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A look at how to assess risk when choosing debt as well as when paying off that debt.

Tackling the debt monster

‘Today is the first day of my life.’  Albeit untrue, it is an affirmation that I tell myself every day.  Nevertheless, the proclamation is vital to the way your career and personal life interweave with one another.  Every day you will face a decision that will affect your chances of success.  Debt is one of these decisions that you will confront.  What path will you take today?

Let me start by stating there is nothing wrong with acquiring debt.  Simply put, debt gives you the opportunity to jump through hoops now so that you might have a better future later.  Debt may present itself in your life as student loans, mortgages or car loans.  Nevertheless, acquiring debt presents a risk.  The risk that even if you successfully jumped through those hoops, you might not be able to navigate the unpredictable waters in the future. This article focuses on how to assess risk when choosing debt as well as when paying off that debt (be it student debt or not).

Scenario 1:  I am getting ready to go to law school. How much debt can I handle?

The first step is to determine the amount of debt that you are willing to undertake.  Grab a note pad and a computer, and get ready to do some research.

  • What is your expected income?

According to the Bureau of Labor Statistics, the mean annual wage of lawyers is $130,490.  However, this does not mean that your salary will be the same.  It is very important to be wary of “average” reported incomes. By taking a closer look at BLS, you will see that salaries vary by region and by industry.

Another variance is due to experience.  Law schools regularly report to U.S. News Law School Rankings and on their websites the employment and salary information of their new graduates.  As you are researching law schools, you should look at this information carefully.

  • Looking beyond the “good stuff”

It may be easy to simply stop the search after you find out what your expected income will be.  After all, how are you supposed to know how much money you will spend?  However, part of tackling debt is to honestly look at expenditures.

The first step is to make a list of your current expenditures.  How much money are you currently spending in living expenses?  How would these expenditures translate into your law school transition?

The second step is to take inflation into account.  Inflation rates affect living expenses.  How much money will you ultimately have to spend on food, rent, and other living expenses?

But what about law school tuition increases?  Law school websites only list the current tuition.  So how should you calculate the money you will spend on tuition?  According to the National Jurist, law school tuition rates are higher than inflation rates.

The best place to start is to look at National Jurist.  The National Jurist has a list of tuition growth by law schools.  According to the National Jurist:

“Tuition for private law schools grew from an average of $21,790 in 2000 to $37,702 in 2010, an increase of 73 percent.

Public schools have increased their tuition at a far higher percent – more than 150 percent.”

The third step is to familiarize yourself with the interest rates for your student loans.  Take a close look at public and private loans.  Will your interest rate change?

Scenario 2:  I am finally out of law school and am now ready to start paying off my debt.  What should my plan be to successfully pay it down?

  • Identifying Debt

The first step is to find out how much you owe (in principal and interest).  Take a close look at the contract(s) you signed.  Is the amount you owe the same as the notices you have received from your lender?  It is best to verify that the amounts are the same.

The second step is to find out whom you must pay.  Usually, loans are sold to different parties.  Look through your records and identify who your creditors are.

  • Loan Forgiveness

Equal Justice Works offers loan forgiveness for law school graduates who take on public interest or non-profit positions.

The gist is that you must meet three requirements: (1) you must have an eligible Federal Direct loan, (2) you must be working full-time in a qualifying employment, and (3) you must have made 120 qualifying payments.  The website offers webinars that explain the process exhaustively.

  • Repayment Options

After graduating, you will begin paying your student loans (with a six month grace period). You have different options for repayment. The options are: pay in full; standard payment; graduated payment; income-based payment; and long-term payment.  These repayments differ regarding the amount you will pay monthly and the interest accrued.

You could also look into loan repayment assistance programs.  Loan repayment assistance programs vary by schools, employers, states, and the federal government.

In Minnesota, you should look at LRAP Minnesota. LRAP Minnesota is a non-profit organization with a mission to ensure that low-income and disadvantaged populations have access to competent counsel.   LRAP Minnesota accepts applications twice per year – applications are due on May 1st and November 1st.

An example of a loan repayment assistance program is the Federal John R. Justice Student Loan Repayment Program available for state and federal public defenders and state prosecutors.

  • Budgeting

After all of this hard work, you are ready to tackle the debt monster!

Starting a budget is easy (but tedious).  Start by identifying how much money you will be spending.  Evaluate all of your current spending and set goals that take into account your long-term financial objectives.  The last step is to track all of your spending to make sure that it stays within your guidelines.

A budget can be easier with the use of computer software.  You could use finance programs, such as Quicken or Microsoft Money, or you could always use a basic spreadsheet.

Don’t get discouraged.  Review your budget monthly to make sure you are staying on track.  Compare your budget with your actual expenses in order to determine where you did well and where you may need to improve.  Remember, working with a budget is a work in progress.


  1. This is getting out of control. Students are being forced into debt just to acquire a diploma, which is required for most careers. Student loan debt exceeds the total credit card debt. HR 4170 would create student loan forgiveness.

    See the video below:

  2. Wow! Hiring and salaries for new lawyers have been in turmoil for the last several years. Despite well publicized declines in both, the author cites to a BLS average attorney salary figure for those “getting ready for law school.” Citation to an inflated figure that reflects ALL attorneys, rather than just new attorneys, is part of the reason young attorneys have huge debt burdens: the misconception that after graduation a new attorney will be making an average of $130,000. Way to cloud over the issue. The more helpful statistic here would be the median starting pay for new associates, which NALP recently reported for 2011 grads at $60,000, a 17% decline from the 2 previous years and drop below six-figures for median starting salaries for associates. Anticipating a $60,000 starting salary would result in a very different debt calculation as well as a different cost-benefit analysis for prospective students. Citing to the $130,000 figure is irresponsible and misleading.

    Also, Microsoft announced cessation of development of Money a few years back. The better recommendation would be

  3. @ Chris: The author actually said you SHOULDN’T expect the average income to be your income:

    “…the mean annual wage of lawyers is $130,490. However, this does not mean that your salary will be the same. It is very important to be wary of “average” reported incomes. By taking a closer look at BLS, you will see that salaries vary by region and by industry. Another variance is due to experience.”

    I would hardly call that “clouding over the issue” or “irresponsible and misleading.”

    …I do like that you brought to bear the statistic of recent grads…

  4. The heart of the problem is not knowing what you’re going to make- or even having a starting point. As an incoming 1L, I could end up anywhere from unemployed to 160k.

    If I knew I had even 40k waiting for me on the other end, it would make these decisions so much easier.

  5. Not knowing your potential salary is a huge problem. It is a growing concern that because of media (tv, movies, etc), people end up having an erroneous idea of how much debt they could handle. Saying that, it is sad that we live in a society where in order to achieve education and success we are forced to take on debt.

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