Wednesday, October 12, 2011

Law professor solicits fraud as a recruitment strategy

Entering into a loan with the intention of failing to fulfill its terms of repayment is illegal. It is a form of fraud. When a law school recruits prospective students by informing them that the Income-Based Repayment program will allow them to not pay off the loans they will need to take out in order to pay what the law school will charge them for attending, that institution is at least arguably soliciting fraud against the United States government, or more precisely against American taxpayers.

Whether such behavior amounts to soliciting fraud in the technical legal sense is something an ambitious Assistant United States Attorney might want to research. Consider that if student loans were dischargeable in bankruptcy, it would be to say the least legally problematic for a school to solicit business by pointing out that students could discharge their loans in bankruptcy. What Prof. Taylor is recommending is very similar in substance if not in form.  In any case that this is fraud in the broader moral sense of a fraud on the public seems indisputable.

Professor Aaron S. Taylor informs prospective students that law school is still a good investment because, among other reasons, you can borrow hundreds of thousands of dollars from the U.S. government and then stick the taxpayers with the bill:

Of course, not all student loans are created equal. Federal loans are vastly superior to private loans, and fortunately, most law students are able to finance their entire cost of attendance with federal loans only. Interest rates are fixed on most federal loans, and they are much lower than rates offered in the private market. Federal student loans also come with payment grace periods, deferral and forbearance options and an array of repayment plans — the most generous of which being the Income-Based Repayment Plan (IBR).
Through IBR, debtors with low income, relative to federal student loan debt, are allowed to make reduced payments of no more than 15 percent of their disposable income (defined as the difference between Adjusted Gross Income and 150 percent of the poverty guideline). After 25 years, any remaining loan balance is forgiven. If the debtor is working in a public service job, as a prosecutor, for example, balances are forgiven after just 10 years. IBR and other repayment options help ensure that debtors don’t have to choose between basic necessities and paying their federal student loans. Moreover, the loan forgiveness aspects of these plans are essentially back-end scholarships. (emphasis added)
But hurry -- quantities are limited:

Given the political obsession with the federal deficit, you should probably take advantage of these favorable options while you can. One of the cost-saving “deals” made during the debt-ceiling-debacle ended interest subsidies on graduate and professional school student loans.  These subsidies went to financially needy students and were typically worth thousands of dollars.  So, along with increased tuition, politics could make law school more expensive in the future.


I'm not going to bother to critique Prof. Taylor's egregious abuse of placement and salary statistics. That kind of thing is by now par for the course.  But this business (and I do mean business) of luring unsuspecting marks into 25 years of perpetual quasi-bankruptcy before sticking taxpayers with the bill, and then characterizing this scheme as a generous grant of "back-end scholarships," is the kind of thing that should draw the attention of the relevant authorities.

107 comments:

  1. Aaron S. Taylor = disgusting

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  2. What a wonderful profession I jumped into. Take advantage of anyone and anything you can, seems to be the motto.

    It's the 99% of attorneys that make the rest look so bad.

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  3. Sorry, LawProf, you got suckered. "Aaron S. Taylor" is clearly a provocateur posing as a law professor to make all of you look bad as a group.

    I can't believe you fell for such a blatantly unrealistic satire. I have as little respect for law professors as it is possible to have in polite society, and even I know that no professor would be stupid enough to say the things "Aaron S. Taylor" says in that piece.

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  4. I doubt one could prove fraud in this case though...

    There's a big difference between going to law school with the "intent" not to pay back the loans (meaning you "intend" to have the necessary low income required for IBR...and who would actually "intend" to do that for 25 years?) and for having IBR as a backdrop/escape if you happen to be unfortunate enough to have a low income for 25 years.

    The fraud charge seems kind of weak to me.

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  5. Nothing exemplifies the morally bankrupt universe of law schools than the fact that SLU law school did not fire this conman the moment he published his screed on Conning the Taxpayers 101.

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  6. Avor, would you agree that, if student loans were dischargeable in bankruptcy, it would be legally problematic for a school to solicit business by pointing out that students could discharge their loans in bankruptcy? Because what Prof. Taylor is recommending is very similar in substance if not in form.

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  7. How is IBR like quasi-bankruptcy? You have a modest payment that you make over 20-25 years (or 10 if you do PI). That's really not that bad.

