an unanticipated consequence of
Jack M. Balkin
Jack Balkin: jackbalkin at yahoo.com
Bruce Ackerman bruce.ackerman at yale.edu
Ian Ayres ian.ayres at yale.edu
Mary Dudziak mary.l.dudziak at emory.edu
Joey Fishkin joey.fishkin at gmail.com
Heather Gerken heather.gerken at yale.edu
Abbe Gluck abbe.gluck at yale.edu
Mark Graber mgraber at law.umaryland.edu
Stephen Griffin sgriffin at tulane.edu
Bernard Harcourt harcourt at uchicago.edu
Scott Horton shorto at law.columbia.edu
Andrew Koppelman akoppelman at law.northwestern.edu
Marty Lederman msl46 at law.georgetown.edu
Sanford Levinson slevinson at law.utexas.edu
David Luban david.luban at gmail.com
Gerard Magliocca gmaglioc at iupui.edu
Jason Mazzone mazzonej at illinois.edu
Linda McClain lmcclain at bu.edu
John Mikhail mikhail at law.georgetown.edu
Frank Pasquale pasquale.frank at gmail.com
Nate Persily npersily at gmail.com
Michael Stokes Paulsen michaelstokespaulsen at gmail.com
Deborah Pearlstein dpearlst at princeton.edu
Rick Pildes rick.pildes at nyu.edu
Alice Ristroph alice.ristroph at shu.edu
Neil Siegel siegel at law.duke.edu
Brian Tamanaha btamanaha at wulaw.wustl.edu
Mark Tushnet mtushnet at law.harvard.edu
Adam Winkler winkler at ucla.edu
Income Based Repayment As a "Subsidy" for Legal Education
Many law schools across the country are now facing severe financial pressure owing to a dramatic decline in the overall number of applicants (falling from 100,000 in 2004 to 58,000 for the entering class of 2013). As law schools struggle to enroll a sufficient number of students, the Income Based Repayment (IBR/PAYE) debt relief program has taken on enormous (unintended) significance. It is no exaggeration to say that the very existence of a number of law schools now rests upon IBR. Although IBR was conceived as a debt relief program, legal educators have begun to argue that IBR is a "subsidy" for legal education, and should be considered a "standard" loan repayment plan.
I explore the implications of IBR for students and law schools in this article (in a forthcoming symposium on Failing Law Schools in the Georgetown Journal of Legal Ethics). My piece is a response to Philip Schrag's argument (I also address the separate criticism that my book is elitist). A more detailed look at the economics of IBR can be found in this recent piece by Professor Gregory Crespi.
Here is excerpt from my essay:
In the absence of IBR, law schools with bad results for most students would be forced to drastically slash tuition because few rational students would enroll in these institutions at current prices. Owing to IBR, however, these law schools can entice students by telling them that they need not fear the size of the debt they will take on because their monthly payments will be capped at a manageable level and the remaining debt will be forgiven. One administrator at a middle-ranked law school used IBR in precisely this way, saying “the loan forgiveness aspects of these plans are essentially back end scholarships.”
Law schools have smartly begun to incorporate IBR into their admissions pitch, making assertions that echo Schrag’s position. In a promotional podcast extolling the “magical Juris Doctor” degree, California Western law professor Don Smythe asserts that “$100,000 plus” debt should not worry prospective students because IBR, which he calls an “important public subsidy to all prospective law students,” insures low monthly payments and debt cancellation after 20 years. Dean Steve Smith adds, “[a]nd in a sense it is a safety net because whatever the principal is you’ve borrowed you are not going to go bankrupt; you should not be paying more than, now it is less than, 10 percent, of your adjusted gross income, your discretionary income, to repay loans. So that is a kind of safety net.” As noted earlier, the California Western class of 2011 had average debt of $153,145, the highest nationwide; nine months after graduation, only 112 out of 285 graduates had landed full time long term jobs as lawyers; the bulk of the graduates working in lawyer jobs were in firms of 2-10, which typically pay less than $60,000, far below the amount necessary to manage the average debt. Law schools like this would go under without IBR.
IBR is intended to rescue grads who find themselves drowning under large educational debt. It was not set up to be utilized by schools—fighting for their survival in the face of declining applications—as an inducement to persuade concerned prospective students to leap into risky financial waters that will leave them floundering.
"Law schools with bad results for most students"...
How about for law schools that encourage students to work in public interest or government positions without the fear of going bankrupt (and still owing on student loans even after!). IBR is essential in enabling young lawyers to work in ways that better our society, whether its providing legal services for the indigent or helping draft local laws.
I sure hope public interest is not equated with "bad results."
Public interest jobs qualify for a special program that operates on the same terms as IBR/PAYE, but cancels the debt after 10 years (rather than 20), and is not taxed. As I make clear in the essay, this is a good deal.
"Public interest jobs qualify for a special program that operates on the same terms as IBR/PAYE, but cancels the debt after 10 years (rather than 20), and is not taxed. As I make clear in the essay, this is a good deal."
If you can get one; from what I've heard, nobody who's got one is giving it up, and the number is shrinking, beacause nobody has money.
As the legislation governing Pay As You Earn (PAYE) and National Insurance contributions Paye Oxford becomes more complex, errors or omissions may be made that could lead to further enquiries from HM Revenue & Customs or a full PAYE investigation.