March 12, 2014
by Bill Penn, Director of Public Interest Law
Last week, President Obama released his 2015 Budget proposal. A section of that proposal (Page 13) addresses student loan repayment programs and Public Service Loan Forgiveness. For the last week, I have been answering individual questions from students and alumni about the budget proposal, and want to take a moment to try to clarify the state of student loan repayment and what might or might not be on the horizon.
Many law school graduates have come to rely on federal student loan repayment programs that adjust loan payments based on their income. These programs have built in loan forgiveness should any graduate be in repayment for a long enough time. The two most popular programs are:
- Income-based Repayment: 15% of disposable income for no more than 25 years.
- Pay as You Earn: 10% of disposable income for no more than 20 years (only available for those who were new borrowers after October 2007).
In addition to the built-in forgiveness of these two programs, graduates may seek Public Service Loan Forgiveness after 120 months (10 years) of public service work—full-time government or 501(c)(3) non-profit work.
What Happened Last Week
President Obama released his 2015 federal budget proposal. This is the first step of the federal budget process and is a plan, in charts and narrative discussion, of how the President would like to see the government operate next year. This is not a change to the laws or the rules of student loan payment, but it does indicate the direction that the President would like to go. Because it is a budget proposal and not a law or administrative rule, it is vague and incomplete. Here is the item in the President’s budget proposal that has people worried:
- A call to limit the amount of student loans that can be forgiven through Public Service Loan Forgiveness to $57,500—this is the current federal aggregate borrowing limit for independent undergraduate students attending a private university.
Were this to become law, it would mean that Public Service Loan Forgiveness would loose its benefit for modest-income hight-debt graduates, e.g., public interest attorneys, doctors working in public health, and some teachers and social workers with advanced degrees. In order for this proposal to become the state of affairs, it will take more than a budget proposal. Because Public Service Loan Forgiveness does not require the allocation of funds, not even passing a budget would implement changes. In order for loan terms in President Obama’s budget proposal to take effect, it will take Congress agreeing to a new law, the President signing it, and the Department of Education promulgating rules to implement it. It will also require much more detail, and possibly (in my opinion likely) different caps for undergraduate and graduate students. Keep in mind that agreement on anything has been hard to come by in Washington lately.
Why Current Students and Graduates Might Not Need to Worry
The terms of the proposal are vague, and current students and graduates might not need to worry about any potential changes affecting them. Before the the proposal documents in bullet points the changes proposed, there is a paragraph stating that those already in repayment and those in their current course of study will be able to continue to use existing payment plans. It is unclear if that statement about continuing in existing payment plans considers Public Service Loan Forgiveness to be part of the current plans or a separate program. Heather Jarvis documented some of the arguments for current students and graduates to NOT worry in a recent blog post
The Good Things for Borrowers in the President’s Proposal
Along with the item that is worrying law students and graduates are items of benefit to student loan borrowers:
- Expansion of the Pay as You Earn plan to ALL borrowers (pay no more than 10% of disposable income)
- Measures to slow the growth of unpaid interest for those making the lowest payments under an income-driven plan
Even if all the proposals become law in the worst possible light, new graduate will still be far better off than those who graduated prior to the availability of income driven repayment options. In the worst-possible light, a graduate with the median national law school debt of $125,000 starting in a public interest job with the median salary of $45,000 would see a total out-of-pocket expense to repay their loans of about $126,000 before forgiveness set in 25 years down the line—yes, in the worst case the graduate would be required to pay back barely more than they borrowed in the first place. This is far worse than the best case scenario under current law: paying a total out-of-pocket expense of $35,000 before Public Service Forgiveness in 10 years—that is $90,000 less than initially borrowed. It is, however, a far better scenario than encountered by those who graduated law school prior to 2009 many of whom still find themselves tied to a 30-year payment plan and a total out-of-pocket expense of over $300,000 to pay off their student loans.
What You Can Do
Now is the time to make noise to the President and to your Members of Congress and Senators. Writing down your personal story and sending it to a government official can make a difference. Equal Justice Works just posted their response and call to activity
. There is a petition on WhiteHouse.gov
where you can call on the President to maintain Public Service Loan Forgiveness. Whether you agree or disagree with the content of the President’s budget proposal, now is not the time to panic; this is the time to make your voice heard.
What Lewis & Clark is Doing for You
I continue to keep a close eye on the state of loan repayment and remain one of the most informed in the nation on the subject. I am always glad to answer questions. Lewis & Clark is a member school of Equal Justice Works; we support the organization the leads the fight for law graduate borrower rights, particularly public sector graduates. Lewis & Clark continues to maintain a strong Loan Repayment Assistance Program to help our public interest graduates with or without the help of federal programs. All of us at Lewis & Clark want you to be able to pursue your dreams.