Whether you’re a law student, lawyer, or an attorney fresh out of school, student loan refinancing might be right for you if you are looking to lower your student loan debt payments.
Note that loan refinancing is not the same as loan “consolidation,” which is a term that is used in the context of student loans to refer to a federal student loan refinancing. Only federal student loans can be consolidated (a process in which multiple loans are combined into a single loan with a single weighted-average interest rate). However, both private and federal student loans can be refinanced. You can even refinance your student loans more than once.
How do you know if you should refinance or not? How much money can it save you, and are there drawbacks? This article answers those questions and serves as a simple guide to understanding your law school loan refinancing options.
Should You Refinance Your Law School Loans?
Law student loan refinancing is possible and should be considered if it means the borrower can save money through various refinancing options.
The pros and cons of student loan refinancing are many. It’s important to understand when it’s a good idea to refinance, what it can do for your law school debt, and when your financial situation is best served by other options, such as forbearance, deferment, loan forgiveness programs, or changing to an income-based repayment plan.
Is It Smart to Refinance Your Law School Student Loans?
Whether it’s smart to refinance your student loans depends on how much student debt you have, your current repayment terms, your current loan interest rates, and your financial outlook. Often, you can look into refinancing options without committing to anything, which allows you to really answer this question for yourself.
Below are many of the potential benefits associated with loan refinancing.
Lower Monthly Payments
If you’re in a situation in which making monthly payments is a struggle, refinancing can potentially help you out of such a bind by resulting in lower monthly payments. It’s important to understand how refinancing can lower monthly payments, though, because you may end up paying more during the life of the loan.
For a given loan balance, monthly payments can be lowered by refinancing with a new loan that will pay off the balance in the same amount of time but at a lower interest rate. For example, if you have eight years left on your student loan repayment plan at an interest rate of 8% and you refinance to an eight-year loan with an interest rate of 4%, both your monthly payments and your total interest payments will go down.
However, if you keep the same interest rate but extend the loan term (8% for 15 years instead of eight years), your monthly payments will be lower but the total you pay in interest will be much higher.
A lower interest rate coupled with a longer repayment term may or may not result in paying more during the life of the loan, so you should look closely at the total repayment amount if you use this strategy to reduce payments. Lowering the interest rate while shortening the loan term will result in paying less in total but may or may not lower your monthly payments.
Faster Repayment Plans
Refinancing can be great if your goal is to pay off your loan faster. When refinancing, you’ll often have a different interest rate and a different repayment term length.
For a fixed interest rate, reducing the repayment term not only pays the loan off sooner but does so with less total money out of your pocket (although monthly payments will be higher). Reducing the interest rate while shortening the repayment period will result in even more savings, with less of an increase in monthly payment amounts.
If you can afford to pay more each month, it’s often in your best interest to do so (although you can always pay more on your loans than required without refinancing, since student loans don’t have prepayment penalties).
If you took out your law school loans when you had good credit and got the lowest interest rate possible, refinancing may not be needed. However, if you’d like to get a lower rate than what you currently have, refinancing can only help you with paying your student loans off faster.
One Student Loan Payment
Students who have many years of higher education under their belts, such as law school graduates, often have multiple student loans. In fact, they may have loans from multiple different lenders. If this is you and you’d like to simplify your loan repayment, consolidation or refinancing can help.
Loan consolidating is something you can do only with federal student loans from the U.S. Department of Education. If you have multiple federal loans, contact your loan servicer to start the free consolidation process.
If you have loans from both private and federal lenders or if you’d like to get a lower interest rate while grouping your loans into one, refinancing is the way to go. Shop the different private lenders to compare rates and choose the one that best meets your needs. You’ll then be able to make a single monthly payment to that lender instead of multiple smaller payments to different lenders.
Lower Interest Rate
You likely took out student loans when you were a young college student or recent grad school entrant. If you’re like most, you probably didn’t have the best credit history at that time. You may have needed a co-signer and probably didn’t qualify for the best interest rates.
Once you were out of graduate school and entered the workforce, however, your financial situation most likely changed for the better. In fact, many lawyers find themselves in very lucrative positions. What this means is that a credit report pulled now will show you to be a much less risky borrower, which qualifies you for the lowest interest rates.
Because of this, it’s advisable for just about anyone to look into student loan refinancing once their career is underway. Even if you don’t want to change your monthly payment amount or your loan term, getting a lower interest rate can save you thousands of dollars during the life of your loan and with minimal effort on your part.
Is There a Downside to Refinancing Law School Student Loans?
Refinancing your student loans isn’t always in your best interest, however. You should always make sure you fully understand the terms and conditions of a loan refinance before you move forward with it. This includes comparing monthly payment amounts, interest rates, total repayment amounts, and any origination fees.
Some of the main downsides of student loan refinancing are as follows:
Paying More Over the Life of Your Loan
Instead of saving you money, refinancing can result in paying more over the life of your loan. To understand how this might happen, consider the following example. Suppose a recent law school grad has a student loan balance of $140,000 with a fixed interest rate of 7%. Under a 10-year repayment plan, their monthly payments are $1,626. The total paid over the life of the loan is then $195,062.
