Legal Education
ABA Lobbies for Student Loan Relief for Unemployed Attorneys
Posted Nov 11, 2009 1:41 PM CST
By Martha Neil
The American Bar Association is lobbying Congress and the Obama administration, seeking student loan debt relief for struggling law graduates.
A number of graduates haven't yet found work and would benefit from having their private educational debt converted to government loans, according to a new ABA Commission on the Impact of the Economic Crisis on the Profession and Legal Needs. By converting to a government loan, if the law and/or regulations were changed to allow this, a graduate could defer the debt for up to three years while unemployed, reports the National Law Journal.
"This is really intended to give them some breathing room," says ABA President Carolyn Lamm.
On average, according to the ABA, public law school graduates have nearly $60,000 in educational debt. For those who attended private law school, that total tops $90,000.
Also see:
ABA Journal (President's Message): "Leadership When It’s Needed Most: ABA programs and initiatives help lawyers help themselves and others"
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Comments
JLawyer
Nov 11, 2009 2:00 PM CST
Is there a realistic chance that Congress and the President might heed this call??? I hope so…
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associate
Nov 11, 2009 2:16 PM CST
Man I hope not. My taxes are bad enough, there are too many of us, and the federal govn’t is bankrupt. Subsidizing law school (moreso than just by issuing loans in the first place) is the last thing we need as a country.
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JLawyer
Nov 11, 2009 2:22 PM CST
#2… valid point. However, the government would still be getting repaid for the loans with interest. I don’t really see how this will add a significant cost to the government. In fact, if they are getting paid back with interest that would be making money. This is especially true if the interest rates offered are similar to those offered at the private rate. In short, there really are not any new cost since a loan program already exists and overhead costs are already in place.
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associate
Nov 11, 2009 3:06 PM CST
I hear you. But isn’t this similar to Fannie Mae and Freddie Mac? That hasn’t worked out so well for us. Why would an entity take on additional risk without the prosepect of a reward? Common sense should apply to govn’t finances as well (I realize that it doesn’t, but it still should.).
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Liz
Nov 11, 2009 3:10 PM CST
Most private loans are made available through a program called FFEL. The government puts up the funds, and guarantees the loans (in a different way from the direct guarantee of government loans, but still a guarantee).
The bank then lends your tax dollars to students, charges interest, and keeps the profit.
The government also pays in the event of default. With the employment picture so grim, this means we’ll be spending a LOT of taxpayer money on defaults, unless there’s some sort of fix fast.
Did you really think the banks were loaning BANK funds to unemployed students? Um, no. It was tax dollars. Government should NEVER bear the risk for private lenders. And if we’re going to pay for loan programs, we need to collect the interest for ourselves.
Do you get it? We were already making the loans, we just weren’t collecting the profit? And we were on the hook for all the defaults, which are about to explode.
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Liz
Nov 11, 2009 3:11 PM CST
FFEL is similar to Fannie and Freddie. This is similar to, well, direct student lending, which is a small money maker for the government.
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Liz
Nov 11, 2009 3:42 PM CST
Oh, come on.
For months the tea baggers have complained that we’re spending too much government money, and the law students have (rightly, I feel) ripped on the ABA for not looking out for younger attorneys.
The ABA finally does something that could legitimately fix both serious problems, at once. No one has anything to say? How about, “Yay!” And, of course, “Please don’t mess this up, dear Congress.”
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B. McLeod
Nov 11, 2009 4:21 PM CST
Indeed, after harping about this issue for months, Liz (but not until her third post on the article) finally gets around to a small hat tip for the ABA. It must have been very hard to work up to that.
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Liz
Nov 11, 2009 4:32 PM CST
You’re just being mean for no purpose. I don’t think three excited posts is a “small hat tip.”
This actually could fix a budget line where the feds were hemorrhaging money. That’s apparently of no interest to the conservatives who are always on this board?
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B. McLeod
Nov 11, 2009 4:52 PM CST
The “conservatives”? Now, are they the same or different that the dirty, rotten, older lawyers in the ABA who have ruined the world for our debt-ridden junior colleagues? (Until, apparently, finally relenting).
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Liz
Nov 11, 2009 5:04 PM CST
Just pass this, ok :-) It’s definitely the smart move. If you wait, the feds will have to pay the defaults anyway.
