Bar study loans are private alternative loans through a bank or other lending agency. These loans are designed to assist students to cover costs of bar exam fees, bar review courses, travel to the location of the bar exam, and living expenses while studying for the bar exam.
Being private loans, each bar loan will have its own terms. Lenders will evaluate a student’s application based on the student’s credit rating and other criteria. Most if not all of these loans will have a variable interest rate with no cap on the interest amount; a limited number of years for repayment with few or no deferment or forbearance provisions; and no cancellation for death or disability. Bar loans may also have an origination fee which is deducted from the proceeds when a student receives a disbursement and/or a fee that is added to the loan balance at repayment. Bar loans are not federal loans nor are they federally guaranteed, which means that there are no special programs like income-based repayment or loan forgiveness, and few if any options for consolidation or interest-rate reductions.
Most lenders require a credit score of at least 650 to 700 to approve a student’s bar loan application. Lenders are generally more concerned about a student’s payment history than debt-to-income ratio as lenders are aware that most students are not working full time while in school. However, there are lenders that will not lend to students with total debt over certain limits.
Students who do not qualify for a bar loan on their own may be able to apply for funds with a co-signer. This will usually result in the student being charged the highest interest rate and fees at which the lender will still fund loans. Students who do qualify on their own might want to ask the lender if they could receive better terms (interest rates and fees) with a creditworthy co-signer.
Bar loans generally have a lifetime maximum limit of $10,000 to $15,000. Most lenders will not accept an application from a student who has already obtained a bar loan from another lender.
Some lenders will allow a student to borrow a loan but receive funds in up to four disbursements in order to meet the student’s needs without accruing interest on the undisbursed amounts of the loan. This saves the student money and gives the student the opportunity to delay, reduce or cancel later disbursements without penalty if those funds are not needed.
Students who need assistance with the costs of registering for the bar exam would be better to request a re-evaluation of their federal loans once they have documented the cost and the registration. Federal loans may be awarded for the first bar exam fees only. Generally the loan that the student receives is the Federal Graduate PLUS loan.
Just a note about interest rates—
A Bar or other private alternative student loan will almost universally carry a variable interest rate that is based on two parts: a standard index, such as Prime Rate or LIBOR (London Interbank Offered Rate), which are rates at which banks can borrow; plus a margin which allows the lender to make a profit. The standard indices are now at extremely low levels—LIBOR under .6 percent and Prime around 3.25%. Because these are so low and banks are much more risk-averse since 2008, interest rates are similar to those from 2008 or earlier – or between about 7.5 and 14%. This means the margins have increased significantly since 2008 when LIBOR was running around 4.5% to 5% and Prime was around 7-8%. Should Prime and LIBOR increase significantly, so will the interest rate on these student loans and there is no “cap” or limit on the interest rate or the monthly payment amount the bank charges based upon their formula. Thus, a student who signs a promissory note specifying an interest rate of LIBOR plus 7% may have a 7.5% interest rate now, but if LIBOR returns to pre-2008 rates, a student could easily have a 12% interest rate in a few years. It is important that students read all the terms and conditions on the promissory note before accepting funds from the lender as origination fees may still be charged on loans that are disbursed and then returned.
Detroit Mercy Law does not have a preferred lender list for Bar Loan lenders so students may want to do an internet search of banks and other lenders that provide these loans.