The Young Texas Lawyer

According to the National Law Journal, ABA President Carolyn Lamm said last week that the association is still trying to build support for student-loan relief for recent graduates. The National Law Journal reported in November that the ABA was lobbying the Obama administration on the issue, highlighting the plight of graduates who went into debt but have not found jobs because of the recession.

“What we can’t have is this situation of a generation of young lawyers squashed by debt,” said Lamm, a Washington, D.C., partner at White & Case.

Lamm said that she or other ABA officials have met with aides on Capitol Hill, at the U.S. Department of Education and in the White House to press their case, so far without success. “Wherever we have an opportunity, we share our views,” she said. “They’re very interested in education. They’re very interested in finding a way to help. I can’t say that we’ve found a solution yet.”

No other topic is more dear to a recently admitted attorney’s heart than student loans. They are both the key to getting one’s license, but also an albatross for those forced to borrow. For those that took the initial taste from the government and went back to private lenders for more, the pain is even greater. In what appeared to be a surprise to most, the National Law Journal is reporting that the American Bar Association has started lobbying the government to let unemployed graduates convert private loans into federal ones. The change could allow them to defer repaying those loans for as long as three years.

It’s a good start, but does not go far enough. The program should extend to employed graduates as well. Essentially, allowing all law graduates to borrow from the federal government to immediately pay off any private debt, since most private loans carry no prepayment penalty, would make much more sense. Borrowers could then enjoy the deferral benefits of federal loans and only have one lender to worry about.

It makes perfect sense, would ease the burden on lenders, and would generate revenue for the federal government. The only problem with the plan is that it makes too much sense, and like most things mired bureaucracy, that might be enough to kill it.

According to the New York Times, Robert Bowman will not be permitted to practice to law in the state of New York after taking four tries to pass the bar exam. The problem seems to be the roughly $400,000 in student loan debt that he has accumulated through the years.

The committee that reviews applications for admission to the bar interviewed Bowman and evaluated his debt. They called his persistence remarkable and recommended he be approved to practice. However, five state appellate judges did not agree. This spring those judges decided that Bowman’s student loans were too big for him to practice law in New York.

The judges wrote, “applicant has not made any substantial payments on the loans… applicant has not presently established the character and general fitness requisite for an attorney and counselor-at-law.” So now Bowman finds himself in a lose-lose situation. He amassed this debt in his efforts to become a lawyer, but now he is told that he has too much debt to be a lawyer.

In Texas, the general standard for admission is don’t lie, cheat, or steal. After all, those are issues of moral turpitude and could be an indicator of a lawyer’s poor character, but too much in student loans sets a scary precedent.

Granted that $400,000 is a lot of debt, but if not allowed to practice then how will Bowman ever be able to pay it back. Perhaps there is a state out there that will admit him regardless of his debt, unfortunately he’ll probably rack up more debt studying for their bar exam.

Back in November 2008 we discussed how to “Take Control of Student Loans” and one of the programs discussed was the upcoming federal loan forgiveness and income based repayment programs. Starting July 1, they will both be in full effect. The College Cost Reduction & Access Act, the new federal program, will cap monthly loan payments according to the borrowers income and will even forgive student debt balances after a pre-determined number of years. Those who want to have long-term public interest or government careers will benefit the most, but even those with relatively low incomes and high debts will get some relief by lowering monthly payments. The National Law Journal has a great article on the plan and an example scenario from that article is below.

Back in November 2008 we discussed how to “Take Control of Student Loans” and one of the programs discussed was the government’s loan forgiveness program. Now it appears that those programs might not be as safe as once thought. According to the New York Times, students relying on those forgiveness programs are worried that they might not last. This is a scary proposition if you were counting on such programs when you took on huge loads of debt.

From the comments made at Above the Law, it seems that some take issue with these programs and see them as unnecessary social welfare. The secret reality of student loans is that if you manage your loans responsibly then there are tons of options out there to let you pay them back and still live a reasonably comfortable life. It’s when you ignore your finances that you get into trouble.

