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Vermont Legal Aid's Rachel Batterson
Now that a debt relief program for law students has finally become a reality, the real work can begin.
The American Bar Association (ABA) Student Law Division plans to lobby legislators in order to change two financially burdensome components of the new law.
Also, financial aid officers at law schools across the country said they are just starting to handle the numerous tasks involved in learning about the complex law so that they can accurately inform students, alumni and applicants.
"It certainly will go down as one law that does have a substantial impact," said Cheryl Constantine, associate director of financial aid at Boston University School of Law. "It's been a while since we've seen legislation that's been so sweeping."
On Sept. 27, President Bush signed the College Cost Reduction and Access Act of 2007, which aims to provide relief for high-debt, low-income graduates repaying their federal student loans, including law students.
Members of the legal profession -- which has been advocating for such legislation for years -- said they are eager to see if it will help ease law students' financial burdens and allow them to pursue public interest law careers.
The class of 2006 owed a median of $54,500 to public law schools and about $83,200 to private law schools, according to the ABA. The average annual cost of tuition and fees at a public law school surged by 140 percent during the past 10 years, from about $6,000 in 1996 to about $14,250 in 2006, according to the ABA. The cost of private schools increased by about 70 percent, from about $17,800 in 1996 to $30,500 in 2006.
The new law attempts to reduce debt through an income-based loan repayment plan that sets a cap on monthly payments. The bill also provides loan forgiveness for qualified candidates after 25 years or after 10 years in the public sector.
TAX CONSEQUENCES
But two parts of the bill still need tweaking, said Daniel Suvor, who chairs the ABA's Law Student Division. The first part has to do with the tax consequences of loan forgiveness, as the sum that is forgiven would be taxed under the current plan, Suvor said.
For example, if a borrower has $50,000 remaining in loans when eligible for loan forgiveness, he would have the $50,000 canceled, but would still be taxed for that amount. Suvor said his group wants to change that, so that the debt forgiveness amount is tax-exempt.
Suvor, a third-year student at George Washington University Law School, said his group will also work to change what some have referred to as the "marriage penalty."
Under the current law, the amount of monthly repayment for married borrowers is based on the combined adjusted gross income of the borrower and the borrower's spouse.
This means marrying a spouse with a substantial income would sharply increase a borrower's monthly payments. For example, a single borrower making $35,000 with a $100,000 debt would make first-year monthly repayments of $246 under the income-based repayment program, according to Philip Schrag, director of the Center for Applied Legal Studies at Georgetown University Law Center who worked and lobbied extensively for the legislation. If that borrower married someone who earned $65,000, the monthly payments would quadruple, to $993.
Members of Suvor's group have already contacted federal legislators and prepared presentations for upcoming spring meetings and ABA Day in Washington in April, Suvor said.
The Law Student Division has also taken steps to inform students about the bill by holding presentations and sending out information, he said.
"We lobbied so hard on student loan reform for seven years, and we didn't want a great bill to be passed and no one to know about it," Suvor said.
Financial aid officers said they also have a tough task ahead. Some said the law is fairly complex, so they are holding on until any final changes are made -- such as the student proposals, as well as other minor adjustments and amendments that could still be implemented -- before dishing out advice.
"We're kind of waiting to see how exactly this all plays out," said Paul Pless, assistant dean for admissions and financial aid at University of Illinois College of Law. "It's so new, and none of us feel really comfortable going and doing our own interpretation of the law."
Pless said the school is waiting to get more information, such as implementation guidelines from the U.S. Department of Education that turn the statutory language into a document that is more workable for financial aid officers.
In addition to being in its early stages, financial aid officials said, the new law is complicated because the benefits can vary greatly based on factors such as a graduate's income or a law student's interest in public interest law.
For example, because the loan forgiveness is applicable only to federal loans, students interested in public interest law who are borrowing from private lenders may want to rethink their options. Under the new law, they would be eligible for forgiveness of their federal debt after 10 years of repayment and work in the public sector, but that would not apply to debt from private loans.
