Lifting the Burden: Law Student Debt as a Barrier to Public Service

Federal 33OVERVIEW OF FEDERAL LOAN REPAYMENT AND FORGIVENESS PROGRAMSFOR PUBLIC SERVICE LAWYERSCongress has created limited loan repayment or forgiveness programs for certainprofessionals, including teachers, childcare workers and nurses. 39 Congress createdthese programs to encourage graduates to take lower-paying public service jobs inlow-income or underserved areas, to address severe shortages in a particularprofession and to promote occupations related to a national need. However, thefederal government offers few options to assist lawyers in public service positions,and those offered are inadequate. The options include the following:Loan Forgiveness under the Federal Perkins Loan ProgramMany law students finance their education, in part, with Perkins Loans, which areavailable to students at some schools 40 based on the availability of funds at a givenschool 41 and the financial status of the borrower. The borrower’s school acts as lender.The maximum amount a law student may borrow under the Perkins Loan Program is$5,000 per year and the total borrowing through this program may not exceed $30,000during the student’s entire educational career (including undergraduate). Interest issubsidized and repayment of principal and interest begins nine months aftertermination of study. There are no origination or guarantee fees and the interest rateis fixed for the life of the loan at 5%. The repayment period is ten years.Perkins Loans are unique among federal loans, because they offer a cancellationprovision for persons in selected forms of public service. A Perkins Loan can becancelled if the borrower• pursues a career in teaching, nursing, or the armed forces,• takes a full-time job at a public or non-profit child or family service agency providingservices to high risk children and their families from low-income communities,• works as a qualified professional provider of early intervention services, or• becomes a full-time law enforcement or corrections officer. 42Loan Forgiveness under Federal Stafford LoansThe vast majority of law students borrow under the Stafford Loan Program, whichoffers both subsidized and unsubsidized loans. The subsidized Stafford Loan is lowinterestand need-based. A student may borrow up to $8,500 per academic year (with acumulative limit of $65,000). The federal government annually re-determines theinterest rate each July 1, which is capped at 8.25%. The interest rate (in repayment) for2002-03 was 4.06% and the current rate for 2003-2004 is 3.42%, the lowest rate ever. Thecurrent in-school rate for Stafford loans is 2.82%. The federal government subsidizesthe interest while a borrower is enrolled in law school at least halftime. There are twofees assessed when borrowing a subsidized loan, (1) an origination fee (currently 3% ofthe total amount borrowed) and (2) a guarantee fee of 0-1% of the total amount borrowed.Federal39See, e.g., 20 U.S.C. § 1087ee(a)(2).40According to data collected by the ABA Section of Legal Education and Admissions to the Bar in its 2000Annual Survey, 130 of the 185 ABA-accredited law schools offered these loans.41The U.S. Department of Education allocates Perkins funds to universities. The median amount of Perkinsfunds disbursed by law schools was $238,400 in 2000. Id.4220 U.S.C. § 1087ee(a)(2). Pursuant to 20 U.S.C. § 1087ee (a)(5), the amount of principal and interestcancelled due to a borrower’s employment in one of these categories is not considered income for purposesof the Internal Revenue Code.