Credit card debt is probably the worst type of debt that one can have. Since it cannot be included in our Student Cost of Attendance Budget, pay it off, if possible, before you enroll in law school. While students with good credit may borrow up to the Cost of Attendance, many students are able to supplement their borrowing with savings or income earned from work. Remember, even with attractive Stafford Loan interest rates, you will most likely pay back a minimum of 150% of what you borrowed – up to three times what you borrowed if you take 30 years to repay.
In the Office of Financial Aid, we are committed to helping students from all backgrounds and circumstances meet the costs of financing their legal education and understanding what is involved in the financial aid process while promoting positive financial habits. Financial assistance may be awarded in the form of scholarships, fellowships, research assistantships, federal loans, Federal Work-Study and private loans. Below are some suggested actions you can take to ease the financial transition to law school.
Build good financial habits. Learn to live on a budget. Develop your budget then borrow only what you need. Remember, if you live like a lawyer now, you may have to live like a student later.
Student costs of attendance are just that: STUDENT costs. While our budgets are set so that you do not have to eat Ramen Noodles and Mac and Cheese daily, they are set to a different lifestyle than that of a New Yorker earning $50,000 a year.
While you may simply construct a monthly worksheet showing income and expenses and adjust when expenses exceed income, you may want to look at some websites offering budgeting and planning information and calculators. Follow the links below for resources on creating and managing a student budget as well as exploring real world ideas for a successful budgeting plan.
Financial Aid Budget Calculator - FinAid's custom calculators can help you figure out how much school will cost, how much you need to save and how much aid you'll need.
Less is More: Smart Budgeting - This video presentation focuses on short-term financial planning.
Strategy: Make the Money Last - Tips on managing your Financial Aid Funds - These essential strategies on the Access Group web site outline steps for budgeting your refund check to last all semester.
The Ins and Outs of Budgeting - This primer in creating a personal budget is a key component of determining how much to borrow and how much debt is affordable after graduation.
WiseBorrower Curriculum Budget Series - "Budgeting Basics" and "In-school budgeting" are two more tutorials from the Access Group's site designed to strengthen your knowledge of these valuable topics.
Savings, earnings potential, parental (and other) offers of help should at least be reviewed before considering the short term ease of borrowing student loans.
Private Loans: Closing the Gap - This video presentation gives students an understanding of private loans including borrowing, how your credit affects your ability to borrow, how to choose a lender and tips on borrowing.
Private/Alternative Loans: Get Answers - This PDF document gives you the criteria you need to compare different lenders and products as you shop for a private education loan.
Students borrowing large sums of money to finance their education should consider buying some low cost life and disability insurance, especially those students borrowing private loans or using a co-signer for those loans. Unlike federal loans, private loans are not forgiven upon death or permanent disability – the co-signer is responsible for any outstanding balance.
Review your credit report now and maintain that good credit rating. Employers, especially financial employers, are beginning to review credit reports of applicants. Bar examiners are beginning to look at repayment of student loan debt as an ethical/disciplinary issue.
The links below are great resources on understanding credit.
AnnualCreditReport.com - This is a centralized service for consumers to request free annual credit reports. It was created by the three nationwide consumer credit reporting companies: Equifax, Experian and TransUnion. AnnualCreditReport.com is the only service authorized by these companies for this purpose. Please note that, as a security precaution, consumers should never provide their personal information to any other company or person in connection with requesting free annual credit reports under the FACT Act. AnnualCreditReport.com will not approach consumers via email, telemarketing or direct mail solicitations.
Managing Credit Cards - Planning to Prosper - This video and text presentation provides valuable information about credit cards and credit reports.
WiseBorrower Curriculum Credit Series - This Access Group web site provides you with tutorials on credit basics, credit reporting, credit scoring basics, maximize your credit score, good credit, credit cards, and credit repair.
Credit Education Center - This section of the myfico.com website provides information on credit scoring and credit reporting.
