The Shark

bill aims to stop student loan forgiveness being taxed as income.

[julie annes]

In June we mentioned new federal programs that could help students unload, or at least manage, a bit of the student debt they incurred during their undergrad and law school years.

If you'll recall, the program, which took effect July 1, gave some borrowers access to an income-based repayment plan. Under the new program, whatever debt is not paid back after 25 years is forgiven, and the period is even shorter, 10 years, for those who go into public service.

But we didn't mention one teensie little catch to that whole "forgiveness" thing.

Truth is, even if your loan is forgiven after those 25 years, the amount forgiven would be taxed as income to the borrower, according to an email sent out by the Project on Student Debt. 

As a possible solution, H.R. 2492 was introduced in May. The bill, which looks like it's still set to be reviewed by the House Ways and Means Committee, would amend the Internal Revenue Code of 1986 to keep the forgiven amount from being reported as income. This would only apply to borrowers whose repayment plans were income contingent or income based. 

Find out more about the bill at the Project on Student Debt, which allows you to fill out and print a form letter that you can send to your representative to urge them to show their support if you are so inclined.

You can track the bill's progress here.

twitter adds list feature.

[cynthia]

One of the cornerstones of social media is being able to organize others into groups according to your relationship with or interest in them. Twitter's joined the ranks of sites making customizable groups available to its users - well, some of them.

Social Media Law Student reported this morning that Twitter's unveiled its "Lists" feature, which allows you to organize the accounts you follow and allows other users to add you to lists as well. The feature's not available on all accounts yet (our Twitter account doesn't have it yet, for example), but once it's universally available it'll be an easy way for you to follow all of your law school-related social media at once.

Some of our favorite law school tweeters, who will be added to a list once we have list-making capabilities:

@Lessig: Stanford professor Lawrence Lessig

@BitterLawyer: "entertainment" law blog 

@EvilEsq: The Bar Association for Evil and Unethical Lawyers

@BlawgWhisperer: ABAJournal.com web editor

@blackbooklegal: law blog out of Philly

And, your Shark contributors on Twitter:

@julieanneines and @no634

Please feel free to share your favorite law/law school-related Twitter accounts in the comments.

what's your human capital?

[julie anne]

What if your LSAT score, undergraduate grades, college and major - besides determining what schools you get into - also influence whether private loan companies give you money for law school?

While it's not at the stage to be used for law school loans just yet, People Capital's ultimate goal is to do just that for undergraduate students using its Human Capital Calculator.

You plug in your high school, high school grades, undergraduate school, undergraduate grades, major and whether you plan to go to graduate school into a calculator, and it spits out your projected earnings potential over the 10 years after graduation.

The calculator is still in beta, but the company's goal is to ultimately provide a tool that lenders can use to determine the credit risk of applicants.

According to the math of the calculator, if you went to a froufrou prep school, aced your AP classes, attended an Ivy League for undergrad and plan on going to law school, chances are you'll be raking in the cash after graduation, will be able to pay back whatever is loaned, and will consequently be a better candidate for a big loan.

If you went to public school all your life, went to a state school for college, plan on working right after graduation and don't have any plans to sell your soul in the future, you may not be so lucky.

Here's the reasoning of the company in its own words:

"When you apply for a private student loan, lenders want to assess the risk they would take by making the loan to you, so they can know what amount they should lend and at what interest rates. Lenders use a set of standardized and verifiable attributes as a means of differentiating among student borrowers.

The most common form of credit score is the 'FICO score'. FICO scores are based upon such attributes as the number of credit cards you have, outstanding balances, payment history and bankruptcy. Based on this form of methodology, students (or young adults in general) will fare poorly, as they do not have a long (or even medium) positive history of payments. As a result, they will generally receive low FICO scores and, thus, will look like very risky propositions. This is where the Human Capital Score comes in.

The starting premise for the Human Capital Score is that there is a way to assess the relative riskiness of students by looking in part at a different set of standardized and verifiable attributes. These attributes help predict their future income, and hence their ability to pay back loans. These relevant attributes are items such as school, major, GPA, and standardized test score. The Human Capital Score uses these as inputs to create a score."

Check it out here.

whoopsy, i owe $400k to sallie mae!

[petra]

Can you say "a mountain of student debt?"

One former Hastings law student has made it into the New York Times, picture and all, for $400,000 in student loans earned over 26 years. 

The paper describes the lifetime of misfortunes that helped steer Robert Bowman, who’s 47, toward that astronomical sum.

His road to becoming a lawyer involved a childhood spent in foster homes, two tragic accidents and years of rehab, Hastings law school and international travel. He passed the New York bar exam in February 2008 on his fourth try.

