Making a Plan
Taking the time now to consider what financial resources you will have available to pay for three years at Berkeley Law and making a plan about how you will spend those resources can help you to avoid borrowing more in student loans than you need.
The Berkeley Law Financial Aid Office holds information sessions during the fall semester on topics such as budgeting and managing your student loan debt to help you continue to develop your plan while attending law school. While these are not mandatory, they are highly encouraged.
Set short term and long term financial goals. What are you hoping to accomplish? Pay off student loans? Credit card bills? Buy a home or car? Make a list and set a priority level and deadline for each goal.
Planning ahead for law school and afterward means that you will be better prepared to balance your budget and pay your bills (and loans) once you are out in the professional world.
- Access Group’s WiseBorrower Tutorials are designed to help you understand the basics of personal finance and debt management;
- iGrad.com contains articles on Financial Literacy for College Students
- The Federal Reserve Bank of Dallas Building Wealth handbook covers budgeting, loans, credit, investing and saving, and insurance
Building a Portfolio
Something as simple as keeping thorough documentation on your income and lines of credit will help remove the barrier of uncertainty after graduation. The effort you put now into building a portfolio of your assets and liabilities will save you time when needing the information years later because it will not be as readily accessible then.
Save a copy of each of the following documents in a physical paper and/or electronic folder:
- The student budget found on our Fees page each year. This will provide you a record of the fees you paid. You can also use this to build your post-graduation budget. Food, housing, transportation, and other living expenses are itemized to give you an idea of average bay area costs.
- Your financial aid offers found in MyFinAid. This helps you track the exact amount of educational loans borrowed while at Berkeley Law. Print these each year rather than waiting until graduation should any errors occur in campus/federal tracking systems in the meantime.
- The National Student Loan Database System (NSLDS) report provides you with an overview of all your federal student loan details such as loan amounts, interest rates, accrued interest, the name of your lender and the loan servicing agency.
- The promissory note and other documentation for any private educational loans. Private loans are not listed on NSLDS and must be tracked separately.
- A copy of your income tax return for each year that you file. This is important for tracking annual income and any educational credits you claim.
- Your W-2, 1098-T, etc. for each year even if you did not file a tax return for that year.
- Your employment contracts and job descriptions for any summer jobs while you are a student as well as your jobs after graduation. This is particularly important if you are considering the IBR repayment plan for your federal loans or considering participating in the LRAP program.
These documents are helpful when completing income tax returns, determining how much to borrow in educational loans, participating in the federal government's loan repayment plans, not to mention building a repayment strategy. Including any car/home/credit loans in this portfolio will help with the budgeting process.
If you participate in LRAP, you will need to provide much of the documentation listed above as part of the LRAP's application process.
Take notes and track it all on mint.com, a free service that aggregates your assets and liabilities into an online portfolio.
Developing a personal budget for the years you spend as a law school student will help you keep your expenses low with the ultimate goal of graduating with the lowest debt burden possible. A comprehensive budget which includes a plan for while you are a student as well as a plan for after graduation will help you control your spending and reach your ultimate goal.
If you incur additional costs such as a computer purchase, uninsured medical bills, or relocation expenses within the current academic year, consider submitting a budget appeal to the Berkeley Law Financial Aid Office to increase your loan eligibility.
Creating and maintaining a spending plan for the first time might be confusing and labyrinthine. Make sure you keep all of your receipts, pay stubs, bills, and other payment records or maintain a daily log for future reference. It's easy to lose yourself in a false sense of security with relatively large starting balance, and then notice that toward the end of the month you have run out of your budgeted funds and must overspend. An easy way to avoid this mistake is to have a weekly spending plan (read an article about it here: http://www.moneyunder30.com/need-help-with-your-budget-try-a-weekly-budget)
List income and anticipated expenses like rent, utilities, food, transportation, etc. to determine whether your expenses exceed your income/other funding. If expenses exceed income:
- Look for discretionary spending which can be reduced (e.g. are there cheaper housing options?)
