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Should I Refinance My Law School Loans? Tips, Examples, Pros & Cons
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Should I Refinance My Law School Loans? Tips, Examples, Pros & Cons

Conquer your student debt. Refinance now.

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Nearly everyone who goes to law school takes out student loans to cover the tab. The American Bar Association conducted a survey in 2021 to assess student debt in young lawyers, and found that roughly 90 percent of respondents borrowed education loans. Roughly half of respondents graduated with $150,000 or more in law school debt.

If you’re in the same boat, you may be able to save money, pay off your debt faster, and/or reduce your monthly payment with a student loan refinance for a lower interest rate. Here’s what law school graduates like you need to know about how to refinance law school loans through a private lender.

What is student loan refinancing?

Student loan refinancing1 is when you take out a new loan at a lower interest rate to pay off existing debt. You’ll then pay back your new lender under new loan terms, which may offer you more time to repay your student loan debt and/or a lower monthly payment. Depending on your loan amount and the terms you agree upon, you may see savings immediately in your first payment or you may pay more per month yet save thousands over the life of the loan.

When you refinance federal and/or private loans together, you’ll have everything on one monthly bill. This simplifies the student loan repayment plan and makes it easier to keep track of the total remaining loan balance.

If you have loans from the federal government through the U.S. Department of Education,  consolidation is also an option for you. Student loan consolidation allows borrowers to bundle all of their federal loans into one single monthly payment. The new interest rate will be calculated based on a weighted average of the interest rates for all your existing loans. You can only consolidate federal loans, so if you have private student loans, too, you’ll still have to pay those separately even if you do consolidate the rest.

How does refinancing law school loans save me money?

Refinancing law school student loans helps you save money by taking out a new loan at a lower interest rate. Reducing your interest rate decreases the amount of interest that accumulates every month, which means you can pay down your principal balance faster.

Depending on how you refinance your loans and what interest rate you’re able to get, you may also immediately see a reduction in your monthly payment amount. If, for example, you refinance for a lower rate but choose a longer repayment period, those payments will be spread out over a longer period of time and therefore they’ll be lower.

Here’s an example: Let’s say you’ve just graduated and you have $150,000 of law school debt remaining. Although interest rates fluctuate each year, for the sake of this example, we’ll say all of this debt has been financed at a fixed interest rate of 6.54%. That’s the fixed rate for all federal graduate and professional loans for the upcoming academic year.

Under a standard 10-year repayment plan, you’ll pay $1,706 per month for a total loan cost of $204,753, including $54,753 of interest.

Now let’s say you refinance all of that for a lower interest rate. We’ll use 3.97% as an example — that’s on the lower end of variable interest rates Earnest currently offers for a 10-year loan2, including a .25% rate reduction for autopay3.

At this rate, your new monthly payment will be $1,517, a savings of $189 per month. Over the course of the loan, you’ll save an estimated $22,782. You can use our rate and savings calculator to play around with these numbers and see how your loan term and interest rate can affect your monthly payment and total savings over time.

Amount borrowed or refinanced Interest rate Monthly payment (10-year term) Savings per month Total cost Total savings
$150,000 6.54% $1,706 n/a $204,753 n/a
$150,000 3.97% $1,517 $189 $181,971 $22,782

 

Pros and cons of refinancing law school loans

Choosing to refinance your loans can be highly beneficial and save you thousands of dollars over the life of your loan. It’s a big decision, though, and since it can directly impact your monthly payment and therefore your overall budget and financial planning, it’s important to consider all the pros and cons of refinancing law school loans before moving forward. Here are a few things to consider.

Pros of refinancing law school loans

A lower interest rate can save money over time

If you refinance your loans for a better rate, you may be able to save hundreds of dollars per month and thousands of dollars per year. Exactly how much you save will depend on the interest rate you’re able to secure and the loan term you choose.

Restructuring your repayment term can lower your monthly student loan payments

If your monthly payments are currently too high for you, refinancing for a lower interest rate may also give you an opportunity to extend your repayment term. For example, if you currently have four years left on your initial term and want to lower your payments by paying off your debt more slowly, you may be able to refinance for a 5-, 7-, 10-year term — or even longer. Be aware, however, that the longer your repayment period is, the more interest payments you’ll make over time.