While the committee of New York lawyers that reviews bar admission applications found his tenaciousness awesome, a group of state appellate judges didn’t agree.

They denied Bowman entry into law practice in the spring. “Applicant has not presently established the character and general fitness requisite for an attorney and counselor-at-law,” the NYT quotes them.

Bowman is now preparing to sue his way to practice, which, we’re guessing, won’t help lower that debt load. Any guesses on when he'll make his very first payment?

Petra is a Cal Law reporter.

great news for those indebted: new federal loan programs.

[julie anne]

Student debt in the six figures is certain to rank low on anyone's list of things that give them the warm and fuzzies, probably falling somewhere between guys that flip their collars up and Speidi.

But that attitude toward debt may change, at least for some borrowers, come July 1 when a new Perkins, Stafford and Grad PLUS loan program takes effect.

While the new policies won't eliminate debt completely, they could possibly turn someone's scary, monstrous, burdensome debt beast into something more manageable and possibly more cute and cuddly, according to a Project on Student Debt video that explains some of the changes.

If you were too caught up in the adorableness of the debt monster - I know I was - here are the basics.

According to a Bargain Babe interview with Bill Penn (who gives career advice to students at Lewis & Clark Law School), the change is twofold.

For starters, rather than paying back loans at a fixed rate, some borrowers can get something called income-based repayment, which allows lenders to cap payments at 15 percent of the buyers income. Under previous rules, this would have meant even more years of debt. Under the new program, however, whatever is not paid back after 25 years is forgiven.

The news is even better for those who go into public service. You can have your loans forgiven after just 10 years.

Find out more about what these loans could mean for you at the Project on Student Debt website. Also, check out the Project on Student Debt's Facebook page for information on the June 17 and June 24 webinars conducted by Equal Justice Works.

don't count on those loan forgiveness programs.

[julie anne]

Law school tuition for one year? $37,950

Room and board in Orange County, Calif.? $15,300

Personal expenses? $5,277

Books and supplies? $1,560

One year of law school, including living expenses? $63,000

Getting a quality legal education? Upwards of $140,000

You were expecting me to write “priceless” to last one, right? Ha. I’m not going to trivialize the cost of a law school education by turning it into a MasterCard commercial.

The truth is, law school costs money. Lots and lots of money.  Scrooge McDuck pools and pools of money.

I knew that while applying to law school, but it was still a bit of a shock when I got my financial aid award letter from the Chapman University School of Law.  At first I thought that maybe there was a decimal point missing somewhere, but no. The first year of school will in fact cost about the same as a really nice car, and tuition and living expenses for all three years would cost about the same as a house in some parts of California.

Given the cost of a legal education, it’s no surprise that many students who had their hearts set on public interest work go into high paying jobs in Big Law.

Still there are a few who opt to continue with their public interest plans, banking on federal or state programs that promise to forgive a portion of their debt if they choose public service fields.

According to a New York Times article published last week, about 7,500 teachers, nurses and public interest lawyers benefited from Kentucky’s loan forgiveness program since 2003, at a cost of $77 million.

But just how reliable are these programs?

In another article also published last week, the Times found that while federal programs are safe, many states’ loan forgiveness programs are tied to the state budget.

As a result, the Times says, states sometimes see stories like that of Adam and Katie Thomas:

“… teachers of special needs children, the Thomases had a combined $85,000 in student loans. Partway through the payback period on those loans, however, the forgiveness program in their state cut its annual subsidy from 20 percent of the couple’s total loan balance to just 1 percent. That pushed them so close to the edge financially that they decided to sell their home and move in with Ms. Thomas’s parents.”

Yipes.

If you consider that the average law student graduates with about $80,000 in debt, and the average public interest lawyer makes about $36,000, a career in public interest can turn students saddled with thousands of dollars in debt off.

I’m not certain of the type of law I want to practice once out of law school, but I am certain that I and other law school students want public interest law to be a viable and financially sound option when we do graduate.

Forget about the car industry, President Obama. Where’s the graduate student bailout? At the very least, those interested in serving the public interest should have the continued financial incentive to pursue that interest without fear that the programs they rely on will be cut back or canceled several years down the line.

Find more information on federal student loan forgiveness here.

given the choice, would you do it all again? law school grads report mixed reactions.

[julie anne ines]

The ABA Journal recently posed a question that I’m sure many a lawyer and many a graduating law student have been asked: “If you could start from scratch, would you opt to take the LSAT and go to law school?”

Basically, can you see yourself going back in time in order to prevent a depressing future, a la disturbingly hot man-boy Zac Efron in the movie 17 Again?

I haven’t had the, um, privilege of seeing the movie, but I imagine it has something to do with a troubled middle-ager who gets a second chance to do things differently and learns some things along the way to a happy ending.

