Refinancing Law School Loans: A Step-by-Step Guide

First Republic Bank
November 10, 2020

You studied hard for the LSATs, were admitted to your dream law school and, after years of diligent work, made it to your first law firm. But going down the path to becoming an attorney wasn’t cheap, and law school came with a hefty price tag.

Private law school is nearly three times as expensive as it was in 1985 (after adjusting for inflation), and the average law school debt for graduates is $148,800 in total, for both undergraduate and graduate school — and that amount will only grow, adding in interest.

In light of the COVID-19 pandemic, U.S. lawmakers suspended all payments for certain types of federal student loans, and an executive memo by the president extended the interest-free freeze on federally backed student loan debt through the end of the year. While interest will not accrue on federal loans during this time period, these extensions do not apply to private student loans. As a result, it’s important to understand your loan terms when considering refinancing.

You Can Refinance Law School Loans - Here’s How

Refinancing your law school loans may offer a lower interest rate, freeing up more money to pay toward your principal balance, to get out of debt faster and/or to provide better monthly cash flow. Refinancing may also allow you to find a smarter repayment strategy to tackle your outstanding debt and reach your other financial goals.

If you’re looking to get out of debt faster and have the income to do so, refinancing can offer a shorter repayment plan. If your monthly payments are too high, refinancing also offers repayment flexibility. You can choose a hybrid of the two, opting for a longer repayment plan and applying any extra funds — such as work bonuses, tax refunds or an inheritance — on top of your minimum payments.

Refinancing can also help you meet your goals. Depending on the financial product, you might receive additional financial benefits, such as the option of making interest-only payments and the ability to customize your debt by choosing which loans to refinance.

Refinancing your student loans can not only help you find a money-saving repayment strategy, but it also allows you to achieve overall financial well-being over the course of your career. It may seem like a complex process, but you can make it simpler with a step-by-step approach.

1. Assess your circumstances.

For starters, take a holistic look at your financial profile. Spend time understanding how many law school loans you have (and from what lenders, for what amounts and at what rates). The key indicator here is your APR, or annual percentage rate — that reflects the total cost of borrowing the money you pay each year on your loan and is the truest measure of how expensive it is to borrow. It is also beneficial to understand your full debt load across other obligations, such as your car and home.

Then take a look at your payback timelines for all outstanding debt obligations to start stacking your repayment requirements and interest rate burden against your current or future income expectations, monthly and yearly expenses and long-term life goals.

How Much Could Refinancing Your Law Loan Save You?

On a standard 10-year repayment schedule, for example, a person with $125,000 in loans at an average interest rate of 6.6% would have a monthly payment of roughly $1,400 (paying over $45,000 in interest over the 120-month term). Based on your own calculations, think carefully about whether making lower monthly payments is truly beneficial to you if it means a longer repayment term; to avoid extending the timeline, you may consider seeking out additional income to apply toward your debt load instead of or in addition to refinancing.

From there, get acquainted with your credit score and overall asset mix, which potential lenders will review to get an understanding of your risk factors as they determine appropriate interest rates for your law school loan refinance.

2. Consider all of your options.

Armed with some financial insight, you can start researching which refinancing options may work for you depending on your loan types and other factors.

Borrowers with federal student loans, for example, may be eligible for government programs like Public Sector Loan Forgiveness (PSLF), which is available to a small subset of qualified government workers, and/or an income-based repayment plan. These loan forgiveness options go away if you refinance through a bank or other private lender.

Borrowers with private loans may be eligible for certain kinds of help, though their options tend to be more constrained. For example, public service lawyers may qualify for loan repayment assistance programs (LRAPs) through their state, school or employer or the federal government. LRAPs provide extra funds to help you make payments on your loans. These programs do require that the refinance is a 10-year loan and that it remains a student loan

Lawyers who are privately employed or seeking employment should check if the workplace offers student loan forgiveness or assistance as a benefit.

There may be other ways to refinance law school loans, too. Don’t hesitate to speak to more senior colleagues or financial experts as well, as they may have advice on options you may not have considered yet, like through a personal line of credit.

