Oregon State Bar Bulletin — JULY 2005

Canceling the Debt
New lawyers finding relief in loan assistance programs
By Janine Robben

Ten years ago, when the Bulletin ran an article about law school students graduating with record levels of debt ("Law Degrees on Credit," November 1995), Tiffany Harris was on a fellowship in Senegal and Paris. Little did she know that the facts reported in that article would become her — and her friends’ — own story.

"Our group’s debt total was pretty staggering," says Harris, a 2002 graduate of the University of Oregon School of Law who helped to create the school’s new Loan Repayment Assistance Program.

The program, modeled after other LRAPs around the country, will provide law school loan assistance and possibly even loan forgiveness for students who opt for relatively low paid public-interest and government jobs instead of private practice.

Such programs have become increasingly important as law school tuition — and the debt load students must carry to pay it — have risen exponentially, increasing concerns that law graduates’ career choices are being driven by money.

"It’s ironic, in some ways, because some of the people who were really driving the program went straight into private practice with large firms," says Harris of her fellow students. "Schwabe, Williamson & Wyatt was my loan assistance program."

Harris, who currently is on leave from her job at Schwabe to work with the Oregon Legislature, is not alone.

"A friend who graduated with us recently left Metro Public Defenders (in Portland)," says Harris. "She was passionate about it, but she couldn’t keep up with her monthly loan payments. The same thing happened to my older sister, a former federal public defender in Colorado, who now works for a private law firm.

"I think all of us (who worked on the U.O.’s LRAP) felt this (conflict) very keenly," says Harris. "We all felt a real public-service ethic at the U.O.: the institutional ethos really encouraged and celebrated public service. But, on the other hand, it increasingly was becoming unrealistic as a career choice."

A DECADE TO DOUBLE
The problems faced by Harris and her fellow graduates are not unique to Oregon.

"New attorneys are entering the workforce with mortgage-sized education debt burdens," concluded a report1 issued by Equal Justice Works and a coalition of other organizations in 2002. "The meteoric rise in law school tuition in the past 10 years is the primary reason for this problem."

According to that report, tuition at public and private law schools nationwide overall doubled between 1991 and 2001. Meanwhile, the cost of living rose by only roughly half that amount, according to a report issued by the American Bar Association in 2003.2

Interestingly, neither report offers any explanations or theories for the discrepancy between the rates of increase in law school tuition and inflation.

In Oregon, the problem is illustrated by a comparison between tuition rates for the 1994-95 school year, as reported in the Bulletin article, and for 2004-05 (as seen in the chart on page 11).

Law school officials are very aware of the effect of tuition rates on students and prospective students.

"Cost is a very big factor when it comes to choosing which school to attend, or whether to attend law school at all," says Shannon Burns, director of admissions at Lewis & Clark.

"Students are always comparing financial aid packages, scholarship offers, loans, etc. Sometimes cost is the main deciding factor for a student — ‘I’m going to the school that gives me the most money or costs the least’ — and sometimes it’s just one of the factors (e.g., ‘I’m willing to pay more to go to a school that is the most prestigious I can get into, nearer to my home, in a big city, etc.’) But I don’t think there are very many law students out there who are ignoring the financial picture. This is especially true because, while many students’ undergraduate educations were paid for by their parents, most graduate-level students are responsible for paying for graduate school themselves."

That latter fact is reflected in the level of law student borrowing, which has gone up as tuition has gone up.

In 1993, grads left law schools nationwide with an average debt of $37,637.3 Less than 10 years later, 50 percent of law school graduates nationwide had more than $75,000 in law school debt, with 20 percent having more than $105,000. In addition, 53 percent also still had unpaid debt from undergraduate school.4

How law students get in that position is easily understandable, says Andrew Stewart, an Oregon native who graduated from the George Washington University Law School in 2003, owing $160,000 in student loans, all but $10,000-12,000 of it for law school.

"You figure full-time tuition was more than $25,000 a year," says Stewart, an inactive member of the Oregon bar who now practices criminal defense law in the Washington, D.C. area. "The (full) price tag for a year was $42,000. Of course, I had to take out another loan for (studying for) the bar exam: That was another $8,000 right there.

