Funding Your Legal Education

Published February 2010, last updated September 2010

Law school is expensive – very, very expensive. So expensive, in fact, that the vast majority of students do not have nearly enough available funds to cover the cost of tuition, let alone three years of living expenses and textbooks. In turn, most law students have no option but to obtain loans in order to finance their education.

However, there are many varieties of financial aid which can mitigate the extent of law school debt. When it comes time to take out loans, students also have a variety of avenues to pursue in determining the most affordable and reasonable loans available.

The Best Route?

Assuming that you do not have the cash to pay for school outright (as is most often the case), you should follow this hierarchy in pursuing the best options for funding your education:

1. Scholarships

2. Federal Student Loans

3. Private Loans

Scholarships

In general, scholarships should be your first stop when looking into financing your legal education. They are the most student-friendly means of financing an education because they are essentially “free money”; any amount of aid you are awarded via a scholarship is yours to keep. Unlike loans, scholarships are not paid back. There are two primary types of scholarships given to law students: merit-based scholarships and need-based financial aid.

Merit-Based Scholarships

Most law schools offer a significant amount of merit-based scholarships to select admitted students who boast particularly impressive applications. These scholarships are “need-blind”, based solely on an applicant’s previous achievements, and are potentially significant in scope – ranging from a few thousand dollars to the cost of full tuition. For these reasons, merit-based scholarships – when made available – are perhaps the simplest and most preferable way of chipping away at the cost of a legal education.

This article, however, will focus primarily on need-based aid and student loans, both of which require significantly more research and work, post-acceptance, to coordinate. For more information on merit-based scholarships, check out the following thread from the Top-Law-Schools.com forum:

Negotiating Merit Aid

Need-Based Scholarships

Need-based scholarships are granted by law schools to candidates who have demonstrated greater financial need than their peers. Like merit-based scholarships, money received in a need-based scholarship never has to be repaid; it is merely a tuition reduction for the recipient. Each school determines its need-based aid recipients on a case-by-case basis; candidates coming from lower income homes and lower socio-economic backgrounds, however, are the intended recipients for such aid.

While all admitted students are eligible to apply for need-based financial aid, it is not easy to procure these grants; most applications are not successful. That said, the amount of money a school allocates for financial aid (and the number of candidates who receive rewards) varies widely by school; some institutions are more generous with their need-based grants than others.

There are two primary components of a need-based financial aid application: 1) the Free Application for Federal Student Aid (FAFSA), and 2) the school-specific form for each law school. In an order to streamline the need-based aid application process, some law schools have replaced this school-specific form with a common 3^rd-party form, the Need Access financial aid application.

FAFSA

Filling out the FAFSA is the first and most important part of your financial aid application; it is also a critical component in applying for federal student loans.

The FAFSA requires that an applicant provide detailed information about his or her finances. Applicants must also specify which schools will be receiving their FAFSA information; usually, students have not yet chosen a school by the time the FAFSA is due, so it is common to send FAFSA information to a wide variety of schools. In doing so, an applicant must list each school’s FAFSA code; while these codes are readily available on schools’ websites, TLS has compiled a Law School FAFSA Code Mega-List.

To fill out the FAFSA, go to www.fafsa.ed.gov and create an account. You will need the following information:

- Social Security Number
- Driver’s license number (if you have one)
- Detailed information about your personal finances designed to be pulled from your most recent tax forms (usually your IRS 1040, 1040A, or 1040 EZ).
- Your parents’ most recent Federal Income Tax Return (if you are a dependent student)
- Your most recent untaxed income records
- Your current bank statements
- Your current business and investment mortgage information, business and farm records, stock, bond and other investment records
- If you are not a U.S. citizen, your alien registration or permanent resident card
- The FAFSA code for each of the law schools to which you are applying for financial aid

Once you have completed the FAFSA, your responses are entered into a formula known as the Federal Methodology. The result of the calculations in this formula is your Expected Family Contribution, or EFC. The EFC is a preliminary estimate that measures your family´s financial strength. It is the amount the federal government expects you to be able to contribute to your law school expenses every year, based on the financial information you have provided. Your EFC is subtracted from the Cost of Attendance at the school(s) you plan to attend to determine your eligibility for federal student aid and is also sent to the schools you selected.