Refinancing enables you to do a cosigner release

If you have a cosigner on your student loans and you want to release them from the responsibility, choose a refinancing lender who will allow you to take out a new loan without assistance. If your credit score isn’t currently high enough to do this on your own — many lenders, including Earnest, require a minimum credit score of 650 — you can work on improving your credit score and try applying again later once it’s higher.

You can try to refinance again later for even better terms

If you refinance your loans and something changes for you a year or two down the line — say, you gain a family member and need lower payments, or you’ve gotten a higher-paying job and have a higher credit score that might qualify you for a low interest loan — you can always apply to refinance again. So, even if you can only lower your annual percentage rate (APR) by, say, .25% by refinancing now, it might be worth it to go for it anyway and then try again later when you think you’ll have even more of a reduction. Every little bit adds up over time.

You can choose between fixed interest rates and variable APR

Grads refinancing their loans can choose between variable rate loans and fixed APR. Variable rates are often the lowest interest rate you can get, though they are subject to fluctuate over time. Earnest borrowers in good standing can apply to switch their loan from a fixed to variable rate or vice versa once every six months. This requires taking out a new loan, so applying will require a hard credit check.

You can choose your lender

When you’re taking out law school loans for the first time, you may have limited options based on your credit score, the amount you need to finance, and more. Maybe the federal government was your best or only option, and you want to move your loans away from the servicer assigned to you. You can choose which company to refinance your loans with, and you can shop around for the best refinance rates.

A good refinancer will offer an autopay discount for setting up automatic payments—Earnest’s, for example, is .25%3—and will look at more than just your credit score and credit history when determining your creditworthiness and refinance rate. Most lenders, including Earnest, don’t charge origination fees or prepayment penalties for paying off your loan faster than anticipated, but it’s always good to double-check all the terms and conditions before signing off on your new loan.

Of course, it’s always useful to ask about other perks and benefits, too. Earnest allows borrowers in good standing to request to skip a payment once per year4 if they need a temporary financial break. The amount of the payment will then be spread out equally over the course of the remainder of the loan.

Cons of refinancing law school student loans

You’ll lose eligibility for federal student loan forgiveness programs5

If you work for a nonprofit or another eligible organization in the public sector, you may be eligible for Public Service Loan Forgiveness, also known as PSLF. This program enables some borrowers to apply for forgiveness of the remainder of their federal loan balance after 10 years of qualifying on-time payments. It’s only available for federal loans, however, so if you refinance your loans — therefore switching them to a private lender — you won’t be eligible for forgiveness no matter how long you make payments.

You won’t be able to access federal loan repayment assistance programs

The federal government offers a plethora of repayment options for borrowers who need to restructure their loan repayment plan to make it more affordable. For example, if you can’t afford your payments, you may be eligible for an income-based repayment plan that could temporarily drop your payments down to $0 per month until you’re making more money. You’ll lose access to this program if you refinance with a private lender. Deferment and forbearance (more on these below) are also federal programs that aren’t offered by every private lender.

Your new repayment plan may require higher monthly payments

Even if you refinance for a lower interest rate that saves you money over time, you may have higher monthly payments if your new loan has a shorter term. While this could ultimately benefit you if your goal is long-term savings, you should be certain that you can afford the new payments before you commit to the new loan term.

Alternatives to refinancing law school loans

If student loan refinancing isn’t for you, or if this isn’t the right time to do it, there are still ways for you to get needed relief or save money over time. Here are a few options to consider.

Federal loan income-based repayment plans

If you have federal student loans and have trouble making your payments, you can apply for income-based repayment plans. These programs reduce your minimum payments in accordance with your salary and may even temporarily eliminate your requirement to pay until you start earning more.

Student loan forbearance or deferment

If you’re currently unable to make payments because of financial hardship, you can request a temporary hiatus from payments from your lender or federal student loan servicer. Depending on your circumstances, you may qualify for deferment, during which interest may or may not accrue on your loans (you’ll want to confirm this based on your loan type and servicer). If you’re not eligible for deferment, you may be able to get a break from payments through forbearance, during which interest accrued will be added to the principal balance of your loan. Periods of forbearance and deferment generally cost you more money over time, but they may grant you short-term relief to help you get back on your feet and avoid defaulting on your loans.

Public Service Loan Forgiveness

If you work in an eligible public service career, you may be able to have your federal student loan debt forgiven after 10 years of qualifying payments. This may be the best option for you if you’re eligible, as it may save you significant money over refinancing.

