Law school loan planning: Strategic overview

For law school financing, students and families must strategize year-by-year to minimize interest; maximize federal eligibility first; and utilize private options only for specific gaps or bar study to control costs and protect credit. This guide covers the complete roadmap from 1L orientation to the bar exam.

By the end of this guide, you’ll be able to:

• Construct a three-year borrowing plan that accounts for tuition increases and bar exam expenses.
• Compare federal and private loan options to determine the most cost-effective hierarchy for your situation.
• Estimate how summer employment earnings can reduce your final year’s borrowing needs.

Context at a glance

Law school presents a unique financial challenge compared to undergraduate education. The timeline is strictly defined—three academic years followed by a critical two-to-three-month period for bar exam preparation where employment is typically impossible. The cost of attendance (COA) varies wildly depending on the institution and location, generally ranging from $150,000 to over $350,000 for a three-year degree.

Strategic planning is essential because interest on graduate loans begins accruing immediately. Unlike subsidized undergraduate loans, there is no federal subsidy covering interest while you are in law school. A “borrow now, worry later” approach can add tens of thousands of dollars to the final repayment balance due to capitalization and high interest rates. Students and families must view the JD as a three-year investment cycle, anticipating the expensive bar study period during the 1L year rather than scrambling for funds after graduation.

Law school borrowing decision framework

Before signing any promissory notes, it is vital to establish a borrowing hierarchy. This framework ensures you utilize the most flexible and protective funding sources first. For the vast majority of law students, federal loans should form the foundation of the financial plan due to their income-driven repayment options and forgiveness potential.

1. Direct Unsubsidized Loans: Always maximize this option first. It offers lower fixed interest rates and lower origination fees than PLUS loans, though it has an annual cap.
2. Grad PLUS Loans: Use these to cover the remaining Cost of Attendance (COA). They require a basic credit check (looking for adverse history, not a high score) and have higher fees, but they retain federal protections.
3. Private Student Loans: Consider these only after federal options are exhausted or if you have excellent credit (or a creditworthy cosigner) that qualifies you for a rate significantly lower than the Grad PLUS rate. They are also useful for expenses that federal loans cannot cover, such as bar study costs after graduation.

Understanding the specific costs associated with each loan type is crucial for making informed decisions. The table below outlines the key differences as of the 2024-2025 academic year.

Source: StudentAid.gov (Federal rates/fees effective July 1, 2024–June 30, 2025). Private rates vary by lender.

According to Mark Kantrowitz, financial aid expert, “Private loans can be a good option when federal loans don’t cover the full cost of attendance.” However, for most law students, the federal protections—specifically Public Service Loan Forgiveness (PSLF) and Income-Driven Repayment (IDR) plans—outweigh the potential interest rate savings of private loans, unless the borrower is certain they will enter a high-paying private sector job immediately.

For a deeper dive into these options, review our guides on federal student loans and private student loans.

1L year: Building your borrowing foundation

The first year of law school (1L) sets the financial trajectory for your entire degree. Because 1L grades are the primary factor in securing lucrative summer employment, students should focus on academic performance, but this often leads to over-borrowing for “convenience” or “safety.”

The financial aid process for law school mirrors the undergraduate timeline but with higher stakes.

• October – February: Complete the FAFSA. Even if you think you are wealthy, file it to access the $20,500 Unsubsidized Loan.
• March – April: Receive financial aid award letters. This is when you accept the Unsubsidized Loan and apply for Grad PLUS loans if necessary.
• August: Disbursements typically arrive a few days before or after classes start.

Note: If you are using Grad PLUS loans, you must sign a separate Master Promissory Note (MPN) and complete entrance counseling specifically for graduate students.

Tuition is fixed, but living expenses are variable. A school may estimate $20,000 for room and board, but in major legal markets like New York or San Francisco, rent alone can consume that budget. According to StudentAid.gov, graduate students can borrow up to the full cost of attendance as of July 2024, but borrowing the maximum “just in case” is a costly mistake. Origination fees mean you lose money immediately upon borrowing (over 4% for PLUS loans as of the 2024-2025 academic year), and interest starts ticking instantly.