- You may have the option to increase your student budget and borrow educational loans to cover certain expenses
- Look for alternate funding sources such as working while in school, freelance jobs, etc.
There are a variety of budgeting tools available, ranging from free, simple calculators to software for purchase. You may want to start with a budget in paper form found here.
We provide a spreadsheet created for law school students to help compare weekly and monthly spending.
Some budget templates compatible with Microsoft Office can be found here.
Bank of America offers a free annual "College Budget Planer" calculator.
A free online budgeting tool is www.mint.com
There is more sophisticated budgeting software that you can buy:
Budgeting wisely and modestly allows you to borrow LESS in loans.
Because consumer debt generally has a high interest rate and monthly credit card payments are not factored into the student budgets used to award financial aid, we encourage you to pay off as much of this type of debt as possible before entering law school.
We also encourage you to obtain a copy of your credit report from the major credit bureaus. Reviewing your credit report each year is a good exercise even if you think you have good credit. Because some of your borrowing options may require credit worthiness, it is important for you to understand your credit score and take care of any credit errors you might find in these reports. You may obtain a free credit report from each credit bureau once per year. See annualcreditreport.com for details.
Credit scores, capacity (to pay), collateral, character, and condition (of borrower, lender, and the economy) will be the five things that the lenders will look for once you want to get a loan after graduation. This will help you obtain credit, which is essential for you to live as a healthy, tax-paying citizen of the economic world. The ideal debt-to-income ratio, given by monthly debt payments divided by monthly gross income, should be ideally less than 36%.
As with anything, there are bad debts and good debts. Good debts are the ones that improve one's life, like home loans and student loans. However, these can become bad debts if they accumulate over time and do not get paid. One egregious example is payday loans which have extremely high interest rates, making it difficult for the borrower to repay the loan entirely.
As for educational loans, it is important to note that high levels of borrowing will negatively impact one's credit score simply because it is a large amount of debt. Consistently making your loan payments on time will help your credit score.
A law school education is usually funded through student loans. Some of you may have not had a chance to learn about different types of loans. More information about types of loans can be found on our Loans page in a convenient chart. Detailed information on educational loans in general can be found at studentloanborrowerassistance.org.
1. Interest rate reductions are often more valuable than principal reductions.
2. Read the fine print carefully. All the important things to know about your loan – fees, interest rate, grace period, etc. – will be in the promissory note.
3. Hold up your end of the bargain.
4. Remember to set up auto debit of your monthly payment in the way the lender requires.
5. Make monthly payments on time. Otherwise, you risk defaulting on your loans.
Private Loan tips
1. Take out federal loans such as the Direct Subsidized/Unsubsidized and Grad PLUS loans first, since they tend to have lower interest rates.
2. Private student loans should supplement, not replace, federal student loans.
3. To get the best interest rate on a private student loan, apply with a credit-worthy co-signer.
4. Analyze and compare different private lenders for hidden costs (i.e. some may charge an insurance premium at the beginning of repayment period).
Loan payments can be anywhere up to $2800 per month depending on the type of loan, how much you owe and the repayment option you chose. It is important to establish a budget and determine how much money you will need to borrow in loans. Don’t borrow more than you need!
If you are having difficulty making monthly loan payments, student loan repayment can be postponed. In certain situations, such as re-enrollment in school, unemployment, or economic hardship, loans can qualify for deferment. This means that loan payments are temporarily suspended and interest does not accrue on subsidized loans. If you do not qualify for deferment but are experiencing financial hardship and difficulty making loan payments, you may qualify for forbearance. Unlike deferment, interest accrues on all loans during payment suspension.
- Department of Education's definitions on deferment and forbearance
- salliemae.com 10 Rules of Smart Credit Management
Berkeley Law Financial Aid Office regularly holds presentation about financial literacy and loan repayment at the law school. Students are highly encouraged to attend these sessions. We sometimes provide webcasts of these presentations on our Info Sessions page.