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A Mortgaged Career

By Kari Santos | Dec. 2, 2014

Law Office Management

Dec. 2, 2014

A Mortgaged Career

Typical California law graduates' debt has jumped 35 percent since 2008. For some, a public-service repayment plan offers hope.

Working for a foundation after earning her bachelor's degree in environmental science, Lynn Goldman was helping nonprofits get businesses to reduce their carbon footprint. But it was only incremental work; she wanted to change the world - or at least national policy. So, taking a cue from the U.S. Supreme Court's ruling in Massachusetts v. EPA (549 U.S. 497 (2007)) that the Environmental Protection Agency must regulate and limit greenhouse gases, she decided she could have more direct impact as a lawyer.

She wasn't worried about coping with her law school debt: It was normal to take out loans, and she chose a public school with seemingly reasonable tuition.

"I had no concept of what it meant to borrow that money. I had no undergraduate loans; my dad paid for college," says the 2012 graduate of UC Davis School of Law. She's now an attorney for the state Department of Toxic Substances Control. "I was going to be an attorney - that's financial security. It didn't really occur to me how much money it was."

Her first year at Davis, tuition was $33,515. By the time she finished, it had risen to $45,417 a year, on par with the most expensive private schools. She ended up borrowing about $180,000 - which did not begin to cover living expenses - and now owes about $200,000, including accrued interest.

Another Davis grad, Brian Eller, says he has "a house worth of debt." Like Goldman, he works in the public sector, as a senior patent licensing associate for a state university on the East Coast. This choice qualifies them both for Public Service Loan Forgiveness, which caps their payments at 10 percent of their "discretionary" income (adjusted gross income above the federal poverty level), and in ten years their balances will be forgiven, tax-free.

Their payments are roughly $400 a month to start. Eller says the arrangement lets him afford a modest apartment, with enough extra cash to visit the cities he loves, attend music festivals, and spend time outdoors on his days off. Without the program, Eller and Goldman each would have to pay about $2,000 a month to be debt-free in ten years.

Their indebtedness is entirely typical. Among 2013 law graduates in California, 87 percent borrowed money to help fund their education - an average of $135,000, all backed by the federal government. The thousands of students applying this winter to attend California's 21 ABA-accredited law schools are likely to borrow even more. And most will be expected to pay as much as $350,000 apiece over the two decades after they graduate.

But the solution that Goldman and Eller reached is the best-case scenario, and it is available to only about one-fourth of new lawyers. Just 27.6 percent of the 2013 law school grads nationwide who were employed by last February worked in positions that might qualify them for eventual loan forgiveness - as judicial clerks or military lawyers or in other public-service or nonprofit roles, according to the National Association for Law Placement, or NALP. The rest are not eligible - and many lawyers prefer corporate or community practice.

"In theory that's good: You go, you work, and your loans are going to be forgiven. And you work 9 to 5 and you're done. But constitutionally that's not for me," says Nicole Heeder, who cherishes the freedom that running her own practice brings. After graduating from John Marshall Law School in Atlanta in 2009, she moved to San Diego to work because it was the sunniest city she and her husband knew of. "I wouldn't even call it a job. ... I love what I do."

Heeder, who represents plaintiffs in employment cases, has reduced her monthly payments by participating in a federal program - Income-Based Repayment, or IBR. But that plan requires monthly payments for 20 to 25 years before the balance is forgiven. And she will have to pay income taxes on the outstanding sum, a bill that could top $100,000. Though many graduates of professional schools face similar challenges, lawyers can be especially squeezed because their tuition rose more in some cases - even as legal salaries and employment have stagnated. (See "Legally Binding" at left.)

Heeder says she works "cheerful" hours, usually starting at 10 a.m. She and her husband, a chiropractor who also runs his own practice, each borrowed about $150,000 for school. Add interest accruing at 8.5 percent since the first loan was disbursed, and Heeder can't name their current balance. "It's like the national debt. I don't even know it. It's just a number. It's out there."

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Debt and income are uncomfortable topics. It's especially embarrassing to acknowledge owing much more than you can reasonably repay when you're in a profession that's traditionally been considered lucrative. The issue has arisen particularly suddenly in California, where public schools - which produce nearly half the state's new lawyers - have doubled tuition since the recession began and quadrupled it since 2002. For students starting this year at a University of California law school, tuition alone will run about $145,000 for three years. Considering that the American Bar Association prohibits accredited schools from letting full-time students work more than 20 hours a week, even a generous grant - say, $25,000 a year for top students - barely dents the total cost, which UC Berkeley estimates at $228,000, including living expenses.

