There are tons of stories in the news about college students (and especially law students) having outrageous student loan debt. The debt can’t be paid. The debt is thousands upon thousands of dollars a month. The debt is making all these people impoverished. Everyone is defaulting and losing everything due to the oppressive student loan payments.
These people claimed they were tricked and bamboozled by the lending banks, and just have no idea how this happened. They claimed they lived frugally and scraped by, doing their best to keep debt low while also getting a first rate education.
I will be probably be completely excoriated by my peers and others for this, but if this student loan debt was acquired any time from 2010 up to the time of this writing, I have one word for these claims: Bullshit.
A lot of people who haven’t been to college (or people who did, but who were wealthy or worked enough that they didn’t need to take out loans) probably have no idea how the student loan process currently works. They might imagine you just stroll into the bank and the bank cuts you a check. The process is actually highly regulated.
First of all, to qualify for Federal financial aid, you must fill out the Free Application For Federal Student Aid (FAFSA). Filling out the FAFSA takes about 15 minutes, and it is shoved down your throat by your high school your senior year and by every college in the United States.
Federal financial aid is not necessarily available to everyone in undergraduate college. The reason for this is that your parents’ income is calculated in determining your eligibility because you will be considered a “dependent” unless you fall into a specific exception like being emancipated, married, or old enough (I think the current age is 24 or 25 to be able to classify yourself as independent for undergraduate purposes).
Once you get to graduate school, regardless of your age, you are automatically determined to be an “independent” and do not have to use your parents’ income on the FAFSA. This results in virtually every person who goes to graduate school qualifying for Federal financial aid unless they made a ton of money between graduating undergrad and entering grad school (highly unlikely).
For when Federal aid just can’t meet your needs, there is also private financial aid available through banks, and they will use their own unique criteria to determine just who gets money and how much (usually, it’s quite similar to the Federal rules). Everywhere will scream at you (including private banks) about how you should exhaust all Federal remedies before taking out a private loan, as the private loan terms are much more unfavorable. Private student loans are nevertheless available.
However, a major bottleneck on the cash flow is something called the Cost of Attendance (or COA). Virtually every institute of higher learning in the USA will have posted on their website a COA. This COA includes tuition, books, living expenses, housing expenses, etc. It is basically the school’s estimated measurement of how much it will cost you to live in the area and be a full time student. Thus a private school like NYU is going to have a much higher COA than a public school in the middle of nowhere.
When you apply for student loans, you can’t take out more than the yearly COA (in fact, you’re encouraged to take out less and to supplement the loans with other sources of income). When you have exhausted Federal options (and you can virtually always hit the COA well before you run out of Federal funds, at least in grad school), you’re required to tell the private lenders how much you’ve taken out at the Federal level because you aren’t supposed to be able to exceed the annual COA in student loans.
I therefore do not understand how it is possible that some people have accumulated $200,000 – $300,000+ in student loan debt and have monthly payments of thousands upon thousands of dollars. Actually, I do understand, and it’s because they’re vain idiots, and that’s why I wrote this post. Let’s do something I hoped to never have to do as a lawyer, and crunch some numbers:
Let’s say you got accepted to a private undergrad like Duke or NYU (but no scholarship). The Duke site puts the COA at about $60,000 for 2014-2015 and NYU puts it at about $50,000 for 2015-2016. We’ll go with the lower number just because it’s easier to work with.
So let’s say your parents are filthy rich, but for whatever reason have absolutely refused to support your decision to go to college. Bummer. No Federal aid for you. But you can still get private loans (or get emancipated). So for 4 years of undergrad, you take out the max: Your shiny new Bachelor’s degree just cost you $200,000.
But wait, you discover your English or Political Science degree is pretty much worthless, so you make the leap to law school because…uh…it seemed like a good idea at the time. Fortunately, you’re now classified as an “independent,” so you can take the max in Federal loans. Sans scholarship, law school will run you about $50,000 – $60,000 a year for a private institution. Since you went to Duke without a scholarship to get an English B.A., we’ll assume you’re too good for State Law School as well. We’ve now reached total debt of about $350,000. Good work, you are probably screwed for life since student loans are practically impossible to discharge in bankruptcy.
Oh, I almost forgot to mention the critical distinction between private loans and Federal loans. With Federal loans, as of 2010, you can get on one of two repayment plans, Income Based Repayment (IBR) or Pay As You Earn (PAYE). The PAYE terms are slightly more favorable, but basically what these programs do is tie your loan repayment obligations to your income. Furthermore, if you make the (drastically reduced) payments for a certain time period, the remaining balance of the loan will be forgiven entirely. Granted, you must still pay taxes on the forgiven amount (unless you work in a public service/government position, in which case the whole balance is forgiven tax-free in 10 years), but this is potentially six-figure debt forgiveness here. It’s absolutely huge. For private loans, there are no such generous terms. The bank is going to start jacking you for level payments right away. If you can’t afford them, say goodbye to your credit.
