Monday, September 21, 2015
The American Lawyer: A Loan Repayment Plan That Punishes Law Grads, by Matt Leichter:
Despite plummeting law school applications and a glut of highly indebted, underemployed law school graduates, Washington appears to believe that its student loan reforms treat law grads too gently.
After promoting the Pay-As-You-Earn (PAYE) repayment plan to ease debt burdens, the Department of Education is pulling back. In July 2015, the department posted the latest addition to its list of income-sensitive repayment plans: Revised Pay-As-You-Earn (REPAYE). As the new plan’s name implies, the government is dissatisfied with PAYE, which was itself intended to improve upon the Income-Based Repayment (IBR) option. The department hopes to make REPAYE available by Dec. 31, 2015.
REPAYE differs notably from its predecessor by demanding more from graduate and professional students, who tend to borrow more than undergrads. Instead of cracking down on tuition or curtailing its lending programs, the department proposes to extract more from the students. Unfortunately, most law school debtors do not have the large incomes necessary to fully repay their loans. And because law students make up a large proportion of the borrowers using federal loans to pay for graduate education, they will likely bear the brunt of REPAYE's graduate-student-unfriendly changes.
Consequently, most law-school debtors will still be better off under PAYE, but probably not the older IBR.
Here's a list of the changes that law students should be aware of: ...
To assess the impact REPAYE will have for law school debtors, here is a table of outcomes for a debtor on PAYE, REPAYE, and IBR. The debtor's situation is based on these assumptions:
- Loan principal of $130,000, with an interest rate of 6.2 percent (roughly the current average rate for this academic year).
- Income of $45,000 that grows by 5 percent each year. These assumptions may be generous for the typical law grad.