"Even programs that are intended to alleviate the debt don't always satisfy the lofty goals they set out to achieve," says Miriam Aroni Krinsky, a trustee of the State Bar of California and an adjunct professor at Southwestern Law School. (See "Strategies for Lower Payments," page 29.) "This has been a mounting concern. If we are hamstringing young lawyers to prevent them from returning to their communities, the entire community suffers."

Jordan Furlong, a lawyer based in Canada who studies trends in the profession, says the full effect of the legal market's transformation over the past five years isn't clear. Furlong, a consultant with Edge International, says lawyers today are graduating fully prepared for a career - in 1995. "That's the last time anyone in [law school] administration was anywhere near the legal market. A recalibration is in order."

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During and after the recession, the legal profession stripped down to its chassis and rebuilt itself as a much leaner and more nimble machine - with lower salaries, less job security, and fewer positions overall. Things have improved since, but just 84.5 percent of 2013 law school grads found jobs within nine months of graduation, and only 64.4 percent landed positions that required passage of a bar exam, according to NALP. At the same time, law students kept coming, all figuring they would eventually work something out.

The crushing realization that repaying their student loans could last their whole careers dawns anew each May for thousands of freshly minted JDs. Heather Cantua, a 2013 graduate of the UC Davis law school, started exploring the issue on a blog for her classmates (at "A lot of the deans didn't even think it was a problem that someone in her early twenties [would accumulate] $50,000 a year in debt," she says.

Cantua counts herself lucky: Grants minimized her need to borrow, and she makes enough as a financial services associate with Reed Smith in San Francisco to pay off her debt in ten years with 15 percent of her take-home earnings. But it will be hard to save or buy a house. Cantua says her husband actually dropped out of law school after one semester, having decided the debt was too high. "He saw how quickly it could accumulate."

Davis Dean Kevin Johnson says the UC law schools remain public only in name because state funding has plunged from 90 percent of their budgets 20 years ago to about 8 percent now. And they can't offer the volume of grants and other assistance that many private schools can. All of which is changing the stakes - and the etiquette - of the whole game.

"When I went to law school, and as recently as ten years ago, you didn't think that you were in the position to negotiate what you paid," Johnson says. Now students angle for grants before they accept an offer of admission. "But I find it somewhat off-putting to get a text for money before I get a 'thank you.' "

Andrew Giacomini, managing partner at Hanson Bridgett in San Francisco, says law schools both private and public aren't providing training that's specialized enough to justify high salaries, and that means the degrees they offer aren't worth what they're charging. He agrees with Furlong that a whole new approach may be in order. "They could do a third year with kids in legal residencies making money - not borrowing - who are more useful once they are sworn in."

Law firm leaders don't expect the legal market to revert to prerecession conditions, when new graduates were often courted by firms and offered cushy salaries up front. The Bureau of Labor Statistics projects 75,000 new law jobs will emerge nationwide in the decade ending in 2022. At the pace California is churning out new JDs - 5,557 in 2013, according to the UC Office of the President - the state's law schools alone could fill two-thirds of those new jobs.

Globalization and increasingly efficient technology are compounding the competition, says Giacomini. "Lawyers will have to work longer and harder to get promoted. It's always been hard, but it's harder now."

Another challenge for new lawyers: With plenty of experienced attorneys looking for work, firms find that they no longer have to train green lawyers. Mary Haas, who has been the partner-in-charge of Davis Wright Tremaine's Los Angeles office and has managed hiring there for eight years, now prefers lateral transfers in many cases. And she says she's paying much less attention to which law school prospects attended because so many chose their schools based on the financial aid they would receive. "We are looking more globally at what this candidate presents as opposed to whether they are from an 'on Broadway' law school."

As for the debt most job applicants and associates carry, Haas says, "I'm not sure there is anything I can do about it except pay associates a good wage."

The feds got into the student loan business after World War II, when the GI Bill opened the door to college for 2 million veterans. Rising education levels helped create a robust middle class, and a public consensus dawned that education was good for the economy. The Higher Education Act of 1965 followed, creating the federal student loan program.

