Making public interest affordable

I’m pleased to welcome as guest blogger again this week Alan B. Morrison, Lerner Family Associate Dean for Public Interest and Public Service Law. ~ FL.

A common law student lament is, “Of course, I would take that public interest or government job in a heartbeat, but my loans just won’t let me do it.”  That may have been the case at one time, but it is no longer true as a result of the recent enactment of two federal laws, included in the College Cost Reduction and Access Act of 2007, which substantially ease the burdens on students saddled with massive debts from student loans.

The first of these laws is the Income Based Repayment Program (IBR), which is what it sounds like: your repayment amount goes up or down based on your actual income.  In a nutshell, here’s how it works.  Your base starts with the current poverty level for a single person (about $10,000 per year) which is increased by 50%, making it $15,000.  Assume the recent grad has a job paying $35,000 a year, from which is subtracted the $15,000 adjusted base, leaving $20,000. The statutory payment of 15% is applied to that amount, resulting in an annual payment of $3000. By contrast, a student with a not-unreasonable debt of $100,000 on graduation, with interest at a standard 6.8%, would be paying more than twice that amount in interest alone, plus whatever principal had to be repaid under the loan agreement.  The $3000 figure, which works out to $250 a month, does not vary with the size of your debt, but it does increase as your income goes up, but only by 15% of the increase.

IBR applies regardless of where you work after graduation, including at a low paying private firm or in your own practice, and applies no matter when you finished your education. However, it can only be used for federal and not private loans.  And here is the best part: not only do you limit your loan repayments when your income is lower, but all of the interest and principal that you did not have to pay back along the way is totally forgiven at the end of 25 years.

The other law is strictly a loan forgiveness provision, and it applies only to those who work for the government―federal, state or local―and for organizations that have 501(c)(3) tax exemptions, which is most nonprofits.  Like IBR, it is not limited to law students and is limited to federal loans.  Its big attraction is that all principal and interest not repaid is forgiven after 120 monthly payments.  For many people that will be exactly ten years, but the law is clear that the monthly payments need not be consecutive, so that if a person takes a brief detour into private practice, or takes time off for child birth, the interruption in public service does not preclude the discharge of all of the remaining interest and principal once the 120 monthly payments while in a qualifying job have been made.

One wrinkle in the public service loan forgiveness program is that there is currently no method by which the Department of Education, which is in charge of both programs, maintains a current eligibility file on each graduate. Thus, a person could make regular payments for several years, and the Department might later conclude that the job did not qualify or the payments were too low, and it might be very difficult to go back ten years later to show that you are in fact in full compliance.  We are working with Equal Justice Works, a leader in creating post-graduate fellowships for law school graduates and in making sure those jobs are affordable, to persuade the Department to establish individual files―much like Social Security has for your retirement―that would enable you to verify your continued compliance on an annual basis.  More information about these programs can be found on the Equal Justice Works website.

One other aspect of IBR offers a potential for further savings.  The law allows married couples with federal loans to combine their loans and their incomes, provided they file joint federal income tax returns.  Because of the complexity of the federal tax laws, in some cases, that combination will actually cost a couple money, while in other cases it will be a big help.  We are now working on a software program, with Equal Justice Works and an outside financial planning firm, headed by a GW law graduate, that will enable graduates to input the relevant loan and income information to determine whether to combine their debts or not.  Once completed, we plan to make the program available without charge to everyone since IBR is not limited to law school graduates, but is available to anyone with a federal loan.

All of this is in addition to the subsidies that the Law School and its Equal Justice Foundation provides for summer jobs, as well as the Loan Repayment Assistance Program that helped low income graduates prior to the passage of the two new programs and will still be available for students with significant non-federal loans.  Alan Morrison