Even if you receive large scholarship grants each year, it is unlikely that you will be able to avoid substantial debt prior to graduation, especially if you have already borrowed for your prior education. For every $10,000 borrowed, a student can expect to pay approximately $125 each month in debt servicing after graduation. Therefore, we strongly urge students to be as prudent as possible when taking on debt as the amount borrowed now, may affect the choices students can make later.

Because loans are the major source of funding for a law school education, students will probably have a long-term financial debt upon graduation that will have to be repaid during the first ten to fifteen years of their professional career. Therefore, sound financial planning now, can help to avoid being financially overburdened in the future.

Furthermore, financial planning for the entire year can ease students’ economic concerns. It is important to determine what the fixed annual expenses and resources will be. Students should create a realistic budget and adhere to it. Failure to do so may leave them with too little income at times when they might need it the most.

Included in the Financial Aid Worksheet (PDF), is a "Budget Chart" which can be used to calculate resources for anticipated expenses during the upcoming year. After completing the Budget Chart and determining the income available after paying for essential costs, students will still have to manage their resources diligently. Each month, students should review the budget to determine how realistically it was developed. It may be necessary to make adjustments before small financial difficulties become unmanageable crises.

Once having developed an operating budget for law school, students should begin to think about how they are going to manage loan repayments after graduation. It is important that students, as borrowers, are properly prepared and are knowledgeable about what is required as they enter into repayment.

By completing the chart, "Debt Burden Analysis at Conclusion of Law School," in the Financial Aid Worksheet, students will have a better sense of all of their financial transactions while attending law school. As graduation approaches, students are responsible for completing an Exit Interview with a financial aid officer, at which time the repayments of loans will be examined. Students must notify all lenders as well as the Office of Financial Aid about their graduation date. This would be an excellent opportunity to confirm that the lenders' records are consistent with the student’s records.

As with any other debt, student loans are serious financial and legal obligations. Students should make every effort to adhere to each lender's stipulated repayment schedule in order to avoid the difficulties that accompany default. Students experiencing financial difficulties should notify their lender(s) of the situation. A defaulted loan normally will result in the denial of new applications for credit, as well as possible legal actions by the lender. In the future, the ability to secure a car loan or a mortgage may be very important. The extent of outstanding student loans and the disposition of a student’s credit history will have an impact on borrowing potential.

Estimating Future Income
Estimating future income is an important part of debt management, but unfortunately this can be difficult. While there are several reliable sources of information about starting salaries for recent law school graduates, the ability to attain a particular salary level can be affected by overall performance in law school, market conditions, and certain intangible factors. Nonetheless, being knowledgeable of the salaries that are available is an important starting point.

One source is the BLS Career Center, which compiles annual salary statistics about recent graduates. These statistics are also published in the Career Services section of the Law School’s Bulletin, which are received as part of the admissions materials. Another source is the Employment and Salary Survey published annually by the National Association for Law Placement, which will give similar information on a national level. A third source is the annual Lawyer Salary Survey that appears in the Student Lawyer, a publication of the American Bar Association’s Law Student Division.

After reviewing all of this data, estimates on a starting salary based upon the size of employer and practice area can be made. Students may also wish to speak with a Career Center Counselor about the factors that affect salary levels.

Estimating Expenses
Next, students should calculate expenses, which include income taxes as well as all living expenses for rent/mortgage, utilities, food, entertainment, clothing, medical care, insurance, and the like. The amount of taxes deducted from wages depends on several factors. The federal income tax liability may be determined by the use of a worksheet found in Publication 919, "Is My Withholding Correct?" issued by the Internal Revenue Service. State and local income taxes vary and must be determined by place of residence. The Social Security (FICA) tax deduction is 7.65 percent (for the first $51,300).

Once students have compiled the information needed, they may complete the Financial Aid Worksheet. After performing the calculations in the Worksheet, students will know their Monthly Disposable Income. This is the amount used to cover monthly student loan payments and other expenses.

Generally, the longer it takes to repay a loan, the lower the monthly payment. However, the longer the repayment period, the more interest that will ultimately be paid. Monthly payments for a $5,000 loan at 8 percent repaid over 5 years (60 months) would be approximately $101.35, but the same loan repaid over 10 years (120 months) would require monthly payments of approximately $60.65. However, over the 5-year term, $1,083 would be paid in interest, and over the 10-year term, approximately $2,280 would be paid in interest.

Estimating Affordable Debt
Law students often discover that there are considerable loan funds available to them and that there are no absolute limits as to the amount of indebtedness they can carry. As it is the student who will ultimately be the one responsible for repaying the loans, it is strongly recommended that they attempt to determine the amount they can comfortably borrow.

Estimates of tolerable annual debt burdens often approximate 15 percent of anticipated income after school. For instance, a student who expects to earn $40,000/yr. should not borrow more than $40,000 at 8 percent interest, for yearly repayments of $5,823 (15 percent of $40,000 = $6,000 per year repayment). Many financial advisors recommend that consumer borrowing of all kinds, including mortgage payments, not exceed 35 percent to 40 percent of total gross income.

Of course, such estimates are very general and may not apply to individual circumstances. Students will need to weigh their income, cost of living in their area, taxes, fixed and flexible expenses, marital status, and whether or not a spouse earns an additional income.

When trying to determine the amount of money a student can reasonably afford to borrow for education, he or she should carefully consider the amount truly necessary, the amount borrowed for prior education, and the total income the student can realistically expect to generate in the first few years following graduation. Then, the student should balance the total amount of monthly repayments against estimated future monthly income. Consider, as examples, the following two situations:

	Graduate A	Graduate B
Gross Monthly Income	$4,167	$3,333
Net Income (after taxes)	2,500	2,000
Less: Monthly expenses
Fixed Expenses	500	500
Living Expenses	1,200	1,200
Student Loans	700	350
Remainder:	$ 100	$ (50)

The above shows Graduate A can afford monthly loan payments of $700, while Graduate B cannot afford monthly payment $350 unless living expenses are reduced by $50 per month.

Students should try to make these estimates within the context of their own situation. In doing so, remember total annual loan payments will be lower in the first year following law school than in the second, because of the loan repayment grace period and the deferred payment of principal for some loans.