What Federal Loans Do for Law Students and Law Schools

Federal loans for law students are justified as “providing access” to a legal career for the middle class and poor.  That’s one side.  When you examine how the funding operates, however, it becomes apparent that federal loans are an irresistible (and life-sustaining) drug for revenue addicted law schools.

When a student applies for a federal loan, the law school processes the application.  Loans are granted by the government without any evaluation of the likelihood of repayment.  Accordingly, a student at Thomas Jefferson Law School is treated exactly the same as a student at Harvard Law School, without regard to the fact that the former is far less likely to repay the loan.

Among the 221 graduates of the 2010 class of Thomas Jefferson, only 73 obtained jobs as lawyers.   According to information provided by the school, the highest earners worked in private law firms, with a 75th percentile salary of $77,500 (only 12 of 55 graduates in private firms reported their salary).  Based upon the numbers provided, and making a few reasonable assumptions, we can estimate that at least 80% to 90% of the class earned less than $77,500. 

Now consider that the average debt of 2010 graduates of Thomas Jefferson was $137,000 (95% of the class had debt).   The monthly payment for this debt is $1,600.  Graduates must earn over $100,000 to manage this level of debt.  

Thus, only about one third of graduates actually ended up as lawyers (nine months after graduation), and most of the graduates that landed lawyer jobs did not earn enough to manage the average debt of the class.  It appears that a significant percentage of the class is likely to enroll in IBR, a federal program designed to help graduates in “financial hardship,” paying reduced monthly payments based upon a percentage of their income, with the balance of the loan forgiven after 25 years.  That is what “access” to a legal career comes to for many unfortunate law graduates today.

Let’s now look at things from the law school end.  From 2008 through 2011, Thomas Jefferson law graduates had a total combined debt over $100 million, nearly all of it federally guaranteed or directly borrowed from the government.  How many students with positive outcomes did this money buy?

The combined debt of 2010 law graduates of Cooley was $91 million; at New York Law School it was $48 million; at Suffolk it was $46 million.  Or take Florida Coastal.  In 2008 the combined debt of law graduates was $28 million; in 2009 it was $33 million; in 2010 it was $45 million.  Each year the enrollment went up, and the total debt with it.  Four hundred students graduated in 2010—eight hundred new first years enrolled that August.  One might guess what the combined debt of the class of 2013 will be.

We are talking about real money here—and nearly all of it goes directly from federal coffers to law school bank accounts.  The students are conduits for the money.   These student-conduits bear the burden of the loans in the first instance, and the federal government thereafter.  The average debt of graduates at all of these schools was well above $100,000.  Not all of this debt will be fully paid in the end.  Law schools get their money up front.

This is not just about low-ranked law schools.  In 2010, Georgetown graduates had a combined debt of $71 million, Harvard and American were over $50 million (G.W. just below that), with another half dozen law schools over $40 million.   Remember, these amounts only cover a single year.  High-tuition law schools with large enrollments collect a hundred million dollars of debt-based, government supplied money every two to three years.  Law schools have been ramping up tuition and enrollment without restraint thanks to an obliging federal loan program.

Federal loans indeed provide access to a legal career for many, and that is important, although we must also be mindful of the poor results suffered by many individuals.  Law schools, meanwhile, are engorging themselves on the federal loan program.

—Brian Z. Tamanaha

Comments

[BL1Y]

Bill Araiza (Brooklyn) said on the Prawfs Blawg that "the loans won't come due until they have jobs and are earning decent salaries."

Can anyone confirm this?

I am unemployed, but still have loan payments due every month. How do I tell Citi and Sallie that my loans aren't due yet?

[Brian Tamanaha]

I don't know what Bill is referring to. After a grace period, payments begin. What is true is that, under IBR, if a person earns less than 150% of the poverty rate, the amount due will be zero, and the person will not officially be in default.

[Jon]

There is also the not uncommon situation where the debt is so high and the interest rate (at 6.8-7.9%) so onerous that under IBR the graduate is actually paying back less than the monthly interest accrual. Interest still runs during IBR, and although it is not added to the principal

Check out this chart

http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRPlan.jsp

A student who owes $150,000 of debt at a 7.25 consolidation loan rate will see interest accruing at about $900 per month (150K * (.0725/12)). Using the handy IBR calculator, the same graduate will only pay $400 per month at a position that pays $50,000 per year. The only exception is that the government will pay the interest for three years on SUBSIDIZED STAFFORD LOANS, not Gradplus or Unsubsidized Staffords. Subsidized Staffords were eliminated earlier this year and aren't the primary source of law school debt. That would be the GP at 7.9% fixed.

