Moaning about massive student debt is a time-honored tradition among law school graduates.
Some members of the class of 2009 will have less to complain about, however. A new federal program intended to help borrowers manage their student debt goes into effect on July 1. The legislation — called the College Cost Reduction & Access Act — will cap monthly loan payments according to income and forgive student debt balances after designated periods of time. For attorneys, the main beneficiaries will be those who go on to have long-term public interest careers. But the program will also make loan payments more affordable for all attorneys with high debt loads and relatively low incomes.
“There are a lot of things that are making it tough for new graduates, with the tight job market and the deferrals,” said Heather Jarvis, a senior program manager at Equal Justice Works, an organization that encourages attorneys to undertake public interest law careers. “But there has never been a better time to graduate, as far as student loans.”
The program will benefit law students in two key ways. Most prominent is loan forgiveness for public interest workers. After a borrower makes payments for 10 years on government-backed student loans, the government will forgive the remaining loan balance for those who qualify. The program guarantees loan forgiveness not only to lawyers who serve the public interest but also to a wide array of public service workers including teachers, law enforcement officers and certain health care professionals.
The loan forgiveness provision is intended to make it more affordable for college graduates to pursue public interest careers, which often come with lower salaries than in the private sector. Even with the recession, first-year associates at many major law firms are paid as much as $160,000; public interest attorneys can expect starting salaries of about $41,000, according to a survey last year by the National Association for Law Placement.
The second aspect of the new federal program that will benefit law graduates is the income-based repayment option, in which monthly loan payments are capped according to the borrower’s annual income. Public interest attorneys must choose this repayment option to qualify for loan forgiveness, but graduates who don’t go into public interest also may choose to participate. Under income-based repayment, monthly student loan payments are capped at 15% of the borrower’s discretionary income. After the borrower makes qualifying payments for 25 years, the federal government will forgive any remaining loan debt.
There are several online calculators to help borrowers determine whether they qualify for the income-based repayment option. Most of those who do will have their student loan payments set at less than 10% of their annual income, according to The Institute for College Access & Success, a nonprofit group that seeks to make higher education more affordable. This option wouldn’t make sense for graduates who take jobs at large firms paying upwards of $100,000, Jarvis said, but it might be right for the sizable segment of law school graduates who don’t earn that kind of money.
“The reality is that most law graduates don’t take those jobs and earn those salaries,” she said. “A lot of people make $60,000 or $70,000 a year. At these salaries, they would qualify for the income-based repayment plan. Debt loads are getting so high that it’s typical for someone to graduate from law school with $100,000 or more in debt. If you were going to stretch out paying your debt anyway, [income-based repayment] is a good option to consider.”
Another benefit of the college cost reduction act is that the funding for its loan forgiveness provision is more reliable than similar state loan forgiveness programs geared toward teachers, health care workers and other specialty careers, said Haley Chitty, the director of communications at the National Association of Student Financial Aid Administrators (NASFFA). Legislators in cash-strapped states have begun looking to loan forgiveness programs for potential spending cuts, but the funding for the federal program will not be subject to the Congress’ annual appropriations process, Chitty said. When Congress passed the law in 2007, it decided to fund its programs by reducing the subsidies the federal government pays to private lenders in order to get them to loan money to college students. The money that in the past paid those lender subsidies will now pay for the federal loan assistance programs. Funding under the act is considered “nondiscretionary.”
“These benefits are very secure, as far as students being able to count on the funding,” Chitty said.
Although the new law will make student loan repayment more affordable for some law school graduates, financial aid administrators and advocates worry that the rules and qualifications are so complicated that borrowers may not get the information they need to decide whether the program will benefit them. “The program is complicated enough that it is difficult for students to understand on their own,” Jarvis said. “As of right now, hardly anyone has a clue about this legislation, and in my mind it’s the biggest thing to hit public service in a decade.”
Borrowers can take advantage of the federal government’s public service loan forgiveness only if they have the right type of job, the right type of loans and have made the right type of payments, so they need to know the rules, Jarvis said.
GETTING THE WORD OUT
Several organizations — including Equal Justice Works, NASFFA and The Institute for College Access & Success — have launched educational campaigns or Web sites to help students understand their loan-repayment options. Several law school administrators said they are trying to spread the word to students, but largely are relying on the expertise of outside organizations to help students understand the fine details of the program. Northeastern University School of Law — which is know for its strong public interest program — held two sessions during the past academic year to familiarize students with the program, said financial aid director Linda Schoendorf. But the coaching isn’t too detailed.
“We’re giving them basic information. We don’t go into the nitty-gritty,” Schoendorf said. “We’re referring them to the experts for that.”