Now, suppose this student refinances their loans. Their goal is to lower their monthly payments and interest rate. They find that they’re eligible for a new loan at 6% interest over 15 years. This brings their monthly payments down to $1,181 a month; however, even with the lower interest rate, they end up paying $212,652 before the loan amount is paid off because the loan term was extended.
Some borrowers are also caught by surprise by variable rate loans. Suppose this same borrower also qualifies for a 15-year variable rate loan with a starting interest rate of 4%. Not only would this lower their monthly payments, but they’d pay less over the life of the loan if the rate remains at 4%. Because the interest rate is variable, however, they can’t count on it always staying this low. In a few years, the rate might shoot up to 7% or 8%, increasing the total payoff amount and raising their monthly payments.
Impact on Credit Score
Your credit score can be negatively impacted any time a lender performs a credit check. If you decide to shop for new lenders to refinance with, make sure you don’t have them all do hard credit pulls before you’re ready to commit. Some lenders can give you preliminary rate numbers from a soft credit check that doesn’t impact your credit score, but others may not.
While a single credit pull might only lower your credit score by five points, multiple credit checks can add up quickly. If you plan on applying for a car loan or home loan or other financing in the near future, you might wait to refinance your student loans if you don’t want it to negatively impact your eligibility for those other forms of credit.
Loss of Borrower Benefits
The most important consideration when it comes to refinancing is probably the borrower benefits you might lose in the process. This is less of an issue if you are refinancing private student loans than if you are refinancing federal student loans.
Once you refinance federal student loans with a private lender, you can’t go back later and turn that debt back into federal student debt. This is important because federal student debt comes with a multitude of programs designed to help borrowers. These benefits include the following:
- Loan repayment assistance programs (LRAPs): There are programs that can help you repay federal student loans if you participate in the “public interest sector, government or other lower-paying legal fields.”
- Income-based repayment options: Federal student loans have the largest variety of repayment options, and it’s free and easy to change your plan. This includes income-based repayment plans that adapt your payments to your income.
- Easier forbearance and deferment: It tends to be much easier to qualify for loan forbearance and deferment through the federal student loan program than through private lenders. This includes the forbearance received by all federal borrowers during the COVID-19 pandemic.
- Loan forgiveness programs: The federal government also offers many loan forgiveness programs that can discharge all or part of your loan debt if you work in the public sector or for a nonprofit.
However, some law school graduates are lucky enough to find themselves in a career where their earnings disqualify them from many of these benefits. If this is the case for you, shifting your federal student loan debt to a private lender at a lower rate is likely in your best interest.
How Can I Pay Off My Law School Student Loans Faster?
CollegeFinance.com can connect you with resources and lender reviews to help you explore your refinancing options and pay off your law school loans more quickly. However, refinancing isn’t the only way to bring down your student loan debt faster. In total, your options are as follows:
Private Student Loans
If you’ve determined that refinancing is the route for you, this is typically done through a private lender. You’ll submit an application and, if you qualify, the lender will pay off your existing debt and issue a new loan for the total amount to be paid to them.
For someone in a sound financial situation, refinancing with a private lender, such as SoFi, Earnest, or CommonBond, can lower your interest rate, save you money, and make it possible to pay your debt off much faster. When you get your new loan, be sure to sign up for autopay, as most lenders offer an additional rate discount if you allow them to deduct automatic payments directly from your bank account each month. This also adds convenience on your end.
Public Service Loan Forgiveness
If you have federal student loans, consider looking into the Public Service Loan Forgiveness (PSLF) program. This program will forgive all remaining student debt after you make 120 qualifying monthly payments under a qualifying repayment plan while working full time.
To qualify, you must be employed by a U.S. federal, state, local, or tribal government or nonprofit organization. Apply to the PSLF program by completing and submitting the PSLF application with your current loan servicer.
Other Student Loan Forgiveness Programs
Other loan forgiveness programs also exist through the federal government. If any of the following apply to you, visit the StudentAid.gov website to learn more. If you qualify, federal loan forgiveness is almost always a better option to pursue than refinancing with a private lender.
- Teacher loan forgiveness: If you decide to enter the K-12 teaching arena after law school, you might be eligible for forgiveness of up to $17,500 by teaching at a low-income school for five years.
- Closed school discharge: If you attended a school that closed while you were enrolled or soon after you left, you might be able to get associated loans discharged.
- Total and permanent disability discharge: If you have become totally and permanently disabled after graduating and are unable to work in law as a result, you might be able to get your loans discharged
- Borrower defense repayment: If a school you attended failed you in some way, you might be able to get any loans taken out to attend that school discharged.
Let CollegeFinance.com Help You With Student Loan Refinance Options
Refinancing your student loans can potentially save you money and allow you to pay off your law school debt faster. You should always do your research and know what you’re getting into, however. In some cases, you might be better served by a simple consolidation instead of refinancing, and you should look into any loan forgiveness options you may qualify for first.
At CollegeFinance.com, we can help potential and current borrowers understand loan terms, learn more about federal and private lenders, and explore loan options, as well as assist with the application process.