It is true the graduate may have the opportunity to contribute more to his income in later years (this is a big MAY right now) but I think what is amazing is the simple fact that under the government's definition, law school debt is so burdensome it is impossible to pay off in 20 years on a middle class salary. By the time the graduate is making enough money to begin paying interest + principal it will be well into the 10 or 20 year repayment period, making it a good policy just to wait out the 20 years and push that burden onto the taxpayer. It's almost like the old factory practice of paying workers in factory store scrip and making basic household items cost more than than a month's pay, forcing the worker to go into a debt cycle he'll never emerge from.

[Bill Araiza]

Um, BL1Y, I don't think I said that, on Prawfs or anywhere else. Are you sure you're quoting the right person?

[BeaHonest]

It's not unusual to view for-profit universities like Phoenix skeptically when it comes to enrolling students for careers that don't exist in order to get the loan money, leaving the taxpayer with the bill. How are law school any different from this? This is all just a big fraud, isn't it? Why aren't the feds investigating?

[BL1Y]

Bill:

"On the one hand, I think service people generally work hard for little pay; as long as the person is doing her best I'm inclined to be generous. On the other hand, some of that generosity is, I think, based on some intuitive sense I have that I've been very fortunate and I really shouldn't scrimp when it comes to compensating people who work hard and make (a lot) less than I do. But that reason doesn't apply to my students, at least not now in their lives. Of course, the loans won't come due until they have jobs and are earning decent salaries. But of course in this economy some of them may not be getting those salaries for quite a while. And anyway, who am I to be making that calculus for them?"

Posted by Bill Araiza on October 29, 2011 at 06:32 PM

http://prawfsblawg.blogs.com/prawfsblawg/2011/10/generosity-on-the-students-dime.html

[Bill Araiza]

BL1Y: Gotcha, I'm sorry. I can see now how that comment might have been misconstrued. What I meant was that student loans don't come due until the student graduates. I was making the (casual) assumption that as a general matter students have jobs after graduation. Obviously, that's a big assumption in this economy, but the context of the post was about the relative economic position of students during school and after graduation. I didn't mean to suggest that loan repayment requirements don't kick in until a student gets a job. But I see how it could have been taken that way.

[Brooklaw]

Wow..., Mr. Araiza, that little back and forth speaks volumes!

In "this economy???" "Misconstrued??" "Casual Assumption??? From Brooklyn Law???....Translation: "clueless"

Sorry brother, a Brooklyn degree, at 60k per year COA, has been a path to oppression misery for quite some time...Long before the current down turn.

Tamanaha, Henderson, someone, would you kindly take a second to educate this Araiza guy...

[Steve White]

Two ways to fix this problem:

1) limit the number of students per school who qualify for the loans. Florida Coastal can enroll 800 law students per year if they wish, but only 200 (say) qualify. Let's see what the Chancellor of Florida Coastal says to the law school Dean then.

2) put the law schools (and medical schools, etc) on the hook for a small portion of the loans -- it need only be 5% or 10%. That will focus them very quickly on making sure that the students repay, and just as importantly, find jobs as lawyers.

The other message: if only 1/3 of Thomas Jefferson law school grads can find jobs as lawyers, perhaps we have too many law students? Perhaps we should close some of the law schools?

[Scott]

Or, we could simply open the state bar exams to graduates of schools such as Concord University. These onlne schools produce students whose debt totals about $30,000 for four years of study assuming 100% financing.

Alternatively, make the study of law a primary major rather than post-graduate. I mean what do you really get with a history undergrad going to law school? Seems like 4 wasted years...or 4 years of partying.

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[G. C. Andersen]

Very upset - would not accept my lengthy, but thoughtful, post. Suffice it to say, the gist was that San Francisco Law School, from which I graduated this past June, formerly offered great value at low price, despite its low graduate bar exam pass rate, to the motivated student, but that has now been corrupted by the availalbilty of federally guaranteed student loans. I fear the school will follow in the footsteps of Jefferson and Cooley, despite its long and once distinguished history.

[Mike]

I just graduated law school after attending part time at night for 4 years. I worked full time during the day so I could pay for it without a loan. If student loans are forgiven, I want my 4 years of tuition refunded by the government, too! That's only "fair"!

[alex]

BL1Y how do you not know how to fill out an IBR form?!

