Practicing law can be a fulfilling and lucrative career, but the price of a J.D. keeps rising. In 2018, the average law school graduate had $122,000 in student loan debt. That’s more than twice as much as a starting public defender earns in a year.Outside of the public sector, lawyers tend to earn more ($120,000 on average). But with a six-figure debt hanging over your head, that six-figure income may not feel like it goes far enough.Thankfully, practicing lawyers may qualify for a variety of student loan forgiveness plans. Here are the four major loan forgiveness programs for lawyers, and some considerations if you don’t qualify for the plans.
If you’re working in a public service capacity (as a public defender, for a qualified 501(c)(3) organization, or in another qualified public service role), you may qualify for Public Service Loan Forgiveness.If you work full-time for a qualified employer, your Federal student loans will be forgiven after 120 payments. For lawyers, this is great because you can work in all sorts of public service roles – law clerk, admin, or anything (even not practicing law) as long as you work for a qualified employer – including local, state, or Federal government, or a non-profit. Of course, you’re a lawyer, so you probably read the loan documents that explain PSLF in detail. However, if you want a refresher on how to qualify for PSLF, you can read this ultimate guide to Public Service Loan Forgiveness.PSLF is an incredible deal for lawyers because the loan is truly forgiven. The amount forgiven is not taxable.
Any attorney who works for the Department of Justice (DOJ) can request to join the Attorney Student Loan Repayment Program (ASLRP). Under this program, the DOJ will pay up to $6,000 per year of educational loans on behalf of an attorney working for the department.Attorneys who qualify for the program will automatically be enrolled for three years, as long as they continue to work full-time as an attorney for the DOJ.However, this isn’t truly a loan forgiveness program. All of the DOJ’s payments on your loans are taxable income. Still, the program is worth considering, especially if your work doesn’t allow you to qualify for another loan forgiveness program.Want to learn more? You can learn about the program and apply through the DOJ website (which is clearly designed for lawyers since it documents Federal laws and includes discussion of its policies).
Each year, Legal Services Corporation (a non-profit that funds legal aid programs) picks 80 legal aid attorneys to help with their student loans. Under this program, the attorney receives up to $5,600 per year in help repaying the loans. The attorney will receive this financial help for up to three years.The 80 attorneys that are chosen are picked by lottery from eligible applicants.The loan repayment assistance program is structured as a forgivable loan. As such, the participating attorney shouldn’t have to pay taxes on the payments she receives from the program. Of course, you may want to do your own research to be sure that you’re legally compliant.To be eligible for the program, you must have at least $75,000 in student loans, have a net worth of less than $35,000 (excluding your home’s value), and earn less than $62,500 (in the lower 48 states — Alaska and Hawaii have higher limits). You can learn more about the program and apply here.
In 2018, the John R. Justice Student Loan Repayment Program awarded $1.8 million in funds to qualifying public defenders and prosecutors who are employed by the state or city. In exchange for help repaying student loans, these attorneys agree to stay on in a public role for three years.Technically, you could get up to $10,000 per year in repayment help ($60,000 in total), but this program isn’t heavily funded. As a result, you can expect a few hundred or a few thousand dollars in help.You have to work with your city or state to apply for the repayment program. The funds received under this program are generally not taxable, although the IRS refuses to give specific guidance about whether they are not taxable in all circumstances.
If you’re a lawyer with six-figure debt, figuring out how to repay it can be tough on any salary. But it may be especially difficult if you’re just getting started and you don’t earn a high salary yet. So what’s a lawyer to do?
The first option should be to get on an income-driven repayment plan for all your Federal student loans. The payment for all income-driven repayment plans is based on your discretionary income.We call income-driven repayment plans the “secret” student loan forgiveness program because most people don’t realize that your loans will be forgiven under these programs after 20 or 25 years. Yes, that’s a long time. But you should know the option exists.Income-driven repayment programs include: Income Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (RePAYE), and Income Contingent Repayment (ICR).
Once you’re on an income-driven repayment plan, it’s time to ask the question, “Should I pay extra on my student loans?”Even if you don’t qualify loan forgiveness, your Federal loans will be cancelled after 30 years of repayment. The catch? The amount that’s cancelled is taxable. That means you’ll have to pay a huge tax bill the year the loans are cancelled.So should you work on repaying those debts with extra payments, or just start saving for the tax bill? The answer depends on the ratio of how much you owe to how much you earn. While the exact answer depends on a variety of factors, a good rule of thumb is that if you owe more than 1.5 times what you earn, you should think about loan cancellation rather than loan repayment.That means, a lawyer who earns $150,000 per year, but owes more than $225,000 in student loans, probably needs to start saving for a big tax bill rather than trying to aggressively pay off the loans. On the other hand, if that lawyer earning $150,000 owes the typical $125,000 in debt, aggressive repayment is probably the right call.
If you’re on the path to repay your debts, you may want to consider refinancing your student loans to a private student loan with a lower interest rate. That’s risky, because you lose the option of loan cancellation, plus you’ll lose the flexibility of income-based repayment. However, it can save you money while you pay off the big debt.You can find the best rates for student loan refinances through Credible. Check out our full guide on the best places to refinance student loans here.