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March 22, 2006

Up to your eyeballs in debt

I recently attended a mandatory “exit counseling” session for law students who have borrowed money to pay for law school. Here are a few things worth remembering—especially if you have law school or other student loan debt of your own.

  1. The average debt for the 2006 GW graduating class is $96,770.
  2. 25% of those people borrowed over $120,000 in law-school-only debt (not counting any other educational debt).
  3. Whatever your debt situation, you should always pay off the highest-interest loans first, which means you should pay the absolute minimum on your federal loans until you've paid off your private loans.
  4. To get information about your federal loans, visit NSLDS.
  5. If you consolidated last year before July 1, 2005, you probably locked in an interest rate of about 2.85%.
  6. If you have since borrowed more federal money, you can consolidate again before July 1, 2006 and lock in a rate of 4.7% (I think).
  7. Interest on private loans is a quarterly variable rate based on prime which is currently 7.5%. Many interest rates are prime plus 3.5%.
  8. Every lender by law must offer the option to pay interest-only for the first few years.
  9. You can defer or forbear federal loans if you meet the appropriate conditions (e.g., low income levels or if you're back in school).
  10. Deferment is better than forbearance because the gov't will pay your interest while your loans are in deferment.
  11. You can only have a total of 3 years of hardship deferment on federal loans over the life of repayment.
  12. Plan to use those three years wisely.
  13. If you are graduating in May and do not yet have a job lined up, you should apply now to defer repayment for one year while you try to find a job.
  14. If you get a job or want to start paying again at any time while your loans are in repayment, you can cancel the deferment and reserve the rest of your 3 years of available hardship deferment for some other time when you need it more.
  15. You cannot defer or forbear private loans. Ever. Those loans are what they are and you better get ready to start repayment in either June or Nov., depending on whether you still have your grace period (which depends on whether you consolidated those loans last year).
  16. If you consolidate, you have rights to keep whatever loans you want out of consolidation. It is not an all-or-nothing proposition.
  17. You might want to exclude your highest interest rate loans from deferment because the interest rate on your consolidation loan will be calculated based on the interest rates of the loans it is consolidating.
  18. If you consolidated loans last year and want to take a second consolidation loan just for the loans you've taken since you consolidated, you should file for that consolidation between May 1 and July 1 2006 in order to keep your grace period on those most recent loans.
I owe, I owe, so off to work I would like to go. Won't someone please pretty please give me a job!?

Disclaimer: You should not rely on what I've written here. Please verify anything you see here with your lender, your financial planner, or someone in your financial aid office.

Posted March 22, 2006 12:34 PM | 3L

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Oooh, me too, me too! I need a job, and frankly, I'm just sick of being rejected -- I'm not the least bit motivated to keep looking. Unless I find a job in an Irish Pub or at a bagel shop, I just don't see it happening...ever.

Posted by: energy spatula at March 22, 2006 02:15 PM

I hear ya'!

The really annoying part is that all the jobs that I want pay, oh, about $55K/year -- if that. Goodie. I may be able to eat once a week on that salary.

But, I'll take it if offered!!!

Posted by: She says at March 22, 2006 04:30 PM

Is #18 really true? I thought you just needed to do it anytime before July 1, and you needed to ask to make sure the grace period would stay in tact. My understanding is that if you do it through the Dept. of Education it would be no problem, but if you went with a private lender you might need them to be creative in how they handled it (like not putting through the consolidation until the grace period is almost up).

Posted by: Cathy at March 22, 2006 09:22 PM

Cathy: I'm not sure. That's just what I understood from the presentation I attended. You're probably right that there is more than one way to keep your grace period. The woman who was giving this presentation was just trying to keep it simple so all of the above are rules of thumb, at best.

Let me blanket the whole post with this disclaimer: You should not rely on what I've written here. Please verify anything you see here with your lender, your financial planner, or someone in your financial aid office.

Posted by: ambimb at March 22, 2006 11:24 PM

Average at GW is 96K? I think I am at that now and I haven't even looked at a promissory note for the 3rd year yet.

Posted by: reckless murder at March 22, 2006 11:46 PM

Student loans are the reason I turned down interviews with a couple public defender's offices. I know that I could defer some but that only delays the inevitiable.

Posted by: Curtis at March 23, 2006 03:51 AM

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