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David Stern: The Avoidable Sticker Shock of Student Loan Repayment

In lieu of Fellow Friday, we thought it would be fun to share this recent article written by our Executive Director David Stern for the National Law Journal.

Would you hire a lawyer who took out a mortgage without understanding the repayment obligations? Yet every year incoming law students take on mortgage-sized debt — currently averaging about $122,000 to attend a private law school — without knowing the terms or having a plan for how they will repay these loans.

Responsibility for this ignorance falls both on the borrowers and the law schools that help students secure the loans. Many incoming law students apparently have not realized that the decline in legal jobs, especially jobs at big law firms, means that they need a financial game plan to deal with the very real possibility that they may not be employed after graduation or may earn a salary that is only a fraction of their debt.

Although I appreciate that law schools are developing courses to train students on how to read corporate financial statements, they aren't doing enough to help students understand the complex job, salary and repayment information needed to make good financial decisions.

Here are some steps that students and law schools should take to address the problem.

First, determine how much law school costs. Every law school should have a page on its website that gives a breakdown of how much it costs to attend, which includes not just tuition but also essential expenses such as room and board, books and medical insurance. Students should add to this base number any special expenses, including family support, car payments or medical expenses. Then they should deduct any scholarships or grant aid. If the scholarship is merit-based, students should not assume they will retain it for all three years.

Second, look at job and salary prospects. Obviously, a law student's job status and salary after graduation will determine the ability to repay the loans, but predicting that number isn't easy. The American Bar Association reports on employment outcomes for individual law schools, but these reports don't provide salary data.

Still, students can get a rough guide to where the law schools' graduates end up. The NALP National Summary Report provides salary data for different jobs. Another great resource is Law School Transparency. Its Score Reports do a lot of the legwork.

Third, apply for federal loans. We have a lot of resources at Equal Justice Works to help students make informed decisions, but here is the most important piece of advice: To the maximum extent, students should pay for law school using only Federal Direct Unsubsidized and Direct PLUS loans. Federal student loans have borrower protections and opportunities for forgiveness that private loans lack.

Fourth, look at loan repayment options. The U.S. Department of Education has a useful list of repayment plans and calculators. And FinAid has even more sophisticated calculators that enable students to consider issues such as how salaries will change over time. At a minimum, students should check out the standard and extended loan repayment plans (these provide for equal monthly installments) and determine what monthly payments they can afford and how much they will pay in interest accumulation. Then they should calculate how much they would pay under an income-driven repayment plan. These plans set monthly payments at an affordable percentage of income and provide taxable forgiveness after 20 or 25 years.

Students interested in lower-paying public-interest jobs should consider the availability of powerful programs that can forgive or help repay debt. Many law schools have loan repayment assistance programs that can help graduates make monthly payments. And public service loan forgiveness provides tax-free forgiveness after 10 years of working at a wide range of government and nonprofit jobs.

Equal Justice Works provides all the details about these programs in our e-book Take Control of Your Future: A Guide to Managing Your Student Debt.

After taking all of these steps, students should have a good idea of how law school student loan debt will affect them after graduation.

Anyone considering law school has an obligation to take these steps themselves, but law schools are making it unnecessarily difficult for students to cobble together this information and apply it to an overly complex federal student loan system. To help applicants and students, every law school should have detailed job and salary information on its website as well as its own loan repayment calculator. Georgetown University Law Center's Prospective Student Financial Planning Calculator and University of Michigan Law School's new Debt Wiz calculator are good examples of what can be done.

Law schools also should provide mandatory financial counseling for all entering first-year students. This instruction could be conveyed through a required symposium for all incoming 1Ls or even through a semester-long course on managing debt. As students get closer to graduation, they should receive an individualized counseling session with knowledgeable financial-aid professionals who can advise them on their options in light of their desired careers and likely salaries.

It costs a lot to go to law school today, but, like a mortgage, it can be a good decision financially in the end. Both law students and law schools have a responsibility to ensure that all graduates have a plan to manage their student debt and the ability to pursue the career of their dreams.

David Stern is the executive director of Equal Justice Works in Washington.

Reprinted with permission from the September 23, 2013 edition of The National Law Journal ©2013 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.

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