Once your EFC has been calculated, you will receive a report called a Student Aid Report (SAR) by e-mail or by postal mail. The SAR lists the information you reported on your FAFSA. At the upper right of the front page of the SAR, you will find your EFC. It takes approximately four weeks for your FAFSA to be processed.

Schools use your EFC to prepare a financial aid package (grants, loans, and/or work-study) to help you meet your “financial need”. Financial need is considered as the difference between your EFC and your school´s cost of attendance (which includes all living expenses). Your financial aid will be paid to you through your school. Typically, your school will first use the aid to pay tuition, fees, and room and board (if provided by the school). Any remaining aid is given to you for your other expenses.

FAFSA deadlines vary by school and state but are never early in the application cycle. Forms can usually be filled out as late as June but applicants for need-based financial aid should submit the FAFSA as early as possible. Law schools typically have limited resources apportioned for need-based financial aid; if you want to receive need-based aid, you need to apply early. Also, remember that the offices responsible for admissions and financial aid are completely separate; your completed FAFSA will be sent to the financial aid office. This separation is critical in maintaining a fair evaluation process for the admissions office and means there is separate office dedicated solely to managing financial aid.

This also means that you can submit financial aid paperwork, including the FAFSA, to a law school before you find out if you have been admitted to that school. This may seem presumptuous, but it is not; in fact, it is often critical when applying for financial aid. Some schools begin doling out need-based financial aid as early as February, long before the admissions office has worked through all of its applicants. You should fill out the FAFSA as soon as possible during the admission cycle (usually as soon as you have filed your taxes – sometime in January), and even though it may seem wishful in some instances, you should have it sent to every school to which you have applied and have not yet heard back from (in addition, obviously, to those that have accepted you). Plan ahead, especially when there is so money much potentially at stake.

School-Specific forms and Need Access

In addition to the FAFSA, law schools usually require a school-specific need-based financial aid application form. This additional form seems primarily intended to obtain one subset of information the FAFSA does not: your parents’ financial circumstances, regardless of your dependency status. If you are financially independent the FAFSA does not require you to present information about your parent’s finances. Most schools, however, do require this information, whether or not you are financially independent and whether or not your parents intend on providing any financial assistance for your legal education.

If a law school has a unique additional financial aid form they will most likely have you complete this form online. In this case, just make sure to follow the directions provided by the financial aid office for filling out this form.

If, on the other hand, a school requires you to fill out the Need Access form in lieu of a school-specific financial aid application, you will have to go to www.needaccess.org to complete it. The Need Access form costs $28 to submit, but this is a flat fee which will not increase if you have it sent to more than one school. To complete the Need Access form, you will need the following information (much of this will be a repeat from the FAFSA but some information required will be new):

- Your estimated or most recently completed U.S. income tax return (IRS form 1040, 1040A, or 1040EZ)
- Your estimated or most recently completed state and local income tax returns
- Your most recent W-2 forms and other records of money earned
- Records of untaxed income, such as welfare, Social Security, AFDC, or veterans benefits
- Current bank statements, mortgage, and other real estate information
- Records of medical and dental bills that were paid in the past year
- Business and farm records
- Records of stocks, bonds, trust funds, IRA accounts, Keogh accounts, and other assets
- Records of any outstanding debts, including student loans and auto loans
- Records of previously received financial aid
- Records of all financial aid received by you and members of your household for the previous academic year
- All of the above records for your spouse and your parents, if required

Age and marital status are the key qualifiers that can get you out of submitting your parents’ financial information, but if you are 26 (for some schools 30) or under and single, you will most likely have no choice. Again, your parents’ intention (or lack thereof) to finance any of your legal education has no bearing on your financial aid application; if you have affluent parents or come from a good economic background, financial aid is improbable.