Besides, much as you hate to admit it, you need us. The economy needs new lawyers to get out there and buy stuff. And older lawyers need broke, untrained new lawyers to stop flooding the field with competition and devaluing legal advice.
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J
Nov 11, 2009 6:27 PM CST
#4 Fannie and Freddie went down because of foreclosures and bankruptcy debt that can be discharged. Student loan debt can’t be discharged as easily. It’s the best type of debt to buy because there is no escape.
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esa
Nov 11, 2009 10:08 PM CST
Easy money is sucking people into law school and causing an oversupply. So the solution is to have the tax payers buy the loans so the debtors don’t have to repay them for three years. Credit bubbles resulted in too many houses, condos, cars, department stores and lawyers. What’s the solution now that the bubble has burst? Reinflate the credit bubble. Brilliant.
How about this for a solution. Convert every tier 2 through tier 4 law school located on a campus with a medical school into an expansion of the medical school. Any unemployed lawyer can defer their law school debt for four years if they go to med school. After they graduate medical school the law school debt is written off.
It solves everything. We take lawyers off the street. We stop producing so many new lawyers. We get doctors instead. There is a shortage of doctors that is growing worse since 50 million people are about to get insurance for the first time. It will even solve the malpractice problem since there won’t be enough lawyers to waste time on piddling malpractice claims.
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studentloaner
Nov 12, 2009 3:43 AM CST
I think the plan could actually be beneficial for the government. The federal government is already on the hook for the loans if the borrower defaults. Even if the private bank keeps the loan, and the borrower defaults, the taxpayer is stuck with the bill. I think giving the borrower some slack right now might help them eventually repay the loan. The government will still receive interest during the deferment period and they may be able to offset the cost of some of the defaults, which they will have to pay in either case. I think the program should also include a future cap on loan guarantee amounts. In my opinion, that is the only way to keep down the cost of law school tuition. If potential law students can no longer find $50,000 a year to pay for a T4 school, some diploma mills will eventually go away. I think if the ABA also agrees to adopt higher standards for accrediting law schools the proposal will be more attractive to congress. The ABA needs to show that there is some solution and that the taxpayers will not continue to subsidize this problem.
I wonder how this will work with the new IBR program. If the government buys the loan from a private bank, will that amount also be forgiven after 10-years of public service? If so, I think the proposal will face more opposition in congress. I am glad to see the ABA take this step on behalf of its younger members. Maybe a public service campaign informing college students of the situation of its younger members would also be helpful.
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PubIntLawyer
Nov 12, 2009 8:42 AM CST
Shhh…..
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T
Nov 12, 2009 9:08 AM CST
This program is a great idea, but should be extended to public service and public interest attorneys. Sure, I probably made a bad decision borrowing $150K (which ballooned up to $180K) by the time I passed the bar) to attend a T1 school; however, with a public service career, it seems reasonable that my variable interest rate private loans, which are currently hovering at 9-11.5% and allow only 2 months of deferment over the life of the loan, be converted to federal loans at 6.8% interest with enough deferment to cover contingencies.
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Liz
Nov 12, 2009 9:29 AM CST
People keep saying that the government will buy the loans. I’m not sure exactly how it will work, but the government advanced the original principal for the loans.
The government made the loans. The bank only handled the paperwork. The loan is now a monetized stream of income (remember tax law class?) totaling the value of outstanding payments and interest. Technically it’s really now an asset, rather than an outstanding debt.
This just changes the entity receiving payments on the asset, to the government rather than a private lender who has an incentive to push students into default.
The government has to pay out the balance of the loan if the student defaults (note, to default is not the same as to discharge a loan in bankruptcy, which isn’t legal). This would just give the income to the government, but THE GOVERNMENT ALREADY PAID OUT, AND OWES FOR ANY LOAN THAT DEFAULTS.
Look up FFEL if you want more details.
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Liz
Nov 12, 2009 9:52 AM CST
Student loaner, I really like your idea of a public service campaign. Also, I know Senator Ben Nelson, a Democrat from Nebraska, has been a leading supporter of the banks continuing to receive a taxpayer subsidy, and I believe Rep. George Miller, a Democrat from California, has been a supporter of reform. Sen. Carl Levin, a Democrat from Michigan, has a staff who know a lot about borrowers’ rights, too, and has been active in other bank issues.
