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Tips For Young Lawyers

New Lawyers:  Welcome to Student Loan Repayment!
By: Gregory Kerr - Jones, Galligan, Key & Lozano, L.L.P.

          Attention Young Lawyers!  We made it! We finished law school, passed the bar, and have started our legal careers. The money is now rolling in. We’re buying mansions, luxury vehicles, custom-tailored suits, and rounds of 60-year-old scotch for everyone at the bar.

          Let’s step back to reality. While a law degree and admission to the bar provide us with great earning potential, most of us aren’t there quite yet. Whether you are working at a private firm, in the government sector, or were brave enough to hang out your own shingle, you are just getting started, and getting started triggers a significant milestone in a young attorney’s life: the end of deferment periods on student loans.

          Most 2011 law school graduates have incurred some amount of student loan debt and now face the prospect of having to begin paying it back. Until recently, I hadn’t considered anything other than a standard repayment plan. After exploring my options, I decided that standard repayment isn’t what is best for me, and I would like to share what I found with some of you who may benefit from an alternative repayment plan.

          Those of you with federal loans may be eligible to take advantage of a Special Direct Consolidation Loan. This type of consolidation is particularly enticing because it enables you to consolidate all of your eligible federal student loans with one servicer. For instance, rather than having to make payments to both Sallie Mae and Great Lakes (my lenders), I now only make payments to Great Lakes.

          As an added incentive, a borrower will receive an interest rate reduction of .25% on a Special Direct Consolidation Loan. Some servicers also provide for an additional interest rate reduction of .25% for a borrower that enrolls automatic payments on the consolidated loans. A combined interest rate decrease of .50% may not seem like much, but it definitely adds up.

          If you are eligible for a Special Direct Consolidation Loan, your loan servicer should have contacted you in January with instructions on how to apply. For more information on this option, contact your loan servicer or visit here. The opportunity to apply for a Special Direct Consolidation Loan ends June 30, 2012, so it would be prudent to act quickly.

          There are also many options when it comes to repayment of your federal loans. While I am not an expert on these options, I can speak to what worked for me in my situation. The Income Based Repayment (IBR) option allows borrowers to pay a fixed amount based on the individual’s income and family size. For many, including myself, this results in a payment that is significantly lower than payment would be under a standard repayment plan. As you begin to earn more money over your career, the monthly payment increases accordingly.

           The paperwork to apply for IBR is minimal, but it does need to be submitted annually. Additionally, if your IBR payment does not cover the interest that accrues on the loan, the loan balance will continue to increase. This option is particularly attractive for those of us who are just starting out, when income may be limited. The good news is, after 25 years of payment under IBR, the loan is completely forgiven. A recent proposal from the White House may decrease the forgiveness period to 20 years, and for those of you working in qualifying public sector jobs, the forgiveness period is 10 years. For more information on IBR or other repayment options, contact your lenders or visit here.  
          
          Please note that the above information applies only to federal loans. If you have a private student loan, you should contact your loan provider regarding repayment options. Many private lenders offer deferred payment plans that may soften the blow of a large payment.
If you were lucky enough to get through law school with no student loan debt, congratulations, but you are in the minority. For the rest of you, examine your situation, explore the various options that are available and choose what works best for you. Please feel free to contact me with any questions you may have. I am more than happy to provide more details as to the benefits of my consolidation and repayment plan. Good luck!

          This article was originally published in the March 2012 issue of The Summons E-Newsletter, a publication of the Hidalgo County Bar Association, and has been reprinted with the permission of the author and the Hidalgo County Bar Association.