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  8. One way that IBR is quasi-bankruptcy is that no bank is going to give a loan to someone for a car, a house, anything, if that someone has $200,000+ (AND GROWING) of debt that they aren't even paying the interest on. If you are on IBR, then your income is not enough to make the payments on your loans. Given that situation alone, no matter how stellar your credit may be otherwise, no bank will give you a car loan, a mortgage, anything. They will laugh you out of the bank.

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  9. Though I'm generally in agreement with LawProf's criticisms of legal education, I think he's missed the mark here.

    "Entering into a loan with the intention of failing to fulfill its terms of repayment is illegal."

    But if IBR is part of those terms, how would it be illegal to enter into a loan with the intent of taking advantage of those terms?

    There may be very good policy arguments against IBR as a means of subsidizing the cost of legal education. But as long as IBR is the policy, it seems wrong to fault eligible students from availing themselves of the benefit, or to fault schools from encouraging them to do so.

    If IBR is a bad policy, the solution is to change the policy. Moralistic hectoring directed at people availing themselves of lawful benefits is silly.

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  10. Bankruptcy AttorneyOctober 12, 2011 at 7:42 AM

    "How is IBR like quasi-bankruptcy? You have a modest payment that you make over 20-25 years (or 10 if you do PI). That's really not that bad."

    It sounds a lot like Chapter 13 bankruptcy, where Debtors repay for a set period of time based on what they can afford and the remaining debt is discharged.

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  11. I'm not totally certain the taxpayers get conned with IBR. Yes, in the first few years the govt will collect less money but remember you're talking about a 20 year period. Also, the govt does not need to recoup 100% of the accrued balance as the cost to the govt to borrow the money is far less than 6.8%.

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  12. Taylor's article was an attempt to rebut the notion that law school is a bad investment by, among other things, pointing out that there are ways to deal with the large debt that students incur. Are you saying that his description of the program and his expression of his belief that it works amount to solicitation of fraud for which he should be criminally charged? If he is to be charged for describing the program and his response to it, what of the people who set it up? Are they soliciting fraud, too? Any law school student applying for loans has access to the information about 1BR. Is making that information available a fraudulent solicitation? He calls the provisions "generous", but it is also very likely that the drafters of the provision thought they were being generous, too.
    Having followed this blog, I understand that you would be frustrated. But is it really your belief that anyone who disagrees with your critique of law schools, or wants to defend law schools, is committing a criminal act?

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  13. BA,
    What percentage of income do they use to calculate repayment under Chapter 13?

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  14. http://newsandinsight.thomsonreuters.com/Legal/News/2011/10_-_October/Associate_censured_for_lying_about_law-school_grades/

    If this guy is censured and punished for lying about his information, then the law schools should be censured and punished for lying about their information.

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  15. Jesus Christ.

    Shorter Taylor: "If things don't work out for you, then the U.S. Government will offer subsidies for your massive loan repayment, while my law school and I get paid up front to sell you three years of bullshit the ABA allows us to call a JD."

    Anybody who can't see why Taylor's attitude re: IBR is problematic is probably trying too hard to think well of their employers.

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  16. 7:43: I don't know whether whether Taylor's behavior is legally actionable. I suggest the question is worth investigating: I'm to put it mildly no expert in this area, but I would be surprised if loan schemes that are intentionally designed to take advantage of the prospect of default don't raise significant legal issues.

    I do believe that what he's suggesting is pretty outrageous as a moral matter.

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  17. I don't think moralistic hectoring of people who take advantage of IBR was the point. His point was hectoring a morally corrupt law prof who advertises the use of IBR for prospective law students. You see it's all about him and his school getting all the money as long as law students and the taxpayers pay the price.

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  18. @7:43:

    What's so "generous" about making it so that people will spend nearly their entire adult lives getting co-signers for everything they want to do? What's so "generous" about funneling them into a system where there is a much better than 50% they will never be able to own property, or to have any of the trappings that we associate with the American Dream? Because, see, that's what happens when you have an ever-growing six-figure debt load that will only be paid off at the end of 25 years.

    It's only generous in comparison to forcing them into homelessness or near-homelessness, which is what the system would do absent IBR. But don't kid yourself - this provision isn't there to be generous. It's there because the the corporate-dominated systems needs some "wage slaves with brains" - what we used to call the middle class in this country.