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Esq.
Nov 12, 2009 10:47 AM CST
Honestly, if the government does not implement some sort of bailout of student loans, middle-class, college educated individuals in their 20’s and 30’s will spend the next 20-30 years digging themselves out from underneath the penalties and fees that have accumulated from deferrments, forebearances, and defaults due to the economy. These loans will also slow economic recovery over the next 20-30 years as the money will go to banks, and not stimulating the housing market or consumer spending.
I would also hope that any government consolidation loans would reach beyond new graduates. I work in the public interest, and before the market tanked, I was paying about 9% interest on my private loans because despite five years of consistent payments (not income sensitive or interest-only), I never made enough to qualify for a fixed rate consolidation loan. And the principal balance on these same loans INCREASED by 25% during these same five years. The minute I started to make enough to qualify, the market tanked, and all lenders took fixed rate private consolidations off the table. Thankfully, with interest rates now below 3%, I am almost to the point where I have paid the principal down to what I originally borrowed. And all it took was five years paying $875/mo and a crappy market to get back to square one.
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mac
Nov 12, 2009 11:49 AM CST
For the public interest people there is the program added this summer called income based repayment. You pay a certain percentage of your pay, and after 10 years your loans are paid off completely (you will be hit for a big tax bill in the final year)
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T
Nov 12, 2009 1:20 PM CST
20 - Income based repayment only applies to federal loans. Private loans don’t qualify and, since the program only looks at gross income, the income based repayment plan doesn’t consider the monthly payments made on private loans when determining your “income.” In other words, if you are paying $1000 per month on private loans, the $1000 is considered income that is available to pay your federal loans. While this program may work well for those with primarily federal loans, it doesn’t help those who are drowning in private debt.
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Lotsa Loans
Nov 13, 2009 6:09 AM CST
Private loans are originated, and backed by private banks. The government is not on the hook for these loans. The government by bringing them into FFEL, or Federal Direct would be assuming the risk of default as well as awarding federal loan benefits to the holders.
I took a much higher interest rate than many of my colleagues by taking Federal PLUS loans in exchange for Federal protections. Thus, it makes me mad to think I took that additional interest for no reason and the ABA would bail me out if it became to hard to pay. Another government reward for riskier behavior.
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Johnny
Nov 13, 2009 6:55 AM CST
So how about these two issues.
1. Tell the law schools to start dropping the tuition rates.
2. Tell the law schools to start restrictions on how many applicants they’re accepting. There are simply to many law students graduating each year.
It seems to me this would not be an issue if there was some controls on the root of the problem, that is the cost of and sheer number of students in law school being enticed by visions of happy days ahead making a fortune… (Little do they know)
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RC
Nov 13, 2009 7:06 AM CST
Just a thought, but why don’t we talk about the real problem? Namely, law school tuition rates, and the way law schools mislead new students into thinking that a huge salary awaits them immediately upon graduation. Many young students get lured to the law profession by what they think is the Hope Diamond only to find out that it’s really recycled glass.
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RC
Nov 13, 2009 7:07 AM CST
Too funny Johnny! We must have been typing at the same time. : )
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Drowning in student loans
Nov 13, 2009 7:31 AM CST
Amen, RC! I went to a private school and my monthly loan repayment is larger than the monthly mortgage payments of my most of my friends. The only people I knew from law school that were able to land those promised $100K+ salaries either went to work for their rich lawyer daddies or had a foot in the door at a firm before they started law school because of political connections or another relative worked there. Law schools are like casinos: they tout that you can get the big money; however, they omit the fact that the odds are with the house that you won’t. Either way, like the casino, the law school always wins.
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JS
Nov 13, 2009 7:44 AM CST
I’d be happy if the interest on my loan was waived. I’ve been out of work since I graduated at least 2 years ago. I never expected to be paid big money. But I did expect to be able to pay my bills. My loans are in forebearance now, and every dime I earn with contract work goes to support my family.
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bambilegal
Nov 13, 2009 8:06 AM CST
I also went to private school and graduated with $200k in student loan debt. My payments are $1500/mo or more. I say instead of giving bailouts to more companies who are squandering the money away on parties and large exec bonuses - you bail out the student loan borrowers and allow them to put the money they are using for payments back into the economy.
