'$10K doesn't make a big difference.' Law grads lukewarm on debt forgiveness plan
- Law firms
- Hefty law school debt loads will mute the impact of $10,000 plan
- Other proposed debt relief measures in Biden's plan may benefit lawyers far more
(Reuters) - Forgiving $10,000 or $20,000 of federal student loan debt may not be a game-changer for most debt-strapped lawyers, but experts say other provisions in the White House's new debt-relief plan could save attorney borrowers far more over time.
U.S. President Joe Biden on Wednesday unveiled his long-awaited student loan forgiveness plan, which erases $10,000 from the balance of qualifying federal loan borrowers, and $20,000 for borrowers who received need-based Pell grants as undergraduates.
The plan is a mixed bag for lawyers. Biden did not restrict forgiveness to undergraduate borrowers as some had feared, meaning loans taken out to fund law school are eligible. Borrowers qualify if they earned less than $125,000 individually or who had family incomes of less than $250,000 in either 2020 or 2021.
But $10,000 or even $20,000 may not make a significant dent for many lawyers. Nearly 71% of law students leave campus with student loans, according to the U.S. Department of Education, and their average debt hovers around $138,500 — higher than any other field besides medicine.
The income cap means that lawyers working in large, corporate law firms — where even first-year salaries can surpass $200,000 — won’t qualify for forgiveness. But many working in public service or small to midsized law firms will qualify, said Derek Brainard, director of financial education at nonprofit AccessLex Institute, which advocates for affordable legal education.
The U.S. Bureau of Labor Statistics pegged median lawyer pay nationwide at $127,990 in 2021. Data from the National Association for Law Placement show that starting salaries clustered between $45,000 and $80,000 for 2021 law graduates and spiked again at $190,00 to $215,000, highlighting the pay gap between large firms and other legal employers.
Cassaundra Gonzalez, a 2021 law graduate who earns $65,000 as an immigration attorney at a small firm in Western Massachusetts, said she qualifies for the $10,000 forgiveness off her $138,000 loan balance.
“Not to sound ungrateful, but the $10,000 doesn’t make a big difference for me,” she said Thursday.
Even subtracting that amount, Gonzalez said she will not be able to pay off her balance before it is slated to be forgiven after 20 years of on-time payments. She initially borrowed $110,000 but has seen that amount grow due to interest.
Marcella Jayne, an associate at 1,100-lawyer Foley & Lardner and mother of two who owes more than $170,000 in student loans, does not qualify because her income is above $125,000.
“I hate the income cap,” she said. “It’s such an arbitrary number.”
The cap does not account for different costs of living, said Manhattan resident Jayne, nor the number of people a single income supports.
But Biden's plan includes other proposed changes that could bring relief to big student borrowers like lawyers, Brainard said. The Education Department aims to create a simpler income-based repayment option that would cap monthly payments at a lower rate than the current 10% of borrowers' discretionary income, and potentially lower what it considers discretionary income.
In perhaps the biggest change, the Education Department said it wants to eliminate so-called “negative amortization,” which is when loan balances grow from accrued interest despite regular monthly payments. That could significantly reduce lawyer debt loads and the taxes they may have to pay on any balances forgiven after 20 or 25 years, said Brainard, who noted that the details of these proposals have yet to be released.
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