There is a lot to like about Discover’s Bar Study Loan.
Discover is pretty transparent about its policies. The US-based customer support is a huge plus, and Discover doesn’t charge any fees on the loan — not even a late fee for borrowers who miss a payment.
Unfortunately, Discover falls short where most other bar study loans fall short: the interest rates offered are pretty lousy.
As a result, going to Discover for a bar study loan is a viable option, but borrowers should also be shopping around.
Discover Bar Study Loan Basics
In order to be eligible for a Discover Bar Study Loan, law students must either be in their final year of school or have graduated within the past 6 months.
Loan amounts range from $1,000 on the low-end to a maximum of $16,000.
Once the loan is issued, the borrower is either issued a check directly or the money is deposited into the borrower’s account.
Discover advertises zero fees. Like most bar study loan companies, that means no loan origination fees or late fees. Where discover is a little different is that they don’t charge late fees. This feature will come in handy to borrowers who have issues setting up an automatic withdrawal or who miss a deadline by a few days.
Loans are all on a 20-year repayment term and interest rates range from 3.87% to 10.87% on the variable-rate loans. Fixed-rate loans start at 5.49% and can be as high as 11.99%.
Discover also has an “aggregate loan limit” for their bar study loans. This loan limit is a cap on the total amount of existing student debt that a borrow can have. However, this isn’t one single limit. The aggregate loan limit is adjusted according to application factors such as the borrower’s credit score.
Finally, Discover does not have a cosigner release policy. That means cosigners are attached to the loan until it is paid in full. Not being able to be released from the loan is definitely a negative, but the cosigner release policies are often more myth than reality with other lenders, so Discover gets points for being upfront with borrowers.
Comparing Discover to Other Bar Study Lenders
All bar study loans seem to suffer from high interest rates, and Discover is no exception.
PNC has slightly better advertised interest rates than Discover, but the PNC repayment period is 15 years compared to the 20 with Discover. This means monthly payments could be lower with Discover, even if PNC has a better rate.
Sallie Mae also advertises slightly better rates than Discover, but again, for shorter loans. We also think Discover has a much better customer service reputation than Discover.
However, it is important for law students and recent graduates not to limit themselves to bar study loans.
Personal Loans vs. Bar Study Loans vs. Student Loans
In reality, a bar study loan is just a personal loan with a couple of extra requirements.
A bar study loan is not a student loan and the rules that apply to student loans do not apply to bar study loans. For example, student loans get special treatment in bankruptcy, but bar study loans and personal loans are treated like all other forms of debt.
Many future lawyers limit themselves exclusively to bar study loans, and it could be to their detriment. Just because a loan is designed for a single purpose does not mean it is the best choice.
A traditional personal loan could be the best option for paying for bar prep. Some personal loan lenders have rates starting below 6%. Because the personal loan marketplace has more lenders, it is also more competitive. This could explain why some borrowers are able to find better rates with a traditional personal loan over a bar study loan.
Discover Bar Study Repayment Strategy
On the very low end of the Discover interest rate spectrum, the rates are pretty good for a 20-year loan.
However, even on the low end, the rates are still too high to carry long-term. Borrowers should have a plan to quickly repay the debt after taking the bar. Odds are pretty good that the bar study loan interest rates will be higher than the interest rates on existing student loans. The options to refinance are bar student loans are also very limited.
Borrowers who are offered rates on the high end of the Discover spectrum should only use the loan as a last resort. Repayment of high-interest bar study debt should be a priority.
Despite the name, a bar study loan isn’t always the best option to pay for bar study.
That being said, Discover is one of the best bar study lenders available.
Ultimately, the best choice will depend upon the actual interest rates offered. Law students and recent grads may be busy, but shopping around to find the lowest possible interest rates for their bar study needs is time well spent. We think Discover merits consideration, but it should only be part of the investigation.