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  19. http://www.abajournal.com/news/article/lsac_considers_role_confirming_law_school_lsat_and_grade_stats/

    Looks like the heat in the kitchen is becoming unbearable for a few entrenched interests.

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  20. Bankruptcy AttorneyOctober 12, 2011 at 7:57 AM

    @ 7:46 AM

    The Court uses median household incomes. If you're under the median income, the payment is essentially whatever you say you can afford. If a Debtor is over the median income, you run a "means test" to determine the payment. For a household of one, I think the national average is around $40k (it varies by district).

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  21. Of course you are free to make the moral judgment about it according to your values, though I still do not see how his support for the program can be more morally outrageous than the program itself-- along with actions of all the people who had a hand it putting it into operation and all the people who availed themselves of it. I just don't see how you separate them all out.

    Arguing about whether IBR is good or bad policy is one thing, imputing a criminal act to a specific person is another. I think there is, in fact, a pretty clear rule about that one.

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  22. @ 7:55:

    We need to talk more about these consequences of IBR. I think many people are unaware of them, including well-educated people who are smart with their money. People do not realize that having that much debt on the books prevents people from leading any semblance of a middle class life. No cars. No houses. And unless you want to also wreck your significant other's credit, no getting married. People in this situation better hope that their family is generous, nice, and has decent credit- because you will need them to co-sign for anything and everything.

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  23. I agree with the sentiments about IBR making it to where one essentially has to get a co-signer for the next 25 years. If you are partnered with someone already , this can be a drag on the responsibilities of two people since the more credit-worthy spouse will have much of the financial responsibility shifted to him/her. For example, if I want to purchase a new car or new anything, I essentially have to ask myself whether or not my spouse will give me permission to do so, considering his credit is being used. I am happy in my marriage, but I worry about other people who are so economically bound to others that they essentially take on a passive existence simply for survival-sake. I know this concept in nothing new to civilization, but it is unfortunate that that there is growing evidence of a reversion to these old patterns of behavior.

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  24. @ 7:55-- I do not agree that it is generous. But I do not think that anyone who does think it is generous should be considered a criminal or investigated as a possible criminal. I just think they are wrong.

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  25. 8:02: I think it confuses matters to ask whether IBR is a good or a bad thing in the abstract. That's like asking whether the availability of bankruptcy is a good or a bad thing in the abstract.

    What's clearly a bad thing is for educational institutions to structure their budgets on the assumption that a large proportion of their graduates will be forced to resort to bankruptcy protections, or to IBR.

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  26. @8:02 if you cannot see the difference between a person pushing IBR on other people so that he can gain from it and a person who takes on IBR out of financial desperation thanks to a gamed system then you have serious cognitive issues.

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  27. One of my classmates from law school essentially had his law school debt hold him back from marriage. He came from a lower middle class background, but scored well on the LSAT, had great grades, and graduated in the top 25% of his class at a T14 in 2009. His fiance(along with her parents) concluded that he was not an "economically-viable" candidate for marriage. I know statements like that must seem harsh, but anyone would be FOOLISH to not recognize that such things are part of the emotional/economic calculus involved with marriage and relationships. So, yes, the above person's comment is right on the mark about this "reversion" to old patterns. The lack of economic opportunity and mobility with this profession and, to be fair, many other professions is creating a growing caste system of poor intellectuals with no possibility of upward social/economic mobility.

    I know that many will conclude that he is better off without her(or her family), but this way of thinking is not unique or exclusive to "bad people." Underlying these harsh conclusions is some practical, albeit business-like, acumen that this economy is pushing to the forefront.

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  28. Can't afford my law school? No problem! Just see my friend Tony, Tony Soprano. He'll make sure you get the money you need, no sweat. You won't even have to start paying him back until after you graduate. It's a great deal; why wait?

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  29. Arguing about whether it is a good or bad thing is not abstract. It is a VERY concrete thing that has to be done, with people who are struggling with it making their case to policy makers. The people who want to defend it, Prof. Taylor may be one, will have their say. My only objection was suggesting that anyone who defends the program is, or may be, a criminal. You cannot do that without bringing in the folks who set it up and the people who take part in the program. Taylor was attempting to rebut the idea that there was no help available for people with large debts, talking to people who may never have heard of IBR.We may not think it's not much help. But the program does exist, and his describing it does not amount solicitation or a crime.

