Presentation Transcript

1. Financing Your Law Degree

   Borrow Smart, Owe Less Later and Gain Financial Freedom a Whole Lot Sooner! Updated from original presentation prepared by John Gordon
2. Your First Years as an Attorney That corner office is a long way down the hall.
3. This investment will pay off, but only if you squarely face the challenges ahead. Employment of lawyers is expected to grow 13 percent during the 2008-18 decade, about as fast as the average for all occupations. Competition for job openings should continue to be keen because of the large number of students graduating from law school each year As in the past, some graduates may have to accept positions outside of their field of interest or for which they feel overqualified. Because of the keen competition for jobs, a law graduate’s geographic mobility and work experience are assuming greater importance. [Caveat: licensing] Source: Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, 2010-11 Edition
4. And No Matter Your Personal Virtues For 2010 Salaries in the $40,000 to $65,000 range accounted for almost half of reported salaries
5. Distribution of Reported Full-Time Salaries — Class of 2009
6. You have a Need to Know Some facts about the cost of borrowing:
7. After borrowing $180,000 what’s left in your wallet every month? $61,500 graduate Stafford loans at 6.8% $118,500 GradPlus loan at 7.9% That’s $1,262.19 a month for 30 years!
8. And You’ll Pay $274,400 in interest!
9. The Long Term Impact of College Debt Source: AllianceBernstein.com “Fast Facts: The Long-Term Impact of College Debt
10. The Golden Rule of Borrowing Smart:Exhaust all Options Before Borrowing Your list of financial aid priorities should look like this… Grants & Scholarships Savings, Employment & the AU Payment Plan Federal Loans Private Loan
11. Grants & Scholarships More than $2 billion will be awarded next year in private sector scholarships, grants and fellowships Fast Web Scholarship Search Engine College Board’s Fund Finder Scholarships.comLLC FinAid.org Your very own Washington College of Law
12. A Little Goes a Long Way: The Value of Small Scholarships Assumption: $180,000 loan @ 7.9% over 30 years 360 Monthly Payments of $1,308.25 Total Cost of Loan: $470,969.90
13. Now about those law school loans…Graduate Stafford Loan As of Fall 2012 all Graduate Stafford loans are Unsubsidized Unsubsidized Stafford: non-need based; interest accrues from date of disbursement No credit check required Annual Limit = $20,500 Aggregate Limit = $138,500 (includes undergrad Stafford loan debt) Repayment begins 6 months after graduation or drops below half-time Fixed interest rate of 6.8%
14. Federal GradPlus Loans Eligibility: must submit a complete FASFA, credit check for adverse credit history, and must max out Stafford loan first Interest Rate: 7.9% fixed Loan fee of 4% GradPlus loan balance will count toward economic hardship deferment No Annual or Aggregate Limit
15. Private Law School Loans Credit Evaluation Determines Eligibility and Interest Rate The Capitalization Question? Interest Rates Vary The LIBOR vs. Prime Argument
16. Before you take that loan… Another Key to Smart Borrowing is to Review Your Credit Report
17. Did you know… Consumers find 13 million inaccuracies on their credit reports each year Inaccuracies include: erroneous late payments and other people’s debt information to nonpayment of a bill dating to before they were born Federal law requires the three national credit reporting companies: Equifax, TransUnion and Experian to provide consumers one free copy of their credit report every year.
18. Private loan borrowers:Losing by just a few points? 7.3% vs. 8.3%: What would one point cost you on a $20,000 loan? $1,261.93
19. Leverage Your Own Resources: Savings, Employment & The AU Payment Plan Next to free money nothing beats using your own money. Now we’renot talking $1,000s, but pennies. $1/day for 2 years would save you another $1,836.90 on the same $85,000 loan $2/day for 2 years would save you $3,674.07
20. You Don’t Have to Borrow the Entire Amount WCL Budgets for Living Expenses
21. Don’t have anything left to give? Reach deep inside and you’ll find more Use a high interest savings account instead of a traditional banking account Buy used books. Many of the on-line used books purveyors specialize in law school texts. You’re in D.C. Lose the car. Pocket the insurance, gas, maintenance, parking and use public transportation. It’s green to boot! Reduce your cell phone plan. You’re supposed to be studying anyway. Prepare your own meals, in particular lunch and dinner. Turn the cable off. Diligently record your expenses—I mean even a pack of gum—for 30 days. You’ll find 2-3 more ways to save. Cut up the credit card and use only debit when plastic is necessary. Get a job! I’m serious (that is after your 1L year if you are full time). USA Swimming 2012
22. So you can borrow up to $20,055 in living expenses, but why? If you have health insurance from another source, don’t borrow funds intended to pay for AU’s plan = $1800 savings. You can save 50%-75% when you buy used books instead of new = $777 savings. When you lose the car and take the metro you can save $279. (I even included $600 buffer for two plane tickets!) Find a roommate. If we assume $1,800/month for a two bedroom apartment, you’re still saving $3,897.00. Employ some of the earlier recommendations and a few more to come and save another $100/month Now borrow only $16,557/year for personal living expenses You’ll save $45,050.40 (P&I) on that $180,000 loan we’ve been discussing!
