Paul L. Caron

Friday, April 19, 2013

Deborah Jones Merritt: How Much Must Law Grads Earn to Pay Their Student Loans? $236,850.

Deborah Jones Merritt (Ohio State), Unconscionable Debt:

A single, unmarried student attended a flagship public law school with the median scholarship offered by that school. ... Over his three years of law school, he borrowed $123,865. ... [A]t least a third of current 3Ls at public schools have borrowed $120,000 or more to finance law school. The average amount borrowed by private school graduates, of course, is already over $124,000. ...

What does it mean to borrow $123,865 to finance law school? ... [I]f you attempt to repay this loan on the standard ten-year plan, you will owe $1,579 per month. And here’s the kicker: The government program counsels that, using guidelines published by the Consumer Financial Protection Bureau, this student should find a job with a minimum gross income of $236,850 to support those loan repayments! Even the students who obtain those BigLaw jobs won’t gross that amount. ...

How can we possibly maintain access to the legal profession at these prices? How can we provide justice for clients? How can we in good faith enroll students in programs that will leave them financially strapped for years -- or dependent upon taxpayer goodwill for reduced payment programs? How can we, as scholars who value public policy, impose those costs on the public?

We can’t. There are four steps that we, as law schools, should pursue aggressively to address this unconscionable situation: (1) Dramatically lower tuition, whatever that takes. (2) Restructure law school so that students can work close to full-time while completing their studies; there’s no other way to cover post-college living expenses for adults who choose not to live with their parents (or don’t have that option). (3) Publicize very clearly how much graduates will earn from average jobs after making average loan payments. (4) Lobby Congress to guarantee reduced payment plans like IBR and PAYE for loans that have already been disbursed, but to repeal those programs for professional students going forward. Those programs were never designed for professional students, and they are coninuing to inflate the cost of professional education. As a policy matter, the money would be better spent on almost any other line in the federal budget.

The median starting salary for law grads is $60,000 (20-year salary data here).

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Hey Anon,

It's not just the policy setters like Gates and Lumina that want to kill GradPLUS loans; we can add the dynamic dual of Simpson-Bowles to the list. From, "The latest deficit-reduction plan from the two men who led President Obama's deficit reduction committee in 2010 calls for changes to several programs important to higher education. The plan, released Friday by former Senator Alan Simpson, a Republican, and Erskine Bowles, a Democrat, would eliminate the in-school interest subsidy on student loans, end PLUS loans to graduate students, use a market-based interest rate for all student loans, and create a "two-tier" system of income-based repayment."

You'll have to redouble your anonymous, mostly misleading sales pitches if that gets passed, eh?

Posted by: Unemployed Northeastern | Apr 22, 2013 7:27:15 PM

All of the problems come back to simple f*cking honesty.

The law schools, their administrative apparatus, and the professoriate have been unable (and, indeed, energetically unwilling) to meet even that pathetically low threshold of integrity.

For all of their supposed accomplishment, legal academics are utter, utter failures in terms of ethics and all the tortured rationalizations and convoluted self-justifications will not erase their true work of decades.

A grateful profession and nation thanks you...

Posted by: cas127 | Apr 20, 2013 8:37:34 AM

Unless someone changed the rules, the early comments (and the article) miss some key points.

First, most new grads can't pay their loans for a while. So, we "defer" the payments -- and essentially, the payments are added to amount we owe ("capitalized"). So if you owe $1000 a month, and defer 2 years' worth, you're gonna owe about $20-24k more.

Worse yet, it is not uncommon for people to default on their loans. The penalty for default is substantial. In my case, the net of the deferred payments and the default fee was about 50% of the original amount. So, in this case, the $120k loans would turn into $180k.

I found out the hard way (I made all of the mistakes) that if I consolidate once, that I can't consolidate again. I consolidated to move 8 payments into 1, and later when I needed to consolidate to get a longer deferment (or to refi after I defaulted) I was unable to do so.

So the situation will be far worse than what is said in this. You can't bankrupt your way out of this, and debts owed will result in a suspended law license, not to mention seizure of all tax refunds, etc. Oh, and the student loan collections people who came after me made the IRS look downright compassionate.