Understanding Credit Scoring - Learn about the five areas of credit scoring and what you can do to improve your credit score with this free booklet.
Credit Score Estimator - F.I.C.O. and bankrate.com jointly developed this credit score estimator. Your credit score range is estimated based on answers to ten questions about credit use and payment behavior.
Your credit report only (not your credit score) can be obtained once a year free of charge by residents of certain states (including New York) from the three credit bureaus Equifax, Experian and TransUnion.
National Foundation for Credit Counseling - NFCC, through its Consumer Credit Counseling Service member agencies, provides credit counseling, debt reduction services and education for financial wellness.
Follow the links below for resources on privacy rights and protecting yourself from identity theft.
National Resource for Identity Theft - This is the Federal Trade Commission's (FTC) home page for ID theft. Links include a course of action if your identity has been stolen, consumer information and ID theft statistics.
Take Charge: Fighting Back Against Identity Theft - The FTC has created this in-depth publication which covers all aspects of identity theft issues including your privacy rights, victim recourse, fraud, federal and state laws and the ID theft affidavit.
Misused - The Department of Education has created this website to help college students avoid credit card fraud and other forms of identity theft.
Privacy Rights Clearinghouse - Find out about this non-profit organization which fosters consumer education, research and advocacy for the enforcement of privacy rights.
Identity Theft Resource Center - This is a national non-profit organization which focuses exclusively on identity theft.
Visit the links below to learn the ins and outs of education-related tax benefits.
Parent and Student Guide to Federal Tax Benefits for Tuition and Fees - The National Association of Student Financial Aid Administrators (NASFAA) publishes the Parent and Student Guide to Federal Tax Benefits for Tuition and Fees to provide students, parents, counselors, and others with general guidance to federal education-related tax benefits. The Guide includes basic information about the federal Hope Scholarship tax credit, the Lifetime Learning tax credit, and the Tuition and Fees Tax Deduction. More detailed information is available from the IRS links included at the end of the Guide.
www.irs.gov - This site is the official online resource for all federal tax information. You'll find a powerful internal search engine as well as all the forms issued by the IRS.
The trend in the late 1990s has been to provide educational financing through tax breaks. Enrolled students and graduates should be particularly concerned with Employer Sponsored Tuition programs, Educational Expense Deduction (in lieu of the Lifetime Learning Credits) and the Student Loan Interest deduction.
IRS Publication 970, Tax Benefits for Higher Education is a great source for tax information regarding these programs. There have been several changes in 2001 as a result of the Tax Relief Act of 2001. This page serves as an introduction to the changes but should not be considered legal advice.
As of January 1, 2002, employers may provide tax free tuition benefits up to $5,250 for study leading to a graduate degree. Prior to this, only undergraduate benefits up to $5,250 or work related benefits were exempt from taxation. Benefits used to improve performance in a current position and not qualify for a new career are still tax exempt up to an unlimited dollar amount.
As of January 1, 2002, in lieu of the Lifetime Learning Credits, taxpayers with higher incomes can take deductions for some tuition expenses, and taxpayers with lower incomes can take higher deductions. If your 2004 or 2005 AGI does not exceed $65,000 ($130,000 in the case of a joint return) you may deduct $4,000 in educational expenses.
The Student Loan Interest Deduction allows you to deduct, for federal tax purposes, all student loan interest paid in any tax year. Federal and Private Educational, but not family or employer, loans are eligible. The deduction may be taken in any year in which student loan interest is paid. (There was formerly a 60 month limit.) The income limitation phase outs range from $50,000 to $65,000 for single filers and $105,000 to $135,000 for joint filers. At incomes below the range, all qualified interest is deductible.
For those who are planning their children's educations, there have been a number of improvements to the Section 529 plans and the Coverdell Education Savings Plan (formerly Education IRA). Withdrawals from 529 plans are not taxable, the contribution limits on the Coverdell Accounts have increased to $2,000 and Coverdell proceeds may be used for primary and secondary educational expenses.