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Eric
Nov 13, 2009 8:11 AM CST
If the ABA really wanted to help law graduates, they would regulate the number of potential lawyers entering law school, similar to the way that the AMA does it for MD candidates. The could take into account the current job market.
The problem is that there are far too many universities who create law programs as money makers…comparatively, the law programs don’t cost hardly anything to run and the schools can charge an arm and a leg for tuition because everyone thinks they are going to be lawyers and make big money. This results in far too many attorneys in the market. The harsh reality is, unless you graduate in the top 10% of a 2nd, 3rd or 4th tier law school, attendance at one of those schools is not going to get you a job to comfortably pay off the debt incurred.
I actually have a job, but it is not very high salary compared to the loans I took on to go to a second tier law school, and I graduated in the top 30%. I wish the ABA would get involved and give some of these students entering law school a dose of reality, because if I knew then what I know now, I never would have taken on the debt.
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JD
Nov 13, 2009 8:37 AM CST
I would prefer they push, instead, to roll back the 2005 Bankruptcy legislation that elevated private student loans to a protected status of nondischargeablility previously reserved only for intentional tort liability. It’s currently easier to discharge federal taxes than private student loans. Why exactly do they deserve that level of protection?
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S
Nov 13, 2009 8:41 AM CST
The decision to attend law school is a business decision. Someone completing 4 years of undergraduate work (and some who have worked afterwards) must evaluate the decision to attend law schol by considering the cost (and perhaps the resultant debt if they cannot afford to pay as they go) and related that to future earnings. If the decision a law student made is a bad decision, why should they be entitled to a bailout. Are they significant to the economy? If they get a bail out, shouldn’t every small business person, including solos and small law offices, get relief every time they need to incur debt for expensive equipment, technology etc?
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BW
Nov 13, 2009 8:43 AM CST
I graduated 4th in my class and was lucky to land an in-house position 6 months after passing the bar. Now because of the economy I have been put down to 20-hours a week, which barely pays the mortgage. I went to law school because after being a paralegal for years, I knew it was what I wanted. I had no dreams of big money, but was consistently told that the law school debt would be “good debt” because of my earning potential. I now make less than what I was making as a paralegal, but I have $140,000 school loan debt. I do not expect a handout, but I would like a little help so that I can survive. I didn’t create this mess we are all in. Luckily I am able to pick up clients—problem can they pay me for my services. I welcome any relief so that I can survive. How about deferrment, interest free. So that while I’m struggling to feed my kids and not lose my home, my loans don’t continue to increase.
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A practical solution
Nov 13, 2009 8:47 AM CST
The rising costs of tuition is a major problem. In fact, right now, with “real” unemployment being at 18% and everyone seeking to go back to school, the schools have raised tuition yet again.
The best solution for those of us who have already graduated, is loan forgiveness. As everyone defaults on their loans (home, school, etc.), the money supply is going to shrink. The Fed tried to prevent this by injecting a huge cash flow, but loan defaults had only just begun and have not improved. Therefore inflation isn’t our issue, it’s deflation. Meaning the value of the dollar is going to go up and we’ll paying back our loans with dollars that are more valuable than the dollars we borrowed.
As a result, our loans should be forgiven to the extent they reflect the value of what we borrowed. In a growing economy, we get charged an interest rate to reflect inflation over the period of the loan, so why not use a negative interest rate when our economy is declining and the value of the dollar is increasing?
This would also avoid a repeat performance of the debacle that was Fannie Mae and Freddie Mac.
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B. McLeod
Nov 13, 2009 8:55 AM CST
BW, they meant it was “good debt” for your lender.
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Tony
Nov 13, 2009 9:00 AM CST
This sounds like a bad idea to me. Instead, they need to make student loans dischargeable in bankruptcy (across all fields, not just law). That way, people will stop unrealistically going to law school, when it is more difficult to get student loans (to got a tier 4 law school). People won’t be able to borrow $100K to get a bachelor of arts with no job prospects, etc. Banks should be forced to look at if there is a reasonable chance of repayment, etc. Now the system just pries upon 18 year olds, who are pretty much by definition stupid.