Posted by: geek49203 | Apr 20, 2013 6:26:32 AM

"Since my school's tuition is around $40K, that means that even without paid faculty, you are still talking about $30K in tuition."

How can an academic be so incurious as to not ask - "How is that possible?".

How can the legal professoriate be so prostrate as to have allowed this state of affairs to arise - and, more criminally, continue?

Simple - the professoriate is (and has been) getting its cut of the loot for looking the other way.

And, creatures like Anon are working like hell to keep it that way.

Posted by: cas127 | Apr 19, 2013 9:10:55 PM


Of course, putting $125k in student loans on the 25 year plan means that you will pay about $135k in interest on top of that $125k in principal. But since us new lawyers have such amazing gainful employment rates, stellar salaries, and lifelong job security, I guess that's not an issue, is it? (rolls eyes).

So what if you don't have to take private loans out at the moment (aside from bar loans)? That wasn't always the case, and plenty of recent law grads with private loans are struggling, despite your oleaginous reassurances on this blog that it's all a media conspiracy or something. Oh, and as a policy matter, GradPLUS loans are in trouble. The two largest higher ed foundations, the Gates Foundation and the Lumina Foundation, which share absolute monopoly power on higher ed, both advocate killing GradPLUS loans and restoring the private market. They think it will increase pricing pressure on oversold professional degrees (i.e. law & biz schools). Given their influence in the DOE and in DC, I suspect this idea will gain traction. You can read about it in the Chronicle of Higher Education, if you wish.

*On average; note that this does not include undergraduate student loans, bar expenses, or principalizing interest on non-subsidized Stafford Loans, so all of my figures are low. And of course, even some low-ranked law schools are getting near the $80k/year mark, and many are over $70k/year. And of course, the unemployment rate for recent law school graduates IS HIGHER than the unemployment rate for recent undergraduate college graduates.

Posted by: Unemployed Northeastern | Apr 19, 2013 8:42:53 PM


What corruptly self-justifying contortions do you offer to the approximately *50%* of law grads who cannot even find work as lawyers?

Of course, if the ABA had not been dead at the switch for 25 *years* and if law schools were not filled with self-deluded "social justice" types (who blithely justify their own six figure salaries with 6 hours per week of classroom time...) then the ruin of the law schools would not be upon us - because *accurate* employment and salary information would have be made public decades ago.

Instead, the schools eagerly disseminated misleading swill in order to enrich themselves and people like you.

The legal professoriate, in its blind greed and *lazy* self-aggrandizement, has destroyed its credibility.

And you speak for a retrograde faction that believes it can *forever* outface the facts of its corruption.

Posted by: cas127 | Apr 19, 2013 8:26:50 PM

Anon's calculations are wrong. The interest rate for professional student loans as of July 1 is 6.8%. If a law student borrows $124,000 and pays it off in 25 years, he will be paying approximately $10,000/year.

Posted by: Douglas6 | Apr 19, 2013 8:08:36 PM

So, if as ML suggests, faculty pay (including benefits) is 25% of the tuition the law school charges, what is the rest paying for? Even if ML's estimate of the cost of a law prof is low by half, that's still half the student's tuition going for what? Education is labor-intensive; the physical plant doesn't cost that much.

Posted by: Anthony | Apr 19, 2013 5:18:25 PM

ML, I'm afraid you're out of date on law faculty salaries. Here are the 2011-12 salaries that schools reported to SALT: Those are already a year out of date, but the best national figures available.

If you look at the column for tenured professors (both associate and full), the lowest median comes from Akron at $111,212. The mean almost certainly is higher than that, because faculty salaries today tend to compress at the low end rather than the high one. Computing an overall mean (one that included pre-tenure assistant and associate professors) wouldn't lower the average much, because law schools have relatively few pre-tenured faculty at any one time--and, again, the roster of tenured faculty probably includes some very high salaries (like the dean's) to balance the pre-tenure ones in computing an arithmetic mean.