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  30. The reason it's too abstract to discuss whether IBR is good or bad is because IBR is one thing if two percent of law graduates are eligible and another thing altogether if 50% are. In the former case, it's an extraordinary protection for a relatively small number of unlucky graduates. In the latter it's a scheme that's being exploited by law schools to heavily subsidize an otherwise unsustainable model at the expense of both their students (no person in his or her right mind would ever go into IBR if they could avoid it) and the taxpayers.

    *Pitching* the availability of IBR to law students *as a reason to go to law school* is based on the second model.

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  31. The relevant comparison to me is bankruptcy. Can you market your product by telling the buyer that they can discharge some amount of the purchase price through bankruptcy? If that's legal, then I suppose this should be too.

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  32. Harsh but courageous. If men do not speak out . . .

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  33. IBR will not prevent you from getting a car, you can't seriously believe that. They look at your monthly payments, not your leverage.

    IBR isn't what's preventing you from getting a house, that would be your low salary.

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  34. http://www.forbes.com/sites/deborahljacobs/2011/10/11/the-case-against-law-school/

    Her analogue is a bit dramatic.

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  35. "They look at your monthly payments, not your leverage."

    They look at your income vs. total debt.

    It might not necessarily stop you from getting a car (that's a secured loan, after all and doesn't require much credit) but it will hurt your credit.

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  36. My point is that IBR isn't that bad for those that have to use it. You can get a car, an apartment and the other things you need in life. The way some people on here complain about being on IBR is disgusting.

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  37. Just to add a perspective to this debate - keep in mind that a welfare mother who uses fraud re: $100 in foodstamps can go to jail.

    To add another, possibly more compelling, perspective - imagine that someone borrowed money from you under the premise that they would pay it back (and they signed all sorts of promissory notes), but in fact they declared bankruptcy and f'd you over. Then, say you find out that they had intended to do this all along, and you have evidence and witnesses who will testify that he bragged about his scheme. How would that make you feel? Don't answer until you have taken time to actually imagine yourself in such a situation. Imagine $10,000 of your precious money (think of all the things you would have done with it). Imagine that the sole reason you lent it to him was because he promised an 8% interest rate, and that you were sacrificing spending for this reward. Imagine how you were planning what you would do with the money once he slowly repaid it.

    Here's yet - a third perspective. Imagine that there are documents from Solyndra in which they ADMIT that they had no intention or ability to make a profit, and that they were just taking advantage of energy loans while they were hot. I'm pretty sure that would lead to an arrest. Don't you think?

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  38. "My point is that IBR isn't that bad for those that have to use it. You can get a car, an apartment and the other things you need in life. The way some people on here complain about being on IBR is disgusting."

    No one said it was bad. Overall it's a windfall to the students. It f's the taxpayers.

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  39. 7:55 and 8:17 seem to think it's pretty bad.

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  40. 9:10,

    It's good relative to a world where you still have the debt but without IBR.

    It's bad relative to a world where you could give your TTT JD back and have the debt wiped out.

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  41. My girlfriend defaulted on her private student loan.

    I am not going to marry her credit score.

    If we don't get married we are not likely to have children.

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  42. 9:19,
    Your world is a lot better than many that have to pay child support.

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  43. Your point being?

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  44. My point being that there are a lot of people out there that have debt obligations that are worse than yours and they seem to manage just fine.

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  45. @ 8:10-- I don't agree that he was pushing IBR on anyone. Is describing the program pushing it on people? I never said they were the same. But if the claim is that Taylor was soliciting people to go to law school with the intent of getting into IBR, it would not be unreasonable for at least some people to think that graduates who are in the program did just that. It' s very much like the claim that student debts should not be discharged in bankruptcy because people will go to law school and then declare bankruptcy to escape their debts. I don't believe that's at all a realistic scenario, but people believed it enough to make a serious policy decision based upon the notion. So, I stand by what I said. IBR made be good or bad, but telling people about it is not criminal, believing it's a good program is not criminal, and people who are in it are not taking advantage of a criminally based scheme.

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  46. @ 9:27,

    Some people live in constant pain due to war wounds. In what way is that germane to this discussion?

    Debt destroys lives. Law school pushes debt on the uninformed for profit.

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  47. If you think IBR is destroying your life you need to get some perspective.

    Useless degree? yes
    No job prospects? yes
    IBR? no

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  48. IBR does not destroy lives, it's more like life support: it helps you survive but your life is miserable.

