Federal Education Loan Relief and Forgiveness: An Important Resource for Law School Graduates is at Risk

By: Kim Bart, Assistant Dean for Public Interest & Pro Bono at Duke Law School, and Isaac Bowers, Associate Director for Law School Engagement & Advocacy at Equal Justice Works

Class of 2013 law school graduates who took out loans to fund their legal educations accumulated an average debt of $109,756 according to U.S. News & World Report data. In taking on that level of educational debt, many law school students were aware of, and perhaps counting on, long-established federal loan repayment and forgiveness programs. Some of the programs, however, may soon be constricted.

President Obama’s proposed budget, released in March 2014, includes a proposal to cap the level of federal loan forgiveness at the aggregate loan limit for independent undergraduate students, which is currently set at $57,500. This may leave graduate and professional students, including law students, out in the cold. Congress is likely to take the issue up next year as part of its ongoing reauthorization of the Higher Education Act.

Federal Loan Repayment and Forgiveness Programs
Federal loan repayment and forgiveness programs currently can help high debt borrowers in two main ways: (1) income-driven repayment plans set monthly student loan payments at an affordable percentage of borrowers’ incomes and allow cancellation of any remaining debt after 20 or 25 years; (2) Public Service Loan Forgiveness allows borrowers who commit to working in the public interest sector to earn forgiveness after 10 years of loan repayment. Only federal student loans are eligible for these federal programs.

The two most common income-driven repayment plan options are Income-Based Repayment (IBR) and Pay As You Earn (PAYE). IBR has been available to borrowers since 2009. It caps most borrowers’ monthly loan payments at 15% of discretionary income, with discharge of the loan balance after 25 years. Borrowers with no federal student loan balance who receive loans on or after July 1, 2014 have a monthly payment cap of 10% of discretionary income and discharge after 20 years.

PAYE, which has been available since 2012, also caps a borrower’s monthly loan payment at 10% of discretionary income and allows discharge of the loan balance after 20 years. To qualify for PAYE, borrowers must have received a loan on or after Oct. 1, 2007 and have had no outstanding federal student loans at the time they received it, and must receive a disbursement of a federal loan on or after Oct. 1, 2011.

Public Service Loan Forgiveness
Under the Public Service Loan Forgiveness (PSLF) program, the length of repayment is reduced from 20 or 25 years to just 10, in return for the borrower working in qualifying public interest employment. Qualifying employment includes work with federal, state, local or tribal government, or work with a 501(c)(3) nonprofit organization.

The prospect of loan forgiveness after 10 years of loan repayment has allowed many high debt recent law school graduates to consider public interest or public service employment, even though starting salaries for the public sector are significantly below those of the private sector. Median entry-level salary for public interest employment hover around $48,000, according to the 2014 NALP Public Sector and Public Interest Attorney Salary Report. This compares unfavorably with a median first-year salary of $125,000 for private firms. PSLF allows high debt law school graduates to realistically consider devoting themselves to long-term public service legal careers. A cap on Federal Loan Forgiveness would have a deleterious effect on the ability of law school grads to successfully manage law school debt, and remove an incentive for lawyers to choose lower-paying, but much-needed, public service work over private law firm employment.

Learn More
To learn more, join the Equal Justice Works free live webinar: “JDs in Debt: What Law Students & Lawyers Need to Know about Managing Student Loans & Earning Public Service Loan Forgiveness,” which will be offered on October 8th, November 25th and December 18th, 2014. To register, visit http://equaljusticeworks.org/ed-debt/webinars.