Unconscionable Debt

April 18th, 2013 / By Deborah J. Merritt

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.