A common figure for benefits at universities is 30% of base salary. So at the cheapest school on the list, the average cost of a professor (including benefits) is about $144,575. For a school in an expensive metropolitan area, like Hastings or Touro, it is more like $227,500. Note also that the highest ranking (and, by reputation, highest paying) schools don't participate in the SALT survey. So we're looking at a sample of relatively low faculty salaries here.

I agree with your bottom line, though, that schools will have to do more than cut faculty salaries to address the cost issue; I simply said that I would be willing to do that in response to another commenter's question. What else will schools do? Probably cut staff, reduce library costs, and--eventually-shift back to need-based scholarships. Some schools will close. One thing is clear: there aren't enough students willing to fill existing seats at law schools at today's prices.

And a quick note to RY and a few others: as my full original post makes clear, these are not my calculations--they are the numbers that the Department of Education is giving to current 3Ls. My full post also makes clear that no student really would need to earn this much, but the government's calculation is a sobering reminder (a) of how high debt has risen, and (b) that none of the system was designed with high-cost professional schools in mind.

Posted by: Deborah J Merritt | Apr 19, 2013 4:43:18 PM

DJM states that "using guidelines published by the Consumer Financial Protection Bureau, this student should find a job with a minimum gross income of $236,850." The general rule for borrowing for an education is that one should only borrow between 50% and 100% of your expected starting salary. If you use the 50% number and you borrow 123,865, then you should be able to earn between $123,865 and $236,850. The latter number does seem unrealistically high and it works better for middle income folks who borrow $30,000 and need to earn between $30k-$60k to service their debt.

From a practical perspective, if you are earning $120k+ starting out, you are generally living in an expensive metro area. If approximately 1/3rd goes to payroll, income, and local taxes, you're left with $80,000 a year net or about $6,600 per month. Most people at that income level should save 15%-20% of their gross income for retirement. That leaves approximately $56,000 left. Your student loan payment is about $19,000 per year on a 10-year repayment plan. Once you throw in living expenses in a major metropolitan area and the fact that you are likely working 60 hours a week with a long commute, you are likely living reasonably ok unless you have kids or a non-working spouse, but you certainly aren't living it up.

The basic premise is fine, the average law school grad that is lucky enough to find a job is earning $60,000 per year; yet average debt is over $120k. I don't see how people can service that and purchase a home or have children. The idea that the "solution" is to extend these loans out to 25 years and pay an exorbitant amount of interest at current Stafford rates is ridiculous, when a 30 year mortgage is currently at half the interest rate.

Posted by: RY | Apr 19, 2013 2:23:27 PM

Over the course of 10 years, a person making an annual salary of $236,850, who gets no raises, would make $2,368,500. DJM says that is the MINIMUM one would need in those 10 years to pay off $124,000 in loans over that 10 years? Nonsense.

This type of hyperbole mascerading as scholarly analysis is not helpful to a rational discussion of these issues.

Posted by: Kipper | Apr 19, 2013 1:08:29 PM

It seems to me that even if we eliminated every single tenure track faculty member and replaced them with adjuncts (let alone the more modest reforms you are all arguing about) tuition would still be pretty high.

At my school there are 50 law profs. Assuming that the average one makes $150K including benefits (I'm in a very high cost of living metro- in most cities you'd have to drop this down to 100K at most), eliminating EVERY SINGLE ONE of them and replacing them with unpaid adjuncts saves $7.5 million.

Since my school has about 700 students, that means $10,000 per student. Since my school's tuition is around $40K, that means that even without paid faculty, you are still talking about $30K in tuition.

How little do more modest reforms save? If you assume every single faculty member gets $10K for summer teaching or research (which I doubt), eliminating those line items saves $50,000- about $700 per student.

Cutting our pay in half? $3.7 million, or about $5000-6000 per student.

I conclude from this that the scary part about the self-flagellation by Prof. Merritt and other faculty is this: it is actually TOO optimistic about schools' ability to survive while cutting costs.

Posted by: ML | Apr 19, 2013 11:28:01 AM

First Anon here again.

Stephanie Hoffer:

You don't need to refinance your federal student loans to get a 25 year repayment schedule. Just select the "extended repayment" option.

The interest rate doesn't change and there are no extra fees.