"It’s very easy to get the money," says Stewart, who made approximately $25,000 the year before he applied to law school — and for his first law school loan — at age 25. "The process was not nearly as intensive as the process for an undergraduate loan, where they look at your parents’ income. I was surprised how quickly I was approved: If I was trying to get a loan for a house, there’s no way I would have been able to get that kind of loan."

"You see those huge numbers coming through," Stewart says of his thoughts at the time, "but you figure you’ll make more as an attorney than not as an attorney."

Stewart’s analysis was correct, according to Patricia Scherschel, vice president of loan consolidation at SLM Corporation, a major maker of educational loans.

"The less you owe, the more likely you are to default," Scherschel was quoted as saying in an article published last fall in the Washington, D.C. Bar’s journal.5 "The more you owe, the more likely you are not to default, because you have more education. The more education you have, the more likely you are to earn more in your work life."

SALARY GAP WIDENS
Scherschel’s statement to the effect that "the more you learn, the more you earn," should have come with one major caveat for lawyers, according to those who have studied the issues of law school debt and career choice: the more you earn, if you go into private practice instead of public interest law.

According to the Equal Justice Works coalition report, the "significant challenges" that large debt burdens present for graduating law students "are best understood when viewed in the context of the striking gaps between salaries for attorneys in private practice and in public service. Recently…that salary gap has widened."

Oregon’s figures are in line with the national trend.

For example, in 1994, Willamette law graduates who took jobs in private practice reported an average starting salary of $37,019, according to the Bulletin article. Meanwhile, those who took jobs in government reported an average starting salary of $30,706, 17 percent less. (The four students who took jobs in public interest law did not report their starting salaries.)

Ten years later, according to the law school, graduates in business reported an average starting salary of $58,411, versus $42,246 for government new hires, a 28 percent difference.

The effect of those salaries on career choice is clear, according to Shelly Matthys, who has been a staff attorney at Portland’s St. Andrew Legal Clinic — where the starting salary is under $30,000 — since 1998.

"If you don’t have two (household) incomes, you couldn’t work here," says Matthys, whose husband works at Intel. "We had a couple of guys who worked here who had to leave when their wives became pregnant. We’d love not to have the turnover we have."

Public interest employers agree.


"It’s especially difficult for us to recruit staff attorneys in rural areas like Ontario, Pendleton and Roseburg," says Tom Matsuda, director of Legal Aid Services of Oregon. "But wherever we have vacancies, our low salaries are really a problem, especially for those with law school debt. "

Legal Aid Services of Oregon’s 11 offices provide civil legal services to the state’s poorest residents over three-quarters of the state’s geographical area. The starting salary for new attorneys with no experience is $28,014, which can be increased to $35,000 via a loan repayment benefit and other options.

"People say the average debt load is around $80,000," says Matsuda. "That and our salary level are a pretty unworkable equation. I know a lot of people go to law school recruiting fairs and say, ‘We’d love to work for you, we just can’t afford it.’ We know we are automatically cutting out a very substantial pool of talent. What we get are people who — for one reason or other — are able to make ends meet. We have a lot of people who don’t use a car, who live in very modest homes, and some who have second jobs in order to do this work."

David Thornburgh, who directs another statewide program that serves low-income clients, the Oregon Law Center, also expresses concerns about the effect of law school debt on career choice.

"We have continued to have a large number of highly qualified applicants for open attorney positions at the Oregon Law Center and similar legal aid programs in the Portland area," says Thornburgh. For example, he says that one opening for an attorney with up to five years of experience — posted at $27,800, not counting loan repayment benefits — attracted 67 applicants, including many with top law school, Order of the Coif and law review credentials.

"There are a lot of people who want to do public interest work, and make choices in their lives to enable them to do that," Thornburgh says. "(But) the statement that people’s options are limited is absolutely true, no doubt about it. People struggle on the salaries we pay. The federal government needs to address the issue."

POSSIBLE SOLUTIONS
Until that happens, what’s a law school graduate with a yen for public service and a heavy debt load to do?

The good news is that — while costs have gone up and public service legal salaries have stayed relatively flat — graduates have more options that they did in 1995, when the Bulletin last reported on this subject.

Those options include everything from the increased availability of Loan Repayment Assistance Programs, or LRAPs, to better financial-planning advice to even — horrors — the suggestion that debt-ridden students and graduates skip the lattes at Starbucks.