Unfortunately, life is nothing like it is in the movies.

In real life, we live with the consequences of our actions. And, in the case of law school, those consequences can add up to debt in the six-figures and work that isn’t as fulfilling or as profitable as one pictured while an idealistic law student, according to many of the posters on in the ABA Journal’s comment section.

Here’s a gem from poster “Captain Obvious”:

“Let’s see. I now hold ten times the amount of student loans as I did after graduating from undergrad, at more than twice the interest rate. I’ve been unemployed since graduating from an allegedly strong Tier 2 law school two years ago this month. I live in my parents’ basement, and can afford neither health nor malpractice insurance. My last interview with a law firm was eight months ago. I would eagerly take a non-legal job if anyone anywhere was interested in hiring a JD. Sadly, no one is. I do not have ten dollars to my name. So, after careful contemplation, I would have to come to the conclusion that I would not go to law school again, if given the choice.”

And I just signed up for how many years and how much in student loans? Gulp.

More heartening comments after the jump.

clarence thomas: suffered through mega loans, too.

[brian lauter]

When you think of Supreme Court Justice Clarence Thomas, the word “comforting” is not one that usually comes to mind.

Thomas is probably known best for his rigid originalism, which leads to frequent dissenting opinions, and his silence during oral arguments.

According to Regent Law Blog, however, Justice Thomas had some very comforting words a couple of months ago for students struggling with debt while trying to find jobs.

While answering questions from a Con Law class at George Mason University, Thomas used his own story to put law students worried about employment prospects and loan repayment at ease.  Thomas told students that he had graduate from law school with a wife and a child and school debt and had accepted a position with the Missouri Attorney General because that was the only job he was offered.

Sure, he did graduate fromYale Law School, but it’s an encouraging story for jobless 3Ls nonetheless. Thomas then went on to work for biotech company Monsanto and then as a Legislative Assistant in the Senate. He then worked in the Reagan administration and was appointed to the D.C. Circuit by George H.W. Bush.

Pretty non-traditional...

When asked about loans, Thomas told George Mason students that he didn’t finish paying of his student debt until his third year on the Supreme Court!

As for that steely silence during oral arguments? In a New York Times piece from 2000 Thomas explains:

“...I was on that other side of the podium before, in my earlier life, and it's hard to stand up by yourself and to have judges who are going to rule on your case ask you tough questions. I don't want to give them a hard time.”

Who knew Clarence Thomas was such a nice guy?

bar prep loans may be lacking, but fear not for your ramen and rent: there's a plan B

[pam smith]

In a Cal Law story we just posted (free reg. req.), we've got one school noticing more loan rejections than usual this bar prep season, and many more wondering if they'll see the same, given the shrinking pool of lenders and the credit environment in general.

But fear not -- they have a plan. Many are banding together to try to persuade the federal government to give loans out for more bar prep costs (like, say, those pricey exam-prep courses) than it will typically cover. So long as the federal government moves swiftly, all should be just ... oh, um ... hmm.

social lending may pick up some of the credit crunch slack.

[justin gosling]

I accepted my student loans for the current semester over the past summer, and I dutifully selected the same lender that I had for the previous school year. Imagine my surprise when I learned that the financial aid office said that they could not secure funding from this specific lender because of the then-looming credit crisis. It was like the whole financial industry stood up and shouted "take that, Justin!"

Seeing as I didn't have fifty grand just lying around (shocking, I know), I had to pick a new lender.  And it's not just finding a lender for tuition and living expenses that is the problem; law students also have to worry about finding money to hold us over between the time we graduate and start work after taking the bar.

The no-man's-land between graduation and employment is the subject of an article in The National Law Journal. The article talks about how the slowing economy will make repaying loans more difficult and urges that students take "caution" when taking on additional debt.  This advice is nowhere near as interesting as the advice I'm about to give you.

I'll let you in on a secret.  Bank lenders are not the only game in town for financing your education and expenses.

Instead, consider social lending.  No, I'm not talking about MySpace and Facebook.  I'm talking about sites like GreenNote, Fynanz, Virgin Money USA, and Zopa. These sites link regular people who need money with regular people willing to lend money. I was tipped off to the existence of social lending by a sfgate.com article that talks about how the credit crunch is affecting students that need private loans to pay for the rising costs of tuition. The article profiled a Santa Clara University grad student that was $7,000 short on school expenses. Rather than take on a private loan with a high interest rate, the student pitched her story to friends and family and ended up with a $5,000 commitment from a friend.

While social lending may not work for everyone, it's good to know that private lenders are not the only source of funding available to the savvy student.  If you're wondering how you're going to make it this year or the next, consider researching some non-conventional forms of "financial aid."