California politicians connected the dots even earlier. The state's Master Plan for Higher Education, adopted in 1960, guaranteed every high school graduate in the state access to college, and it created the Cal Grant program. As recently as 1990, UC law schools charged in-state students just $1,928 a year.

But the state's revenue drop following the dot-com bust that began in 2000 led to drastic cuts in higher education funding, and UC law school fees soared. Private law schools also raised their prices. Contributing factors at both include rising administration and faculty compensation, as well as fierce competition in the form of grants for the highest-achieving students in pursuit of top rankings.

Mechanisms to help students handle their tuition have not kept pace, so students are now borrowing at levels never seen before. Without substantial savings or family income, it's virtually impossible to put oneself through law school anymore. And student debt generally can't be refinanced more than once with the federal government or discharged in bankruptcy. Also, only a small portion of the interest payments is tax deductible.

Congress and the Bush administration tried in 2007 to change the course of student debt with the College Cost Reduction and Access Act (P.L. 110-84), which was sponsored by California Rep. George Miller (D-Martinez). It increased the pool of grant money for undergraduates, temporarily lowered interest rates, and created the Income-Based Repayment and Public Service Loan Forgiveness programs. (See charts above, this page and opposite.)

The daughter of a road construction worker and a nurse, Rebekah Morrissey thought law school would carry her up the rungs of the middle class. She grew up in the suburbs of Sacramento and hoped to return home as an advocate for family and friends, filling a crucial but increasingly neglected role in the legal system as a community lawyer. A scholarship to the nearby, private University of the Pacific McGeorge School of Law covered nearly half her tuition; she borrowed about $140,000 for the rest and some living expenses.

Morrissey graduated in 2012 and started working as a law clerk for $20 an hour. After a year of combing Craigslist and writing cover letters, she landed a job at Donahue Davies in Folsom, where she can get the litigation training she needs. Her salary covers rent on a one-bedroom apartment, where she preps for trial on Sunday afternoons, plus occasional forays to the wineries of Amador County - but only minimum payments on her loans. Two years out, her debt has grown by about $20,000.

"I ignored it the first year, but - now that I've landed at a place that I'm getting the experience I need - I'm really starting to look at the numbers." Morrissey twists her hands near her stomach; thinking about the size of her debt makes it turn. "I work for a good firm. I like the firm. But my salary does not keep up with my debt, and eventually something is going to have to give."

With so much debt, Morrissey thinks it will be difficult to come up with the capital, and the courage, to risk opening her own practice. "There has to be a better way to structure the early years to alleviate the overwhelming pressure," she says.

Heather Jarvis, a lawyer, hires herself out to law schools as a debt adviser. She argues that loan-relief programs should be expanded - and simplified. They're "so complicated and convoluted," says the North Carolina-based consultant, that it's hard for borrowers to figure out their best repayment option because it depends on their future earnings, career choices, and personal situation. "If you knew everything [about the terms for each choice], you still wouldn't be able to make the definitely perfect decision because it depends on all of these future situations that no one can predict, that haven't happened yet."

Recent grads' top complaint is that high interest rates make it impossible for most to keep their balances from growing. In Congress, Sen. Elizabeth Warren (D-Mass.) has proposed letting students refinance their school loans at somewhat lower rates (still higher than market rates for secured debt). Another idea, proposed by Rep. Tom Petri (R-Wis.), is to cap the amount of interest that student loans can accrue if a borrower agrees to pay off the full balance in monthly payments set for affordability. In June Sen. Tom Harkin (D-Iowa), chair of the Senate's Education Committee, proposed reinstating the ability to discharge private student debt in bankruptcy proceedings. But there's precious little political will to address the situation. Krinsky, the State Bar trustee, counts about 80 proposals pending at the state and federal levels.

Even before a penny of interest accrues, loan-origination fees typically put the borrower behind by more than 1 percent of the original balance. "It's money taken out before a loan is disbursed," UC Hastings Assistant Dean of Financial Aid Linda Bisesi told a State Bar committee in August. By allowing lenders to charge those fees, she says, "It seems to me that Congress is giving and taking away at the same time." Bisesi would like to see the Department of Education counsel students about managing debt both before and after their course of study. The true fix, though, is "to figure out a way that the cost of educating attorneys doesn't exceed the market value of attorneys."

