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

38The maximum repayment period is 25 years. 64 After 25 years, the Secretary forgivesany remaining debt. 65 Anytime after electing the income-contingent repaymentoption, a borrower may prepay the debt without penalty or switch to a more rapidrepayment plan.For married borrowers, the income-contingent repayment option formula combinesthe income of both spouses for purposes of determining the monthly repaymentobligation. 66 By combining the income of both spouses, the program effectivelyimposes a “marriage penalty” for married two-income, one-debt couples, compared tothe repayment obligation for two borrowers who are not married. 67To date, the program has not served the original purpose for which it was created – toencourage and enable graduates to take lower-paying community service jobs. Graduatesshy away from the program because of the long period, 25 years, before forgiveness occurs.RECOMMENDATIONSThe Commission offers the recommendations outlined below as a comprehensivepackage designed to provide relief for and incentives to lawyers who want to serve theircommunities through public service. In order to effectuate meaningful change and relief,the Commission urges Congress and/or the Administration to implement the recommendationsso that law graduates can accept and remain in lower-paying public service jobs.FederalCongress should enact legislation or the Secretary of the U.S. Department ofEducation should amend existing regulations governing the income-contingentrepayment option of the William D. Ford Federal Direct Loan Program by (1)permitting forgiveness sooner than 25 years after a borrower begins repayingloans and (2) eliminating or reducing the marriage penalty.The income-contingent repayment option of the William D. Ford Federal DirectLoan Program is available to all borrowers, including law graduates, with federaldirect loans. It also includes borrowers who consolidate their federally guaranteedloans into federal consolidation loans. Congress created the income-contingentrepayment option to enable graduates with high debt to pursue careers in the traditionallylow-paying fields of public interest or community service.Although the income-contingent repayment option was designed to enable graduatesto pursue public service careers, very few law graduates use it. 68 A survey of lawstudents identified the top three reasons that most students do not elect incomecontingentrepayment option as: (1) an unwillingness to commit to a 25-year repaymentterm, even though the program is revocable; (2) the difficulty of long-term planningunder conditions of uncertainty; and (3) the prevalence of high private debts not coveredby the income-contingent repayment option. 69 When respondents were asked if they6434 C.F.R. § 685.209 (4) (i). Congress set a 25-year maximum before loans payable under the income-contingentrepayment could be forgiven, but did not set a minimum. In 1994, the Department of Education set the 25-year maximum as the minimum. The Department could amend this regulation to permit forgiveness sooner,to make the program more attractive to borrowers. Even though fewer than 1% of borrowers elect the incomecontingentrepayment option, the Department has not amended the regulation.6534 C.F.R. § 685.209 (4) (iv). The amount of debt forgiven is treated as taxable income.66See, 34 C.F.R. § 685.209 (b).67See generally, Schrag, The Federal Income-Contingent Repayment Option for Law Student Loans, supra note 61,pp. 827-830.68Schrag states: “[P]olicymakers originally anticipated ICR would be used by 15-30% of borrowers. TheSecretary of Education projected that between 1996-2000, 17% of all direct loans…would be repaid underthe income-contingent repayment option. In fact, fewer than 1% of new borrowers at schools that offerfederal direct loans choose income-contingent repayment.” Id. at 830-831.69Id. at 788-793.