Forever In Your (Law School) Debt

DebtThe year I graduated from college, I went home to Trinidad and Tobago. I had decided to go to law school the year prior so it really was a time off year for me, reconnecting with my family and friends. It was great – I worked as a journalist for most of the year, then at both of my parents’ construction companies for the remainder of my time. During my stint at my mother’s company, I mentioned to the company accountant that I was going to be attending law school. She said congratulations and when she heard it would be in the United States, asked me how much it would cost. I told her nonchalantly, “Around $100,000.” She looked at me as if I were crazy. “$100,000?” she asked, unbelievingly. Then she did some quick calculations in her head. “You’re going to take out over a half-million Trinidad dollars to go to school?!” And like the naive 22-year old I was, I shrugged and answered, “Yeah.”

“I am forever in your debt.” Once an expression of gratitude, that saying is more recently uttered to government or private lenders every year by thousands of law school graduates who now leave school with an average debt of over $100,000 (and approaching $200,000 when including undergraduate and bar-preparation debt). Overcoming this mountain of debt is becoming an increasingly difficult task, as the overall employment rate for law school graduates fell for the sixth consecutive year, to 84.5%. Only 64.4% of those finding jobs are making their way in jobs requiring bar passage. As NALP executive director James Leipold wrote in the organization’s 2013 employment report,

“[T]he traditional market for large numbers of law graduates by large law firms seeking equity-track new associates is not likely to ever return to what it was in 2006 or 2007, and thus aggregate earning opportunities for the class as a whole are not likely to return to what they were before the recession.”

Undergraduates across the country are coming to the same conclusion. Rather than pay high tuition for law school (average annual tuition in 2013 was $23,879 for in-state and $36,859 for out-of-state public school students, $41,984 for private school students), many are eschewing law school altogether. Law school applications are down 8% this year and 37% since 2010. The 2014 entering class is expected to consist of 38,000 students, the smallest class since 1974.

Illinois law students are no strangers to law school debt. Chicago-based law school’s indebted students leave with an average of more than $110,000 in debt, with Northwestern University and University of Chicago graduates leaving with the fifth- and seventh-most debt of any law school in the country. (Of course, University of Chicago and Northwestern University reward graduates with the third- and eleventh-highest average starting salaries in the nation, respectively, at $132,000 and $98,000.)

Law firms have been affected too. The ISBA Special Committee on the Impact of Law School Debt on the Delivery of Legal Services attributed each of the following to the increased debt loads for recent graduates: higher turnover rates at small firms, young lawyers avoiding public interest positions, young lawyers failing to provide affordable services to the poor and middle class, new graduates opening under-financed solo practices, fewer pro bono hours worked and fewer young attorneys in rural areas.

Nonetheless, positive signs have sprouted up across the country. The NALP Report shows that large firm jobs have increased and the median starting salary for employed graduates rose from $61,245 in 2012 to $62,467 last year. The average starting salary at law firms jumped six percent to $95,000.

While those numbers will help students pay off loans, Brooklyn Law School and Penn State University’s Dickson School of Law have made steps to limit the need for loans. Brooklyn cut its tuition by 15% to $45,850, which will save its students roughly $25,000 over the course of earning their degrees. Penn State nearly halved its tuition for new in-state students through its “Commonwealth Scholars”program. The move, made in response to faltering enrollment, should save eligible students $60,000 over three years. Should enrollment continue to stumble or remain stagnant, other schools may follow suit.

Though things may be looking up in some respects, many more steps need to be made. Two key suggestions from folks far more well-versed on the debt crisis than I:

Federal Loans and Repayment

As the situation stands, students’ loans from private lenders are guaranteed by the federal government; but in the recession’s wake a monumental shift began toward the federal government issuing loans. Because the federal government has taken such an active role in the process, the public has the right to expect the federal government to play a major role in solving the debt problem.

One solution, suggested both by the ISBA Law School Debt Committee and Washington University in St. Louis law professor Brian Tamanaha, would be to cap federal loans. This could be approached in one of two ways: (1) The amount that any individual student could receive could be capped, so that law schools could set tuition with this amount in mind, or (2) the total amount that a law school’s students may receive could be capped in order to limit both tuition and enrollment. The second cap could be a function of a law school’s graduate’s efficiency in discharging debt.

Tamanaha has insisted that either option must be accompanied by the removal of the guarantee on private loans and the inability to discharge student loan debt in bankruptcy, thus forcing banks to stop indiscriminately handing student loans out.

But where does this leave those looking to repay the loans that they’ve already taken? President Obama, who finished paying off his own law school debt only 10 years ago, signed an executive order in June 2014 that will cap student loan repayments at 10% of monthly income beginning in December 2015. Republicans have criticized this change to income-based repayment (IBR), arguing that it does little to ease the burden of student loans.

IBR is enticing to law students looking for public service positions because their debt will be forgiven after only 10 years. However, the ISBA Law School Debt Committee found that most leave for the private sector after a few years because public service salaries are too low to cover their debt as interest continues to accrue. For those who aren’t interested in public service positions but suffer financial hardship, IBR allows debt forgiveness after 25 years; however, they will be taxed on all debt that is forgiven. Graduates may think twice before enrolling in IBR knowing that a potential payment of tens of thousands of dollars in taxes is looming.

Lowering the Cost of Education Across the Board

Obviously, the majority of student debt comes from tuition itself, which can be cut by various means, including the ABA making changes to tenure requirements. But the cost of a legal education is not limited to three years of tuition. Students pay thousands of dollars for bar preparation courses, sitting for the bar exam, etc. With that in mind, the ISBA Law School Debt Committee proposed that law schools teach a “free” bar review course for their graduates. The Committee also suggested that the Illinois Supreme Court reduce the cost of becoming licensed by allowing prepared third-year law students to sit for the bar exam in February, saving students time and money in preparation during the summer when they could be working instead. They also proposed that bar associations provide debt counseling as well as free and lower-cost CLE opportunities.

A fourth idea, under contentious discussion, is the ABA Standards Review Committee’s recommendation to allow students to earn both class credit and money from externships, a change that would have reduced the need for loans, though not directly lowering the cost of education. Law students have argued that the currently “patently unfair” pay ban imposes a “financially disastrous” hardship. A proposed change is still being debated.

Education debt will continue to be an ongoing issue for this generation and the next. Like many changes that require legislative initiative, change will be slow-paced and incremental. So who should take the lead on tuition change? Bar associations? Law schools? Legislators? The courts? Maybe there’s a group of high schoolers or undergraduates out there interested in law school who can form a lobbying group and push for change. Until then, 22-year old college graduates will continue to vote with their feet and make the choice not to take on half-a-million Trinidad dollars of law school debt.

John Edwards, our intern from Loyola University Chicago School of Law, contributed to this post.

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Michelle Silverthorn

Michelle Silverthorn

After spending seventeen years living in the Caribbean, Michelle undertook a number of around-the-world detours before ending up at the doorstep of the Commission, including four years as a general litigator in New York and Chicago. She remembers pretty much everyone she’s met in her travels but she would especially like to meet again the passengers on a January 2001 flight from Miami to JFK. At the pilot’s request, they donated enough money for Michelle, who had her wallet stolen, to get back to college safely. She would very much like to tell them all thanks.
Michelle Silverthorn

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