Is There a Downside If Your Firm Pays Your Student Loan Debt?
If you're a fresh graduate and you've managed to snag a place at a fancy firm, congratulations. If you've also managed to convince them to help pay off a portion of your debt, then you really are living the dream -- at least for now.
There's a new trend these days that's gained steam and is being met with obvious approval from law school grads: law firm assisted student debt repayment. But more cautious students are getting themselves worked up about the pros and cons of accepting such unusual law firm generosity. Our advice? Take the money and say "Thank you."
Current Debt Numbers
We envy you if you've never been subjected to that speech by older attorneys who give you the "law school only cost me such-and-such amount" speech. Yes, law school education has ballooned in cost. The fact is, education in general is shooting for Saturn. Many throats have gone hoarse over how best to handle the situation.
But at least a few firms have started doing something that at first glance seems somewhat counterintuitive -- helping law grads pay their debt. In 2015, about 90 percent of law students had to borrow money in order to pay for their education. Of that group of students, those who graduated in 2015 had an average debt sum of about $110,618.
When U.S. News and World Report asked Melissa Logan, a 2L at her school, what she thought about firm-assisted debt repayment; she responded that if caught between two firms, the firm that helped her pay down her debt would probably "tip the balance."
There are only two real "cons" to accepting employer debt help, and they're not really cons at all.
First, accounting for employer help will psychologically limit you into taking a private sector job as opposed to a public sector job. Students and lawyers know that the public sector pays less -- a lot less -- than private sector jobs at large firms. We hate to say it, but idealism doesn't come cheap. Fortunately, public sector jobs can allow lawyers to achieve student loan forgiveness after only 10 years through the Public Service Loan Forgiveness Program.
The other "con" is that your law firm's generous contribution is taxable income. But even this isn't even really a con. You still get something that you wouldn't otherwise get in the public sector -- just at a reduced amount. But if the Employer Participation in Student Loan Assistance Act is passed by Congress, this will mean that the taxable amount will be reduced even further, meaning that students will be able to keep an even larger amount in their pockets as untaxed income.
Someone is paying a portion of your debts. This is useful for a number of reasons, not the least of which is the fact that your interest payments will be reduced significantly since the principal is being paid down faster.
It should be noted that only a few firms are offering these programs, and only a few students enjoy the benefits of being subsidized in their education costs. Private firms are offering these programs, which means that they have a private incentive to help you out. In order to become qualified for these programs, you must have an amazing GPA or some other quality that entices the firm to hire you.
And if you have such amazing qualities that prompted a firm to offer you debt assistance, our guess is that you could, if you wanted, easily move into the public sector if you wanted to, golden handcuffs or not. At the end of the day, the cons are really just pros with a slight haircut.
So if you're a law grad who landed a job where your boss is helping you pay off your law school debts, then kick back and congratulate yourself. You've arrived.
Editor's Note, April 6, 2016: In fairness to public service jobs, details were added about the Public Service Loan Forgiveness Program.
- Weigh Pros, Cons of an Employer Paying Your Law School Debt (USNews World Report)
- Tidal Wave of Students Seek Debt Forgiveness (FindLaw's Greedy Associates)
- Tips for Pursuing Public Interest Law (Without Going Broke) (FindLaw's Greedy Associates)
- Black, Latino Law Students More Stressed and Indebted, Survey Suggests (FindLaw's Greedy Associates)
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