Student loan repayment: You have options

By Kyle W. Nageotte

The numbers seem staggering: More than eight of every 10 of California’s new lawyers enter the workforce with some kind of student loan debt.

This debt, which in many cases exceeds $100,000, can be crippling on a new attorney’s finances and significantly influence the profession’s ability to provide legal services to California’s diverse population.

Discussing student loan debt may be uncomfortable. But it’s important for new attorneys to do their research, make a plan and act swiftly to ensure they receive the benefits of the various public and private loan repayment options. The following are a few items new attorneys should consider while getting started.

1. Get organized. It’s crucial for new attorneys to understand what their total debt load is, who their loan servicer is and what types of loans they have in order to make the best-informed decisions regarding loan repayment.

The first issue many debtors face is the issue of consolidation. Consolidating student loans puts all of your existing qualifying loans into the Federal Loan Forgiveness Program with the U. S. Department of Education. Consolidation allows a borrower to pay a single monthly payment, have a single loan servicer and access alternative repayment plans. Consolidating student loans, however, can change your interest rates, grace periods and loan servicers. It’s important to consider and understand all of the terms and conditions associated with any consolidation before moving forward.

A great resource for many borrowers are their current loan servicers. Staying in contact with your loan servicers is important, especially if you are seeking forbearance or claiming financial hardship. Dealing with your loans sooner rather than later can help avoid many painful consequences, such as your ability to take advantage of the federal repayment programs, or an adverse credit score.

2. Repayment options. The Federal Loan Forgiveness Program has several different repayment plans to help you manage your loans, which in turn will allow you to concentrate on your practice. A useful tool is the “Repayment Estimator,” which is available on www.studentloans.gov. This estimator displays all of the repayment programs you qualify for, your estimated monthly payment for each repayment program and the estimated amount of time it will take to pay off your loans based on your income and family size.

Depending on the amount of your loans, family size and income, you may have the option to select among the standard, graduated, extended, income-contingent and income-based repayment plans. It is important to understand the terms of each repayment plan, the monthly payments (which can increase or decrease based on changed circumstances) and the tax consequences associated with any loan amounts forgiven at the end of the repayment plan.

A wonderful option for new lawyers entering the public or nonprofit sector is the Public Service Loan Forgiveness Program (PSLF). The program encourages attorneys to enter into and continue full-time public service employment by forgiving the remaining balance of their direct loans after they have made 120 qualifying payments while employed full-time by a public service organization. Currently, the amount forgiven under the program is not considered taxable income by the IRS. A major issue that borrowers should consider, however, is that Congress may change or discontinue the program at any time.

3. Permanent forbearance. Most student loans must be repaid even if a borrower does not finish his or her education, can’t find a job or is unhappy with the education he or she received. There are, however, several circumstances that may lead to the permanent forbearance of a borrower’s loans, including the “Closed School Discharge,” the “Total and Permanent Disability Discharge” and the “Death Discharge.” It is very rare for student loans to be discharged in bankruptcy, so it is important for borrowers to keep in touch with their loan servicers in order to understand all of their options should they face financial difficulties.

4. Private loan options. Another option for new lawyers is to leave the federal system and refinance their loans with a private lender. This option may lead to lower interest rates and additional repayment options. As with the federal repayment plans, borrowers should research all of their private options to find the best fit for them.

Although student loan debt may not be something most new lawyers want to deal with, especially while just getting started in their careers, it is important that you do your research, know your options and address your debt earlier rather than later. There are countless resources available online, at local bar associations and from the State Bar of California.

Don’t be afraid to ask your friends and colleagues how they’re handling their loans. While it may be uncomfortable at first, there is some comfort in knowing that we’re all in the same boat.

Kyle Nageotte practices labor and employment law. He is vice chairman-elect of the State Bar of California Young Lawyers Association (CYLA). CYLA is the nation's largest association of young lawyers with more than 55,000 members. For more information about CYLA go to http://dnn-cyla. This article originally appeared in the winter issue of the 2015 CYLA eNews and is reprinted here with permission.