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  49. I would hope the following claims would be fairly non-controversial:

    (1) Loaning people money they won't be able to pay back is in the long run bad for society as a whole.

    (2) The current system of legal education in this country is largely dependent on loaning people money they won't be able to pay back.

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  50. Not IBR, you dolt.

    The debt that snowballs under IBR.

    Debt is an anchor. IBR give you enough chain to gasp a few breaths and flail to reach the surface, but never quite make it above the water line. It is living death.

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  51. I agree not finding a job is miserable, but if you do find one, even at 35K per year, how does IBR make your life miserable?

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  52. And the debt is wiped out after 20 years, so what's the problem?

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  53. debt is wiped out after 25 years, and for that 25 years you are slave. First ten years you will be paying 15% of your low salary while your interest is more then your payments so your balance will be on the rise. After a while you should be able to make more money but your balance is so high that you won't be able to pay back those loans even with better salary. Thus, you will spend 25 years of your life paying the government part of your paycheck even after you pay off the original loan amount.

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  54. "Some people live in constant pain due to war wounds. In what way is that germane to this discussion?"

    Basically, we should establish a new doctrine stating that no harm or damages occur so long as there is someone worse off than you. It'll make torts and crim law so much easier!

    This woman was stabbed, raped and left for dead. List the crimes committed. Was she set on fire too? No. Then there are no crimes.

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  55. "debt is wiped out after 25 years, and for that 25 years you are slave. "

    Someone should see what $200,000 turns into after 25 years of 7% per year growth. Then they should calculate how much taxes will have to be paid once the debt is forgiven, due to the IRS concept known as "discharge of indebtedness income."

    You want to give a shot IBR troll? Or are you too dumb to do this calculation?

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  56. First, it's not 15% of your salary. Last year I made about $37K (about 31K AGI). Using the IBR calculator (200K debt, 6.8% interest) my monthly payment is $185 or $2,220 for the year which is 6% of my salary. That's not bad at all.

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  57. I don't see what you are saying.

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  58. 9:52,
    IBR is new. The debt is already nontaxable for the PI discharge. Give it two or three years before you start having a stroke over a potential taxable event that may not happen.

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  59. Notwithstanding your crystal ball, under the law right now, there will be discharge of indebtedness income.

    Do the calculation, if you know how. It's 4th grade math.

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  60. I'm also not in any way suggesting what the schools are doing isn't wrong. Whether there is harm or not is irrelevant to the wrong committed.

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  61. 9:59,
    Obviously neither of us can predict the future, but until all of the details are worked out I think it's premature to worry about the tax consequences. Again, that won't happen for 20 years. Take five years off from worrying about it, you'll still have a good 15 years to sweat that part if they don't change things.

    If things remain as they are now, I do concede it will present a serious issue down the road.

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  62. Who is making this argument about how IBR isn't so bad? Somebody with 200K of debt coming out of law school who is making 37K a year will, assuming COL raises, owe about $1.3 million in unsecured debt after 25 years. I think that might have some serious negative impact on that person over those 25 years, leaving aside that as of now the release of the debt is treated as income for tax purposes. And that's also assuming that the program doesn't disappear in the interim, which it very well might. It's not as you have a contractual right to it.

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  63. "Obviously neither of us can predict the future, but until all of the details are worked out I think it's premature to worry about the tax consequences."

    Exactly, just put your head in the sand like an ostrich and fantasize that a country in tremendous debt and in need of tax revenue will magically pass a law forgiving this income.

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  64. If it disappears then obviously my comment about IBR not being so bad won't apply.
    My only point is that given the payments as they are right now, if you're making $37K you can still save enough money to buy what you need and many things that you would want.

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  65. 10:11,
    They forgive it for public service, why is it a huge stretch to think they might forgive it for regular folks?

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  66. Or you could make $37K a year without going to law school. Most secretaries get paid more than that.

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  67. Or you could make $37k per year, while working as a secretary, WITH a JD- AT the law school you graduated from, and as a secretary for the dean!

    ^ true situation.

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  68. "why is it a huge stretch to think they might forgive it for regular folks?"

    Because the law that they wrote says that they will not forgive it for regular folks.

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  69. "why is it a huge stretch to think they might forgive it for regular folks?"

    If my aunt had balls she'd be my uncle.