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Texas Law
Nov 13, 2009 9:03 AM CST
@#11: Untrained new lawyers may be flooding the field; however, since they are untrained, they are hardly diluting the field with competition and, since inexperienced as well, they are not likely providing much valuable legal advice.
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Liz
Nov 13, 2009 9:20 AM CST
‘The government requires that participating institutions establish and maintain such administrative and fiscal procedures as may be necessary to protect the United States from unreasonable risk of loss due to defaults,” 34 C.F.R. sec. 682.610(a)
The government most certainly IS on the hook for defaults. I don’t know if there are lender trolls out there insisting they’re not, or what.
But that incredibly vague provision quoted above is about the toothiest rule protecting taxpayer funds in the whole damn law.
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Liz
Nov 13, 2009 9:24 AM CST
“Damn law” refers to the FFEL, which establishes the rules whereby the government puts up money for private ibanks to lend to students at usually about 8.5% interest, and the bank keeps the interest and fees.
It’s the dumbest thing ever enacted.
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Tuition Rise
Nov 13, 2009 9:24 AM CST
Why are law school costs going up in the worst economy since the 1930s? Why aren’t these professors and staff members taking pay cuts like everyone else?
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Texas Law
Nov 13, 2009 9:29 AM CST
“[I] was consistently told that the law school debt would be “good debt” because of my earning potential”.
Who were these people advising excessive amounts of student loan debt? Comments refer to amounts in the range of $140K - $180K; these amounts are ridiculous. High student loan debt has never been good advice because earning potential has always been highly variable - even in non-recessionary times. During my adult lifetime (approx. 33 years) there have never been more than a small percentage of newly minted lawyers making relatively high salaries, and at all times there have been many unemployed/unsuccessful lawyers (new and otherwise).
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tim
Nov 13, 2009 9:31 AM CST
Yeah! More of my tax dollars going to support the needy! Isn’t America the perfect utopia.
No more handouts!
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Estela Matta
Nov 13, 2009 9:41 AM CST
I graduated law school just in time to see the economic world collapse around my ears. I walked out of Commencement to notices of repayment schedules, without the slightest chance that I would be able to find a job quickly and stave off the ever-mounting interests on those loans. Recent grads are in the quintessential lose-lose situation: we cant compete with the more seasoned lawyers who are now reduced to taking jobs once available to the “newbies”, we’re not eligibile for any of the Stimulus/Unemployment packages promulgated—heck some of us cant even afford the bar prep courses and filing fees to get admitted; but, that doesnt stop the inextrable march of creditors’ demands.
I think the least the government can do is allow us to consolidate private loans w/ Stafford loans, give us an extention of time to repay our debts and give us some “breathing room” until this ecnomy recovers and there are jobs again.
Am I the only one lieing in bed at night listening to interest mount with each tick of the clock?
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Unemployed 2009 Grad
Nov 13, 2009 9:45 AM CST
Couldn’t agree more with Tony. Is anyone from the ABA reading these? Everyone one of these threads is rife with horror stories, but the ABA keeps a ‘smooth sailing’ image in most of their publications. Laid off BigLaw attorneys are the only ones getting any attention. I’m not unsympathetic, its rough to get laid off, but what about the REST of us in dire straights. I’m a 2009 Grad, and while my school isn’t top 15, nor is it a tier 3 or 4 diploma mill (or so I’d like to believe). I can count on one hand people I graduated with who have jobs other than food service. If someone wants to make the ‘you deserve it’ ‘pay the price for your mistakes’ argument I would again point to the stupendously misleading US News data that I used for that calculation. Making the loans dischargable in bankruptcy will at least choke the supply a little by making lenders think twice. ABA, DO SOMETHING.
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Liz
Nov 13, 2009 9:52 AM CST
“In the FFEL Program, private lenders make federally-guaranteed student loans to parents and students. A major difference between FFEL and the other major federal loan program (the Direct Loan program) is FFEL’s use of government funds. Private lenders who make loans to students under FFEL receive subsidies from the federal government.The government also guarantees a large portion of the loan, insuring private lenders against default. If a parent or student defaults, the private lender is reimbursed by the government for its losses.”
