I made a comment in a thread a while back that included some information about federal loan forgiveness programs and LRAP. It got a few of us thinking that it might be worth an entire post, since this kind of analysis will likely factor into the career decisions many of you are making right now. The thrust of my comment below was basically that, given the array of loan repayment options at your disposal, your debt need not determine your career path.
Unfortunately, understanding that array of options is frustratingly difficult. I was fortunate as a 3L to have a friend on the LRAP committe, so I'll try to relate what I learned from her. Of course, this information is subject to the flaws in my brain and may be a little outdated, so the best thing to do would be to schedule an appointment with Sigrid Allen at Berkeley financial aid as soon as possible. She really knows her stuff when it comes to loan repayment, and she can give you a very clear analysis of your options.
With those caveats, here is what I know about the various programs. I have a tendency to overexplain things, but I think this stuff is complicated enough to warrant it: INCOME BASED REPAYMENT ("IBR"):
This is a program run by the federal government in which all federal student loan debt can be repaid proportionately to your income. The maximum payment is 15% of your income above the poverty line no matter what career you end up in. Unfortunately, if you make below a certain amount, your interest may eclipse your payments, meaning your debt will actually increase, even as you pay it off. (I believe the fancy economic term for this is "negative amortization." Gross.) That's why the federal government included provisions to completely wipe out the debt after a certain time. WIPING OUT DEBT UNDER IBR:
If you continue to pay off your debt at 15% of your income, after a certain amount of time, your remaining debt will be wiped out, even if it has negatively amortized (yuck. stop it.). That amount of time is 25 years for jobs in the private sector and 10 YEARS for jobs in the public sector. Determining whether a job is public or private is more complicated than you might think. These are the kinds of things you can discuss with Sigrid Allen.
I should emphasize, however, that IBR applies to ANY JOB in ANY CAREER. For example, if you really hated law school and decided to go be a teacher, you could theoretically get away with putting 15% of a teacher's salary toward your loans for ten years and then have the debt WIPED OUT. Pretty cool, right? But the legal nature of your job does play into LRAP. LOAN REPAYMENT ASSISTANCE PROGRAM (LRAP):
You all know what this is. It's probably one of the reasons you came to Berkeley. But you may not know how it all works. And given how often it changes, this is an area where my information may be outdated.
The first thing to note is that LRAP covers public interest jobs that are specifically law-related. Determining whether your job counts can be tricky and often involves lobbying, so ask around if you're not sure. Clerkships can count as public interest IF you go to a public interest job after clerking (under IBR, they count as public interest regardless). LRAP also can kick in for "low bono" jobs, where you may technically work in the private sector but the majority of your clients are low-income and traditionally underserved.
Under the current LRAP scheme, there are two possible paths: 1) TRADITIONAL LRAP:
This is the old program where Berkeley pays some portion of your loans up to a certain cap as long as you work in a public interest or government job that somehow makes use of your law degree. I believe the cap was $100,000 when I was in school, but it may have gone up since then. What that means is that Berkeley will figure out your total loan payment and then cover the portion equal to satisfying $100,000 of the debt. For example (watch out, there are numbers and stuff), if your total debt was $200,000, your monthly payment was $1,000, and the cap was set at $100,000, Berkeley would pay $500 per month or one half of your total payment. Because $100,000 is half of $200,000. Get it?
Note, however, that LRAP is also income-based, so if your income is above $60,000 (or whatever the new level is), Berkeley will only pay some pro-rated portion of your loan payment UP TO THE CAP of $100,000. (I.e. instead of getting $500 per month, you would get like $350 per month and your income above $60K would be expected to cover the difference.)
The downside of traditional LRAP is the cap, which depending on how much debt you owe, could mean you are still paying a prohibitive amount of your income to loans. The upside is that you don't have to deal with negative amortization. Your monthly payment will make a steady dent in your loans, even if you do have to cover more than half of it yourself. Practically, this means you are more free to switch to the private sector, since your loans will not have been increasing like they might under the ten-year IBR plan. Make sense? So if you are the kind of person who will likely switch away from public interest somewhere between 5 and 10 years from graduating, you would likely be better off making payments through traditional LRAP.
Oh, the other plus here is that traditional LRAP can be applied to any kind of student loan, while IBR only works with loans from the federal government (although you can usually convert private loans into federal loans to take advantage of IBR). BUT, traditional LRAP does NOT cover undergraduate debt, while IBR (and the combined plan below) do. Confused yet? Read it again. 2) LRAP + IBR:
Under this plan, LRAP works together with IBR. ("With our powers combined, we are Captain Payment! Captain Payment, he's our hero. Gonna reduce our debt down to zero! Earth, Wind, Water, Fire, Heart!" I apologize for everything that just happened.)
So basically, if you find a job that is both law-related and in the public interest, you can use IBR to knock your payments down to 15% of your income above the poverty line, and then LRAP will step in to pay that for you. Because 15% of your income will likely be so low, the debt cap will probably not be triggered and you will simply pay nothing for the full ten years, at which point IBR will wipe out your remaining debt, and you will have spent a full decade getting fat on government cheese.
The downside of this plan is that if you don't spend the full decade in public service, you may get hit hard with the negative amortization when you come out. In other words, if you leave the plan after less than ten years, you might come out with more debt than you started with. Avoiding this fate means either committing to the plan for a full decade or leaving after only a couple of years, because switching to the private sector makes less financial sense each year you stay on IBR while your debt rises. On the other hand, if you were leaving public service to pursue a cush private sector job, you would probably be able to handle the debt even if it had risen.
I should also note that the 10 years do NOT need to be consecutive, so that might help. THE WEIRD WILD WORLD OF PROLONGUED UNEMPLOYMENT:
And now we come to my personal track: that of the penniless Sitar player. First, I must admit that spending most of your time staring this job market in the face is pretty bleak. As you look into the abyss, the abyss looks into you. Etc. Etc. But all hope is not lost. If you can't find a job for a while, there are many options for delaying repayment on your loans, especially if they are federal loans. Again, this is a matter best discussed with Financial Aid, but suffice it to say that you can forbear or defer your loans for a long time if you are unemployed--potentially years. You can also find some crappy job to pay the bills and use IBR to reduce your payments to a manageable level while you look for something better. If all else fails, there's always People's Park.
I think that covers the basic layout. I hope you found it helpful. Feel free to supplement or correct as needed in the comments.