Managing Your Debt

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 your law school costs.  

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 a lifestyle.  You could end up spending well over $1,500 a month in loan payments.  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 you are employed.

Its 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.
• 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.  There are many on-line cash-flow and budget management websites and apps  you can download to your smart phone to make it easy.
• 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 are alike; know the differences and borrow wisely.
• Keep accurate, well-organized records of your financial activities.
• Establish and maintain a strong credit history.  Review your credit report annually (www.annualcreditreport.com) and pay all your bills prior to the due date.
• Limit the number of credit cards you have as well as your available credit.
• Try to 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

Good credit is necessary to take advantage of the various financing options available for law school.  We suggest that you verify that your credit report is accurate and that your credit is in good standing.  Credit reports may contain misinformation that can take time to correct.  Obraining a copy of your credit report early allows you to correct any adverse information prior to applying for loans that require a credit check.

You may request a free copy of your crdit report from each of the three credit reporting agencies once every year.  For mor information, go to www.annualcreditreport.com, or contact the credit reporting agencies directly.  If you have been denied credit, you have the right to a free copy of the credit report used in the decision within 60 days of the denial from the appropriate credit reporting agency.

Credit Reporting Agencies

Experian        888.397.3742        www.experian.com

TransUnion    800.888.4213        www.tuc.com

Equifax          800.685.1111        www.equifax.com

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.

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.

 

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.