So now that you have the basic types of loans, how exactly are loans disbursed and what do you have to do for each of them? I’ll go over a basic loan amount from a school and what exactly you have to do with the loans you have been offered:
This would be the basic profile you are given by your law school upon being admitted. Now it looks complicated, but basically everything is already locked in for you except for the Optional Loans. Your grants/ scholarship will automatically be credited, as will the regular Federal loans such as Perkins and Stafford. In this example you would not be making any payments for the above amounts (except perhaps for the optional loan which is discussed later) but interest WILL be accruing on your unsubsidized loans.
Thus $10,000 is given to you, $11,000 is a subsidized loan with no interest while you are in school, and the last $12,000 will accumulate interest at 6.80% starting immediately.
1. Decide how much of the Optional Loans you want to borrow. You may not want to accept the full loans offered by the school if you think your cost of living isn’t as high as their estimates. 2. Pick between going with GradPlus Loans or Private Loans. (Discussed in C.) 3. Apply for your chosen loan. (Discussed in C.)
This choice is usually the best option for many people, but is not always the cheapest option. GradPLUS is often chosen because of the built in benefits and the reduced risk from a fixed interest rate.
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Stafford Loan- $12,000 Optional Loans- $30,000
Here I will walk through the Pros and Cons of either program and help people decide if they definitely should choose GradPLUS or perhaps consider private loans.
The GradPLUS loan has built in deferment, forbearance, and cancellation due to permanent disability or death due to laws governing the Federal programs. These mean that if you encounter serious hardship or injury, your loans will be easier to handle. Further if you are going to continue your schooling (say pursue a masters or PhD in the future) you will want to choose GradPLUS so you can defer your loans. Finally, all your loans, including Perkins & Stafford will all be under one lender, namely the Department of Education.
The majority of Law Students, when deciding on supplemental loans to cover the rest of their tuition or living costs, choose Federal GradPLUS loans
This is one of the key issues you have to be aware of. If you are considering ever using the Federal IBR (Income Based Repayment) program to forgive your loans, only loans that fall under Federal Lending will qualify. Thus if you want to keep the option of IBR on the table for all your loans, you have to choose GradPLUS.
However, many schools have their own LRAP plans to help pay back your loans if you choose to go into public or service or have a lower income position coming out of law school. Here, you will need to check with your specific school if only GradPLUS loans qualify for your school’s LRAP or if any loan will qualify. Again, if only GradPLUS loans qualify, you should go ahead and take GradPLUS loans to keep the LRAP option open.
The current interest rate is fixed at 7.90%, meaning that for the entire life of the loan you will not have any changes to your rate terms. Thus you don’t have to worry about market fluctuations or a sudden spike in interest rates leading to extremely high costs on your loan.