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What you need to know about student loans

Money Smart

As any student will tell you, law school is no joke when it comes to financing. For all but the luckiest students, you must be prepared to go thousands of dollars into debt for the ultimate payoff.

According to U.S. News & World Report, law students who graduated in 2016 found their average indebtedness ranged from $198,962 at Thomas Jefferson School of Law in San Diego to $53,237 at Brigham Young University—J. Reuben Clark Law School in Provo, Utah.

An expert offers insights

Student loans are scary and sometimes downright mystifying. There are a lot of things many students don’t know when it comes to getting a student loan, repayment options, and the differences between federal and private loans.

To help you understand the loans you may be committing yourself to, we turned to Kate Sablosky Elengold, an associate professor and the director of the consumer financial transactions clinic at the University of North Carolina School of Law in Chapel Hill.

Elengold started her career in civil rights litigation while working for the U.S. Department of Justice and in 2017 started focusing on researching student debt for all students, including law students.

Q: What’s the biggest thing you w ant students looking into student loans to know?

Elengold: There’s a difference between federal and private loans. Federal student loans aren’t underwritten, while private loans are. This means that before the federal government provides you with a loan, it doesn’t check your ability to pay back the loan.

If you consolidate your federal loan into a private loan, you’ll lose a lot of the protections that are provided with a federal loan. Some students can access higher education only with a private loan, but those students need to be very aware of the differences and protections.

Q: Most loan companies require you to start making payments six months after you graduate. What advice do you have for when it’s time to start making payments?

Elengold: Be knowledgeable about the different repayment plans. Federal loans offer the option of income-based repayment, which means your payment is a certain percentage of your income. This isn’t something private loans offer. Private loans generally express their repayment terms within the contract, or master promissory note, you sign.

Also know when your six-month period starts and ends. During this time, you’re automatically placed on a standard 10-year repayment plan at a fixed rate. Use this time to change your payment plan to one that works better for you, and update all your information with the loan servicing company. That way, you don’t miss important mail regarding your loans. The last thing you want is to miss something important and end up in default.

Q: What do students need to know about having a cosigner for their student loans?

Elengold: The biggest con of having a cosigner for your loans is that the cosigner is essentially on the hook for the entire amount of the loan should you be unable to make the payments. However, a cosigner with good credit could set your loans at a lower interest rate than you’d have gotten without a cosigner.

Q: How important is it that you know what your loan interest rate is?

Elengold: It’s great to know that information before you take on a loan. The more information you know before taking on a loan, the more you can ensure that you’re getting the proper service on that loan. Federal loans have set interest rates, while a private loan will have a variable interest rate based on the information the lender puts in the contract you sign with them.

Read your documents; seriously!

After my discussion with Elengold, I did a little research of my own into some things my fellow law students might want to know. Have you ever looked at the FAQ section of a student loan servicer website? I’ll admit that I’d never done that on the website of my student loan servicer, Great Lakes.

This isn’t an exhaustive list of the questions they answer, and please note that all loan servicers are different. If you’re not sure who services your loan, your federal student aid account through can provide you with that information. Once you know who services your loan, be sure to read their FAQ page.

Q: Are you obligated to pay back your under grad loans if you ’re in graduate or professional school?

A: If you have a federal loan for undergraduate work, you’re not required to pay undergrad loans back—or the interest on them—while you’re enrolled in school at least half time, which is usually four to eight credits per semester (but check with your school regarding its half time policy).

Once you drop below half time, your six-month grace period will start. Once that six-month period runs, you’ll have to start paying on your loans, both undergrad and for graduate or professional school.

If you have a private student loan, check the lender’s policies on paying back your undergraduate loans while in graduate or professional school. From my personal experience, sometimes you’ll have to work on paying your undergraduate loan from a private lender even if you’re enrolled more than half time in a graduate or professional program.

Q: Subsidized loans. Unsubsidized loans. What does it all mean?

A: Sometimes all we know is that we have a federal student loan and were able to go to school. We see the words “subsidized” and “unsubsidized,” but few of us know what those mean. What it comes down to is who’s paying the interest on your loans.

Subsidized loans have their interest paid by the government if you’re enrolled at least half time in school. The government even pays the interest on these loans if you’re in the midst of a deferment period—if, for example, you lost your job and need a little bit of breathing room and ask to put off paying on the loan for a short period of time.

With an unsubsidized loan, the borrower—that’s you— is required to pay the interest on the loan. This means that not only do you pay the full amount you borrowed, but you also pay back any interest that has accrued while you are in school or on a deferment period.