About a fifth of all student loan volume is handled by the private loan market, according to Project on Student Debt, sponsored by The Institute for College Access & Success, whose goal is to identify cost-effective solutions that expand educational opportunities.
"No one has the crystal ball, and none of us know what we'll be doing in 10 years, but we'll be asking students to make the most informed decision based on what they know at the time," said Nicky Fornarotto, financial aid coordinator at Rutgers School of Law-Newark.
Fornarotto and others said the question of whether to consolidate loans can also get complicated.
Some loans -- such as the federal Perkins loans -- are only eligible for income-based repayment when they are part of a federal direct consolation loan. But even the decision about whether to consolidate loans can be tricky, as different loans have different cancellation policies. Furthermore, some loans, such as Graduate Plus loans, are included in the monthly payment cap. However, they are not eligible for cancellation after 25 years, although for public sector employees they are eligible for forgiveness after 10 years.
A number of law schools said they are waiting until the spring to pass along detailed information and host information sessions. Any changes that may occur should be in place by then, and the law schools will also have detailed guidelines and better information about the law's language, they said. But some have already posted summaries of the law on their Web sites, handed out basic information in financial aid offices and sent e-mails to students and graduates.
At Rutgers-Newark, the law school has started informing its alumni about the law because they are currently repaying their loans and may want to reconsider some of their options, Fornarotto said.
Second, school officials are reaching out to students interested in the public sector, as they would be eligible for loan forgiveness after 10 years.
Third, the school is targeting applicants as their eligibility for the program may help them determine whether to choose the school, she said.
Ashley Ligas, a delegate to the ABA Student Law Division, said the division is working on raising awareness and educating all law students about the new program.
"There is still a little confusion, and I just think it's really complicated, and there is some tax issues in there, and some of it is just over a layperson's head," said Ligas, who is in her third year at Florida State University College of Law in Tallahassee, Fla. "We tried to break it down to just the basics so all students can just kind of look at the criteria and say, 'Am I going to meet this?'"
THE 'RIGHT DIRECTION'
Students have had many questions, such as how to calculate what their monthly repayment will be and how to determine whether consolidating their loans pays off, she said.
Law school officials said it's too early to tell whether the law will allow more law students to pursue public interest careers. The law aims to help those in the public sector not only by lowering the monthly payments but also by forgiving any outstanding amount after 10 years of payments and 10 years of work in government, nonprofit organizations or other public sector jobs.
"This act is certainly a step in the right direction," said Michael Schill, dean of the University of California at Los Angeles School of Law. "Now, as with any other legislation, it no doubt needs to be tweaked in various ways, so we'll start seeing as time goes on whether the act is effective in promoting public interest careers."
Rachel Batterson, who graduated in 2000 from Georgetown University Law Center and now works as a staff attorney at Vermont Legal Aid, said she thinks the new law will help draw qualified graduates to public sector jobs and increase diversity in the field.
"Everyone is quite eager to see how it helps," she said. "One of the unfortunate impacts of such high loan debt is that it sometimes means that only people who went to a certain school or come from a certain economic background can afford to be a part of legal aid or public defender groups. Few people want to do this work, but this [law] would make it possible because it's impossible without loan forgiveness or repayment."
Batterson said she was able to pursue a career in public interest law because Georgetown has its own loan repayment program for qualified candidates. That was also a major reason she chose the law school, she said.
About 100 of the nation's 190 law schools have their own school-funded loan repayment and assistance programs, but many of them have very limited funds, according to Schrag.
Susan Gross, senior director of admissions and financial aid at New York Law School, said she was optimistic about the law's intent to help those interested in public sector jobs.
"Now I can sit with a student and say, 'Yes you're borrowing a lot of money, you're borrowing through a federal loan program and this is what you can do to be able to follow your passion and work in public interest law,'" she said. "The conversation was very different beforehand; it's gotten easier now because of the law."
