Although the unemployment rate has dropped down to pre-recession levels in most professions, the job market for law school graduates has been slower to recover. According to a study by Ohio State University Professor Deborah Merritt, a mere 75% of law school graduates were working in positions that required a JD as of December of last year.
Given the hefty price tag attached to law school, the unemployment rate among JDs is concerning for those who find themselves struggling to pay off law school loans. The average public law school student graduates with about $85,000 in debt. That number is even higher for those who attended private school, with the average private student racking up roughly $120,000 in student loans.
Fortunately, attorneys who have successfully secured a job have the option to refinance their debt to a lower interest rate. When you refinance your student loans, your new loan provider will pay off your current student debt and issue you a new loan at a lower interest rate.
Before refinancing your loans, however, you should consider the following factors.
Federal Repayment Plans
Some graduates choose to repay their federal loans via federal plans such as Income Based Repayment (IBR) or Pay As You Earn (PAYE) because it allows them to take advantage of student loan forgiveness protections after 20-25 years of repayment. Qualifying borrowers working full-time for a non-profit or government organization can also take advantage of the Public Service Loan Forgiveness program, which forgives the remaining debt of graduates after 10 years of repayment.
Loan forgiveness may make financial sense for attorneys with a higher than average debt burden and a lower than average salary, but for attorneys who secure a well-paying job, these federal protections are less compelling. According to the American Bar Association, about 75% of attorneys work in private practice and are therefore ineligible for PSLF, which offers a shorter time to forgiveness. For the remaining attorneys who consider pursuing loan forgiveness via IBR or PAYE, many earn (or will earn) an annual salary that is high enough for them to pay down their total debt burden before they can take advantage of loan forgiveness by the 20-25 year mark.
A borrower should also consider the tax implications of loan forgiveness. Although loans forgiven via PSLF are not taxable, any loan amount forgiven via IBR or PAYE is viewed as taxable income in the year it is written off.
Refinancing school debt to a lower rate with a private lender offers borrowers the opportunity to save money on their interest payments in the near term without the tax considerations of loan forgiveness. DRB refinances debt for working professionals with good credit and a stable income. While the average attorney is paying about 7% on their student loans, rates at DRB start as low as 1.90% for a variable rate and 3.50% for a fixed rate. The average lawyer saves more than $20,000 in interest payments by refinancing with DRB. That $20,000 can be used to create an emergency fund, put a down payment on a house, or pay down the principal of your student loan even further.