In essence, be diligent. If this is something you’re looking into, do as much research as possible and ask questions, even the ones you’re afraid to ask.

Advice that’s personal to me

I also wanted to share my own knowledge about student loans. Here are two things I’ve learned through my time as a law student that are very important:

Q: Can your federal student loan be refused?

A: Yes! Even if the federal government tells you that you’re going to get a Direct PLUS loan—a loan that’s typically given to graduate or professional students—it can decline to give the loan. While federal loans aren’t underwritten, the feds will run a credit check to see anything that adversely affects your credit (think any bills you may have in collections) and can deny the loan on that basis.

If you’re denied a federal loan, all hope is not lost. You can document extenuating circumstances—that the credit issue was in error, paid off in full, is now on a payment plan with at least six consecutive months of on-time payments, or that the debt is no longer yours due to a legal issue, such as a divorce.

You can also opt to get a cosigner for the loan, or you can contact you school’s financial aid department for alternative options. If you choose to document an extenuating circumstance, be prepared for strict requirements; the government is very specific about the documentation required for a successful appeal. If you go to the FSA website, you’ll find all the information required.

Q: Can you really get a loan for bar prep?

A: Yes. However, these are private loans, which means they come with that variable interest rate. A private loan for bar prep will cover things like living expenses, bar prep programs (think Quimbee, Barbri, Kaplan, and so on), and the cost of the bar exam itself.

However, these loans may come with a limit. For example, Wells Fargo allows you to borrow up to $12,000, while Discover allows you to borrow up to $16,000. A simple internet search will lead you to different options for a private lender.

Q: How does public service loan forgiveness work?

A: The public service loan forgiveness program forgives federal loans that remain after you’ve worked for a qualified employer for a certain period and made a certain number of payments. It’s important to know that PSLF doesn’t kick in right away. You have to make 120 months, or 10 years’ worth, of payments toward your student loan.

As of 2016, the U.S. Department of Education reported that 139 people had made at least 97 of 120 qualifying payments on the program.

However, you could run into problems with this program. Amber Masters, an attorney and creator of the blog Deeply in Debt, said there’s one big misconception about PSLF: “With other loan forgiveness programs, you have to wait 20-25 years to have your loans forgiven, and then you’re taxed the amount that’s forgiven as if it was your income for that year.”

Basically, if you’re eligible to have your loans forgiven and the balance is, say, $75,000, you’d have to claim that as taxable income in addition to any income you make from your place of employment.

Masters, who along with her husband accrued $650,000 in student loan debt, also noted that there are problems currently affecting the PSLF program. “You have to work for a qualifying employer and fill out paperwork every year,” she said. “It should give everyone pause that, according to The New York Times, few people have had their loans forgiven under this program even though thousands were counting on it.”

In essence, be diligent. If this is something you’re looking into, do as much research as possible and ask questions, even the ones you’re afraid to ask.

Twitter Loan Tips from Those Who’ve Been There

I decided to take to my favorite form of social media, Twitter, to ask the people of #lawtwitter and #appellatetwitter for their advice on loans. These groups are made up of law students, clerks, lawyers, judges, and other people from the legal profession. Here are several of their suggestions:

  • When YOOLI CHOI O’BRIAN, a 2011 graduate of University of California, Davis School of Law (King Hall), got married during her 3L year, the financial aid advisor at her school gave her a little-known tidbit of advice: “Don’t do a marriage loan consolidation, even for a better interest rate. Heaven forbid one of you dies; the other is then on the hook for the whole thing.”
  • “Know your repayment plans,” said MELANIE MARIOTTI, a 2012 graduate of Tulane University Law School in New Orleans. “The entrance and exit counseling is the bare minimum. You have to figure out which repayment options— standard, extended, graduated, incomebased— work for you and weigh the pros and cons.”
  • “Don’t take out a cent more than you need. Work through law school if you need to, and apply to every scholarship and grant you can,” said a student at The George Washington University Law School in Washington, D.C. “Six months comes fast, and the bill amount is a shock.”—JESSICA GILGOR

Jessica Gilgor Jessica Gilgor is a 2L at Creighton University School of Law. A native of Las Vegas, she graduated from the University of Nevada Reno, where she studied Professional Chemistry and minored in Physics. Jessica was a part-time sports journalist for the United States Bowling Congress during their Open Championships tournament under the tutelage of Matt Cannizzaro and Aaron Smith.