In 1995, none of Oregon’s law schools had an LRAP; now two do, thanks to the work of people like the U.O.’s Tiffany Harris, who had to put her law school loan payments in forbearance to do her public-service stint at the legislature. Willamette University also expects to have one in place very soon, according to Siri Quigley, assistant director of admissions.

Some Oregon public service employers, including Legal Aid Services of Oregon and the Oregon Law Center, provide lawyers with loan assistance to supplement their relatively meager salaries. And the National District Attorneys Association is pursuing federal legislation that would forgive educational loans for prosecutors and public defenders.

Law schools and financial planners also are beginning to advise students that one way to curtail debt and/or to pay it off is to watch spending.

For example, Lewis & Clark’s Web site now advises law students to "…consider carefully how your legal education will be financed and what your needs really are while in law school. Having the option to switch back and forth between the full-time and part-time programs can allow a student to work and gain legal experience while cutting down on the amount of money to be borrowed. It is also possible to live more simply while in law school in order to keep borrowing to a minimum. We are glad to discuss these issues with you."

In October, the Bar Association of the District of Columbia printed tips on how to pay down law school loans more quickly. (See sidebar.) And last month the Washington Post ran an article entitled "Javanomics 101: Today’s Coffee is Tomorrow’s Debt," which included a calculation on how much a debt-ridden graduate could save ($55,341, with interest) if he made his own coffee for the 30 years.

Such advice is not news to Andrew Stewart, the George Washington graduate with the $160,000 student loan debt.

"I had a minimum I had to make," says Stewart, who started out doing well-paid work on contract before making his way to what he really wanted — a small criminal defense firm that could offer him valuable trial experience. "But I was willing to curtail my lifestyle pretty significantly to take the job I wanted. I sat down and made a pretty detailed budget: ‘This is what I need to make ends meet.’ Then I took a pretty substantial pay cut, and I’m happier. You live lean the first couple of years. You have to view it as a kind of residency; you have to maintain that college style of living."

Stewart says he also knows lawyers who have taken public interest or government jobs — for the experience and/or to perform public service — with the expectation of leaving for higher-paying jobs in the private section in a few years.

He cites the example of a friend who started at the Environmental Protection Agency "making maybe $48,000. After a few years, private firms were willing to pay her six figures to jump ship and do the same thing for the other side. So people take jobs that will lead to a career, and make up the difference with a credit card, or never go out, or get a couple of roommates."

But, says U.O. graduate Harris, it’s no longer possible for lawyers to jump from private practice to public service.

"Ten or 15 years ago, I think it was still possible to take a job with a large firm and pay off all or a large portion of your loans in 5-10 years," she says. "In my opinion, those days are over. That kind of time frame left open the possibility of leaving private sector work and entering a public interest job after achieving at least some sort of income-to-debt balance. I think it’s harder now to reach that point in such a short time, especially if you marry someone with a modest income, take on a mortgage, or do any of the types of things that people do when they are young adults and thinking about putting down roots. It’s difficult to put those things on hold, but they militate against working in a public interest job that is likely to pay somewhere between $28,000 and $35,000."

WHAT’S NEXT?
While the number of LRAPs and other options for debt-strapped law school graduates are expanding, the people who are concerned with the issue continue to do more.

In February, Harris and representatives from the LRAP programs at the three Oregon law schools talked to the bar’s Access to Justice Committee about the possibility of bar funding for those programs.

In April, a delegation from the bar, the Lawyers’ Campaign for Equal Justice and the Oregon Law Center went to Washington, D.C. to talk to Oregon’s congressional delegation about several issues, including the need for federal loan forgiveness programs for lawyers, doctors, nurses, teachers, social workers and others who do public interest work.

"Federal loan forgiveness is an ideal solution," says the OLC’s Thornburgh, who was part of the delegation.

According to Thornburgh, "One of the issues related to law school loan repayment programs is how to define the scope of eligibility.

"Some programs are open to all attorneys working for non profit organizations and for governments, including U.S. attorneys and district attorneys," he explains. "Creating a broad scope of eligibility increases the likelihood of getting congressional support for federal programs, (but) it also increases the number of attorneys who are eligible and may create a pool where some attorneys make two to three times as much as other attorneys using the same program."

