Two articles in today’s New York Times (9 January 2011), examine the predicament of law school graduates who cannot earn enough to reduce their student loan balances.
1. Tuition debts that cannot be discharged in bankruptcy (except in rare, extreme circumstances) are those that the U.S. Government has guaranteed it will repay banks if the borrower defaults.
2. These Federally-insured student loans represent a trade-off: More money is available to borrowers, the interest rates are lower, and repayment terms are more flexible precisely because the loans generally cannot be wiped out in Bankruptcy Court. Loan money is available because the risk of loss to private lenders is so low.
3. If students could walk away from these obligations, very few unsecured student loans would be available. Many students would be financially unable to attend law school. Applicants from poorer families would be the biggest losers.
4. Borrowing for law school in the hope of landing a high-paying job represents a calculated risk. It like setting up a business or speculating in real estate; there is no promise or guarantee of a payoff.
5. I believe in a free market in which individuals make their own calculations about where to work or whether to choose graduate school. It is unavoidable that law school may turn out to be a poor investment choice in retrospect for people who borrow three years of tuition for a low-ranking law school, go too far into debt, or graduate at the bottom of their class. Our Government cannot prevent those outcomes, nor should it try to.
6. The Times articles suggest that some law schools manipulate statistics to paint a falsely positive graduate employment picture for their applicants. There should be regulations to assure that law schools provide full and fair disclosure.
7. Furthermore, I believe Congress should reconsider the conditions upon which Federally-insured student loans may be deferred or discharged, including accommodation for the new lawyer who cannot despite best efforts earn enough to reduce their tuition debt. This calls for fine-tuning. Making these loans dischargeable unconditionally would do more harm than good.