By Todd Balsley, GL Advisor

High student debt levels among law school graduates and a tight job market have captured major news headlines, leaving many graduates unsure how they will manage their student debt burden. Fortunately, federal programs like Income-Based Repayment (IBR) and Public Service Loan Forgiveness (PSLF) are available and can help borrowers minimize the cost of their student debt and recognize considerable savings.

Before intensive bar exam preparation sets in, it is important for all 2011 graduates to take time to consider their student loan repayment options. Below, we’ve highlighted three important steps that all recent graduates should take this summer to prepare for repayment. Taking these steps within the suggested timeframe will ensure you are on track to manage your payments and minimize the cost of student debt.  

Action Items: Immediately Following Graduation & Prior to Bar Exam

1) Consolidate All High Rate Grad PLUS Loans:

Higher rate PLUS loans with an interest rate of 8.5% should be consolidated with the Direct Loan Program to lower the interest rate by 0.25% and to position your loans for IBR and PSLF, as necessary. In many cases, other loans should be excluded as they stand to benefit from government subsidies and a six month grace period.

2) Place Eligible Loans into IBR:

Enrollment in IBR requires documentation of income. As stipulated by the Department of Education on the alternative documentation of income form, all supporting documentation must be no more than 90 days old. Therefore, in order to obtain the lowest possible monthly payment amount before your loans enter the standard repayment schedule this fall, it is critical to take action now. Ensuring you use the optimal documentation may also increase the interest savings you receive through government subsidies.

Action Item: After Bar Exam, but Prior to August 15^th

3) Customize Your Repayment Strategy according to Career Path:

• For those entering employment in the private sector with an expected income of greater than $110,000: Borrowers on a high income career path will recognize the greatest benefits by pursuing a targeted repayment plan. Any discretionary funds in excess of covering the required monthly student loan payment should be applied to the highest rate debt outstanding at that time.

• For those entering employment within the private sector with an expected income of less than $110,000 and significant debt: Borrowers are advised to utilize IBR until they no longer qualify for Partial Financial Hardship (PFH). Qualification for PFH is generally reassessed on your IBR anniversary and the monthly payment is reset. Other factors such as family size and income trajectory may affect strategy.

• For those entering employment within the public sector (or any non-profit): Borrowers working in the public sector may be eligible for PSLF. This program requires that a borrower make 120 qualifying payments on their Direct Loan federal student loans (Direct Subsidized Stafford Loans, Direct Unsubsidized Stafford Loans, Direct PLUS Loans, and or Direct Consolidation Loans). Borrowers eligible for PSLF should enroll in IBR in order to obtain a low monthly payment while working toward forgiveness.

• For those who have not yet selected their career path: Borrowers still deciding on or searching for employment may need to utilize deferment options to postpone monthly payments and avoid interest accrual on subsidized loans. IBR may also provide certain borrowers with a $0 monthly payment and thus should be included in the evaluation.

With proper research and due diligence, you can manage this process independently. However, working with a trained financial professional with expertise in student loan debt is highly encouraged in order to ensure you make the appropriate financial decisions regarding student loan repayment, associated tax implications and general financial planning.

GL Advisor is a unique service designed to help law students and recent graduates manage their student debt burden and other financial matters. To learn more or sign up for a free student debt assessment, please visit: www.gladvisor.com/lawriot. You can also watch our free 8-minute webinar on student loan repayment strategies here:  www.gladvisor.com/lawpresentation.