If you have accepted or are considering a postgraduate clerkship, you probably have questions about your loans — and we have some answers.
How will I manage my loan payments while I am in a clerkship?
Fortunately, there are several options available. During a temporary period of low income, such as during a clerkship, you can adjust your repayment plan or obtain temporary forbearance on your loans. This is how dozens of HLS graduates who enter clerkships each year manage their loan payments during the time they are earning a relatively low clerkship salary
The most important thing is to know your options, develop a plan, and talk to each of your lenders before you begin repayment. Waiting until your loans are in repayment and/or overdue will damage your credit rating and could lead to default, which is a serious legal problem, and you will lose some of the options described below if your loans go into default. Before you graduate, you will attend a required Exit Interview with HLS Student Financial Services to review the repayment requirements and repayment start dates of loans you borrowed while at HLS. You can also refer to our lender contact page for information on the lenders most used by HLS students. Don’t forget to contact the lenders for any undergraduate or other non-HLS education loans too.
Repayment plan options
If you wish to make payments on your loans but want to reduce your monthly payment to a more manageable amount, you can temporarily place your loans on one of the several extended repayment plans available for federal loans (Stafford, Perkins, and GradPLUS loans). The Federal Student Aid website has more information on the repayment plans available on federal loans, along with some useful loan repayment calculators.
By extending the repayment of your loans from 10 to 25 years, for example, you can reduce the monthly payment on $180,000 in federal loans from $2,075 to $1,275. Or, you can lower your monthly payment to about $610 (12% of gross income) on the Income Based Repayment plan at an income of $65,000, or a lower amount for lower incomes.
Remember that extending your repayment term should be considered a short-term option. Keeping your repayment on an extended term for more than a year or two will begin to significantly increase the overall repayment cost of your loan compared to repayment over the standard 10 year term. So if you put your loans on an extended repayment plan while you are in a clerkship, you should change back to a standard 10 year payment plan at the end of your clerkship or as soon thereafter as possible. You can switch from one federal loan repayment plan to another plan for which you qualify at any time you choose. You can also accelerate repayment on your loans in the future; there is no early repayment penalty on student loans.
If you are unemployed before or after your clerkship, you may qualify for an “economic hardship” deferment on your federal loans. If you qualify, this is favorable to the forbearance option discussed below because the federal government pays the interest on Subsidized Stafford Loans and Perkins Loans during a deferment. Interest on Unsubsidized Stafford Loans and Graduate PLUS loans accrues and is capitalized (added to the loan balance) during a deferment.
You should discuss both deferment and forbearance options with your lenders to be sure you understand your alternatives, and take advantage of economic hardship deferment if you qualify. You must reapply for a deferment periodically, typically every six months, if you wish to extend it. The Federal Direct Loan website has more information on economic hardship loan deferment.
If you obtain a forbearance, you will not be required to make payments for a fixed period of time. The main difference between a forbearance and an deferment is that during a forbearance, interest accrues and will be periodically capitalized on all loans, including subsidized loans.
You may qualify for forbearance by meeting defined income qualifications, or by requesting a “general” forbearance. During the period of forbearance, though you may not be required to make payments, you may choose to make interest only payments. Forbearance is generally granted for 6 months at a time, and up to 3 years total forbearance may be granted on federal loans. You must request forbearance by contacting each of your lenders prior to beginning repayment on your loans to complete the necessary application. You must reapply for a forbearance periodically, typically every six months, if you wish to extend it. The Federal Direct Loan website has more information on loan forbearance.
Remember that if you are unemployed, you may instead qualify for an economic hardship deferment, which may be preferable.
What about Harvard loans and private loans?
Harvard Loans offer deferment and forbearance terms similar to those available on federal loans. You should contact the Harvard University Student Loan Office directly (contact info here) for more information on these options, or visit the Student Loan Office website for forms and contact information.
Private lenders can establish deferment and forbearance terms that differ from those available for federal loans. Private student loans usually offer only forbearances, not deferments, in increments of 3 or 6 months, and may be subject to an overall limitation of one or two years. Some private student loans may charge a fee in addition to capitalizing accrued unpaid interest during a deferment. It is best to talk with each private lender individually to find out what options are available to you well before you are expected to begin repayment. Generally speaking, it is in the private lender’s best interest to work with you to help you manage your loan repayment.
What are the drawbacks to getting a deferment, forbearance, or changing repayment plans?
Getting a forbearance, deferment, or changing to an extended payment plan has no negative impact on your credit record. However, there are some costs to extending repayment through any of these options.
- You will typically lose any “borrower benefits” that were contingent on making a specific number of regular on-time payments beginning after graduation.
- The outstanding balance on your loans may increase during your deferral period unless your monthly payments cover all the interest that is accruing. Generally, at the start of your repayment period the monthly interest payment will be about 50% of the total monthly payment due on the standard 10-year repayment plan.
During forbearance (and, for unsubsidized loans, during deferment) interest will continue to accrue on your student loans and be capitalized (added to the loan balance) periodically, unless you make payments to cover the accruing interest. This means that the loan balance will grow larger. You can estimate the amount of interest that will accrue during a forbearance using this calculator at the Federal Direct Loans website (note requires login using USDOE PIN number). Bear in mind that if you accept a private sector law firm position following a clerkship, you may earn a signing bonus that could more than compensate for the amount of interest that will accrue on your loans.
Whether forbearance, deferment, or switching to an extended repayment plan is the best option is up to you, but the staff at Student Financial Services is glad to help you think through these alternatives. If you have questions, please contact us to set up an appointment at firstname.lastname@example.org.
Where can I get more information about these options?
If you have Federal Direct Loans, you can login to the Direct Loans website for specific information on your loans, repayment plans, deferment and forbearance options, and much more.
Finaid.org has an excellent overview of various loan repayment plans, and a good set of general tips for those encountering trouble repaying student loans.
The Student Financial Services lender contact page has information on other lenders, including the Harvard University Student Loan Office.
Will I be eligible to receive LIPP assistance during my clerkship?
Conditional LIPP assistance is available during a judicial clerkship under certain circumstances.