Still, even if you think your odds of receiving need-based aid are low -- apply anyway! It is always worth the small amounts of time and money required for a chance (no matter how small) at a large amount of free money.

Federal Student Loans

Once your hopes for merit and need-based financial have been exhausted, you will have to proceed to the next-best source of funding for law school: federal student loans.

Unlike merit-aid and need-based aid, federal loans are not “free” money – they most certainly have to be paid back. The big advantage of government student loans, however, is that they boast much lower interest rates than private loans. These government-backed loans also employ much more student-friendly repayment policies. For these reasons, a student should exhaust all avenues for federal student loans before considering private bank loans.

There are three government sponsored student loans available to graduate students: Stafford Loans, Perkins Loans, and Grad PLUS Loans. Students are required to use Stafford Loans first and may then use Grad PLUS Loans to finance the remainder of their tuition not covered; this makes sense for students, as Stafford Loans are the most student-friendly.

Applying

To apply for any of the aforementioned loans or other federal financial aid, one must first complete the FAFSA. After your FAFSA is processed, your school will review the results and will inform you about your loan eligibility. You will then have to choose a lender; federal student loans are available to students either directly from the United States Department of Education or from a financial intermediary (such as Chase, Sallie Mae or Student Loan Corp.) through the Federal Family Education Loan Program (FFELP).

You can choose to take direct loans (where the U.S. Department of Education is your lender) or, if your school participates in the FFEL Program, you can use a private lender (which will act as a vehicle to process/dispense your government loan). Schools that participate in the FFEL Program will usually provide a list of preferred lenders. Student loan borrowers may choose a lender from that list, or choose a different lender they prefer (for example, a credit union). You also will have to sign a promissory note – a binding legal document that lists the conditions under which you're borrowing and the terms under which you agree to repay your loan.

Stafford Loans

Stafford Loans are available to students either directly from the United States Department of Education through the Federal Direct Student Loan Program (FDSLP, also known as Direct) or from a financial intermediary (such as Chase, Sallie Mae or Student Loan Corp.) through the Federal Family Education Loan Program (FFELP). There are two types of Stafford Loans: subsidized and unsubsidized.

Subsidized Stafford Loans are offered to students based on demonstrated financial need. The interest on subsidized loans is paid by the federal government while the student is in school, during the grace period, and during authorized deferment. Subsidized interest rates are fixed based on the loan disbursement date (for a list of rates see the table below).

For unsubsidized Stafford Loans, students are responsible for all of the interest that accrues while the student is enrolled in school. The interest may be deferred throughout enrollment, and unpaid interest that is deferred until after graduation is capitalized (added to the loan principal). The interest rate is fixed at an annual rate of 6.8 percent for unsubsidized Stafford Loans.

Graduate students may borrow an annual maximum of $20,500 in combined subsidized and unsubsidized Stafford Loans; no more than $8,500 of this amount may be in subsidized loans. Students who are not U.S. citizens or permanent residents are not eligible to borrow under the Stafford Loan program.

For both the Direct Loan and FFEL programs, you'll receive your loan through your school in at least two installments. No installment may exceed one-half of your loan amount. Your loan money must first be applied to pay for tuition and fees, room and board, and other school charges. If loan money remains, you'll receive the funds by check or in cash, unless you give the school written authorization to hold the funds until later in the enrollment period.

When you graduate with a graduate or professional degree the maximum total debt allowed from Stafford Loans is $138,500. No more than $65,500 of this amount may be in subsidized loans. This maximum total graduate debt limit includes Stafford Loans received for undergraduate study as well as loans received for graduate study. This means that if you have currently have a large Stafford Loan balance from your undergraduate pursuits you may be limited in the amount of Stafford Loans you can take out for graduate school.

Students can select the duration of their Stafford loan and may choose to pay it off over a period of up to 25 years (though this will increase the total amount paid).

