Help Is on the Way for New Graduates With Student Loans

Moaning about massive student debt is a time-honored tradition among law school graduates.
Some members of the class of 2009 will have less to complain about, however. A new federal program intended to help borrowers manage their student debt goes into effect on July 1. The legislation -- called the College Cost Reduction & Access Act -- will cap monthly loan payments according to income and forgive student debt balances after designated periods of time.
For attorneys, the main beneficiaries will be those who go on to have long-term public interest careers. But the program will also make loan payments more affordable for all attorneys with high debt loads and relatively low incomes.
"There are a lot of things that are making it tough for new graduates, with the tight job market and the deferrals," said Heather Jarvis, a senior program manager at Equal Justice Works, an organization that encourages attorneys to undertake public interest law careers. "But there has never been a better time to graduate, as far as student loans."
The program will benefit law students in two key ways. Most prominent is loan forgiveness for public interest workers. After a borrower makes payments for 10 years on government-backed student loans, the government will forgive the remaining loan balance for those who qualify. The program guarantees loan forgiveness not only to lawyers who serve the public interest but also to a wide array of public service workers including teachers, law enforcement officers and certain health care professionals.
The loan forgiveness provision is intended to make it more affordable for college graduates to pursue public interest careers, which often come with lower salaries than in the private sector. Even with the recession, first-year associates at many major law firms are paid as much as $160,000; public interest attorneys can expect starting salaries of about $41,000, according to a survey last year by the National Association for Law Placement.
INCOME-BASED REPAYMENT
The second aspect of the new federal program that will benefit law graduates is the income-based repayment option, in which monthly loan payments are capped according to the borrower's annual income. Public interest attorneys must choose this repayment option to qualify for loan forgiveness, but graduates who don't go into public interest also may choose to participate. Under income-based repayment, monthly student loan payments are capped at 15 percent of the borrower's discretionary income. After the borrower makes qualifying payments for 25 years, the federal government will forgive any remaining loan debt.
There are several online calculators to help borrowers determine whether they qualify for the income-based repayment option. Most of those who do will have their student loan payments set at less than 10 percent of their annual income, according to The Institute for College Access & Success, a nonprofit group that seeks to make higher education more affordable. This option wouldn't make sense for graduates who take jobs at large firms paying upwards of $100,000, Jarvis said, but it might be right for the sizable segment of law school graduates who don't earn that kind of money.
"The reality is that most law graduates don't take those jobs and earn those salaries," she said. "A lot of people make $60,000 or $70,000 a year. At these salaries, they would qualify for the income-based repayment plan. Debt loads are getting so high that it's typical for someone to graduate from law school with $100,000 or more in debt. If you were going to stretch out paying your debt anyway, [income-based repayment] is a good option to consider."

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