Law School Student Loans

Commentary

Don LeDuc, President and Dean | February 6, 2014

Anyone considering law school will be barraged with blog commentary and analysis by those claiming to being informed about student loans. Inaccuracies and exaggerations abound. So, here is some clarification, although with each statement there may be scattered exceptions.

Law School Loans

Law schools are not lenders. Up until recently, most lenders were private entities that received federal guarantees, but a small segment of the law student loan business was done by the federal government. In 2010, the federal government ended that approach and took control of the student loan market. Today, the bulk of lending is done through direct federal unsubsidized loans and federal GradPlus loans.

Law schools exercise no control over the eligibility requirements. The schools serve only as processing entities. Schools help students process the loans and help the federal government distribute the loans.

The law schools get no compensation for their services. They are subject to tight controls on their handling of the student loan funds. Schools are audited annually.

Schools do not get any of the interest payments or principal repayments that students make. For loans made since 2010, loan repayment principal and all interest is paid to the federal government, at interest rates established by the federal government. Schools are not involved in the repayment process, which takes place after the loan recipients leave a school. While the law schools benefit because students spend about three-quarters of their loan proceeds at the schools, it is the federal government, not the law schools, that makes the substantial profits in the student loan business.

Schools do not control loan forgiveness, now or previously. A law school cannot forgive an obligation of a recipient to either a private lender or the federal government.

Default rates on law student loans are quite low. Professional school rates, including those for independent, non-profit law schools, have remained far below the student loan default rates of other institutions participating in the federal loan program, even during the recent recession and slow recovery. The default rates for Cooley graduates for the 2009 class were 1.2% after two years and 2.2% after three years. For 2010, the two-year rate was 1.6% and the three year rate was 2.8%. These rates exclude those who did not graduate.

Default rates are calculated and reported by the federal government. No schools calculate their own default rates, which are calculated by the government and are publicly available. The default rates for law school graduates, and those who attended law school but did not graduate, are far below the federal requirement established by the Department of Education.


Law School Debt

There is a significant gap between the amount of money students receive from loans and the amount of money that law schools receive in tuition and fees from those students. Students are eligible to receive funds for living expenses, but generally law schools do not receive the benefit of those funds unless they directly provide room and board. Students do spend some of their funds on books and other law school-related discretionary fees. And some of the fees may actually go to student organizations.

Here is an example of how students at our School spent their loan funds, based on the numbers for the 197 members of the September 2013 graduating class:

Average tuition and mandatory fees for the 197 graduates:

$107,973

Average scholarships provided for the 197 graduates:

$25,881

Average net tuition and fees paid to school by the 197 graduates:

$82,092

Average loans to the 197 graduates:

$110,743

Average loan funds for personal use by 197 graduates:

$28,651

Thus, on the whole, the 197 graduates in this class paid to the law school about 74% of the loan money they borrowed.

On average, these 197 students paid $27,364 per year for their legal education. The amount for each student varied depending on the extent of the scholarship received. Among the 197 graduates 117, or 59.4%, received scholarships that averaged $43,578.

While a majority of students received scholarships, it is true that a significant minority of students received no scholarship support while attending law school. The 80 non-scholarship students who graduated in this class paid $35,991 per year for their legal education.

Although 117 graduates received scholarships, only 27 of the 197 graduates (13.7%) did not obtain loans. The average loan to the 170 graduating loan recipients was $128,332.

The bloggers and critics casually toss around figures that are much higher than this. These claims about law school debt are almost always anecdotal and based on the worst case scenario—the atypical student who over-borrows—not the typical law school borrower.

Only three of the 197 graduates borrowed at least $200,000, the highest being $206,365. Another six borrowed at least $175,000. In addition to the 27 students who took no loans, another 45 borrowed less than $100,000.

Summary

The reality, at least at Cooley, is this. For its most recent class, slightly over one quarter of the loan funds borrowed by its graduates did not go to the school. The average graduate paid $27,364 per year in tuition. The average scholarship among the 117 recipients was $43,578, or $14,526 per year. The average non-scholarship student paid $35,991 per year in tuition. None of the loan principal and interest payments will go to the School; all the loan profits will be realized by the federal government. Even in a time of recession, the graduates of Cooley had default rates that were very low.