Stafford Loan Interest Rates

First disbursement of a loan:		Subsidized	Unsubsidized
Made on or after	And made before	Interest rate on the unpaid balance
1-Jul-09	1-Jul-10	5.60%	6.80%
1-Jul-10	1-Jul-11	4.50%	6.80%
1-Jul-11	1-Jul-12	3.40%	6.80%
1-Jul-12	1-Jul-13	6.80%	6.80%

As yearly law school tuition currently averages around $40,000 (prior to living expenses) and graduate students can only borrow up to $20,500 a year in Stafford Loans, most law students will have to take out additional loans to cover the rest of their tuition expenses. The next stop should be Federal Perkins Loans.

Perkins Loans

The Federal Perkins Loan Program will not always be available for all students; however, it is a good option for those who qualify. In the Perkins Loan program, the lender is your law school, not the U.S. Government or a private lender. Graduate students can borrow up to $8,000 a year through the Perkins program, although the actual amount received depends on (1) demonstrated financial need, (2) the amount of other aid a student receives, and (3) the availability of funds at the law school. Perkins Loans carry an interest rate of 5% and graduate students are limited to a maximum of $60,000 in Perkins Loans, including their undergraduate loans. Students may take up to 10 years to repay Perkins Loans, depending on the amount owed.

Institutional financial aid administrators at participating institutions have substantial flexibility in determining the amount of Perkins loans to award to students who are enrolled or accepted for enrollment. In general, schools are reimbursed for 100 percent of the principal amount of the loan canceled, and the reimbursement must be reinvested in the school's revolving loan fund. These institutional reimbursements for loan cancellations are an entitlement. Loan volume in the program comes from: (1) newly appropriated FCC contributions and loan cancellation payments; (2) an institutional matching contribution equaling at least one-third of the FCC contribution; and (3) school-level collections on prior-year student loans.

Let’s say that you’ve now hit the cap for Stafford and Perkins Loans ($20,500 from Stafford and $8,000 from Perkins for a total of $28.500). Unfortunately, that may leave you with as much as $35,000 a year you’ll need to finance to cover the remainder of tuition as well as room and board and living expenses. You should now turn to Grad PLUS.

Grad PLUS and Alternative Loans

Graduate and professional degree students are now eligible to borrow under the PLUS Loan Program via “Grad PLUS” Loans. Grad PLUS Loans have no cap (either annual or aggregate) and can only be used once you have applied for Stafford Loans. Since Stafford Loans are not likely to cover your full tuition/cost of living, however, many law students will find themselves eligible for Grad PLUS Loans.

To qualify for these loans, you must be enrolled at least half-time in a graduate or professional program and have a credit history that is not “adverse”. You are considered to have an adverse credit history if you are 90 or more days delinquent on any debt or if, within 5 years of the date of the credit report, you have been the subject of a default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write off of a Federal Student Aid debt (for example, a Direct Loan or Federal Stafford Loan). You may still receive a Grad PLUS loan if you obtain an endorser who does not have an adverse credit history. An endorser is someone who agrees to repay the loan if you do not repay it. While this might be limiting for some candidates, Grad PLUS Loans are also not contingent upon demonstrated financial need, meaning they will be easier to obtain for some other candidates.

However, Grad PLUS Loans are not as student-friendly as Stafford or Perkins Loans for a variety of reasons. Those borrowing under Grad PLUS are required to begin repaying their loans on the date of the last disbursement of the loan – there is no grace period. Interest is also charged on Grad PLUS loans during all periods, including while you are in school. The interest rates for Grad PLUS loans are also higher; if you are borrowing directly from the U.S. Department of Education the interest rate for a Grad PLUS loan is 7.9%, and if you are borrowing through the FFEL program your interest rate will be 8.5% (opposed to a 6.8% rate through the Stafford Loan Program). Additionally, there are origination fees (approximately 3% of the loan value) for Grad PLUS Loans.

While certainly not as desirable as a Stafford or Perkins Loans, Grad PLUS Loans are likely to be a necessary component of your most students’ education financing. Since you now have a Stafford Loan, a Perkins Loan, and a Grad PLUS Loan, each with a different interest rate and different loan repayment policies, you may want to consolidate these loans.