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  70. Ha, things are moving quicker than I thought. These people are already marketing IBR as a payment plan to assuage any fears about taking on $200,000 worth of debt. Within a few years IBR will be the default payment plan. Once it is commonly known that students are taking out $200,000 for a chance at a $50,000 job our fiscally conservative brothers will start to make some noise.

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  71. FYI
    http://www.nbcbayarea.com/news/local/SF-Bankers-Become-First-TARP-Recipients-To-Be-Charged-With-Fraud-131590348.html

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  72. Keep in mind that IBR is a government program that can be changed or eliminated at any time. It is not a traditional contract where both sides are bound by terms. The government can create programs instead of using contracts for maximum flexibility. (Been to court; been upheld.) Imagine making this 25-year decision now, with no certainty on what IBR will look like in the future. What could possibly change in 25 years?!!

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  73. Exactly 12:23. Just a few months ago, literally a few months ago, Obama was on the verge of withholding social security and military wages! IBR is definitely not immune to change.

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  74. Interesting debate, though IBR is tantamount to a default (I owe money, I cannot pay it off).

    I'll support a program like IBR the moment it is counted as a default in the "official rate." In reality it just kicks the can down the road, allows the parasites to minimize the problem, destroys credit, incentivizes debtors to remain poor, sets one up for a massive tax debt, and could royally screw a debtor if they are thrown off (no contractual right).

    Obviously it can provides hope to some desperate people and that is a good thing. That positive is totally outweighed by the negatives imo

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  75. "IBR is definitely not immune to change."

    I agree. If any change is to happen, it is unlikely to benefit law students. Obama administration has already took away the benefit of subsidized grad loans. http://abovethelaw.com/2011/08/debt-ceiling-deal-includes-last-second-screwing-of-graduate-students/

    As result of this, I will have extra $1500 in interest when I graduate which will be added to the principal. But I guess it does not really matter, what's a 1000 dollars when you are already 100000+ in debt.

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  76. Another thing the Obama administration did, just a few weeks ago, was to change the rules to allow student loan companies to call your cell phones to demand payment. Things are changing.

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  77. But I guess it does not really matter, what's a 1000 dollars when you are already 100000+ in debt.

    It's a thousand dollars.

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  78. To the person who doesn't understand why everyone is pissed/afraid of IBR:
    After thinking it over, you are right to a degree - I don't think IBR will ruin lives in and of itself. It is meant to be a safety net, and taking a small percentage of current paychecks won't put anyone out that much.
    That being said, I think there is an overall psychological atmosphere of rage that comes along with IBR that I will posit through my own experience:
    When I applied to law school, and saw my law school's posting of 93% job placement with median income around 96k (as class of 2011 this was right before the economy fell apart) I totally thought I would be able to pay this back in a few years. Whether or not those statistics were a lie, and whether or not I was foolish to believe an accredited universities statement is something we will have to wait and see: but the fact that I cannot find a job and will have to go on IBR really rankles me. What is compounded on this is that in this current market, it may be possible that I never find a legal job, in which case I've saddled myself with massive debt for no particular reason. It feels like I've broken a leg just for the novelty of having crutches.
    With that said, to see a professor expound that law school still is a good investment, and then saying that IBR isn't that bad, is like reading someone saying "Hey crutches aren't all that bad, so why not jump out of trees? There's even a chance you won't hurt yourself!"
    IBR may be a reasonable plan; I'm probably going to experience that truth in the next few months. However, it is a symptom of a very screwed up system that is deceiving people into hurting their futures and that is why I believe there is so much outrage at the moment.

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  79. So much for "first, do no harm"

    Wait, that's doctors.

    Harm away, law school villains.

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  80. As a junior faculty member, I've read these pages with some interest over the last month or two. It would be an understatement to say that I've jumped through a lot of hoops to get where I am.

    It may sound crass, but this afternoon a pretty 2L kneels naked at my feet, contentedly fellating me as I surf the net. Why do I mention this? Well it's symbolic of everything I enjoy in the legal academy. In short, I've got mine Jack.

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  81. The US govt seriously needs to restrict or reduce loans to schools based on percentage of default of its graduates or on IBR! I think that would do wonders for choking the supply of easy loan money to TTTT law schools that fuels this scam.

    You'd need to work out the details of how to achieve this of course but the basic idea seems very sound to me.