A personal line of credit offers flexibility in that borrowers have access to a set amount of money they can draw from for a wide array of purposes, including paying down student loans or auto loans or covering household expenses, over a number of years. They can take a flexible amount needed from the available balance, and will pay interest only on what they use. Learn several ways you can use a personal line of credit.

Please note, the First Republic Personal Line of Credit is not a student loan and you may be permanently giving up the benefits of a student loan such as certain deferment, forbearance, and forgiveness options.

3. Compare rates and terms.

If your research guides you toward refinancing your law school debt with a bank or other private lender, it’s usually wise to get acquainted with your options and kick-start the process right away.

Because law school debt tends to be larger than undergraduate debt or other loan obligations, refinancing sooner rather than later can help you save significant money in the long term.

Checking with multiple lenders can help you secure lower rates — especially if you have good credit — or payback terms customized to your needs. Don’t be afraid to ask questions of the institutions you contacted to understand exactly what you’re getting into, as expectations and options vary widely across the market.

Find out all the ways your lender can potentially help you — have all the necessary conversations to understand how the fixed or variable interest rates will affect you over time, whether loan forbearance or deferment is possible (and under what circumstances), and compare the pros and cons of working with the lenders you researched.

4. Stick to a strategy for your law loan.

Once you’ve found a loan option you’re happy with, look at how it will affect your short- and long-term financial plans before completing the refinancing process.

If you’re obtaining a lower monthly payment and/or shorter repayment timeline, consider how the savings can support your larger goals — such as upgrading your car, buying your dream home or financing your children’s education. Map out how you’ll use those savings to make wise choices about your financial obligations.

Create an accountability plan to help you stay on track with your objectives. Keep in mind that while refinancing will make your law loan burden more manageable, paying off your debt is still your responsibility.

Paying your loans on time — and ideally paying more than the amount of your monthly requirement, as feasible — is key to realizing maximum value or savings through your choice to refinance. Extra payments help you pay down the loans faster because, in the case of fixed-term loans, they’re applied to the principal amount.

5. Work with a lender you trust to refinance your law loan.

Refinancing creates a new relationship to both your loans and the people behind them. Anytime you enter into a new loan commitment — whether a traditional refinance or a personal line of credit — it's important to work with an institution (and a set of customer representatives) you trust.

One way to evaluate any financial institution you're partnering with is to find out their NPS, or Net Promoter Score. That's a numerical measurement of the value of their client service, as articulated through testimonials.

And make sure the lines of communication are open with your banker so that you can pursue any potential money-saving opportunities that may arise.

If “a journey of a thousand miles begins with a single step,” then consider full repayment of your student loans and the destination you’re moving toward one step at a time. Establishing the right student loan refinancing relationship can help you meet your financial goals and hit that next milestone.

First Republic’s Personal Line of Credit – access funds with fixed rates from 2.25% APR (with discounts).

Personal Line of Credit consists of a two-year, interest-only, revolving draw period followed by a fully amortizing repayment period of the remainder of the term. Draws are not permitted during the repayment period. Full terms of 7, 10 and 15 years available.

This product can only be used for personal, family or household purposes. It cannot be used for the following (among other prohibitions): to refinance or pay any First Republic loans or lines of credit, to purchase securities or investment products (including margin stock), for speculative purposes, for business or commercial uses, or for the direct payment of post-secondary educational expenses. This product cannot be used to pay off credit card debt at origination.

The terms of this product may differ from terms of your current loan(s) that are being paid off, including but not limited to student loans. By repaying such loans, you may permanently be giving up tax and repayment benefits, including forbearance, deferment and forgiveness, and you may not be able to reobtain such benefits if this loan is refinanced with another lender in the future.

Borrower must open a First Republic ATM Rebate Checking account (“Account”). Terms and conditions apply to the Account.

Contact your legal, tax and financial advisors for advice on deciding whether this is the right product for you. Terms and conditions apply.

Product is not available in all markets. For a complete list of locations, visit firstrepublic.com/locations. Applicants must meet a First Republic banker to open account. This is not a commitment to lend; all lending is subject to First Republic’s underwriting standards. Applicants should discuss line of credit terms, conditions and account details with their banker.

The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the tax and legal consequences of any strategies mentioned in this document.

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