Law School Loan Forgiveness and Cancellation
Many people enter law school with a deep commitment to ensuring access to justice and the courts for all persons. Yet, upon graduation, they find that they must forego their laudable aspirations in public interest in light of the significant legal education debt required to graduate. Studies show that most graduates of law school have a combined debt from undergraduate and graduate studies in excess of $80,000, or loan payments of more than $1,100 a month. Only those students with debt burdens half that size tend to enter public interest positions, where the median starting salary is $36,000, which does not include regular raises, health care, retirement savings or other such benefits. Not surprisingly, a recent study found that law school debt prevented 66% of student respondents from entering public interest positions. According to legal service providers, many new lawyers are unable remain in such positions for more than a couple of years, adversely affecting the professionalism and expertise their offices are able to deliver.
Student Loan Consolidation is one option but does not reduce the overall debt load. To assist people committed to public interest work, state and federal governments have established a few limited loan cancellation or forgiveness programs. While these would be of great assistance to appropriate lawyers or legal service providers, lawyers are not currently eligible to participate in the majority of such programs. Many members of Congress oppose including lawyers in these programs because they believe loan forgiveness should be targeted only to persons entering traditionally low paying occupations, occupations that have severe shortages, or occupations related to a national need. They suggest lawyers should work in a large firm for several years to pay back their loans on an expedited basis if they wish to pursue a public interest career subsequently. However, this view not only discounts the value of this work and the law graduate's commitment to the issues, but it ignores the highly-competitive market for such high paying positions even for those who might be inclined to pursue the option.
In 2001, to study the issue in-depth, the American Bar Association formed the Commission on Loan Forgiveness and Repayment Assistance. Two years later, the Commission issued a report including steps that government and law school officials could take to address the situation. A complete copy of the report and its recommendations can be found here. Following the introduction of a dozen bills in the 108th Congress that would have benefited lawyers in public service positions, none were approved. The bills included various proposals supported by the ABA Commission report, including straight loan forgiveness programs, favorable tax treatment for student loan payments, as well as proposed amendment the "income contingent repayment option" of the Federal Direct Student Loan Program to accelerate forgiveness under that program for those in public service positions.
Status
On February 14, 2005, Sen. Kennedy (D MA) introduced S.371 that would make various amendments to the Higher Education Act, including amendment of the Income Contingent Repayment Option to benefit public interest lawyers and others. The bill would provide forgiveness after 10 years, following 120 consecutive payments by graduates in qualifying jobs. On March 15, 2005, Rep. Andrews (D NJ) introduced HR1293 that proposes various amendments to the Higher Education Act including a change to the Income Contingent Repayment Option that would provide forgiveness after 15 years for eight years service in qualifying public interest positions. Congressman Andrews also introduced HR1753, a bill to provide direct relief to public interest lawyers; and HR2527 to give public interest lawyers an extended deferment before their obligation to pay on their appropriate loans comes due following graduation. However, no provision for lawyer student loan relief was included in the House bill to reauthorize the Higher Education Act (HR609), the primary vehicle for such legislation. HR609 was ultimately incorporated into the House Budget bill HR4241 where it went on to approval in the House 217-215. In the Senate, Senator Kennedy's ICR proposal was included in a bipartisan Senate bill to reauthorize the Higher Education Act, S1614. That bill was subsequently added to the Senate budget reconciliation bill, S1932, on October 27, 2005 where it passed the Senate 52-43 and a congressional conference to resolve differences between these bills including HEA is pending.
The American Bar Association also supports other legislation to benefit lawyers seeking loan forgiveness including HR 198 by Rep. David Scott (D GA) to provide loan forgiveness for prosecutors and public defenders as would S.2032 by Sen. Richard Durbin (D-IL). And Senator Mike DeWine (R-OH) introduced S.1431 to provide loan
ABA Policy
The ABA urges law schools, state and local bar associations, and federal and state lawmakers to establish Loan Assistance Repayment, Loan Forgiveness, and Income-Sharing Programs for law school graduates accepting low-paying, legal, public interest employment.
Certain changes should also be made to the Federal student loan program to help alleviate the debt burden for law students. The ABA supports an increase to at least $30,000 in the amount of unsubsidized Stafford loans that a graduate or professional student may borrow annually. The ABA also strongly supports improvements to the income-contingent repayment option of the William D. Ford Federal Direct Loan Program. Congress should provide forgiveness after 15 years for those who have spent a specified number of years in full-time public service. It should also eliminate or reduce the program's marriage penalty.
The ABA also supports amending the Internal Revenue Code to permit employers to provide a benefit for their employees to repay qualifying educational loans with pre-tax dollars.
Key Points
- It is a worthy pursuit to lower the financial barriers presented to these graduates who desire to ensure rights and justice for those less fortunate in our society.
- Students who borrow for law school are graduating with an average educational debt between $70,000 and $80,000 with monthly payments averaging $1,100. The median public interest legal salary is approximately $36,000, which often does not include regular raises, health care, retirement savings or other such benefits. Clearly, the average law school graduate carrying a typical educational debt will face tremendous financial burdens upon entering the comparatively lower paying field of public interest law.
- This disparity between public interest and government salaries and the tremendous debt burden faced by a majority of law school graduates effectively precludes many young lawyers from pursuing a career in public service.
- The need for legal services attorneys in America has never been greater, over 80% of the civil legal needs of the poor are not being met.
- The federal government's loan forgiveness programs are severely limited in scope and impact. Despite the great need for legal services providers, lawyers are not eligible to participate in most of the current federal government loan forgiveness programs.
- The current $18,500 cap on Stafford loans for graduate and professional students is insufficient. This amount, set by Congress in 1992, has not been adjusted for over ten years and doesn't reflect rises in inflation or tuition rates since that time. For many students, the capped amount of $18,500 does not even cover the annual cost of tuition, much less for living expenses and incidentals. Therefore, students must also borrow from private lenders, at much higher interest rates, to cover the cost of their education.
- The 25 year repayment term currently in effect for the income contingent repayment option under the Federal Direct Loan Consolidation Program discourages graduates from electing this option, as does the option's built-in marriage penalty. Congress should change the law to eliminate the marriage penalty and allow forgiveness of a borrower's remaining debt after 15 years of repayment, rather than 25, once a specified number of years have been spent in full-time public service during the repayment period.