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  82. William Ockham asks....Is it possible for a law professor to enter the IBR repayment program and receive debt forgiveness for his student loans after ten years under the "public service" exception? If the law professor taught in private law would he be able to have his student debt forgiven for working in the public interest/nonprofit sector?

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  83. To the person that doesn't believe IBR is very harmful to one's life:

    You probably will never be able to buy the leading accoutrement to a middle class life, a house. The ability to get a mortgage is based upon your FICO score. Right now, and for at least the foreseeable future, one needs at least a 700 score to obtain a mortgage. There are no sub-prime mortgages anymore. Your FICO score is calculated not just on whether you pay your debts on time, but your ratio of total debt to income. If your student loan interest is causing a debt mountain of 200K, 300K, 400K, etc. to accrue and your income is 45K a year, your FICO score is probably going to be in 550 to 650 range (according to my banker friend). Can you be happy without buying a home? Probably. Can you be happy having to pay 18% interest to buy a car? I guess. Can you be happy operating your life without much credit to help over the rough spots? Maybe. But why would you want to, if you don’t have to? And why would you want to encourage someone to do so, if they don’t have to?

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  84. "But I guess it does not really matter, what's a 1000 dollars when you are already 100000+ in debt.

    It's a thousand dollars."

    Its actually a lot more when you take into account that interest will have to be paid on it over 10 years.

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  85. Tdennnis:
    I'm not defending the guy that's encouraging people to go on IBR. That's clearly a foolish purchase decision. My only point is that being on IBR isn't the end of your life as some people on here seem to think.

    If you're income is 45K per year you can save up enough money to buy the car for cash. Maybe not a brand new car, maybe one that's two or three years old, that's life. If you're income is 45K a year you probably wouldn't be able to buy a home even without the debt.

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  86. @ 3:16-

    You can most certainly get a mortgage on $45k income (or less), especially in parts of the country where there was no housing bubble and housing is still very affordable.

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  87. And the kind of position that pays $45K will likely not be available to you in that area of the country.

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  88. I think it's worth mentioning that the employment problems with law grads extends beyond the current recession. When I graduated in 2000, many of my peers had a hard time getting a job. More importantly, very few could get good paying jobs.

    The scam has been going on for a very long time.

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  89. Question: Don't you have to make an extraordinarily LOW salary to even qualify for IBR? I attended a loan repayment "seminar" at my law school a few years back, and I seem to remember that the financial aid woman who was leading the meeting set some really hideous figure as the amount that might trigger it. Like, $38K low.

    She also advised us all that we'd probably want to avoid marriage, or at least filing joint tax returns should we marry, as that would factor into the repayment.

    Luckily, I made it out of law school without loans, but I find it unthinkable that a person making $42K (I'm making $45) could be left out in the cold. It's a very negligible salary, all told.

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  90. 6:37,
    In the time it took you to write that you could have just googled it. It's not that hard.

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  91. Some agencies of the fed govt offer a student loan repayment benefit. I work at the SEC [five years out of law school] and the limit is $10k/year up to $60k. It's a great benefit for recent grads. [After next year's loan repayment benefit, I will debt free and very relieved.] Obviously, there is a federal salary freeze for the foreseeable future but there is intermittent hiring in all SEC offices - especially as retirements occur. For the uninitiated, note that govt salaries cannot compete with BigLaw [I'm at just over $150k/yr in Chicago] but the hours rarely exceed 40/wk, telework is routine, and the benefits are solid. Most importantly, my colleagues are amazing and the work is fantastic.

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  92. Ah, my apologies. The receptivity of commenters on this blog to honest, relevant questions really never ceases to amaze me.

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  93. I call bullshit on 7:30.

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  94. @7:43pm - I'm not sure what you don't believe but the federal employee benefits are standard, including the student loan repayment benefit, as are the hours. Plus, the salaries of most fed employees are public record.

