7 Tips to Reduce Law School Debt

Step one to pay off  law school debt, is to reduce law school debt. That is, take out fewer loans. Though it doesn’t seem like you can do much to improve your debt while you’re in school and not working, but there you’re wrong. There are lots of strategies to decrease the loans you take out, and thus decrease your debt burden when you graduate. Here are the seven strategies I used to reduce my debt by tens of thousands of dollars while attending school.

Forgoing max loans.

The max loans I could take for three years of loan school was over $180k. This sum doesn’t include loan origination fees or the interest that would have accrued during law school.  This also doesn’t include private loans I could have taken on top of what was offered with the financial aid package for living expenses or to take the bar.

My friend took out the max loans because he figured that it was better to have them than to need them later. The problem with taking out the max loans is that schools overestimate the amount of loans they can give you because they don’t want you to run out of money. Then if you take the max loans you end up increasing your lifestyle to meet the amount of money that you have. And that’s how you get into more debt than you need to.

If you reduce the amount of loans you take, you reduce your lifestyle. Thus, you end up with less debt. If you can figure out a realistic but frugal budget, it’s not that hard to save money while you’re in law school. You can add in a little extra for wiggle room but don’t take the max loans just because they’re the max. Your future self will thank you for fewer loans that you will need to pay back. Instead of taking out the max loans, I ended up with about $92k (and $20k of credit card debt on 0% cards).

Attending a cheaper school.

Not everyone has this choice, but it should be a consideration if you’re undecided between schools with differing tuitions. With in-state tuition, I saved about $5,000/year on tuition and at least $10,000/year in living costs compared with attending a law school in a big city. It’s not just that the cost of living was lower but it was much harder to spend a lot of money in a small college town than in, say, New York City. That’s $45,000 saved without doing anything at all. Plus, in law school, you spend a lot of your time studying – you don’t need the added distractions of a big city.

Shopping around for insurance.

The health insurance they sell students is a racket. Students by and large tend to be young and healthy, so their insurance shouldn’t be that expensive. Still, most students didn’t think to shop around; they just paid for whatever health insurance the school offered. And why not? The students were paying hundreds of thousands – what’s a few extra thousand?

But I was concerned with the extra few thousand. I read the fine print, which said that I didn’t need to buy the school’s health insurance. Then I bought private health insurance. (This was pre-Obamacare so your mileage may vary). This move saved me $2,000/year ($6,000 total) and gave me better healthcare coverage than what my school was offering.

Treating loan money like real money.

Many law students make the mistake of treating loan money like Monopoly money. That strategy isn’t a winning one if your goal is to reduce law school loan debt. I treated my loan money like real money and lived like a student. Therefore, I did not increase my lifestyle and saved money where I could.

Of course, I bought used books. Used books are slightly inconvenient to buy and use, but it’s one of the easiest and well-known ways to save hundreds per semester. I brought my lunch and made bulk dinners on Sunday. I carpooled. If I went shopping, it was at Goodwill. I didn’t go on fancy vacations on borrowed money.

This doesn’t mean that I didn’t have occasional splurges at nice restaurants.  I preferred, however, to have a nice, memorable dinner with my boyfriend over numerous forgettable meals at the school cafeteria. Over the course of three years, these little tricks saved me thousands of dollars.

I made money in school.

It’s hard to work while you’re in law school your first year, but students tend to have more time 2L and 3L years. I worked at the library from my 2L to 3L years. During the summer, I took an additional and better-paying side job. I made quite a low salary but the work was minimal at all the jobs. All the jobs also allowed me time to study (the benefits of living in a college town). Thee few hundred bucks a month paid for my rent. Additionally, I met some interesting people.

Having the additional money meant that I could avoid taking out new loans, which could save hundreds on origination fees and interest. Additionally, any income earned makes you eligible for the earned income tax credit when you file your taxes. If I had been a bit savvier, and had more money, I could have put some money into a Roth IRA and taken advantage of the market climb. You live and you learn though. I was happy to have the thousands extra from these side jobs and get the Earned Income Tax Credit.

I maxed out several 0% cards.

It’s anathema in the personal finance community to use credit cards. As a warning, if you cannot be trusted with credit cards, do not follow this tip. You could get into a lot of trouble.

But, I’m quite good with credit cards.Because I had excellent credit, I was able to get 0% interest on cards for 12-18 month periods with credit limits totaling $20,000. The cards had staggered end dates that were months after my starting date. That way they wouldn’t come due while I was still in law school.

It was nice to be able to float my expenses for a while. This tip didn’t actually save a ton of money but it helped keep my peace of mind and liquidity. I put my last two years of spending on credit. I made sure that I was ready to pay them off once I had a job. But I knew that I would get a job eventually and I didn’t run up the balances.

Paid tuition with money instead of loans.

I took four years off between college and law school, where I saved up money for law school on an entry level salary. The money I saved I put toward tuition and living expenses. As stated above, I didn’t take out the max loans but only what I needed to get by. Additionally, because I was able to pay for my living expenses in cash, I primarily took out federal loans. Thus, if push came to shove and I got a job that needed to rely on loan forgiveness, most of my loans could be forgiven under the plan. I wouldn’t have pesky private loans that I would still have to pay.

Reduce Law School Debt

Basically, I lived like a student, and I didn’t regret it. Though I graduated with over $90,000 in law school debt, and $20,000 and credit card debt (on 0% credit cards), I know it could have been much worse.

Part of the reason that I was so careful with my money is that I entered law school in 2009. Even though I went to a top school, our law school class was told not to have high expectations for graduation. And I took to heart the possibility of having difficulty finding a job.

I think even keeping my law school loans below the six figure level put me ahead mentally (and of course, financially). I don’t regret any of it. The strategies I used in law school to save money made it exponentially easier for me to pay off my loans quickly and then, quickly start building my net worth. Then, after I was in a safe financial place, I was able to quit my job and take some time off. Each step was a building block to where I am today. Step 1: reduce law school debt; step 2: take on the world.

Do you have any strategies for saving money in law or graduate school?