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2008-2009 Financial Aid
Debt Management
For those of you who will rely predominately on student loans to finance your law school education, it is crucial that you realize the implications and responsibilities of your borrowing. Keep in mind that what you borrow while in school will have an impact on how quickly you will achieve your financial and career goals once you graduate. Some suggestions which may be useful in establishing a debt management strategy include:
- Creating a budget
- Borrowing only those amounts you "need"
- Consistently monitoring your loan indebtedness
- Avoid using credit cards
- Maintaining a file with copies of all loan applications/promissory notes/lender information
Creating a Budget
Establishing a budget while you are in school is one of the most important tools you can use regarding debt management. It essentially provides a framework for you to work within and a plan to "live within your means". In order to create a realistic budget, you must first assess your current lifestyle and spending habits and recognize that when you become a full-time student, more than likely these patterns will drastically change. In creating a budget, it is a good idea to establish a monthly budget as opposed to a semester budget as it allows you to assess your short term as well as long term (semester, academic year) expenses and thus, budget accordingly. You should start by itemizing your basic monthly living expenses such as rent, utilities, food/sundries, clothing/laundry, transportation, entertainment etc. In addition you should include your educational expenses such as tuition, fees, books and supplies. Traditionally, these expenses tend to be incurred at the beginning of each semester rather then a regular monthly expense. Finally, you should list your other monthly financial obligations, such as credit card debt or car loans. It is highly recommended that students satisfy their consumer loan obligations prior to undertaking law school so as to relieve themselves of additional monthly debt burden while in school. At this point you should have a realistic idea of your projected expenses for the school year.
The next step is to itemize your financial resources such as parental/family support, savings, part-time work income, etc. Again it is recommended that this information be listed on a per-month basis so as to create a fuller picture of your situation. At this point you should be able to analyze your projected monthly expenses vs. your projected monthly income and thus assess your need (if any) for student loans to bridge the difference. A general Budget Calculator is available to assist you with this process. A few suggestions to cut your monthly expenses include getting a roommate, packing your meals as opposed to eating out, using coupons, as well as seeking out more economical options for entertainment.
Borrowing What You "Need"
A conservative approach to borrowing loan funds for your education is highly recommended. You should first identify all other resources you have available prior to taking out student loans in an effort to limit your loan indebtedness. Thus any gap between what your resources are and what your anticipated educationally related expenses will be may be satisfied by student loans. Student loans should be used to "bridge" the gap between personal resources and educationally related expenses.
Monitoring Your Loan Indebtedness
It is critical to consistently monitor your loan indebtedness throughout your educational career so as to have a realistic understanding of your financial obligations once you graduate. In an effort to assist you with this important task, the Office of Financial Aid provides an individual loan history to all financial aid students usually during the fall semester. Another resource to assist you in tracking your loan indebtedness is to access the National Student Loan Database System at www.nslds.ed.gov where you will find a complete listing of all your federal loans. Keep in mind that some student loans begin to accrue interest at the time of disbursement, so the amounts you borrow initially will undoubtedly increase by the time you go into repayment. Below are two charts that show loan repayment amounts with various interest rates factored in.
In addition to monitoring your total loan indebtedness, we recommend that you periodically take the time to calculate what your monthly payments will be once you enter repayment. There are a number of loan repayment calculators via the internet that can assist you with these calculations some of which are as follows:
It should be noted that these tools are recommended only as a resource and should not to be used as a true repayment figure. You should contact your individual lenders to obtain exact loan totals and monthly repayment figures.
As you monitor your monthly student loan repayment obligation throughout your academic career, we strongly encourage you to cross reference this information with "realistic" salary expectations. As a general point of reference, the median starting salary for a 2005 VLS grad who entered private practice was $75,000.00; and for those who accepted positions within the government/public interest sector, the median salary was $48,000.00. (It should be noted that some graduates will earn more and some will earn less than the "median" salaries noted above.) It is important to keep in mind that starting salaries are not "take home" pay and further research into what you will actually be taking home is a critical step when planning/assessing what you will need to earn in order to meet your basic financial obligations once you enter the work force. For example, a person who has a salary of $75,000.00 and resides in Pennsylvania is estimated to take home $52,815.00 after taxes which works out to approximately $4,076.00 per month; a person who earns $48,000.00 and also lives in Pennsylvania is estimated to have a take home pay of $35,541.00 which calculates to approximately $2,740.00 per month. The take home pay figures are "estimates" factoring in federal and state taxes only and do not include savings plans, health insurance and other important deductions. As you can see by the above example, a gap exists between a person’s gross salary and what they actually take home. Consistent monitoring of your loan indebtedness coupled with realistic salary expectations for your chosen field of interest contributes toward a sound debt management strategy.
Avoid Using Credit Cards
While having credit cards is a convenience for most consumers, when it is used to "supplement" your income it may very well become a pitfall. The use of credit cards, particularly for students who are on a limited budget, tends to be a tempting option at times. However, using a credit card irresponsibly now may very well have long lasting negative effects on your credit history, thus possibly jeopardizing your ability to secure a mortgage, car loan, as well as other lines of credit in the future. Also, if you plan to take out a private loan or a Graduate Plus Loan (in addition to the Federal Stafford Loan) for your education, poor credit, adverse credit and/or maxed out credit cards may prevent you from securing these types of loans. Some strategies you may want to consider regarding the use of credit cards include:
- Limit yourself to one credit card.
- Use credit wisely and ask yourself the following questions before making your purchases with credit: Is this something I need? Do I need it now? Do I have the ability to repay? How long will it take me to repay? How much will it ultimately cost me?.
- Avoid “impulse” use of credit cards.
- Always make sure that monthly debt payments do not exceed 20 percent of your monthly net income.
- Shop around for credit cards with low interest rates, low annual fees and reasonable grace periods before finance charges begin.
- Pay your entire balance when it's due and review your spending habits to cut unnecessary purchases.
- Pay your bills as soon as you receive them and if you can't pay the entire balance pay more than the minimum amount due if at all possible.
- When you use credit to pay for an item, keep track of your purchases and the amounts and use it to subtract from your funds to ensure you can pay the amount at the end of the month.
- Think ahead. Plan for different obligations now and after graduation.
- Keep a your credit card account information and contact information in a safe place in case a card is lost or stolen. If a card is lost or stolen, report it as soon as you notice it is missing.
- Use your credit card for emergency purposes only.
It is highly recommended that you pay off all consumer debt prior to entering school so as to alleviate an additional monthly financial obligation while a student.
Maintaining A File
It is highly recommended that you create and maintain a file of all financial paperwork that you accumulate while obtaining your education. This file should include copies of all applications, promissory notes, lender correspondence, disclosure statements, as well as any other documents you deem important. By actively keeping this file current you will be provided with an additional opportunity to monitor your loan indebtedness as well as double check the accuracy of yours and your lenders records.
*The above debt management information is provided solely as a guideline and is not intended to serve as professional financial advising.
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