Unconscionable Debt

April 18th, 2013 / By

Third-year students with federal loans are completing their mandatory exit counseling. That online program shows students how much they have borrowed to finance their education, their current debt (with interest), estimated monthly payments, and other information designed to help them manage their loans. Some students have shown me their print-outs, and the numbers are shocking.

Here is just one example: A single, unmarried student attended a flagship public law school with the median scholarship offered by that school. He had no family support or other assets, so he borrowed to finance his discounted tuition and living expenses. He worked throughout his second and third years of law school, but was only able to obtain low-paid faculty research positions and unpaid internships. Over his three years of law school, he borrowed $123,865.

That amount, I predict, will be common among students graduating from public law schools this spring. It may not yet represent the average at public schools, but I estimate that at least a third of current 3Ls at public schools have borrowed $120,000 or more to finance law school. The average amount borrowed by private school graduates, of course, is already over $124,000. If you doubt these figures and you teach at a law school, you can ask your financial aid office how many of your graduating students have borrowed more than $120,000 to attend law school. The figure will be less than a third at some state schools with very low tuition, but it will be higher than a third at other public schools and most private ones.

But the amount borrowed is just the beginning. What does it mean to borrow $123,865 to finance law school? First, according to the federal counseling program, it means that you currently owe $133,869. About $10,000 of interest has accumulated just during law school. That debt level also means that you are continuing to accrue about $21 of interest a day. Since you’re unlikely to pay down any of your debt before completing the bar exam, another $2,184 of interest will accrue between now and then.

Exit counseling also advises that, if you attempt to repay this loan on the standard ten-year plan, you will owe $1,579 per month. And here’s the kicker: The government program counsels that, using guidelines published by the Consumer Financial Protection Bureau, this student should find a job with a minimum gross income of $236,850 to support those loan repayments! Even the students who obtain those BigLaw jobs won’t gross that amount.

I know (and this student knows) that you can get by on less money than the consumer guidelines suggest. He also knows that there are repayment plans like Income Based Repayment and Pay As You Earn that will tie his loan repayments to his salary. But the numbers generated by this debt counseling program illustrate how outlandish law school debt has become.

Remember that we’re talking here about a scholarship student at a public law school, one who paid about $22,750 per year for tuition and $18,250 (a bit over 150% of the federal poverty level) a year for living expenses. If a student like that needs $236,850 in gross income–or even $100,000 in gross income–to pay off his debt, then law schools are enrolling students in a clear financial trap. We know that incomes like that aren’t available for the vast majority of our graduates. The median pay for all lawyers, including those who have worked 40 or more years, is $112,760 per year. How many lawyers reach that pay level within their first ten or twenty years after graduation, when they are repaying student loans?

How can we possibly maintain access to the legal profession at these prices? How can we provide justice for clients? How can we in good faith enroll students in programs that will leave them financially strapped for years–or dependent upon taxpayer goodwill for reduced payment programs? How can we, as scholars who value public policy, impose those costs on the public?

We can’t. There are four steps that we, as law schools, should pursue aggressively to address this unconscionable situation: (1) Dramatically lower tuition, whatever that takes. (2) Restructure law school so that students can work close to full-time while completing their studies; there’s no other way to cover post-college living expenses for adults who choose not to live with their parents (or don’t have that option). (3) Publicize very clearly how much graduates will earn from average jobs after making average loan payments. (4) Lobby Congress to guarantee reduced payment plans like IBR and PAYE for loans that have already been disbursed, but to repeal those programs for professional students going forward. Those programs were never designed for professional students, and they are coninuing to inflate the cost of professional education. As a policy matter, the money would be better spent on almost any other line in the federal budget.

Meanwhile, the students I’ve talked to can’t spend too much time worrying about their debt: they’re still looking for jobs.

  • Mathwhiz

    Can you show your work on how you arrived at the figure of $236,000 as the minimum necessary to pay back $133,869 (i.e. $1579 per month)? My back of the envelope math says a person making $236,000 would gross $19,975 per month, and if they pay perhaps 40% in taxes that would net them about $12,000 per month. I would think with that kind of net income you could live comfortably on $6000 per month, and put $6000 per month into your student loans, and pay them off in a little over 2 years.

  • geek49203

    Unless someone changed the rules, the article misses some key points.

    First, most new grads can’t pay their loans for a while. So, we “defer” the payments — and essentially, the payments are added to amount we owe (“capitalized”). So if you owe $1000 a month, and defer 2 years’ worth, you’re gonna owe about $20-24k more.

    Worse yet, it is not uncommon for people to default on their loans. The penalty for default is substantial. In my case, the net of the deferred payments and the default fee was about 50% of the original amount. So, in this case, the $120k loans would turn into $180k.

    I found out the hard way (I made all of the mistakes) that if I consolidate once, that I can’t consolidate again. I consolidated to move 8 payments into 1, and later when I needed to consolidate to get a longer deferment (or to refi after I defaulted) I was unable to do so.

    So the situation will be far worse than what is said in this. You can’t bankrupt your way out of this, and debts owed will result in a suspended law license, not to mention seizure of all tax refunds, etc. Oh, and the student loan collections people who came after me made the IRS look downright compassionate.

  • Jack Graves

    I fully agree with numbers (1) and (3). The pursuit of number (4) is also a worthy endeavor, except to the extent that it far too often distracts us from, or gives us an excuse to avoid, number (1). I am more conflicted about number (2), as I think we need to shorten the time it takes to complete law school, while improving educational outcomes in the process. I fear that greater outside employment may conflict with these objectives, unless of course employment is an integral part of law school practice pedagogy (which could either generate direct student revenue or law school revenue, allowing for further tuition reduction).

    Again, though, numbers (1) and (3) are the key to this problem, and the vast majority of law faculty members are proving remarkably resistant to at least the first.

  • Marquis Canaday

    This is one main reason why I won’t touch law school. I am not worried about the LSAT. I am more worried about the price of admission!

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