Regardless of what happens in the future, the current economic downturn has put interest rates at all time lows and those rates will reset again on July 1, 2009. Stay current on your finances and the news that affects them.

Hopefully this isn’t news to anyone, because it is a serious matter. The only thing worse than having a mountain of law school debt is having a mountain of law school debt and no license to practice law.

A Texas appeals court has revoked the license of Houston attorney Frank P. Santulli III for failing to repay his student loans and other debt. The 3d Court of Appeals decision was issued on April 10, 2009 and point out the “serious consequences likely to befall” the revocation of the attorney’s license. Nonetheless it affirmed the ruling by a trial court that followed the recommendation from the Texas Board of Law Examiner to revoke Santulli’s license.

The panel in Austin found that because Santulli did not adhere to a previous order requiring him to pay his debts, he lacked the trustworthiness necessary to represent clients. Santulli, a solo practitioner, graduated from Texas Southern Univeristy Thurgood Marshall School of Law in 1998 and had about $67,000 in student loan debt. Santulli represented himself in the proceedings but said that he planned to hire a lawyer to appeal the decision.

Learn from both of Mr. Santulli’s mistakes, pay off your loans and never represent yourself in a matter.

As bar preparation season starts up this February and again in the summer, the number of lenders willing to provide private loans to the jobless cash strapped exam takers is dwindling. The Recorder points out that there are only four lenders left in the market, whereas in 2007 there were 19. The cost of becoming a lawyer keeps going up, and a lack of loans and jobs makes the profession even less desirable to outsiders. Hopefully it all leads to less lawyers and more of an AMA model of accreditation.

As a fresh graduate and newly licensed attorney, the first issue you face after finding a job is what to do about student loans. Many students put their loans in a dark corner of their brain and don’t visit that corner except in sporadic instances of fear and anxiety. The key to paying off student loans is to take them head on and research all your options. Remember, generally you can only consolidate your loans once.

The current financial crisis has made the student loan consolidation process into a game of cat and mouse. Once eager lenders have vanished due to a lack of funding and the rock bottom interest rates we are facing right now. But before we get to consolidation and interest rates its important to know exactly what student loans you have outstanding. You could rummage through tons of paperwork or you could simply log on to the National Student Loan Data System. The NSLDS is a department of education centralized database for all of your government backed loans. Please keep in mind this site does not contain information about private loans and you will have to get that information directly from your lender.

Now that you know every loan you have outstanding you can begin to weigh options regarding consolidation. There will be two types of interest rates on your loans, both fixed and variable. Right now, you are hoping you have more variable rate loans since interest rates are at all time lows. Any loan disbursed prior to July 1, 2006 is a variable rate loan. The variable rate changes every July 1 and is calculated based on the following:

• The 91-day T-bill rate + 1.70% during in-school, grace, and deferment periods.
• Starting July 1, 2008 the interest rate on variable rate loans is 3.61%.

• The 91-day T-bill rate + 2.30% during repayment periods.
• Starting July 1, 2008, the interest rate on variable rate loans is 4.21%.

As of today, the 91-day T-bill rate is an amazingly low .15% — therefore if the rate stayed this low you would get your loans consolidated for under 3%, which is an amazing rate. So the moral of the story is if you haven’t consolidated already then wait until just before July 1st and determine what the new rate will be using the T-bill auctions. If the rate will be going up then consolidate before it does. If its going down then wait until the new one takes effect. If you have fixed rate loans then you can consolidate at anytime and your overall rate will be a weighted average of the aggregate rate of your loans.

Since many lenders, including Sallie Mae, are no longer taking applications for loan consolidation then its best to utilize a Direct Consolidation Loan from the Department of Education. Starting January 1, 2009 there will be even more benefits for borrowers such as Income-Based Repayment options and Loan Forgiveness Programs. To learn more about these two programs visit IBRNinfo, an independent non-profit source of information about these new programs.

Its important to have all of your information readily available when making these decisions and it takes some number crunching to make sure you are getting the best deal. If numbers aren’t your strong suit then make sure you ask a friend or relative to help you out. The right decision can end up savings you thousands of dollars!

Written by Robert B. Abtahi