credit card interest rates, there has to be a better way. It is at this point that many newly minted lawyers look into ways to get more reasonable interest rates. Unfortunately, student loan consolidation and refinancing options will almost never include bar study loans. The good news is that there are options to get bar study loans lowered to much more manageable interest rates.
Why are bar study loans different than other student loans?
It seems silly that someone borrowing money to study for the bar exam gets interest rates well above 10%, while an average college freshman can easily find a student loan with an interest rate of under 5%.
The difference goes back to bankruptcy law. Congress has passed special provisions that make student loans nearly impossible to discharge in bankruptcy. This is the reason that so many lenders are eager to offer student loans at lower interest rates. There is less risk to the lender.
A bar study loan is different. Even though it was used to study, the lenders have much less protection. Because there is more risk associated with the loan, the interest rate is higher. Loaning money to jobless, unlicensed attorneys is a risky venture, so lenders jack the rates up to ensure profits.
Rather than treating your bar study loan as a student loan, it is probably more accurate to view it as a personal loan. Even though it cannot be consolidated or refinanced like other student loans, there are other ways to lower the interest rate.
Find a better personal loan
Perhaps the best method of refinancing a bar study loan is to just get another loan and use the funds to pay off the old loan. Peer-to-peer lenders such as Lending Club and Prosper are common choices. The downside with these options is that the interest rates can vary greatly. At the very low end of the spectrum, some of the rates are reasonable. However, the rates on these loans can often exceed those offered by some credit card lenders. The other downside is that there is an origination fee.
For most, working with a local bank and inquiring about a personal loan might be the best option. Occasionally, student loan consolidation companies like SoFi also offer personal loans. These loans typically have shorter repayment terms than most student loan refinancing, but with interest rates starting in the 6 to 7% range, they can improve the bar study loan interest rate considerably. They also are free of origination fees, which should always be avoided.
The key here is to understand what you are shopping for. Student loan consolidation and refinancing is not an option for debt that isn’t actually a student loan. Once you target personal loans instead of student loans, you might find better options.
Even in the best of circumstances, the interest rates on these loans will still be higher than what you can find for student loans. For this reason, even if you can lower the interest rate slightly, this will still probably be the loan you want to pay off first.