April 27, 2012
The Scary Side of Student Loan Debt
Three stories converge to tell us, yet again (and again and again and again, etc.) the problems of law school debt. The first, from the Minnesota Lawyer, collects facts from a variety of sources including this gem from the AP: more than $1 trillion student loan debt (not just that for law students) has surpassed the volumes of credit card and auto loan debt. The problem isn’t limited to lack of opportunity in the legal market. The economics would be ugly if that bubble burst. Would Congress bail out the banks again if there is a mass default on student loans?
The second story is from Bloomberg. It points out that according to the U.S. Bureau of Labor Statistics, law schools will graduate four times as many lawyers as there will be jobs for them. The average debt for graduates is $100,433. LSAT takers and law school applications are down (not exactly breaking news), but that doesn’t do anything about the mountain of debt now on the books.
The third article, from Forbes, argues against debt relief because it wouldn’t relieve the psychological burdens of not being successful as a student. The author, James Poulos, tells us that law school is hard, harder than college. Students with average grades may not be as competitive with their peers when it comes to landing those summer jobs or similar work that can help offset some of the debt. Alleviating the debt does not alleviate that feeling that something went wrong here. He didn’t blame his law school, which is a change from the current theme running through these kinds of stories. I understand where he is coming from, though I think others in similar circumstances wouldn’t turn down the relief. Soul-searching is valid whether one has a ton of school debt or not.
Hey, I know, let's open more law schools. I hear some local markets are under-served. [MG]
I think the most frightening aspect of student loans is the following scenario: Student graduates from law school with nearly $200,000 in student loans. Student successfully gets into the Income Based Repayment so that the loan payments are painful but manageable for the next 25 years (the duration of payments required). During this time, income remained low in comparison to the debt amount, meaning payments didn't even cover interest. So the principal grew during repayment. At the end of the 25 years, the entire remaining balance is forgiven by the government. Fantastic! NO!!! It's catastrophic because the amount forgiven is taxable income in the year it is forgiven. A person who couldn't pay off the loan in the first place is not going to be able in any reasonable world to pay the income tax on that huge amount. Now, THAT is what scares me about student loans.
Posted by: Michele | Apr 30, 2012 5:28:26 PM
I recall in the late 1980s when I was studying in Russia (then the USSR) that they had a system whereby university students, upon graduation, had to work 3 years in a state appointed position. Often these were public defender or prosecutor positions in remote areas. There was some ability to shuffle around between positions but not much. If a law graduate quit that first law job before the three years was up they had to pay back the cost of their education. We in the US cited this as indentured servitude--an example of the Soviet Union's terrible lack of freedom.
I can't help but think, when looking at U.S. student loan debt and job prospects for new graduates today, that some U.S. law graduates would think it a good deal to trade for that system if they had the opportunity.
Posted by: Marian Dent | Apr 30, 2012 12:40:55 AM
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Try to enroll in the loans Plan first.If your student loans qualify for Plan,only file bankruptcy if you have significant credit card and other debts that are dis chargeable in bankruptcy.
Posted by: MD Limon Hossain | Apr 29, 2012 4:46:14 AM