The Government has thought of that too.

Federal Student Loan Consolidation

In the United States, both the Federal Family Education Loan Program (FFELP) and the Federal Direct Student Loan Program (FDLP) include consolidation loans that allow students to consolidate Stafford Loans, PLUS Loans, and Federal Perkins Loans into one single debt. This results in reduced monthly repayments and a longer term for the loan. Unlike the other loans, consolidation loans have a fixed interest rate for the life of the loan.

Consolidation loans have longer terms than other loans. Debtors can choose terms of 10–30 years. Although the monthly repayments are lower, the total amount paid over the term of the loan is higher than would be paid with other loans. The fixed interest rate is calculated as the weighted average of the interest rates of the loans being consolidated, assigning relative weights according to the amounts borrowed, rounded up to the nearest 0.125%, and capped at 8.25%. Some features of the original consolidated loans, such as post-graduation grace periods and special forgiveness circumstances, are not carried over into the consolidation loan, and consolidation loans are not universally suitable.

Loan consolidation is not always a smart move for borrowers but it merits consideration when trying to organize your debts. Consolidating student loans can provide beneficial structure for borrowers and can help assist graduates with financial forecasting.

Direct Loan Rates (through U.S. Dept. of Education)
Loan	Interest Rate (as of Feb 10)	Maximum Amount	Lender	Length of Repayment Allowed
Stafford (subsidized)	5.60%	$8,500	U.S. Dept. of Ed.	Between 10 and 25 years
Perkins	5%	$8,000	School	Up to 10 years
Stafford (unsubsidized)	6.80%	$12,000	U.S. Dept. of Ed.	Between 10 and 25 years
Grad PLUS	7.90%	Cost of Attendance	U.S. Dept. of Ed.	Between 10 and 25 years

 

Federal Family Education Loan Program (FFELP) Rates
Loan	Interest Rate (as of Feb 10)	Maximum Amount	Lender	Length of Repayment Allowed
Stafford (subsidized)	5.60%	$8,500	Private Lender	Between 10 and 25 years
Perkins	5%	$8,000	School	Up to 10 years
Stafford (unsubsidized)	6.80%	$12,000	Private Lender	Between 10 and 25 years
Grad PLUS	8.50%	Cost of Attendance	Private Lender	Between 10 and 25 years

Private Loans

So you didn’t get any financial aid. You’ve exhausted Stafford and Perkins Loans but aren’t eligible for Grad PLUS loans because of your credit history/lack of an endorser. Yet, you still need more money to pay for law school. You last resort should be private loans.

Private loans are available from banks, credit unions, and some corporations that deal solely with student loans. They are usually for-profit enterprises meaning they will generally have higher interest rates, less friendly repayment conditions, and sometimes hefty origination fees. If, however, these are your only means of finance and you have to take one out, the best advice is to shop around. Go to several banks and student-lenders to compare rates.

Your best bet is actually likely to be a credit union since they are not for-profit enterprises and often have more friendly rates. Don’t belong to a credit union? See if you can join one (this is good advice not just when financing law school but later on down the road when you’re applying for a mortgage as well; credit unions are great.)

Beyond comparing lots of options, make sure you read everything. Know the conditions of the loan back-and-forth, including all the origination fees, the interest rate (of course), the term of the loan (how long you have to pay it back), the period of interest accrual (i.e. can you defer interest until you graduate), and what options you might have to re-negotiate terms/rates at a later date (you may not have any).

When investigating private loan options, shop around and be an intelligent consumer. Don’t be afraid to put your foot down or walk away from a loan if the conditions are too unfavorable, and don’t feel pressured by the bank/lender trying to sell you. This is a serious decision and there is a large amount of money at stake.

For further reading see:

1. studentaid.ed.gov/students/publications/student_guide/index.html
2. afsa.ed.gov
3. Your school’s financial aid website