National Association of Attorneys General
Newly Enacted Federal Student Loan Repayment Assistance Program May Boost Careers in Public Service
Law may help Attorneys General recruit and retain top legal talent
For those who went to law school with an eye towards a career in public service, the financial realities faced by many law school graduates may have caused them to reconsider their altruistic intentions. The tremendous debt incurred as a result of attending graduate school has forced many new graduates to choose between foregoing public service-oriented career choices or face the potential financial burden of repaying student loans for up to, and in some cases, more than 25 years. In other instances, talented lawyers have left the public sector after only a brief stint in order to meet the rising economic demands placed on themselves and their families. The financial stress placed on new graduates from student loan debt, as well as the rising salaries offered in the private sector, has been an issue for the offices of the Attorneys General for quite some time.
The financial burdens for public service-minded law school graduates has intensified over the past 10 years. In 1999, the median cumulative debt of those graduating from private law schools stood at approximately $79,000. By 2004, this number had jumped to more than $94,000. The average cumulative debt incurred by public law school graduates was not much better, exceeding $57,000 by 2004.1
For those seeking public interest career choices, however, as well as those who have chosen this career path notwithstanding the potential economic hardships involved, the financial equation has now changed. The recent passage of the College Cost Reduction and Access Act of 2007 is aimed at easing the burden of educational debt faced by those choosing a public interest career, including those employees of the various offices of the Attorneys General.
Many legal organizations have been active in the push to obtain relief for high debt borrowers who wish to pursue public sector employment. Since at least 1999, the National District Attorneys Association (NDAA) has been very involved in the fight to obtain loan forgiveness for prosecutors, who are often compensated at levels substantially lower than that of a private sector attorney. In 2001, the American Bar Association (ABA) formed the Commission on Loan Forgiveness and Repayment Assistance (“Commission”) to study the issue of loan forgiveness for public sector attorneys, including prosecutors and public defenders. In 2003, the ABA released the Commission’s full report entitled, “Lifting the Burden: Law Student Debt as a Barrier to Public Service,”2 which provided extensive background on not only the problem of law school debt for those contemplating a career in public service, but also a comprehensive overview of then-existing loan repayment and forgiveness programs at the federal, state and law school levels. The report also proposed recommendations for each sector, including urging Congress to develop a robust loan forgiveness program for public sector employees.
In late September of this year, the President signed the College Cost Reduction and Access Act of 20073 (“the Act”), which has made it possible for high debt/low income borrowers to not only manage debt repayment for certain student loans through a repayment plan that it is more income-sensitive than currently existing programs, but the Act also creates a new program in which public service employees, including those working in government and for non-profit 501(c)(3) organizations, are entitled to forgiveness for a substantial portion of their educational debt after making payments during ten (10) years of full-time employment in these public service jobs.
Income Based Repayment Program
Effective on July 1, 2009, Section 203 of the Act creates a new option for borrowers to repay their educational debt under an “income-based repayment” calculation that requires a lower percentage of discretionary income to be allocated towards repayment than the current “income-contingent repayment” program.
Under the new option, a borrower’s maximum repayment would be 15percent of their discretionary income, defined as the adjusted gross income of the borrower minus 150percent of the federal poverty level.4 When the borrower’s income rises to such a degree that the amount due under the income-based repayment calculation is equal to or exceeds the standard repayment amount, then the borrower moves out of income-based repayment into the standard repayment structure.
Borrowers do not need to be engaged in public service employment to take advantage of this new option. Payments made under this opti-year requirement for loan forgiveness are outlined in Section 401 of the Act.
Accelerated Forgiveness for Public Service Employment
Section 401 of the Act details a comprehensive loan forgiveness program for borrowers who have made 120 payments while “employed in a public service job” and are employed as such at the time of the forgiveness. The term “public service job” means, inter alia, a full-time job in government, law enforcement, public interest law services (including prosecution or public defense); or an organization that is described in section 501(c)(3) of the Internal Revenue Code5. Specifically, this program would be available to any and all employees who work for the various offices of the Attorneys General.
Stafford Loans and the relatively recent Grad PLUS loans (which replaced the older, private LawLoans program) are eligible for repayment under this loan forgiveness structure, but the prior educational debt must first be consolidated into a “federal direct consolidation loan” and the Act guarantees the ability to undertake such a consolidation in order to take advantage of the public service loan forgiveness program – whether or not the borrower actually plans on taking such advantage.
The 10-year service requirement does not need to be continuous; borrowers who take leave, work for a time in private industry or otherwise work outside of the public sector may still take advantage of the program. However, in order to qualify for the accelerated forgiveness, a borrower must make 120 payments, in any of the repayment structures available, while employed full time in a qualifying position. In addition, the borrower must similarly be employed in a qualifying position at the time such forgiveness is sought and is granted.
While there are still outstanding issues to address in providing meaningful relief to those seeking public interest careers who are saddled with enormous educational debt6, Georgetown University Professor of Law Philip G. Schrag, in a recent law review article in the Hofstra Law Review, concluded that “Congress has achieved what it set out to do: provide some relief for all high debt/low income borrowers, while providing very substantial student loan repayment relief for those who make the sacrifice of choosing long-term lower-income public service careers.”7 It appears that the Act goes a long way in providing a vehicle for public sector employers, including the Offices of the Attorneys General, to attract and retain talented employees.
1 Schrag, Philip G., "Federal Student Loan Repayment Assistance for Public Interest Lawyers and Other Employees of Governments and Nonprofit Organizations." Hofstra Law Review, Vol. 36, Fall 2007. Available at SSRN: http://ssrn.com/abstract=1014622 (last visited on December 10, 2007). This law review article provides a comprehensive overview of the legislation, including the history behind the impact of rising student loan debt, and would serve as an excellent resource for those looking to examine this issue further, especially those with outstanding educational loans who wish to explore their ability to participate in the new loan forgiveness program.
2 The full report can be found at http://www.abanet.org/legalservices/downloads/lrap/lrapfinalreport.pdf (last visited on December 10, 2007).
3 P.L. 110-84.
5 The potential breadth of those eligible to participate in this forgiveness program is enormous, including teachers, military personnel, social workers, nursing and emergency management.
6 Two of the hot-button issues that will continue to be discussed in this area are the tax status of such loan forgiveness as well as the “marriage penalty” for those borrowers who are married but file separate tax returns. Currently, any loan forgiveness under this program (and, generally speaking, under the previous structure) is counted as taxable income in the year in which the forgiveness occurred. Absent Congressional Action, those borrowers in the public sector who take advantage of the loan forgiveness program may find themselves with a substantial tax liability. A borrower under an “income based repayment schedule” would find the calculation increased by the income attributed to their spouse, regardless of their filing status or the sharing of finances.
7 Schrag, supra n.1.