If you find yourself in this $200,000+ debt situation, I am laughing at you. Your tears are like sweet summer wine to me. How can I say this? How can I be so heartless? I’ll tell you why: Anybody who got into Duke/NYU/Prestigious Private College for undergrad has, absolutely beyond a reasonable doubt, been offered a full ride scholarship to the University of Direction State. You decided you were too good to take the free ride to the State U and were deserving of a more prestigious pedigree, at any cost. You then went out, applied for loans, and just signed whatever documents were put in front of your face without bothering to read them.
Even if this hypothetical person above didn’t get a full ride scholarship to Direction State U (an extremely dubious claim), the COA for in-state-resident Direction State U students will hover around $20,000, unaided. And at Big State U, everybody gets something.
A running theme I notice in these “Woe is me, my $300,000 student loan debt has ruined my life” stories is that people are surprised they owe this much money. It’s like their minds are just blown. They are literally hearing the amount of money they owe for the very first time, ever. Listen, morons, you didn’t “discover” or “become shocked” you owed Bank of America $200,000 (plus interest) in student loan debt, because you signed a contract stating exactly that. This sort of stunned disbelief is especially funny in new lawyers. Aren’t you supposed to, you know, be reading the fine print for a living?
What’s even better is that, finding themselves in dire straits due to their poor financial choices, a lot of these people then decide to double down on their bad choice by taking out an absurd amount for law school. Again, let me break down the relative admissions calculus here: If you weren’t a total idiot and therefore have a decent GPA, LSAT, and degree from Duke, you’re going to get offered a free ride to State U School of Law. Once again, you decided you were too good for this free ride and picked the “prestigious” choice to the tune of $150,000+ in additional debt. The only saving grace in this situation is at least this debt will be all or mostly Federal, and thus qualify for IBR or PAYE.
For most of my adult life (defined as “post high school”), I have been soundly mocked and derided by some of my peers who went to “prestigious” institutions. I went to community college (virtually free), then to Big State U (scholarship, virtually free), and then to a basically unknown law school (scholarship). Oh, how I was scoffed at for my “poor choices.” How could I demean myself in such a way? Invitation to the fancy dinner party hereby RESCINDED, Mr. Davis. Didn’t I know that I was sullying my reputation with these inferior institutions?!
Well, judging by all the weeping and gnashing of teeth over astronomic student loan repayments, time has proven me wise. I can now practice law just the same as someone who went to Harvard Law. I also get to do it with a very light debt load. If I told you my monthly student loan payment, some of you would vomit from envy and disbelief. Of course, with my credentials I’ll never get a job at some BigLaw firm in NYC or Chicago, but that was never my endgame to begin with. I found a path that works for me, albeit a simple and modest one.
If you’re about to make the jump into the higher education pool, very carefully consider your options. I can promise you that where you go for undergrad will be pretty much irrelevant if you secure a good GPA, good standardized test score, and throw in some extra-curricular stuff. Then you’ll probably get a full ride scholarship offer to the grad school of your dreams. Don’t take out six figures in undergrad. Just don’t do it.
More importantly, don’t get too caught up in the quest for prestige and accolades. Nothing will destroy your life and happiness faster than keeping up with the Joneses. Set realistic, attainable goals for yourself to achieve. A goal like, “I want to own my own house and make at least $100,000 a year by the time I’m 40” is probably reasonable for just about any attorney in their mid to late 20’s. “I want to live in a mansion and make $7,000,000 a year by the time I’m 30” is almost certainly not, but that’s what a lot of people chasing the prestige and the corner office think is going to happen. Inevitably, except for a few, they end up disappointed, bitter, and burnt out. Find the things that make you happy and that you enjoy doing, and then always be sure to budget time for those things.
I have my JD prominently displayed in my office, front and center. It’s the very first thing clients see when they come into my office (my parents insisted on gifting me one of those ridiculously large wooden custom frames as a graduation present). As of this writing, guess how many clients have made a comment about where I went to law school or asked me about it? Guess how many opposing counsel have asked me where I went to law school? Guess how many judges? The answer is a big, fat 0. Outside of the hiring committees of large firms or enormous companies, nobody cares. If you passed the bar, and you have a JD, where you went to school is basically a nullity for 90% of the legal world.
What matters most is the work you’ve done and how you interact with people. Be respectful. Be civil (in Florida, it’s in our Oath of Attorney now). Return people’s phone calls. Do good work at a fair price. Be honorable. It’s not that hard.