“In 2007-08, FFEL served 6.5 million students and parents, lending a total of $54.7 billion in new loans (or 80 percent of all new federal student loans). Since 1965, 60 million Americans have used FFEL loans to pay for education expenses.”
The “handout” was made years ago. It really surprises me that so few people are aware we were doing this. The bankers, obviously, are incredibly resistant to changing it, but it seems like anyone who, you know, wants to save taxpayer dollars, would be at least a little interested in reducing a $54 BILLION budget line.
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Jen
Nov 13, 2009 9:53 AM CST
Here’s a thought. What if the ABA, instead of lobbying for some far-fetched idea that will never fly in the current economic environment, decided instead to revoke the rule that allows firms to outsource work to India. Then maybe more lawyers could find jobs.
See, here’s how the lobbying scenario in this article would probably play out:
ABA: We have a lot of lawyers who can’t find jobs, so we’d love it if you, the government, wouldn’t mind taking on the debt all these unemployed people can’t pay back at private loan interest rates.
Congress: Hmm, okay. We’ll see what we can do.
Media: In a bold move this week, Congress proposed yet another bailout—but this time, it’s not for Wall Street. It’s for lawyers. The move proposes to convert private student loan debt to federal debt in order to make it easier for lawyers to pay off student loans.
Public: What?! (Insert favorite lawyer joke here. Follow with long string of favorite expletives.) How about all the struggling blue collar regular Joe’s who can’t find work? (Expletive) Congress for only caring about Wall Street, banks, and high-falutin lawyers!
Congress: (insert the sound of rapid backpedaling)
Ahem. These loans are really going to get converted? Yeah, right.
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indebted
Nov 13, 2009 9:55 AM CST
I would like to know how the ABA calculates the 60k (and 90k) figures. I go to a comparatively inexpensive public school and I’m looking at 120k in debt when all is said and done. My instincts tell me that the numbers the ABA are reporting are very low. (Reminds me of the starting salary figures I looked at before I started to go to law school, naively trusting that my public law school was reporting statistics they had collected in an unbiased manner).
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Devil's Advocate
Nov 13, 2009 10:00 AM CST
RE: making student loans dischargeable in bankruptcy.
I hate to oppose this b/c I’m in the same boat as the worst of the worst (“boat” being the equivalent of a lead lifepreserver tied around your ankles), but I am interested in actual workable strategies. Student loans will never be dischargeable in bankruptcy. They’re unsecured. You could spend your entire lifetime not paying your loan and they will never be able to take your degree or throw you in jail. All they can do is destroy your credit, which is happening anyway when one is unable to pay them or be allowed a forbearance (And can you believe that? Private loans will actually tell you they won’t allow a forbearance even though you’re unemployed.)
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Liz
Nov 13, 2009 10:04 AM CST
“ABA: We have a lot of lawyers who can’t find jobs, so we’d love it if you, the government, wouldn’t mind taking on the debt all these unemployed people”
You realize the debt is an asset, right? And that we already advanced the subsidies that allowed the student to become such a valuable little piece of indebted real estate?
I don’t know why it’s so hard for lawyers to grasp this, but DEBT IS GOOD WHEN YOU ARE THE ONE WHO IS OWED. You want the banks to get your money, after they’ve already walked off with taxpayer funds?
Or do you want the interest and principal repaid to the government, as a little bit of a return on the $54 billion they spent last year forcing students into a bleak and perpetually indebted future?
Are you paid by the bank or something?
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Joe Momma
Nov 13, 2009 10:14 AM CST
Taxpayer’s have bailed out the failing financial system (caused to a large extent by dumb Fannie and Freddie housing loans). It only seems fair they should bail out law student loans as well. Hmmm, I wonder what happens when these taxpayers run out of money after bailing out everyone who cannot fulfill their obligations/commitments…oh well, no need to think about that, just pass this bill and do it, we can always just print more money!
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Liz
Nov 13, 2009 10:14 AM CST
And for all the people talking about how the idea will never fly when people are so worried about government spending:
What do you think will happen when it gets out that the government will be giving banks billions to cover defaults on loans made with government subsidies?
Of course, given the apparent “Idiocracy” level of finance accumen shown in public debates of late, people on the right would probably cheer it as a triumph of free market enterprise, and people on the left would just call it a stimulus.
Sigh.
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