[Concerned Reader]

On the topic of law school loans, please look at this latest example of ABA statistical fraud.

http://www.americanbar.org/content/dam/aba/administrative/legal_education_and_admissions_to_the_bar/council_reports_and_resolutions/2011_notice_and_comment_s510_rules_22_and_5.authcheckdam.pdf

The ABA is proposing a rule that will force law schools to publish their student loan "default rate." However their definition of "default rate" is misleading and does not represent the true number of students who will not make their scheduled payments. Students who go on deferment or IBR will not count as defaulters under the ABA's definition, even though the graduate is not making their originally scheduled payment.

This is another example of statistical fraud by the ABA because they are publishing a statistic which purports to quantify the ability of graduates to repay their loans, but their technique provides a completely fraudulently misleading and unrepresentative method for calculating that statistic. There is no rational, logical or sensible reason to avoid counting deferments and IBR in the "default" statistic that the ABA seeks to publish. Students who go on IBR or deferments were not able to repay their loans and should be counted as "defaulters."

If schools have to publish their IBR/deferment rates then you will quickly see which schools are worth the money. But if they only have to publish default then you will have yet another nonrepresentative and misleading statistic. No rational person who could avail themselves of IBR/deferments would default. The only people who would default today are either graduates from pre-2007 who couldn't go on IBR, or an inexplicably irresponsible graduate who couldn't be bothered to fill out a few forms.

This is especially a problem because the ABA can immunize law schools from allegations of fraud, as was shown by the NYLS and Cooley motions to dismiss.

As shown in the PDF link, comments are due by Nov. 15 and should be sent to [email protected].

Please write Ms. Stretch protesting this latest example of ABA statistical fraud. We don't need the ABA stealthily approving more misleading numbers.

[loyola 4l]

interesting fact about bill araiza: he was the dean of Loyola law school during the Loyola 2L period.

[Frank the Underemployed Professional]

Thank you Professor Tamanaha for a superb article. I wish we could get more raw numbers for every school such as the only 73 out of 221. Of those 73, presumably even less are earning enough to have made their law school investment worthwhile.

This is the first time that I've seen anyone try to quantify how much student loan debt was produced by a given law school's class. It really helps point out the absurdity of JD overproduction.

It's a little more evidence that our society needs to close 60-75% of the law schools so that JD production more closely matches the real-world demand for new JDs. I'm in favor of closing 75% of the schools to create a small shortage of new graduates, giving some overlooked previous graduates a chance of entering the profession.

[Joseph Secola]

The unfettered reckless greed of educational institutions is truly breathtaking. I thought only Big Oil "gouged us". Forcing Debt slavery on the students of this nation in order to get an education is deeply immoral. A friend was recently at his Alma mater law school and asked the dean why they were charging $40,000/year for tuition, and the response was all too familiar: because we can. The students are the conduits of a new form of corporate welfare - your tax dollars in the form of tuition - from Uncle Sam to our colleges and universities. How is our Ivy league any different than agribusiness, which gets millions of dollars annually from the tax payer under the "family farm" rationale. When I went to law school in the class of 1984, my annual tuition was easily met within the HARD CAP of $5,000 annually for graduate students. The combined hard cap prevented the tuition from skyrocketing. No more. The next time students hear there professors decry the Corporatism governing our nation,ask them why academia is benefiting from that same Corporatism and imposing debt slavery on their students.

[MEL]

Some thoughts;

1. I don't see why any of these concerns do not apply with even more weight to expensive, debt-ridden undergraduate schools.

At least with law schools you have a chance to earn decent money (admittedly a slim chance). With undergraduate schools, not so much.

If too many people go to law schools, then its equally true that too many people go to college!

2. Some of the factors driving law school tuitions are things that most of the so-called reformers think are desirable, such as:

a) the cost of clinics to make law school more "practical."

b) the cost of an army of "academic support" professionals to make law schools into bar prep factories, since that's what the "reformers" at the Education Department, ABA etc. want.

[BL1Y]

Mel: What's the cost per credit hour of a clinic versus the cost per credit hour of a professor taking a reduced teaching load to work on an article?

[JEA]

BL1Y: At my law school, clinical faculty and doctrinal faculty are paid the same. Clinical faculty are capped at teaching 20 students per semester, or 40 a year. A doctrinal faculty member on a reduced teaching load of three courses to accommodate thier scholarship generally teaches one large course of 100 or so, and two smaller courses--perhaps a 60 person course and a 12 person seminar. So the clinical professor teaches 40 students a year and the reduced course load professor 172. Clinical teaching is expensive but a lot of us think it is worth it.

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