Due to the enormous cost of law school, many new lawyers face a high-stakes issue: should I refinance or consolidate my student loans, or should I just leave them alone?
Most attorneys will find that federal direct consolidation is the preferred route for government loans while refinancing with a private lender is the ideal path for private student loans. However, expected salary, total borrowing, and loan terms can impact the best option determination.
One of the biggest factors in determining the strategy for loan management is the nature of employment. The options and resources available to a big law attorney with a larger salary are significantly different than what it is for a government employee.
Large Firms Employees
If you are enjoying the golden handcuffs of the large firm lifestyle, there are several excellent student loan refinance options to consider. Many of the private companies use the terms refinance and consolidation interchangeably. While both refinance and consolidation involve older loans being paid back in full and replaced with a new loan, there are some significant differences.
When the government consolidates loans, it is usually done to help borrowers qualify for desired repayment plans or forgiveness programs. When a private lender refinances loans, it is to help borrowers get a lower interest rate or monthly payment on their debt. Private lenders and private loan refinancing is the more typical path for large firm employees.
Many of the top private lenders cater to young professionals with six-figure incomes and high credit scores. Even if you are on track to pay off your debt relatively quickly, locking in a lower interest rate can make a huge difference on any budget. If you have 200k in law school debt and reduce your 8% rate loans to a 4% rate loan, it means you will be saving nearly $700 per month.
Partnership track and other high earners looking to eliminate debt quickly will want to focus on getting the lowest possible interest rate. At present, the following lenders offer the lowest refinance rates:
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However, before any refinancing takes place, all private-sector attorneys should first map out a comprehensive plan to eliminate their student debt.
Government and Non-Profit Employees
If you are working as a government attorney or for a non-profit, your student loan repayment route will likely be different. Private refinance of federal loans is almost certainly a mistake.
One of the best options for repayment is to seek out employers eligible for Public Service Student Loan Forgiveness (PSLF). After ten years of payments based upon your income, the remainder of your debt can be forgiven tax-free.
The issue with PSLF is that only certain federal student loans are eligible. Lawyers who attended law school in 2010 or earlier may have FFEL loans. The FFEL loans do not qualify for PSLF, but they can become eligible through federal direction consolidation. One of the dangers to federal direct consolidation is that the forgiveness clock is potentially restarted.
Tips for borrowers considering federal consolidation
- There is only one place to consolidate your federal loans. Outside services charging money for federal consolidation or student loan forgiveness services are likely a scam.
- Federal consolidation can be a bit tricky, and there is no way to undo a consolidation, so be sure to do lots of research before jumping into this route.
- A good starting point in consolidation research is the Department of Education page on Federal Student Loan Consolidation.
- This site has also created a comprehensive guide to Federal Student Loan Consolidation.
When Private Refinance Enters the Equation
Unfortunately, not all loans are federal, meaning forgiveness isn’t ever going to happen for some law school debts. For these loans, refinancing with a private company is a great way to lower your rates. Even on a more modest government or 501(c)(3) salary, there are options. One of the best choices may be LendKey. This company will match you with a not-for-profit local credit union. The rates they offer aren’t quite as low as some other companies mentioned, but loans starting at less than 3% are worth investigating.
Selecting a 20-year repayment plan is often the optimal route. Borrowers can always pay extra to eliminate their loans quicker, but the lower monthly payments provide flexibility if the budget gets tight.
At present, the lenders offering the best 20-year, fixed-rate loans are the following:
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Government and non-profit employees should carefully consider their future employment plans and create a strategy to eliminate all of their student loans as quickly and efficiently as possible.
Student Loan Refinance and Consolidation Options for Young Attorneys
Regardless of where you find yourself on the lawyer income spectrum, there are options for putting a huge dent in your monthly student loan interest. Student loan consolidation and refinancing are no magic fixes, but they can make your massive student loan headache into a slightly less massive student loan headache.