Want to pay off your law school student loans faster? Why owning your practice is key

August 29, 2023

At a glance:

  • Deep in debt: Graduating with hundreds of thousands of dollars in student loans makes many lawyers think becoming a partner or owning a practice is out of reach.
  • A counterintuitive solution: Owning a practice can help lawyers pay off student loans even faster.
  • Your next big step: It isn’t an either/or situation— Aprio’s Professional Service Advisory team can help you achieve your goal of owning your own practice and paying off your debt at the same time. 

If starting your own practice from beneath a mountain of debt sounds daunting, partner with Aprio’s Professional Service Advisory team.

The full story:

Law school tuition, graduate degrees, specialty certifications, and other associated costs leave many future lawyers buried in thousands of dollars of debt by the time they graduate.

That kind of financial burden can be overwhelming, and the upward trend in both tuition and interest means that burden isn’t going to become more manageable anytime soon.

Many new lawyers decide to take what they see as the safest option and become associates in existing practices.

While it is true that taking an associate position is the best option for new graduates —there aren’t many better ways to gain experience, improve legal skills, and learn from mentors while drawing a steady base salary – it may not be the best choice in the long run.

Owning a legal practice is the fastest way to pay off student loans.

It probably sounds crazy, but taking on more debt might help you pay off your debt faster. How? A simple but counterintuitive idea: money makes money.

Most young lawyers barely have the money to make their loan payments, let alone get the cash together to start up a law firm.

That means they’d have to take out another sizable loan to start their own practice, and the thought of taking on even more debt is probably more than a little scary to most lawyers with outstanding student loan balances.

As frightening as that might be, try to think about it like this:

  • Lawyers who own their own practices have the potential to make a lot more money than those who work in associate positions.
  • Lawyers who make more money can afford to pay off all their debt even faster.
  • Many banks will lend to lawyers starting out their own practice if they have collateral to tie the loan to. Since many lawyers do not have collateral coming out of law school, there are companies that will do case financing instead.

Make a plan, then make a move.

New lawyers can still view practice ownership as a viable goal as long as banks remain confident in the continuing profitability of practice ownership in spite of rising student loan balances.

Lawyers who start planning early will find themselves in a much better position than those who leave it to chance.

There are companies out there that will do case financing. Although this will be a higher interest rate than a typical bank, it is a starting point. Once cash flows are established, the law firm can borrow funds from the bank at a lower interest rate.

Typically, the line of credit will be tied to accounts receivable.  

Running a business isn’t something most law schools focus heavily on, so partnering with a CPA is a great choice for anyone who wants to make sure their practice stays healthy and strong over the long run. 

Aprio’s Professional Service Advisory team is ready and able to provide the kind of guidance and expertise you need to establish your business goals and grow your practice. 

Not ready to own just yet? Consider these other strategies for paying down student loans.

  1. Consolidate your loans – this tried-and-true method can help effectively lower interest rates and make it easier to juggle multiple loan balances. This isn’t usually an option for borrowers with very high balances, however, so keep this in option in mind for the future.
  2. Talk to your lender – the suggested minimum payment isn’t usually enough to cover your loan’s interest and pay down the principal. Talking to your lender can be an invaluable way to gain insight into different payment plans, including how much to pay per month to shorten the repayment period. Focus on your highest interest loans first.
  3. Explore income-driven repayment (IDR) – IDR options may provide a more flexible approach to paying off federal loans. These options can present solutions in the form of monthly repayment schedules that factor in income, family size, and other variables, as well as providing an avenue for loan forgiveness.

The bottom line

Managing debt can be a daunting task, but it shouldn’t get in the way of achieving your goals as a lawyer.

As strange as it may sound, taking on more debt and starting or buying a practice may be the right move if you want to pay off your loans faster.

Additional Resources

Is your law firm prepared to comply with the SECURE 2.0 Act?

Professional Services CPA Advisory

If starting your own practice from beneath a mountain of debt sounds daunting, partner with Aprio’s Professional Service Advisory team and take the leap knowing you have a trusted advisor with deep industry experience to help you start and grow your practice. 

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About the Author

Chelsea Carr

As a senior tax manager, Chelsea leverages her deep understanding of business and individual tax matters and eight years of experience working with people from all walks of life to deliver the kind of comprehensive tax planning and consulting services that Aprio’s clients deserve. She specializes in providing individual income tax planning as well as business tax planning and consulting services to members of the legal, medical, engineering, and other fields in the professional services industry.