Barbri is expensive and studying takes time. Enter Sallie Mae with their bar study loan.
The idea is simple: take out one last educational loan, focus on studying for the test, and be able to pay rent and put food on the table during that time.
To recent law school grads with 100k+ in student debt, borrowing an extra $10,000 or so in order to help ensure bar passage may seem like an easy call.
Unfortunately, the Sallie Mae bar study loan may prove to be a mistake for many aspiring lawyers.
Bar Study Loan Basics
The most important thing to know about a bar study loan is that it is not a student loan. Instead, it is a personal loan.
Unlike student loans, personal loans don’t have to be used for qualified educational expenses. If you get a bar study loan from Sallie Mae, you will receive a check from Sallie Mae.
Personal loans are treated like most other debts in a bankruptcy proceeding. Borrowers do not have to meet the rigorous “undue hardship” standard specifically required for student loans. The relative ease of discharging a bar study loan in bankruptcy isn’t a major consideration for most borrowers, but it matters a great deal to lenders. As a result, interest rates on bar study loans are usually much higher than most student loans.
Unlike other personal loans, bar study loans usually require that applicants be recent law school graduates and plan on sitting for the bar. These loans may also include a grace period where payments are not required, but interest does accrue.
Sallie Mae Bar Study Loans
In order to be eligible for a Sallie Mae Bar Study loan, applicants need to be current law school students or have graduated within the past 12 months from an ABA-accredited law school.
Sallie Mae offers variable interest rate loans for bar study and the rates currently range from a reasonable 2.90% APR to an awful 11.56% APR. Fixed-rate loans range from 5.75% to 12.68%. Borrowers are able to borrow between $1,000 and $15,000.
We like that Sallie Mae does not charge any prepayment or loan origination fees, but we don’t like the emphasis that they put on having “creditworthy cosigners” on the loan.
Sallie Mae advertises a cosigner release possibility after 12 months of payments, but due to vague credit requirements that borrowers must meet in order to secure a release, cosigners should play it safe and plan on being on the loan for the life of the loan.
Reviewing Sallie Mae vs. Other Bar Study Options
Sallie Mae’s interest rates on the high end are especially terrible.
Anecdotally, the majority of the borrowers that we have seen end up getting approved for rates on the high end of the spectrum. At around 12%, these rates look more like onerous credit card rates. Lenders like Discover and PNC have slightly more appealing bar study offerings.
In many cases avoiding a bar study loan can be the best option. Many people like to avoid working while studying for the bar, but a distraction from a job can be a healthy break from studying. Plus, the income generated can help avoid a really expensive loan.
Another option is to look into a more traditional personal loan. As an example, SoFi currently offers fixed-rate personal loans starting below 6%. Because the personal loan marketplace is far more crowded than the bar study marketplace, the competition is more fierce, and borrowers may be able to score a better rate.
Borrowers who only qualify for the high interest rate loans may also consider paying their living expenses on a credit card with a 0% introductory APR rate. This route is extremely risky because the interest rate jumps considerably after the intro period, but for people who need the cash to cover food and bar study classes, it might be a reasonable option.
Sallie Mae seems to do an excellent job advertising their bar study loan to aspiring lawyers. They also emphasize a quick application process.
The Sallie Mae approach appears to be predicated on getting the applicants who will not shop around and consider other options.
Sallie Mae is normally the first bar study loan that law students are exposed to, but it is unlikely that it will be the best choice. Law students who are willing to shop around and/or be creative will likely find better options elsewhere.
Even though we are not fans of the Sallie Mae bar study loan, or bar study loans in general, there is no harm in checking your rate with Sallie Mae. For some students, it might be a lousy option, but still the best option available.