Finding refinance and consolidation options for bar study loans is extremely complicated for a very simple reason.
Bar study loans are not student loans. They are private loans.
As a result, borrowers need to apply a different strategy for bar study loan elimination. Even though traditional tactics may not work, there are options unique to bar study loans.
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 first-year college student can easily find a student loan with an interest rate of under 5%.
The difference goes back to bankruptcy law. Congress 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 low 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 risky, so lenders increase the rates to ensure profits.
Rather than treating your bar study loan as a student loan, 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 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 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. With interest rates starting in the 5 to 7% range, they can considerably improve the bar study loan interest rate. They also are free of origination fees, which should always be avoided.
Borrowers with a good job may even wish to consider a credit card with a 0% interest introductory rate. The savings may be substantial if you will be able to pay off all of the debt before the credit card rate kicks in. However, this is a risky option as the full credit card interest rate may exceed the bar study loan rate.
Playing hardball with your lender
Some attorneys don’t pass the bar on the first try. Others struggle to find a job.
While federal loans have great protections like income-driven repayment and student loan forgiveness, bar study loans are less generous.
Bar study borrowers can use the viability of bankruptcy to their advantage. Some lenders have temporary rate reduction programs to help struggling borrowers. Though bar study loans are not student loans, they are excellent candidates for temporary relief.
Most lenders are large bureaucracies, and customer service representatives rarely have authority to make interest rate changes. However, a savvy law school grad may be able to track down a person who can help and persuade them that rate assistance is better than bankruptcy.
Refinance and Consolidation Options for Bar Study Loans
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.
Due to the high interest rates of personal loans and bar study loans, borrowers should prioritize eliminating this debt first.
- Find the lowest possible monthly payments and interest rates on your student loans.
- Attempt refinancing or consolidation or negotiating rates as described above.
- Repay the bar study loan as fast as possible.