The “refund check” strategy: Many students borrow the maximum COA and receive a “refund check” for living expenses at the start of the semester. Instead of spending this freely, place it in a high-yield savings account. Treat it as a paycheck, transferring only what you need monthly to your checking account. If money remains at the end of the semester (within 120 days of disbursement), you can return it to the loan servicer to cancel that portion of the debt and eliminate the associated interest and fees.

• Buying new textbooks: Law books are notoriously expensive. Budget $1,500–$2,000 per year, but reduce this by buying used or renting.
• Lifestyle inflation: Socializing with peers is important for networking, but frequent dinners and bar nights add up. Set a strict “social budget.”
• Ignoring the summer gap: Financial aid covers the 9-month academic year. It does not cover the summer between 1L and 2L. You need to budget your academic year loans to survive May, June, and July if you secure an unpaid internship.

2L year: Summer employment and strategic adjustments

The second year is when income potential begins to shift the borrowing equation. For many law students, the summer between 2L and 3L year (the “2L Summer”) offers the first significant opportunity to earn legal income, which should be strategically deployed to reduce debt.

Students securing summer associate positions at large law firms (“BigLaw”) can earn substantial income. According to NALP, the median salary for first-year associates at firms with more than 700 lawyers was $225,000 as of April 2024. Summer associates are typically paid the pro-rated weekly equivalent of this salary. This means a 10-week summer program could yield over $40,000 in gross income.

This income creates a pivotal decision point:

1. Lifestyle spending: Using the money for travel, a new wardrobe, or a better apartment.
2. Debt reduction: Using the money to pay tuition for 3L year, thereby reducing the need for Grad PLUS loans.

Recommendation: Prioritize debt reduction. Every dollar you pay out of pocket for 3L tuition saves you not just the principal, but the 4.228% origination fee as of the 2024-2025 academic year and years of compounding interest at rates exceeding 9%.

Not all students will have high-paying 2L summers. Judicial clerkships and public interest positions are prestigious but often unpaid or low-paying.

• Public interest: Check if your school offers “summer funding” grants. These are often $3,000–$5,000 stipends.
• External scholarships: Many bar associations offer 2L scholarships that can offset borrowing.
• Borrowing adjustment: If you do not have summer income, you will likely need to borrow the full COA for 3L year. Ensure your 2L budget accounts for this reality.

If you earn significant income during your 2L summer, be aware that you may lose eligibility for the Student Loan Interest Deduction in the tax year you graduate, depending on your income level. However, utilizing that income to reduce borrowing is almost always mathematically superior to chasing a small tax deduction.

3L year: Final borrowing and bar exam planning

The final year of law school requires a dual focus: finishing the degree and financing the “fourth year”—the bar exam period. Federal student loans generally cannot be used to cover costs incurred after you graduate, which leaves a funding gap for the months of May, June, July, and August while you study for and take the bar.

During 3L year, resist the urge to “senior slide” with your budget. This is the year to hoard cash. If you have any remaining borrowing capacity under your federal COA limit, some students choose to borrow the maximum federal amount and save the excess in a savings account to fund their bar study living expenses. This is a gray area; technically, federal loans are for educational expenses during the enrollment period. However, saving money from your frugality during the semester to survive the summer is a common strategy.

Budgeting for the bar involves three distinct categories:

• Exam fees: According to the National Conference of Bar Examiners, application and registration fees vary by state but typically range from $500 to $1,500 as of 2024. Add another $150–$300 for a laptop fee and character/fitness application.
• Prep courses: Commercial bar review courses (like Barbri or Themis) cost between $2,000 and $4,000. Many firms pay this for their future associates, but public interest students must self-fund.
• Living expenses: You cannot work while studying for the bar. You need 3–4 months of rent, food, and utilities saved up.

If you do not have savings or a “bar stipend” from a future employer, you may need a Bar Study Loan. These are private loans specifically designed for law students in their final semester or recent graduates.

