Some students enter law school directly from their undergraduate studies and are used to living on a modest student budget.  Others have been working and are used to the lifestyle created by their previous earnings.  Whatever your current situation is, you’ll need to plan carefully for law school costs.  Attending law school full time will greatly reduce your earning capacity and will most likely result in the need to borrow to meet costs.  Always keep in mind that any money borrowed will soon turn into a monthly loan payment.

As a rule, you should plan to borrow the minimum amount necessary to maintain basic needs required to complete your degree.  Never borrow (via loans or credit cards) to support an enhanced lifestyle.  You could end up spending well over $1,000 a month in loan payments alone, which could prevent you from pursuing your desired career options.  Rather than choosing a position that interest you, your career choice will be based on minimum salary requirements just to meet your loan obligations.  It’s important that you maintain a lifestyle in keeping with your current financial means so that you can realize the benefits of your chosen profession once employed.

It is usually necessary to increase resources, cut expenses, or do both.  Consider the following suggestions:

• Evaluate the impact of borrowing before you borrow.  Consider whether you’ll be able to afford and repay the loans and will be willing to make the sacrifices necessary to do so.  Make adjustments in your borrowing if necessary.
• Make informed choices about how to use your scarce new resources.
• Don’t live a lifestyle you can’t afford – live below your means and learn to stretch your dollars while in school so that you can afford to live the lifestyle you want once you graduate.
• Budget your money just as carefully as your time.  Develop a monthly budget and stick to it.
• Keep accurate, well-organized records of your financial activities.
• Establish and maintain a strong credit history:  review your credit report annually and pay all your bills prior to the due date.
• Be a well-informed borrower.  Understand the terms and conditions of the loans you borrow, as well as your rights and responsibilities as a borrower.  Not all loans (nor lenders) are alike; know the differences and borrow wisely.
• Limit the number of credit cards you have as well as your available credit.
• Save a little each month (even if only $5), so that you’ll have funds available for emergencies.
• Pay your credit card balance in full each month; charge only what you know you can repay when the bill arrives.  Better yet, consume with cash not credit!
• Be realistic about how much money you’ll earn once you graduate; don’t count on any immediate financial windfalls.

The Importance of Good Credit

Often, borrowing only federal aid is not enough to cover your education expenses.  As a result, a private student loan may be necessary to bridge the gap between your total COA and the aid you have already received.

When you apply for a private student loan, the lending institution or creditor will evaluate your credit history.  This may involve requesting a copy of your credit report and/or your credit score from an authorized reporting agency.  Lenders use this information to determine whether they should extend credit to you based on your “willingness to repay the loan,” as demonstrated by your past credit performance.

You have a credit history if you have at least one credit card, consumer loans such as auto loans, student loans, or any other form of personal credit.

Your credit report is a snapshot of your credit history. Credit reports typically include information such as the type of debts you have, current balances, payment performance, available credit, and a record of credit inquires in the past two years. Some negative credit information may remain on your credit report for up to 7 years; bankruptcy can remain for 10 years. Student loan default remains on your report for 7 years.

Note:  Student loans may be represented as installment loans that are either active or inactive, depending on the deferment or repayment status. Some credit reporting agencies also use descriptive factors that show them as education loans.

Your Credit Score

Credit scoring is a quick and consistent method of determining the likelihood that you will repay your loans based on your past credit history.  Some factors used to calculate your credit score can include promptness in paying bills, number of credit cards, total credit limit, and the amount owed on accounts.

Although it is often a concern for student borrowers, having multiple student loans and/or a significant amount of education debt does not necessarily mean you will have a poor credit score. How well you managed credit in the past is far more important.

For your information, some factors that can negatively affect your credit score are:

• serious delinquency, derogatory public records, or collection accounts
• the proportion of balances to credit limits is too high
• the proportion of loan balances to loan amounts is too high
• too many new accounts
• too many accounts with balances
• insufficient time since account was established
• too many credit inquiries in the past 12 months
• too many finance accounts

For more information on credit scoring, contact Fair Isaac at www.fairisaac.com.

Credit Criteria

In addition to the credit score, lenders may establish other criteria to determine whether credit should be extended to a prospective borrower.  These credit criteria, which may or may not be published by the lender, typically rely upon information supplied by the prospective borrower on his or her loan application, as well as upon data contained on the applicant's credit report.

Below are some examples of criteria that lenders may use to determine if credit should be extended to a prospective borrower:

• number of accounts rated 60 or more days delinquent
• number of accounts that have been delinquent 90 or more days
• declarations of bankruptcy
• number of inquiries to an authorized credit reporting agency within a defined period of time

Checking your Credit

It is a good idea to request a copy of your credit report annually to ensure that no errors exist or to resolve errors that do exist.  You may already be able to obtain a free annual copy of your credit report.  A new amendment to the Fair Credit Reporting Act requires the three national credit reporting agencies to provide — at your request — a free copy of your credit report once every 12 months.  Find out how to get your free copy and when it will be available in your area at www.annualcreditreport.com

You can also request of copy of your credit report from any of the national credit reporting agencies for a nominal fee.

Note: If you have been denied credit, you have the right to a free copy of the credit report used in this decision within 60 days of the denial from the appropriate credit reporting agency.

Review the report carefully, paying particular attention to the number of accounts, total account balances, and the timeliness of payments. Should you find any derogatory information that appears to be incorrect, you should contact the credit reporting agency.  Unfortunately, errors can occur in your credit report.

You have the right to question the accuracy of items reported on your credit report if you believe them to be incorrect.  The credit reporting agency then must investigate any item you believe to be in error on your report within a reasonable period of time.  Any errors that the agency finds must be corrected within a reasonable time period (normally within 30 days); any information on the report thought to be in error that cannot be verified as correct by the agency must be deleted from your record.

If the item in question is found to be correct, you have the right to add a personal statement on your credit report explaining what happened to cause the negative item.

Common reasons for errors are:

• inconsistent reporting by creditors
• wrong or misplaced dates
• wrong amounts
• double reporting
• incorrect reporting due to common names
• parents and students having the same address and name
• incomplete reporting of demographic information.

Items that are reported in error can be corrected, but it can take several months to have the corrections made.

Cleaning up your Credit Record

Here are some steps you can take to improve your credit record:

• Make payments on time, and make at least the minimum monthly payments.
• Limit the number of credit accounts you have, your total available credit, and how much of the available credit you use.
• Request a copy of your credit report once a year. This way, you can promptly clear up any errors that may appear on your report.

If you have been having credit difficulties, keep in mind that it takes time to rebuild good credit. You must demonstrate responsible credit behavior each day as you spend, and each month as you pay your bills.

Credit information provided courtesy of Access Group. © 2005 Access Group, Inc.

Organizing Your Financial Activities

Keeping well-organized records of your financial activities will greatly assist in managing your loans and achieving your financial goals.   You should keep the following documents relating to all loans that you borrow:

• Applications
• Promissory notes
• Disclosure statements
• Notifications of lender change
• Repayment schedules
• Lender correspondence
• Income tax returns

Create a filing system that works for you and stick with it. 

You should also keep track of all telephone or e-mail communications with your lender, holder, and servicer.    Remember to write down the name of the representative you speak with when calling, so that you can refer to the call later on if necessary.