23. I did promise a few more… Set your thermostats no higher than 68 degrees in winter and no lower than 78 degrees in summer. And turn it down even further at night or when you're not home. Potential Money Savings: $325 to $500/yr. Don’t go grocery shopping when you’re hungry and never buy anything unless you have a coupon for it. It’s Washington, D.C. Take advantage of free concerts, parks, and dollar draft nights instead of clubs, concerts and the movies.
24. *Less Health Insurance: $62,547
25. If you already borrowed the full amount for personal, living expenses, you can return some of the funds. It’s easy-ask the financial aid office.
26. The Truth About Credit Cards You will spend more if you use credit cards: 12%-18% more! Credit card rebates, whether airline points, car rebates or even cash reimbursements are no argument in their favor. “Personal finance is 80% behavior. You need to cut out habits that make you spend more. You do not build wealth with credit cards. Use common sense. When you play with a multi-billion dollar industry and you think you’re going to win at their game, you are naïve.” --Dave Ramsey. Source: www.daveramsey.com, “The Truth About Credit Card Debt
27. Your First Years as an Attorney—Again.Loan Repayment: The Other Half of Borrowing Smart
28. What are my options? Standard Repayment Extended Repayment Graduated Repayment Income-Contingent Repayment Income-Based Repayment
29. Standard Repayment: fixed monthly amount for a loan term of up to 10 years $50.00 minimum monthly payment This is always your cheapest option!!!
30. Extended Repayment Plan Allows for a term of 12 to 30 years, depending on the amount owed Stretching out the payments over a longer period reduces the size of each payment. Significantly increases the total cost of the loan with additional interest accumulation
31. Graduated Repayment Plan Starts off with lower payment, which gradually increase every two years Loan term is 12 to 30 years, depending on total amount owed Monthly payment can be no less than 50% and no more than 150% of the standard payment plan Monthly payment must be at least the interest that accrues and at least $25, whichever is more Will also significantly increase the amount of interest paid
32. Income Contingent Repayment Only available through the Ed. Dept’s Direct Loan program Max repayment period is 25 years, after which remaining debt is forgiven Repayment is based on a formula that weighs on income, family size and debt Monthly payment is adjusted annually based on changes in income and family size. Interest rate capitalization cap
33. Income Based Repayment Caps the monthly payments at 15% of borrower’s monthly discretionary income. Cap adjusted annually No minimum monthly payment Max term is 25 years, after which remaining debt is forgiven Limited interest subsidy benefit
34. Wondering if Loan Consolidation is Right for You? Or What About Loan Forgiveness?
35. Quick Tips Don’t wait too long after graduation to find out who is servicing your loan. Consult the WCL financial aid office or look on www.nslds.ed.gov.
36. Federal Consolidation Loan Most federal loans can be consolidated: Stafford, Plus, GradPlus, SLS, Perkins, and Direct Loans. The interest rate is the weighted average of the interest rates on the loans being consolidated rounded to the nearest 1/8% and capped at 8.25% For instance: $71,000 x 6.8% + $13,500 x 7.9% = 6.97% $71,000 + $13,500
37. Federal Loan Consolidation (cont’d) No fees to consolidate. Consolidation can occur only during the grace period or in repayment. You must consolidate with the Department of Education. Try to avoid the extended repayment terms. The standard ten year repayment will save you lots of money!
38. 10 Years vs. 25 Years If you can afford the monthly payment it will save you $10,000s.
39. The Loophole Come on… You’re studying to be an attorney. What’s the law without a loophole?
40. The Single Fastest, Most Effective Way to Reduce Student Loan Debt in Repayment… Make Extra Payments USA Olympic Road Cycling Team
41. The Power of Extra Payments Let’s Assume a $50,000 Consolidation loan at the capped rate of 7.9% with standard repayment over 120 months at $613.26. Total Cost of this Loan = $71,751.42 (Interest Alone = $21,751.42) Now Some Hypotheticals If you made an extra $50/month payment, you would have only 104 payments and save $2,772.38 in interest. If you made an extra $100/month payment, you would have only 94 payments and save $4,704.98 in interest.
42. Public Service Loan Forgiveness This program discharges any remaining debt after 10 years of full-time employment in public service. The borrower must have made 120 payments as part of the Direct Loan Program in order to obtain this benefit and been employed in a public service job for each of those 120 payments.
43. About That Public Service Loan Forgiveness… Students are well advised to contact the Federal Direct Loan program to make sure their “public service” job qualifies. To get the most forgiven under this program, borrowers should start off with income-based repayment. Be sure you will remain in this job or in another qualifying job for every month of those 120 payments.
44. Questions??? Contact the financial aid office Unless otherwise indicated, information provided came from www.finaid.org.