Escaping the weight of debt

Law school tuition and living costs have increased across Canada, forcing many young lawyers to take out student loans equivalent to a down payment on a home to finance their education. In Ontario, this has led to the average law student graduate owing more than $83,000.

And while many provinces, territories and the federal government provide funding grants, loan forgiveness and other debt-relief options, they are often tailored for traditional post-secondary students, rather than students pursuing professional degrees, such as law, business or medicine. These tend to involve much higher tuition rates.

Of course, lower tuition costs and debt relief may be the most obvious solutions to the ballooning debt facing many young Canadian lawyers. But there are other options that merit greater study as they may be more practical. They are also more politically and economically feasible.

The first is refinancing. We see this with American online lenders SoFi (Social Finance) and Laurel Road who are now competing to refinance loans for American law students, something they do in the healthcare and business fields too. For medical students, SoFi waives the interest on loans while students undertake their residency (up to 54 months and requiring payment of $100 per month while in residency). It offers competitive rates of between 2.39 per cent and 5.97 per cent, with loan terms of between five and twenty years, following completion of their residency.

Canada, with a much smaller financial sector than the United States, has far fewer student loan lenders. Even so, student loans can provide an attractive investment for investors, while the interest paid on the loans is tax-deductible for the borrower. Lenders, or let’s say a professionally invested group of lawyer investors, could benefit from financing a broad base of law-student debt.

A second option we see in the U.S. is the Public Service Loan Forgiveness Program, which forgives the balance of a qualifying student loan subject to the applicant making 120 qualifying monthly payments while working full-time for a qualifying public service employer. According to some reports, more than 99 per centof applicants to the program have been rejected. However, for those that have met all of the criteria, the benefit can reach hundreds of thousands of dollars, while ensuring that top candidates seek careers in public service without sacrificing their financial futures.

There is a valid question whether Canadians would accept some form of public service loan forgiveness program. The federal government in Canada currently funds a student loan forgiveness program for family doctors and nurses who agree to practise in under-served rural and remote communities. Similarly, the Law Society of Manitoba, the Manitoba Bar Association and the University of Manitoba Faculty of Law have partnered to provide a Forgivable Loan Program for selected students who return to under-serviced communities after being called to the bar. This could represent a solution that benefits all sides.

The former president of the Canadian Bar Association, Ray Adlington, proposed a third solution which would involve law firms agreeing to buy all or a portion of their associates’ student debt and converting it to an interest-free, low interest loan. In this scenario, the marginal interest expense would be a taxable benefit, while the firm and associate both benefit from a loan payments structure that could be deducted from an associates’ pay. In the event an associate leaves the firm, interest on the loan could accrue at an agreed upon rate, or be waived in the event that the move is mutually beneficial.

The merit of this sort of arrangement is that young lawyers see that their firm is invested in their success over the long-term. At the same time it removes a significant financial constraint and impediment for young lawyers to planning their futures. For firms, investing in their associates will hopefully encourage greater member-engagement in the firm while reducing costly turnover in associates prime earning years.

Undoubtedly, there are other solutions available to alleviating the cost of student debt. And it bears repeating that tuition for law school in Quebec is much lower than in the rest of Canada, which makes the issue of servicing student debt less of an issue. Alternatively, in England and Wales, it’s possible to become a solicitor through legal apprenticeship in roughly the same time as qualifying by the law school route. Apprenticeship offers the chance to become a lawyer with zero law school debt, practical on-the-job training and a modest salary.

As lawyers in a diverse, modernizing and changing profession, we all face different opportunities, constraints, and operational realities. I encourage all lawyers, young and not-so-young, to discuss their experiences in paying for their legal educations. We owe it to our profession to understand how student debt may influence where and in what areas young lawyers will seek to practise.