You can finance a law degree 100 percent with federal student loans, so there is really no reason to have private student loans.

Suggesting that students need to repay their loans in 10 years is simply dishonest. I would say careless, but countless people have pointed this error out to DJM, and she keeps making it again and again. At some point, you have do question her motives.

And of course, "Wrong" is right. Even on a 10 year repayment plan, DJM is not even close to being correct.

Why does this "professor" make $240,000 per year for embarrassing herself and her institution (Ohio state) every time she gets on a computer with an internet connection?

Does Ohio State enforce anything resembling academic standards?

Posted by: Anon | Apr 19, 2013 9:58:46 AM

Anon at 11:41, As a factual matter, I don't think you would need to eliminate tenure or completely cut funds for research and travel (although I would do both if necessary). We do need to reduce salaries and the amount of research/travel support for tenure-track faculty, as well as increase teaching loads (including "increases" in the sense of more feedback and client-focused education), and I have repeatedly urged those changes. In terms of faculty salaries and support, I suggest going back to about 1980 (with just inflation adjustments). Alternatively, schools could seek other revenue sources.

Changes in the size, salary, research support, and teaching loads of tenure-track faculty are unlikely to reduce US News rank. They are going to happen, like it or not, at a large number of law schools, so the impact on relative rank will be small. Equally important, the US News score for reputation among faculty peers is very sticky; it's hard to move up, but it also is hard to move down. Moving money from tenure-track faculty salaries and other benefits to scholarships, loan repayment plans, or serious pedagogic reforms, in fact, is just as likely to improve rank as to decrease it; those changes would attract the students that schools are desperately seeking, while maintaining expenditure levels.

Posted by: Deborah J Merritt | Apr 19, 2013 9:34:45 AM

As a follow up: I grow weary of the champions of reform and their cheerleaders' self-righteousness and reputed "boldness" in the absence of clearly addressing the above.

Posted by: Anon | Apr 19, 2013 8:44:04 AM

Does " Dramatically lower tuition, whatever that takes" include reducing her and her colleagues salary, eliminating tenured faculty positions (including her own), entirely eliminating support for faculty research and travel, and increase her and her colleagues teaching loads? Given that those - faculty salaries, faculty lines, faculty research support, and low faculty teaching loads - are the major fixed costs in any law school's budget, "dramatically" lower tuition would have to include all of those steps, and faculty would have to be willing to bear those costs, and the law school and its alumni would have to be willing to accept the likely dramatic decline in the school's US News ranking.

Posted by: Anon | Apr 19, 2013 8:41:33 AM

Yes, I was thinking the same thing as Anon at 7:52 and I would go further. Pay it back over 10 years at $1,579 per month. She is saying you need to gross nearly $20,000 each month just to pay back a $1,579 per month in loan payments?

I paid off my $60,000 law school loans 25 years ago (with higher interest rates) in about 5 years with about a $65,000 annual income, so if the average is about twice that today, it might take someone with a $130,000 income to pay it off in five years.

Posted by: Wrong | Apr 19, 2013 6:37:36 AM

Bravo Prof. Merritt. Some of the most clear-thinking and concise reasoning I have seen written on the subject.

Anon-you changed the facts, but even so, you make no serious inroads on Merritt's conclusion.

Posted by: Publius Novus | Apr 19, 2013 6:36:57 AM

Actually, it can be very difficult for students to refinance their loans. It is purely anecdotal, but I know a handful of recent grads who have been unable to refinance their ten year notes.

Posted by: Stephanie Hoffer | Apr 19, 2013 6:24:54 AM

It is truly shocking that someone as bad at math as DJM has a job as a graduate level professor. She is not qualified to teach kindergarten.

Loans can be paid back over 25 years. They need not be paid back in 10. The payment on $124,000 over 25 years at the federal student loan interest rate net inflation is $641 per month or $7,691 per year.

The average liberal arts college grad starts out making around $30K per year.

In what universe does it take an extra $30,000 per year before taxes--just to start--to pay $7,691?

A world with 75 percent tax rates--which no one in the U.S. is paying.

Posted by: Anon | Apr 19, 2013 4:52:13 AM