Debt Forgiveness for Law School Grads?
Take a look at these numbers. In 2004, law students graduated with an average debt of $76,816, according to the New America Foundation. Eight years later, that figure rose to $128,125, a 40% increase.
Those numbers shouldn’t surprise you. Medical students graduate, on average, with $135,000 in debt. But here’s the number that should give everyone pause:
“Enrollment in the plans—which allow students to rack up big debts and then forgive the unpaid balance after a set period—has surged nearly 40% in just six months, to include at least 1.3 million Americans owing around $72 billion, U.S. Education Department records show.”
In just two quarters, these debt plans have grown by $19.8 billion dollars. And those numbers will only climb higher. But here’s the kicker, according to the Wall Street Journal:
“An independent study (conducted by the Brookings Institution) estimates the future cost of the 2011 program, known as Pay As You Earn, could hit $14 billion a year.”
And guess who picks up the tab? That’s right, meet the new derivatives: Student debt. In fact, student debt “has nearly doubled since 2007 to $1.1 trillion” according to the Wall Street Journal, with graduate school debt playing a major role. Talk about “Too big to fail”!
If the public was looking for another reason to hate lawyers, it would be this: Law students are among the biggest users of these loans. And law schools are abetting this trend.
Here’s how Pay as You Earn works: Borrowers pay 10% of their discretionary income each month to cover the loan. If the borrower remains in the public or nonprofit sectors, those loans are forgiven after 10 years. One more thing: There is currently no cap on how much debt can be forgiven.
That benefits graduates like Jacqueline Grippe. A Syracuse Law grad who works as an assistant public defender, Grippe earns a $58,500 salary against $180,000 in student loans. Thanks to this program, Grippe only pays $350 a month towards her loan, which allows her to continue working in the public sector. “I don’t know what I would do (without it),” she tells the Wall Street Journal.
However, the program comes with risks. The Brookings Institution study contends that “Loan forgiveness creates incentives for students to borrow too much to attend college, potentially contributing to rising college prices for everyone.”
But don’t tell that to law schools. Some schools, the Wall Street Journal reports, are now advertising their own plans that offer to cover a graduate’s federal loan repayments until outstanding debt is forgiven. In other words, they’re literally encouraging students to pass their costs along to taxpayers.
Take Georgetown Law, for example. The school recently removed a statement on their website that touted how the school’s aid program, coupled with Federal Pay As You Earn loans, “means public interest borrowers might not pay a single penny on their loans—ever!”
And this deadbeat attitude is filtering down to students. Max Norris, a California State Attorney who earned his JD from the University of California-Hastings, pays $420 monthly to cover his $172,000 debt. Thanks to his alma mater covering part of his debt, he only pays $100 in out-of-pocket expenses… and could have up to $225,000 in loans forgiven in the coming years. And that was part of the plan: “My intent the whole time in going through law school was to take advantage of this program,” Norris tells the Wall Street Journal.
And there seems to be no end in sight. The Wall Street Journal reports that over the past fiscal year, “debt absorbed by the repayment plans from the most widely used student-loan program—Stafford loans—exceeded government expectations from a year earlier by 90%.” While the Obama administration is hoping to cap debt forgiveness at $57,500, there has been little legislative movement to make this happen.
In short, expect another bubble to build… and for everyone to take cover and point fingers when it inevitably pops.
Source: Wall Street Journal