Understanding Bar Exam Loans: How To Finance This Final Step

If you want to become a licensed attorney, it's necessary to take the bar exam, a test that requires extensive study time and often pricey study materials — not to mention the cost of applying to take the exam. Many law schools encourage students not to work while they are studying to ensure the best results. That's because exam pass rates can be low. On the July 2024 bar exam, the overall pass rate in Vermont was only 53%, according to the National Conference of Bar Examiners.

But for many, the combination of taking time off of work to study, alongside the costs involved with taking the exam, is not easy to swing financially. This is where a bar exam loan can come in handy, allowing you to take out money to help cover the cost of this necessary step toward working as an attorney.

What is a bar exam loan?

A bar exam loan, also referred to as a bar prep loan or a bar study loan, is a private loan intended to help cover costs associated with taking the bar exam. The purpose of the loan is to make financing the costs involved in taking the exam, which may entail time off of work and exam-related fees and expenses, more manageable for a student who has just completed law school. Qualifying is not dependent on financial need. Instead, it's based on your credit.

A bar exam loan may cover costs like:

• Living expenses incurred during the period spent studying for the exam
• Bar exam review courses and study materials
• Bar exam fees
• Other expenses not included in a school's cost of attendance

How bar exam loans differ from other student loans

There are key differences between bar exam loans and student loans you may have taken out to pay for college and the cost of law school.

Interest rates

Many students rely on federal student loans to fund their education, most of which don't require a credit check. Bar study loans are private loans, and eligibility is determined by your credit. It's necessary to have solid credit to qualify, and the most favorable rates and terms are reserved for those with the highest credit scores.

Still, bar exam loans tend to have higher interest rates and fees compared to federal loans. The interest rate for federal Direct Unsubsidized Loans for grad students in the 2024-25 year is 8.08%. In contrast, the interest rate for a private bar study loan from PNC Bank, for example, can range anywhere from 4.15% to 14.99% as of November 2024, depending on the loan term and whether the APR is fixed or variable.

Benefits and protections

Bar study loans don't have the federal protections and benefits that come with federal student loans, such as income-driven repayment and generous deferment and forbearance options. “Often, there are fewer options for repayment, and grace periods are short, which raises the possible financial weight should job searches last longer,” says Cynthia Hernandez, managing attorney for Cynthia Hernandez Law, based in Tampa, Florida.

It's also important to note that bar exam loans can't be included if you apply for loan consolidation or forgiveness for your federal student loans. And, “unlike standard student loans, they're hard to refinance,” says Alan Andrews, commercial finance specialist and marketing manager at KIS Finance, specializing in lending solutions and debt management.

Who is eligible for bar exam loans?

Bar exam loans are typically available to those who are close to finishing law school or have recently graduated and who are preparing to take the bar exam. Often, you can apply during your last year of study or within a certain period after graduation, with the exact length of that window varying depending on the specific lender. It's typically no later than six to 12 months after graduation.

Citizenship requirements will vary by lender, with some willing to work with international students if they apply with a cosigner or have a valid U.S. Social Security number. In some cases, having an existing account or membership with the lending institution is necessary, though this is not always the case.

Credit and financial history, such as your debt-to-income (DTI) ratio, are also taken into consideration when determining eligibility for a bar exam loan and, if approved, the rate and terms you will receive. While exact credit requirements will vary depending on the lender, generally good credit is necessary, which is a FICO score of 670 or higher.

Often, it's possible to apply with a cosigner who has strong credit, which can improve your odds of approval and help you get more favorable loan terms.

How to apply for a bar exam loan

Before you get to the application process, it's important to do some research and shop around to ensure you find the best bar study loan terms for you. Confirm a lender's requirements and assess your own financial standing, which can help you narrow your search.

“When comparing lenders, look for low or fixed interest rates, and consider the lender's reputation. It's essential to compare these elements alongside terms and potential fees,” says Hernandez. “Often, reputable financial analysts like myself advise evaluating multiple offers to ensure you're receiving the best possible rate custom to your financial circumstances.”

When you're ready to apply for a bar exam loan, you'll typically need to go through the following steps, though specifics may vary from lender to lender:

1. Gather necessary documentation: Before you begin the application for a bar exam loan, it's helpful to have necessary documents on hand. Often, you will need to provide proof of identity, such as a driver's license or passport, as well as proof of income and employment, which may include tax returns, bank account statements, or W-2s. If you plan on applying with a cosigner, make sure to have their information ready as well.
2. Submit your application: Follow the prompts to fill out the application, making sure to provide complete and accurate answers. A hard credit check will be conducted to confirm your credit.
3. Finalize your loan and terms: If you're approved, the lender may send your law school's financial aid office a request for school certification. You will also need to select your preferred repayment term and review and sign your final disclosure. After that's all complete, your loan funds will be disbursed directly to you.

Pros and cons of taking out a bar exam loan

Taking out a bar exam loan to help fund your study time can be a help, but there are downsides to consider, too.

The major upside of a bar exam loan is that it can help cover costly exam fees and study materials. You can also use the money to help pay for your cost of living, so you don't have to worry about bringing in income and can instead focus solely on preparing for this pivotal exam.

But because this is a loan, it involves taking on debt that you will need to repay, plus interest, and this may be debt you are adding on top of any law school loans you've previously taken out. Even if you have your sights set on a high-paying job as an attorney, remember there are no guarantees of your future earnings. Further, bar exam loans generally carry higher interest rates compared to student loans.

If you do decide to apply, remember that your eligibility, as well as the interest rate you receive, will depend on your credit. While including a cosigner in your application is certainly an option, remember that their credit will be on the line too if you fail to make payments down the road.

Current student loan rates

Alternatives to bar exam loans

A bar exam loan is not your only option for bridging the gap between law school graduation and passing the bar exam. Other options you may turn to for funding assistance include:

• Scholarships or grants: Instead of borrowing funds you'll have to repay, another way to finance costs associated with the bar exam is by applying for scholarships and grants, which are funds you won't have to repay in the future. Look into scholarships offered by your state bar association or by local bar associations, which may have a special interest requirement, such as fitting a certain demographic. Various foundations, companies, and organizations may also offer funding, which you can learn more about through scholarship databases like AccessLex.
• Employer-sponsored programs: If you already have an offer at a law firm contingent upon passing the bar exam, perhaps following a summer associateship, you may receive some form of funding from the firm toward your bar exam preparation. For instance, some law firms, typically larger ones, will pay for a bar exam review course. Firms may also cover bar exam registration fees and offer a salary advance to help cover living costs during the period of time spent studying.
• Savings: If you have funds stashed away, this may be a good time to tap into your savings. That way, you can avoid incurring interest and worrying about repayment as you would if you were to take out a loan.
• Other types of loans: If a loan is the best option for you, a bar exam loan is not your only option. For instance, some law schools offer low-interest loans or even loans with no interest for students to help them cover their expenses while they study for the bar exam. Contact your financial aid office to see if your school offers this funding.