    Try this link: http://php.app.com/fed_employees10/search.php
    Or google "federal employee salaries" and go to the data universe site - select the SEC and review the salaries for accountants and attorneys in any location.
    ]Also, try looking at attorney salaries in other financial regulatory agencies and you will see that the SEC does not offer the highest attorney salaries, e.g. FDIC.]
    New attorneys hire in at grade 11 [these are new grads and my sense is that in recent years the SEC has been hiring experienced lawyers rather than new grads]. Experienced attorneys typically hire in at grade 13 [sometimes even 14] for enforcement investigator positions and at grade 16 for trial attorney positions. [I'm speaking of the enforcement division but note that other divisions of the SEC also hire attorneys.] Clearly, the toughest part is getting the job - especially recently as there are fewer positions and the competition has become remarkably intense. Although I do have a T14 law degree, I think being a CPA and CFA really helped get me an interview and ultimately the job.

    Anyway, there's no "BS" involved and it's a great place to work, especially since I've got enough seniority now to weather a significant RIF should that occur.

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  95. Good article on the negatives of IBR for those curious:

    http://www.forbes.com/2010/05/10/student-loans-safra-leadership-education-bennett.html

    Also, if you are in default you cannot qualify for IBR. Also, if you voluntarily switch or are disqualified from IBR you are shut out from public loan forgiveness. You automatically switch to a standard loan payment plan and the interest balloons on you. Ouch.

    http://loanconsolidation.ed.gov/help/faq.html

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  96. 8:03,
    I was talking about the salary. I probably should have specified to save you some typing.
    http://www.opm.gov/oca/11tables/pdf/CHI.pdf

    You'd have to be a GS-15 step 8 to be clearing 150 unless I'm missing something. I know you move up quick in govt. law jobs but not that quick.

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  97. "Clearly, the toughest part is getting the job - especially recently as there are fewer positions and the competition has become remarkably intense."

    Then the whole point is moot for the vast majority of law school grads who can never obtain such great govt jobs.

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  98. 8:03 also claims to be both a CPA and a CFA so 8:03 is either significantly older than most law grads...or lying.

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  99. As for cancellation of debt income, there's an insolvency exception in IRC Sec 108. If someone Is on IBR for 25 years, it is likely they will be insolvent right before the
    discharge. But the exclusion amount is bass on the individual's circumstances.

    Also, if you live in a community property state and want to take advantage of IBR, make sure your spouse has low income too.

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  100. The SEC is not on the GS scale, nor is the FDIC - these are independent agencies.

    Good grief.

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  101. So, anyone have any luck posting comments under Prof. Taylor's piece?

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  102. In response to the SEC guy, that's great for you, but salaries at the financial agencies are MUCH higher than the regular GS scale that the rest of us humble non-finance gubmint lawyers labor under. Also, loan repayment programs only exist at a few agencies. And, within 10 years at any agency you're going to be at a GS-14, which earns you over 100 grand and makes you ineligible for IBR unless your debt is some ludicrously high amount (mine is currently at 135k and I DO NOT qualify for IBR). Not to mention that government jobs are currently in very short supply and hiring freezes are in effect at most agencies. It's irresponsible to encourage anyone to go to law school based on the idea that they can "always get a government job." Not true. And government jobs will not easily pay off your debt. Don't believe the hype. (the part about good benefits and working hours is true, though).

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  103. 12:05pm - your points are well taken. Jobs everywhere are in short supply and the SEC is no exception. But you can't get the job if you don't apply and openings occur regularly, if only from attrition these days. Note also that some independent agencies are "self-funded" and not subject to Congressional budget authority [FDIC for example].

    I only posted originally to point out the fed government's loan repayment benefit and to highlight what I think is a great place to work.

    10:03pm above suggested that somehow becoming a CPA and a CFA takes a lot of years and that's true to a point: if you pass the CPA exam right out of school, then work for a CPA firm while you study for the CFA exam [which is purely a self-study program], you can finish in three years if you pass each of the 3 levels in a timely manner. I worked at a CPA firm for five years before law school.

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  104. I am a lawyer about five years out with a lot of student loan debt. This comment thread brings home the point that lack of knowledge certainly does not prevent a significant number of people reading this blog from commenting. How about before commenting about IBR, some of you people actually do some research on it? You know, research? One of those things you were supposedly taught to do in law school?

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  105. The solution is pretty simple. Open a solo practice, go on IBR, and under report your income (if you have any). Just don't be greedy about it.

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  106. Guess the good law professor will soon be advocating what 1:19 says, so they can stay on the government student loan teat as long as possible.

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  107. Amen 12:32. There are a lot of very misinformed comments here. Seriously, 95 percent of the comments on here don't even know what they are talking about. Please please do more diligent research before commenting all you so called policy experts.

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