Nonetheless, says Thornburgh, the Oregon delegation expressed a willingness to at least look at the problem of high student debt load and its effect on public-service career choice.

"This thing is a national issue," he says. "It is a priority for the ABA, state bar associations, law schools and organizations that employ public service attorneys. There is a lot of interest in it nationally."

How to Manage Law School Debt

Last fall, the Bar Association of the District of Columbia published these tips for how to manage law school debt. They apply to Oregon lawyers, too!

Know your loan. "Law school counselors say too many students sign their promissory notes and then file them away in a box in the closet, stuck between pizza coupons and cell phone bills," says the article.

Do the math. The article says to ask yourself, "What is your take-home salary? How much do you spend? Financial planners say knowing your spending habits is the first step towards eliminating debt. Without realizing it, many young professionals burn through hundreds of dollars a month on meals and entertainment. That is especially true of recent graduates who are seeing their first paychecks after years of student living."

Pay down the principal. And be sure to let your lender know that any payment over the minimum is to be applied to principal, not interest.

Consolidate to save. Consolidation – where existing loans are paid off and replaced with one loan at a fixed interest rate based on the weighted average of the rates on your original loans – "is a must" for borrowers who want to lock in low interest rates, have high monthly payments, or have several loans from multiple lenders. But the article advises against consolidating private and federal loans; you’ll lose some of the advantages of federal loans.

Pursue Loan Repayment Assistance Programs (LRAPs) through your law school and other sources.

Take a tax break. Up to $2,500 of student loan interest can be deducted on your federal taxes each year.

Source: From the article of the same name published online at http://www.dcbar.org/for_lawyers/washington_lawyer/october_2004/debt.cfm

Comparison between tuition rates

1994-95 2004-05 Percentage of increase

Lewis & Clark, day: $14,740 $25,334 42

UO, resident: $ 7,688 $16,156 52

Willamette $14,850 $23,400 37

FEDERAL LOANS

For law students, two major sources of financial aid are the Perkins and Stafford loan programs. This is how they work:

Perkins

How received: Directly from school

Amount: Up to $6,000 per year of professional study based on demonstrated need; maximum total $40,000, including any Perkins loans received as an undergraduate.

Repayment period: 10 years, beginning nine months after graduation or nine months after the date a student drops below half-time enrollment; possible to defer payments on non-delinquent loans beyond 10-year period

Interest: Five percent; government pays interest until student’s loan repayment period starts

Cancellation?: Yes, for certain types of employment, none of them directly law-related.

Stafford

How received: Directly from school or from a lender if the school participates in the FFEL program

Amount: For law students, up to $18,500 per academic year, regardless of need; maximum of $8500 per year may be subsidized based on demonstrated need; maximum total $138,500, including any Stafford loans received as an undergraduate.

Repayment period: 10 years (extended options available), beginning six months after graduation or six months after the date the student drops below half time enrollment; possible to defer payments beyond 10 years by choice of repayment plan.

Interest: Variable but capped at 8.25 percent.

Cancellation?: Yes, for certain types of employment, none of them directly law-related.

Source: Willamette University Financial Aid Office.

Endnotes

1. "Paper Chase to Money Chase: Law School Debt Diverts Road to Public Service," prepared by Equal Justice Works, The National Association for Law Placement, the National Legal Aid and Defender Association and the Partnership for Public Service.

2. "Lifting the Burden: Law Student Debt as a Barrier to Public Service," the final report of the ABA’s Commission on Loan Repayment and Forgiveness. The ABA report, which covered the period between 1992 and 2002, found that residential tuition at public law schools rose by 134 percent overall and at private law schools by 76 percent overall, while the cost of living rose 28 percent.

3. From "How to Manage Law School Debt" by Sarah Kellogg, regional reporter for Newhouse News Service, published in the District of Columbia bar journal, Washington Lawyer, in October 2004.

4. From the 2002 "Paper Chase" report.

5. From "How to Manage Law School Debt."

ABOUT THE AUTHOR
Janine Robben is a frequent contributor to the Bulletin. She has been a member of the bar since 1980. Additional information about the LRAPs at Oregon’s law schools is available from the schools.

© 2005 Janine Robben

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