Jennifer Marsh is the type of student who likely would benefit from the program. She graduated from the University of North Carolina School of Law in May and hopes to land a job in public interest law. She’s still vague about what, exactly, the federal program is offering, however. “We’ve been told that [the program] is starting, but I don’t know that we’ve received very much information about the details,” Marsh said.
Tam Ma, a 2L at the University of California, Berkeley School of Law and a member of the school’s financial aid committee, has noticed a similar lack of understanding on her campus.
“I don’t know that the information has really trickled out to students,” Ma said. “The students who are really interested in it are going out and doing their own research.”
Duke Law School held a workshop on the new federal program last semester and has been offering individual loan counseling for students, said Bill Hoye, associate dean of admissions and student affairs. Even though the new program will go into effect next month, Hoye and other law school administrators said that it’s difficult to predict how many of their graduates will participate. “We just don’t know right now,” Hoye said. “It’s so hard to predict because it’s a new program. We’re also seeing changes in the employment market, as far as the types of jobs people are taking.”
One factor to consider is that there are fewer associate positions at large firms; this may lead more recent law school graduates to take jobs that come with lower salaries, which in turn could lead more borrowers to sign up for the income-based repayment option. Utilization rates for the federal program won’t be available for months, since most recent graduates won’t start paying their loans until December or later.
Adding to the confusion is that the U.S. Department of Education, which oversees the program, hasn’t developed any official forms for borrowers to register for the public interest forgiveness option. Instead, borrowers must make sure that they have signed up for income-based repayment with their lenders and follow all the other necessary steps. “It’s been hard to promote the program because there isn’t really an application and the Department of Education hasn’t given us a lot of guidance,” Chitty said. The department did not respond to requests for comment on the program.
In addition to helping students and alumni explore their loan repayment options, the federal act is prompting some law schools to revisit their own loan assistance repayment programs for public interest attorneys. Jarvis has been encouraging law schools to redesign their own programs to work in conjunction with the new federal program and fill in its funding gaps. Schools might want to direct more of their financial support to earlier graduates, Jarvis said, because students who graduated before federal Grad PLUS loans became available in 2006 tend to have far more private loan debt. Private loans aren’t covered by the new law.
Northeastern and Duke are among the schools taking a look at their loan-repayment assistance programs, but neither has made any changes yet, administrators said.
Officials and students at Berkeley’s law school spent the past academic year adjusting the school’s assistance program in light of the new federal law, said Eric Biber, an assistant professor and member of the financial aid committee. The school can afford to be more generous with its own money because of the infusion of federal assistance.
Berkeley’s existing loan-repayment assistance program provides full loan coverage for public interest attorneys making $58,000 or less a year on up to $100,000 in student loans. The new rules eliminate the $100,000 loan cap and provide full coverage for public interest attorneys making $65,000 or less a year. Graduates must enroll in the federal income-based repayment option to qualify for the school’s updated program. “Our goal was to provide better coverage for our students in a way we could sustain in the long term,” Biber said.
Other schools may see the new federal assistance as an opportunity to cut spending on their loan-repayment assistance programs, Jarvis said. She did not know of any school that had taken that step, however.
Haeya Yim was among a group of public interest students at Brooklyn Law School who became concerned this year that their school’s local program might be scrapped once the federal assistance becomes available. “It was definitely a worry that the school would say, ‘Now you’re taken care of. We don’t have to do it,’ ” said Yim, who recently graduated and is looking for a public interest position.
However, Brooklyn Law School officials told the students that they remain committed to maintaining the school’s program, Yim said. She would like to see it modified to better supplement the federal aid, perhaps front-loading assistance payments for new graduates who are studying for the bar and purchasing work wardrobes. No changes have been announced yet.
The tough economy is having an impact on at least one law school’s ability to financially assist alumni in public interest jobs, however.
Budget pressures forced the University of North Carolina School of Law to cancel the launch of its loan-repayment assistance program this year, said Sylvia Novinsky, assistant dean for public service programs. The state government cut funding to the school, and the money that was earmarked for the program was part of that reduction. Still, the school hopes to revive the program next year.
“We’re all frustrated,” Novinsky said. “But this is a time when we don’t get to make those decisions. It’s hard.”
Contact Karen Sloan at email@example.com.
INCOME-BASED REPAYMENT SCENARIO
|Annual salary||$40,000 with 5% annual raise|
|Starting monthly payment under income-based repayment||$297|
|Monthly payment under standard 10-year repayment plan||$1,151|
|Amount of debt forgiven after 10 years in a public interest job||$115,959|
|Amount of debt forgiven after 25 years in a nonpublic interest job||$51,921|
|For more information on the new loan programs, visit www.equaljusticeworks.org and www.ibrinfo.org.|