• Pros: They cover living expenses and bar fees that federal loans miss. Funds are sent directly to you, not the school.
• Cons: They are credit-based private loans with higher interest rates than federal Unsubsidized loans and lack federal protections like income-driven repayment.
• Timing: Apply during your final semester (Spring 3L).

For more details on these specific products, read our guide to bar study loans.

Managing your law school loans: Systems and strategies

Managing six figures of debt requires more than good intentions; it requires a system. Implementing a tracking strategy early can save you from administrative nightmares and accidental capitalization of interest.

Create a simple spreadsheet that tracks every loan disbursement. Columns should include:

• Loan Type (Unsub vs. PLUS vs. Private)
• Disbursement Date
• Principal Amount
• Interest Rate
• Origination Fee deducted
• Accrued Interest

Update this every semester. Seeing the “Accrued Interest” column grow is a powerful motivator to live frugally or make small interest payments while in school.

According to Sandy Baum, higher education economist, “Borrowing is not inherently bad; the question is how much, and under what terms.” One of the best terms you can control is capitalization. Interest on Unsubsidized and PLUS loans accrues daily. If you can afford to pay even $50 or $100 a month toward this interest while in school, you prevent that interest from being added to your principal balance (capitalized) when you enter repayment. This keeps your principal lower and reduces the total interest paid over the life of the loan.

ABA rules previously restricted student work hours, but those strict caps have been lifted. However, working more than 20 hours a week while studying full-time is risky for your grades.

• 1L year: Do not work. Focus on grades. Borrow what you need.
• 2L/3L year: Working part-time as a law clerk or research assistant is viable. If you can earn $20/hour for 15 hours a week, that’s ~$1,200/month—enough to cover rent in many cities and drastically reduce your reliance on Grad PLUS loans.

Special circumstances and final considerations

While the standard 3-year JD path is common, many students face unique variables that alter the borrowing landscape.

Joint degrees typically add a fourth year. This increases the total debt load but may not increase the annual federal loan limits. You generally remain eligible for the $20,500 Unsubsidized maximum for each year of the program. However, be cautious of the “graduating” timeline—if you technically graduate from one program before the other, your grace period on those specific loans might trigger earlier than expected.

Students in part-time JD programs often work full-time during the day. This income usually disqualifies them from need-based grants but does not disqualify them from federal loans. The strategy here is different: use your salary to pay tuition directly (“pay as you go”) to minimize borrowing. Avoid taking loans for living expenses if your salary already covers your rent.

If you transfer law schools after 1L year, your financial aid does not transfer with you. You must re-add the new school to your FAFSA immediately. Be aware that transfer students rarely receive scholarship money from the new institution, meaning your 2L and 3L years at the new school may be funded entirely by full-price loans.

Graduating with law school debt is normal, but graduating with unmanageable debt is often a choice. By planning your borrowing annually and understanding the terms of your capital, you can keep your payments aligned with your future legal salary.

• 1L year: File FAFSA early. Maximize the $20,500 Direct Unsubsidized Loan first. Keep living expenses low.
• 2L year: Use summer earnings to pay down interest or cover 3L tuition. Avoid lifestyle inflation.
• 3L year: Secure funding for the bar exam early. Apply for Bar Study Loans only if savings fall short.
• Post-grad: Consolidate or refinance only after carefully weighing the loss of federal protections against interest savings.

If you have exhausted federal options or need to bridge the gap for bar study, private loans can provide the necessary liquidity to reach the finish line. Always compare rates from multiple lenders to ensure you are getting the most competitive deal.

References and resources

For accurate, up-to-date data on loans and legal employment, rely on these primary sources:

• Federal Student Aid: StudentAid.gov (Official source for rates, limits, and repayment plans)
• Employment data: NALP.org (National Association for Law Placement – salary and employment statistics)
• School data: ABA Required Disclosures (Official tuition and bar passage data for every law school)
• Bar exam info: NCBEX.org (National Conference of Bar Examiners)