How should I Choose a Student Loan?

Tags: student loans, paying for school
Apr 2, 2023

Table of Contents

  1. Overview
  2. Private vs Public Loans
  3. Which is right for you?
  4. Steps to choosing a law school loan

Once you have determined that you want/have to borrow to go to law school, there are a few things to consider. This process can feel overwhelming because of all of the lending specific terms that you may not have heard before. If you want to get a quick primer on (most) of the terms you will need to know, you can check out our Definition Page.  

There are a few decisions that you need to make when choosing a student loan for law school. For this article, we will break down the decisions that add up to a loan, as well as some options for finding one for you.

Aspects of a loan that you should think about:

  1. Private vs. Public
  2. Fixed vs. Variable Rate
  3. Terms Length 
  4. Cost (Fees & Interest Rate)

Private vs Public Loan for Law School

This decision will have more lasting effects than the other options. If you choose to take out private loans, you will not have access to federal loan programs, like PSLF, or the interest and payment relief that the federal government gave during COVID.

So how should you choose between private and public loans?

Public loans have 10-year terms and are fixed rate loans, and the rates are the same for everyone who qualifies. There are two types of public loans that are relevant to you as a law school student. 

First, Direct Unsubsidized loans. These are easy to qualify for and do not require a credit check. Unfortunately, they have a borrowing cap (in 2022 it is $20,500), so you might not be able to pay for all of your costs with these alone. The rates on these loans are low, but you do also have to pay an origination fee, which you should consider when comparing options. 

Next are Direct PLUS Loans. The interest rate and origination fees are higher on these loans than Direct Unsubsidized loans, but the rates are still pretty low. Qualifying for these loans is not guaranteed. 

Are public or private loans right for you?

Federal loans will (almost definitely) have better benefits than private loans. PSLF, IBR, REPAYE, potential loan forgiveness, to name a few. The one benefit private loans do have is that they will be discharged in bankruptcy, while federal loans will not (at least as of May 2022). 

Since federal loans have more benefits than private, we recommend following a decision tree to pick your loans. Below is one example, but not the only option. The important thing is to consider the short and long term costs of your loan, as well as the benefits (or potential benefits) the loan provides.

Steps to choosing a law school loan:

Step 1) Decide if you are going to have a cosigner for your loans. Some loans require a cosigner, and most will give you a better rate if you have one, especially if they have better credit than you.  

Step 2) Determine the cost of Federal Loans and if you will qualify for Grad PLUS. ‘Cost’ includes the interest rate and origination fees. Keep in mind that you will probably have to borrow two types of federal loans (Unsubsidized and Grad PLUS), so you might want to borrow both public and private loans to cover the total cost of attendance. You can find this year’s federal rates here: https://studentaid.gov/understand-aid/types/loans/interest-rates

Step 3) Determine the cost of Private Loan options. You should check as many lenders as possible to find the best option! If you are shopping around, consider looking for lenders that offer rate estimates with a soft credit check so you can shop with confidence knowing that your credit score won’t be affected. 

Step 4) If the cost of the public loans is lower than the cost of private loans, you should strongly consider stopping here and borrowing Federal loans. You will spend less and get better benefits. 

Step 5) If private loans are cheaper for you, then identify the public loan benefits that you might take advantage of. 

Step 6) Determine the dollar value that you think the benefits provide i.e. if you are 100% sure that you are going to go into big law, then you almost definitely won’t take advantage of IBR, so the benefits aren’t worth much, but if you are going to go into public interest and you won’t be making much, then you will probably get a lot of value from delaying full payments on your loans.

Step 7) Compare the savings you are getting from private loans to the potential value of federal benefits. Choose the loan that is best for you. 

Related Articles

  1. What is an Origination Fee? Plus Other Terms you Should Know when Borrowing for Law School.
  2. Oddly specific questions you might be asking when borrowing for law school.
  3. What Law School should I go to?
Windsor MIT '22, Harvard College Advisor

I am the half of LSD that didn't take the LSAT, or go to law school (Sorry about that). But I did go to MIT business school while surrounded by law students and lawyers, so I am somewhat qualified to talk about the intricacies of law school apps and finances.

Windsor (the dog) didn't write this but he WAS a Resident Tutor and career advisor at Harvard College with me, so deserves some credit.


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