You have been accepted to law school. Now you are thinking about costs and payments toward this important investment in yourself and your career. Specifically, you are thinking about debt and how to manage it. I’m including in this post some useful information about debt management.
The College Cost Reduction and Access Act (CCRAA) established a new payment plan for borrowers of federal student loans (Stafford, PLUS, and Federal Consolidation Loans). The new plan is called “Income Based Repayment” (IBR). With IBR a borrower limits his/her payment to no more than 15% of his/her annual income – and in most cases the percentage is a bit less. I’ll skip the details about percentages and simply give an example of what this means for a typical borrower.
Total debt: $ 180,000
Annual income: $ 80,000
Plan A - Repay in 10 years: $ 2,140 per month
Plan B - Repay in 25 years: $ 1,330 per month
Plan C - Income Based Repayment: $ 812 per month
The CCRAA also established a loan forgiveness program. Under this program, borrowers who commit to 10 years of public service and who make payments using IBR, are eligible to have any remaining debt forgiven after 10 years of repayment. Under Plan C above, this borrower’s payments of $812 would not be sufficient to even cover the accruing interest. Therefore at the end of the 10-year period, the entire principal balance plus some accrued interest would be forgiven.
What types of employment qualify a borrower for forgiveness? Some obvious examples include government positions at the federal, state and local level; and working for a non-profit organization. Teaching, law enforcement, and military are also good examples.
All borrowers, regardless of employment are eligible for loan forgiveness after 25 years.
In addition to income-based repayments, forgiveness, federal student loan programs provide options to “stop” payments during periods of economic difficulty, and to have loans discharged should the borrower become permanently disabled.
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This is a great post. I have been contemplating going to law school myself and these are the types of decisions I have been looking at for a year now. Very overwhelming!
-Jim
Lawyer Advice
Posted by: Jim Landri | July 14, 2009 at 09:05 AM
I don't understand how people can manage this. Especially in this type of economy, the decision seems pretty simple! Like Jim I have also been looking at going to law school, but it seems like it is a lot to handle right now.
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