People often say you shouldn’t worry about student loan debt — that it’s “good debt.” In some cases, this might be true.
Taking out student loans is an investment in your human capital.
To the extent they enable you to do something you couldn’t otherwise do, i.e., afford to pay for law school so you can become an attorney, student loans might be justifiable.
However, it depends on the specifics:
- what kind of loan
- how much you borrow
- what interest rate
- and, critically, what sort of economic and personal payback you’ll get when you graduate.
Types of Student Loans
In a nutshell, there are two primary types of student loans: federal and private.
There are also currently two types of federal loans: subsidized and unsubsidized, but subsidized graduate loans will cease to exist as of July 2012.
What Kind of Student Loan Should You Get?
To the extent possible, avoid private loans because they’re often more expensive and offer few of the protections that are standard with federal loans. (Obviously you should evaluate this for yourself, and make your own decision based on your own circumstances. This is not legal advice.)
Subsidized federal loans should generally be your first choice — with these, the government pays the interest while you’re in school, so it doesn’t accumulate. Unsubsidized federal loans are usually the next best choice — but interest does accumulate while you’re in school, unless you pay it as you go.
Private student loans, which are offered by a variety of banks and specialized companies, vary widely in their terms, but, in general, you’ll have fewer protections than you will with a federal loan of any type, so these should be your last option and you need to be sure you understand what you’re signing up for.
Warning: Student Loans Are Not Dischargeable in Bankruptcy!
It’s extremely important to understand that student loans are not dischargeable in bankruptcy. This means that if you sign on the dotted line and take loan money, you’re stuck with it. Even if you can’t find a job, can’t pay your bills, and declare bankruptcy, you’re still going to have to pay your student loans off.
Even if you die, your loan debt might not disappear. If someone co-signed your loans (which is often required with private loans), that person may have to continue paying your loan back, even if you’ve ceased to exist.
This is serious business, people.
The Average Law School Debt Load is Astronomically High
What does a typical law school debt load look like? The Law School Admissions Council reports that over 80% of law students rely on student loans as their primary source of funding during law school. The average law school indebtedness is $100,000. This is in addition to any funds borrowed for prior educational expenses.
What Are the Monthly Payments on $100,000 in Loans?
What does this mean? If you’re a “typical” law student, you’re going to be making student loan payments of approximately $1,150 a month, for ten years after graduation. That’s $13,800 per year of after tax earnings.
(Yes, I know there are income dependent repayment plans, and that you might qualify for loan repayment programs from your school or from the government. I encourage you to investigate these options. However, at least for the sake of argument, consider the possibility that no one’s going to save you, and you have to pay all the money you borrow back on your own.)
Wow! That’s a Lot. How Much Do I Need To Earn to Pay That Comfortably?
How much money do you need to earn every year to afford these payments? About $140,000.
Think about that. The mean starting salary for law school graduates is somewhere around $85,000. Even if this were truly an average salary, you’d still have well over 50% of recent graduates struggling to make their loan payments. But the story’s much worse, since almost no one makes the mean salary. Instead, a large percentage of recent graduates will make around $50,000.
That’s about a third of what they need to comfortably pay their student loans!
How Does Anyone Pay This Much?
When you really look at these numbers, you start to understand why competition is so fierce for law firm jobs — these are the only jobs that allow young attorneys to pay off their law school loans.
Like it or not, most firm lawyers are signing up for years and years of essentially indentured servitude, where they work a job they don’t like very much in order to pay for the education that enabled them to get that job to begin with.
Does this seem like a good idea? Probably not.
Help! I Can’t Get a BigLaw Job.
But the alternative, for the 80% of recent graduates who don’t get high paying firm jobs, is worse.
These people lost three years of earning power, and acquired $100,000 of debt, only to graduate and find themselves devoting a completely unsustainable percentage of their take home pay to their law school loans.
The Bottom Line
Good debt? Think twice.
More myths about law school, coming right up!
- Law School Myth #1: Lawyers Make a Lot of Money
- Law School Myth #2: Student Loan Debt is Good Debt
- Law School Myth #3: Law School Gives You Three More Years to Decide What to Do With Your Life
- Law School Myth #4: Life as a Lawyer is Exciting and Intellectually Challenging
- Law School Myth #5: Getting a Law Degree Opens Lots of Doors
- Law School Myth #6: You Can Trust a Law School’s Employment Numbers
Have thoughts or stories about law school student loan debt? Leave them in the comments!
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