Editor’s note: This post has been updated to clarify a passage in the original version (5/16/19, 10:44 a.m. CDT).
As the spring semester comes to a close, many 3Ls are investigating their bar study loan options.
Borrowing one last loan to pay for bar study classes and living expenses has been an accepted routine inside many law schools.
Unfortunately, a bar study loan isn’t always the best option. Many recent law school graduates may find more desirable alternatives if they just get a little bit creative.
Bar study 101
A bar study loan is not a student loan. A bar study loan is a personal loan.
The reason this distinction matters is that personal loans typically have hire interest rates than student loans. This is because a student loan is much more difficult to discharge in bankruptcy. This makes a student loan less risky and allows lenders to offer lower interest rates.
The only difference between a bar study loan and a personal loan is that bar study loans usually require the borrower to be a recent law school graduate and sitting for a bar exam.
Some lenders advertise interest rates starting around 5-6%, but many borrowers end up with double-digit interest rates. Due to the exceedingly high interest rates, a bar study loan is a very expensive loan.
The typical bar study loan borrower is looking for money to pay for bar study classes as well as living expenses for several months. Barbri costs thousands and rent bills can add up quickly.
The good news is that there are a few alternatives that can make a difference.
Alternative #1: Try to save money on living expenses
I won’t suggest skipping out on bar study classes or working while studying, because most law school graduates should know how much time they will need to study in order to pass.
Bar study should be a time of intense focus. Rather than living an expensive downtown loft, look for quiet and less expensive options.
When I was studying for the bar, I found cooking at home relaxing. Going this route saved money and helped provide the mental breaks a I needed from the stress of studying.
They key to saving money while studying for the bar is to recognize the typical monthly expenses that won’t be utilized during a period of intense prep. The more money that can be saved, the less stressful life will be after the bar.
Alternative #2: Traditional personal loans
Calling a personal loan a “bar study” loan is nothing more than clever branding.
Though there may only be a handful of companies offering “bar study” loans, there are many lenders offering personal loans.
More lenders mean more competition. More competition means better rates. This is part of the reason I like personal loans over most bar study loans.
Investigating personal loans means a bit more research will be required, but it can also mean dramatically lower interest rates and some repayment flexibility.
Alternative #3: Credit card introductory rates
This approach is risky, but in the right situation can be a really smart move.
Many credit card lenders offer introductory interest of 0%. They offer these low rates because they still get the merchant fees on transactions and they want to entice new customers.
The downside to using a credit card to pay for bar study is that once the introductory rate is over, interest gets really expensive. Many may see there 0% interest rate jump to between 20 and 30%.
The steep penalty for not getting the credit card balance paid in full by the end of the introductory interest rate period means this option only makes sense for people who have a well-paying job lined up. However, those that just need a very short-term loan to study may find this option to be the best.
To a law school graduate with six figures of student debt, adding a bar study loan to the debt may not seem like a big deal.
It seems that many bar study loan lenders bank upon this borrower apathy as they are able to get away with charging rather onerous interest rates.
The good news is that a bit of creativity can make bar prep much less expensive.