Federal loan consolidation

You can consolidate all of your federal loans, including Parent PLUS loans, into one monthly payment with a Direct Consolidation Loan. While you won’t decrease your interest rate through consolidation, you can bundle everything into a simpler monthly payment and stay eligible for forgiveness programs.

Pay off debt faster with savings

If you’ve built up substantial emergency savings over the years and have some extra money to put toward your loans, you can make an extra contribution or increase the amount of your regular payments to chip away at the principal balance. Even if all you can do is pay an extra $5 per month, this can help you pay off your loans faster by reducing the amount of your principal balance and therefore the amount of money you’re accruing interest on.

Should I refinance my law school loans?

Refinancing may be ideal for you if…

  • You can significantly reduce your total loan cost and/or monthly payments with a lower interest rate
  • You want to restructure your payment plan for a shorter or longer repayment period
  • You’re confident you can make your new payments and don’t need federal protections
  • You’re not eligible for student loan forgiveness programs

An alternative to refinancing may be a better idea if…

  • You can’t get a lower interest rate than your current loans
  • You don’t qualify for refinancing student loans without a cosigner and don’t have a cosigner available to help you
  • You’re eligible for student loan forgiveness programs

Find out how much you could save with Earnest6

Refinancing your law school loans could save you potentially tens of thousands of dollars in interest over the next 10 or more years. Find out today how much you can put back in your pocket by taking two minutes to check your rate with Earnest. Checking won’t affect your credit report, and it can give you the knowledge you need to get on track to meeting your financial goals.

Conquer your student debt. Refinance now.

Get My Rate
Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.

1 Choosing to refinance to a longer term may lower your monthly payment, but increase the amount of interest you may pay. Choosing to refinance to a shorter term may increase your monthly payment, but lower the amount of interest you may pay. Review your loan documentation for total cost of your refinanced loan.

2 Earnest’s Loan Cost Examples: These examples provide estimates based on payments beginning immediately upon loan disbursement. Variable APR: A $10,000 loan with a 20-year term (240 monthly payments of $60.44) and a 3.97% APR would result in a total estimated payment amount of $14,505.60. For a variable loan, after your starting rate is set, your rate will then vary with the market. Fixed APR: A $10,000 loan with a 20-year term (240 monthly payments of $74.79) and a 6.54% APR would result in a total estimated payment amount of $17,948.60. Your actual repayment terms may vary.

3 You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment from a checking or savings account. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account

4 Earnest clients may skip one payment every 12 months. Your first request to skip a payment can be made once you’ve made at least 6 months of consecutive on-time payments, and your loan is in good standing. The interest accrued during the skipped month will result in an increase in your remaining minimum payment. The final payoff date on your loan will be extended by the length of the skipped payment periods. Please be aware that a skipped payment does count toward the forbearance limits. Please note that skipping a payment is not guaranteed and is at Earnest’s discretion. Your monthly payment and total loan cost may increase as a result of postponing your payment and extending your term.

5 You may lose benefits associated with your underlying federal and/or private loans if you refinance such as federal Income-driven Repayment Plans, Economic Hardship Deferment, Public Service Loan Forgiveness, or other deferment and forbearance options. If you file for bankruptcy, you may still be required to pay back this loan.

6 Loan Eligibility criteria: Your debt is from paying for education at a Title IV accredited school. The debt is from your education or your child’s. The debt you’re refinancing is for a completed degree or one that will be completed at the end of this semester. You are currently the primary borrower on the student loans you would like to refinance, and you will remain the primary borrower after refinancing. You must reside in the District of Columbia or one of the 48 states Earnest Operations LLC is authorized to lend in (all but Kentucky and Nevada). This is strictly a student loan refinance product. There is no opportunity to borrow more than your outstanding qualifying student loan amount. You must be the age of majority in your state or older at the time you apply, as well as be a United States citizen or Permanent Resident Alien without conditions. Refinancing is subject to credit qualifications. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX.

Earnest Loans are made by Earnest Operations LLC. Earnest Operations LLC, NMLS #1204917. 535 Mission St., Suite 1663, San Francisco, CA 94105. California Financing Law License 6054788. Visit www.earnest.com/licenses for a full list of licensed states. For California residents: Loans will be arranged or made pursuant to a California Financing Law License.

Earnest loans are serviced by Earnest Operations LLC with support from Navient Solutions LLC (NMLS #212430). Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by agencies of the United States of America.

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