Even experts at think tanks like the New America Foundation, a usually reliable source of more liberal proposals to end social and financial quandaries, oppose aid for private-sector lawyers beyond Income-Based Repayment. Jason Delisle, director of New America's federal education budget project, says repayment programs are as good as they should get for private-sector lawyers. Any more assistance would turn their student loans into free money, though he says it was an "oversight" that forgiveness comes with a tax bill.

"Borrowing money always entails some risk," says Delisle. "What IBR does is remove some of that risk. Some people want IBR to do more than it can. ... This is the largest subsidy that the federal government has ever provided to lawyers and law schools, and for no real reason."

Back in Sacramento, the climate change worries that drove Lynn Goldman to law school are coming to fruition; the Sierra is forecast to get much less snow than normal this winter, for the third consecutive year. And Goldman is proud to be spurring manufacturers to remove unsafe and environmentally destructive chemicals from everyday products like shampoo and clothing. Without her law degree, she wouldn't be able to effect such direct changes. But her own economic outlook is cloudy: She doesn't know when she'll be able to buy a home or how she can start saving for retirement.

Furlong predicts the government will eventually have to step in, like a deus ex machina, and forgive loan balances for tens of thousands of debt-laden Americans.

But that won't address the fact that the legal-education system is starting to price out everyone who isn't independently wealthy. "If we were entirely comfortable with the fact that only the rich could go to law school," he says, "then we wouldn't have a debt issue."


Facing a market where legal jobs were few and salaries low, Mo Sakrani opted to enter the start-up world instead of law after he graduated from UC Davis School of Law in 2012. A rising share of law school grads are landing outside traditional practice. Just 65 percent of the class of 2013 have jobs where bar passage is required or even helpful.

Sakrani's JD gave him enough skills at negotiating and drafting corporate paperwork to get in the door at SeedChange, a San Francisco company that connects angel investors with tech start-ups. The salary isn't what he anticipated, but reducing minimum student loan payments under the federal Income-Based Repayment (IBR) program means he can make ends meet.

Sakrani is now starting his own business. "I'm cool with the uncertainty," he says. "My goal is still at some point to make a decent amount of money."

Many grads are rebranding their law degrees and persuading employers to hire them in traditionally nonlegal positions. Even journalists who cover law are increasingly likely to hold a JD, says Laura Mahoney, a veteran staff correspondent for Bloomberg BNA. -N.M.

Working in the public sector or for a nonprofit, you may qualify for the best overall terms under Public Service Loan Forgiveness. After ten years, any remaining debt and accrued interest may be discharged, tax-free.

Once you're enrolled in that program, your best strategy is to arrange for your payments to be calculated using Pay As You Earn (PAYE) because it requires the lowest monthly payments.

As a private-sector employee, you can limit your student debt burden in four basic ways:

1) Avoid taking forbearance or deferring payments because interest will continue to accrue and PAYE makes it less useful.

2) Any time your income or obligations change, reevaluate your repayment plan.

3) Research payment plans, trying your best to find a way to pay off your debt within ten years, starting with loans that carry the highest interest rates. This is by far your cheapest option overall.

4) If there's no way you can make the payments required on a standard ten-year plan, enroll in a reduced-payment program:

PAYE requires the lowest payments (minimum 10 percent of adjusted gross income). But it also could leave you with the biggest income-tax bill at the end when your remaining principal and interest are forgiven.

Income-Based Repayment (IBR) requires minimum installments of 15 percent of income, which forces you to pay down your loans slightly faster. Still, you'll potentially face a large income-tax bill on the amount forgiven.

Under any income-based repayment plan, you may be able to lower your adjusted gross income - and thereby your minimum monthly payments - by taking these steps:
-File your income taxes separately from your spouse.
-Contribute to a Roth IRA.
-Contribute pretax earnings to a health savings account. -N.M.

For more information, see the Department of Education's repayment estimator at to calculate how much you will owe based on your current loan and salary.

Nikki Moore, a 2012 graduate of UC Davis School of Law, is an associate who practices employment and health care law in Sacramento with Kennaday, Leavitt & Daponde.


Kari Santos

Daily Journal Staff Writer

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