The average amount borrowed by law school graduates who borrow declined in 2017 after increasing each year since in 2010. This may be explained by increased tuition discounting, a stronger economy that permitted would-be students to save a bit more, and a stronger summer associate market for students with access to those high-paying summer jobs.
An additional explanation is that more affluent students are attending law school. Over this same time period, as sticker tuition increased steadily, the percentage of law school graduates who borrowed to attend law school steadily decreased. Higher prices, even with available student loan hardship programs from the federal government, may have disproportionately scared off students who would need to borrow. Indeed, as news of financial difficulty for law school graduates spread in 2011 and 2012, the decline in the percentage borrowing accelerated. Law school enrollment dropped a dramatic 11.4% from 2011 to 2012, and the percentage borrowing did too—nearly five points between 2014 graduates and 2015 graduates (who started in 2011 and 2012, respectively).
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The average amount borrowed reflects loans disbursed to law students who ultimately graduate with a JD and does not include interest that accumulates during law school, debt from other degree programs, or private debt related to attending law school. Graduates who do not borrow are not included in the average.
While the surge in students not borrowing could be a coincidence, it may also indicate that law schools are becoming even less socioeconomically diverse. Non-borrowing wealthy students do not bring the average amount borrowed down. However, even with larger tuition discounts, law school is not affordable for students from upper-middle class families, let alone those from less affluent backgrounds. As such, the slowed increase in the amount borrowed up through 2016 may also be explained by a greater proportion of students from affluent families who need to borrow, but receive some familial help.
Whether at public or private law schools, many students take out life-changing debt to attend. While borrowing averages provide information about the entire population, they don't aptly convey the challenges faced by individual students. Some have undergraduate debt; others take out private loans to cover expenses related to taking the bar exam. Further, a vast borrowing range lurks beneath school-wide and nation-wide averages. A $160,000 average obscures students who borrow more than $250,000.
For all law school graduates, borrowing figures do not reflect interest that accumulates during school, which the government does not subsidize for law students. For 2020-21, interest immediately began to accrue at 4.3% for Stafford Loans (up to $20,500 per year) or 5.3% for Graduate PLUS loans (up to the full cost of attendance) for students. A student who borrows the overall 2016 average of $120,000 during school will owe $135,700 by the time the first payment is due six months after graduation, at which time any accumulated interest capitalizes.
That payment is $1,540 on the standard 10-year plan and $1,010 on a 20-year plan. One common-sense rule in student lending provides that students should not borrow more than they expect to earn after their first year. Law schools of all types make observing that rule difficult. The government, on the other hand, defines financial hardship for the Revised Pay As Your Earn ("REPAYE") federal hardship program as having a monthly student loan payment of more than 10% of discretionary income. This rule is even tougher to observe. Unless a borrower makes $203,000 or more, a person with a monthly loan payment of $1,540 faces financial hardship and qualifies for REPAYE.
Salary outcomes differ by law school and geography, but most graduates who borrow will face some level of financial difficulty. The table below compares three monthly payments to five incomes. The monthly payments are based on the resultant debt from the average amount borrowed across all law schools ($120,000), as well as the 10th and 90th percentile law schools ($77,000 and $153,000, respectively). Four incomes are based on the 55%+ of law schools that publicly disclose 2016 graduate salary incomes. Each is the median value of the respondent schools for the given statistic (25th, 50th, 75th, mean). The fifth income is the very high-end of 2016 salary outcomes.
|Income Estimate||Percentage of Discretionary IncomeBy Monthly Payment||REPAYE Payment|
|$970Borrowed: 77kDebt: 87k||$1540Borrowed: 120kDebt: 136k||$1975Borrowed: 153kDebt: 173k|
|$50,000Bottom Quartile Income||23.3%||37%||47.4%||$417|
|$80,000Top Quartile Income||14.6%||23.1%||29.6%||$667|
|$190,000Top NYC Law Firm Income||6.1%||9.7%||12.5%||$1,583|
Revised Pay As You Earn ("REPAYE")
Borrowers on REPAYE must pay 10% of discretionary income each month towards their student loan payment. Discretionary income is income above 150% of the federal poverty level for a single person with no dependents ($12,140 x 1.5 in 2018). After 10 years of public service on a qualifying plan like REPAYE, the remaining balance will be forgiven under the Public Service Loan Forgiveness (PSLF) program. After 25 years in REPAYE, everybody else has the remaining balance wiped clean, although they are responsible for paying income tax on the forgiven principal. The hardship programs help these graduates get by, but interest will continue to accumulate and there are several snags that can cause the interest to capitalize and increase the tax bomb.
Future Borrower Warning REPAYE and PSLF may not survive changes to federal student loan policy.
A graduate who borrowed the average amount and makes the average income will devote more than one-third of their discretionary income to student loan repayment. The only graduate on the previous table who does not qualify for federal hardship assistance is one who has relatively low debt and manages to land a job at one of the law firms that pay $190,000 to first-year associates. While it's most likely inadvisable for this graduate to take advantage of PAYE, even with debt above $200,000, the qualification for PAYE is instructive.
About the Data
School-specific borrowing data come from U.S. News & World Report, which relies on data reported to U.S. News by law schools. In a few cases over the years, law schools did not report the percentage borrowing properly. When that occurs, the previous year's rate is used unless a school reports the correct rate to LST or a better estimate can be generated. Graduate data come from the American Bar Association. LST uses weighted averages rather than normal averages for the group and nationwide averages. Salary information is voluntarily reported and published by law schools.
Note The "amount borrowed" does not include interest that accumulates during law school, thus is different than the "amount owed" or "debt." The "average" only includes graduates who borrow.