Law school costs no longer worth it for most students

By: Daniel Burns

Law schools and the degrees they offer are increasingly financially unattainable for prospective students. Not only has tuition risen exponentially, but the actual return on investment has drastically devalued due to an oversaturation in a shrinking job market.

Many students are no longer buying in. Sources like place law schools’ deceitful use of statistics under scrutiny. Schools often present inflated employment numbers that do not list whether or not graduates find employment as lawyers or in jobs that even require a Juris Doctor (J.D.).

At Syracuse University College of Law, only 54 percent of graduates can expect to obtain a long-term legal career, according to This horrifying statistic is further compounded by the fact that the average debt that a student will face upon graduation from Syracuse is close to $235,000.

Many prospective lawyers do not worry about this debt due to the false assumption that their future lawyer salary will quickly ease the burden of student loans. For most law graduates, this is not the case. Most lawyers who make enough to pay back large student loan debt are those with careers in “Big Law” at top law firms. This creates yet another ugly problem, as the reality of landing such a job is slim.

Recent statistics show that most “Big Law” firms only hire graduates from the top 20 law schools in the country. Your J.D. degree from a school ranked 54, and the hundreds of thousands of dollars you spent to get it, mean nothing to “Big Law” firms unless you graduated first in your class or know someone in the firm. What these factors add up to is an expensive degree that is worth far less than the time and money spent on it.

I am not saying that law degrees are worthless, but the reality is that the commitment of resources necessary to obtain such a degree is astronomical and unfair. A lawyer salary of $50,000 would be feasible if the money spent on a law degree matched the salary. In order for degree price and salary to match, one of two steps must be taken. Either law schools stop milking students for a degree in a field that is nowhere near as lucrative as it used to be or an alternative to acquiring a J.D. is created to compete with law schools.

The second step seems more probable. Before law school became the primary means to obtain a J.D., prospective lawyers could apprentice themselves under an attorney as an assistant in “reading law.” Once these assistants spent enough time and had practiced enough, they took the bar exam and became lawyers if they passed. Although “reading the law” fell out of practice after the advent of law schools, it is still legal to become a lawyer in this way in some states, such as New York and California.

The “reading law” route serves as an established way in which anyone, regardless of assets, can become a lawyer. If it became more prominent, apprenticeship could allow many prospective lawyers to enter the market without the financial burden associated with law schools. With competition comes change. If ”reading law” becomes common place, law schools will be forced to adapt. Competition will destroy the monopoly held by law schools and finally open the career up to those unable to participate in the old system.

Source: Pipe Dream

Posted in ABA, Debt, Department of Education, Economics, Legal Education

Law Schools: Reform or Go Bust

By: James Huffman

The theme of the recent Association of American Law Schools annual meeting was “legal education at the crossroads.” Legal education is at a crossroads, but you would hardly know it from the AALS convention program, from the American Bar Association’s recent revision of its accreditation standards, or from what law schools are actually doing in response to a six-year decline in applications.

To head off the crisis, legal educators should be talking about an entirely new business model. That the existing model has failed should be evident to any thoughtful observer. But because most law faculty view themselves as public servants and legal education as a public good, they reject the very idea that legal education can even be thought of in business terms.

The Crisis in Legal Education

Like it or not, law schools face real business challenges. Demand has declined every year since 2010—not just a little but by nearly 40 percent. The same number of law schools have 33,000 fewer prospective customers than they had five years ago.

At a minimum, this means law schools must be far less selective if they are to come close to historic enrollment levels. Because the vast majority of law schools are heavily dependent on tuition revenue to meet expenses, achieving enrollment targets is critical to the bottom line. It doesn’t matter how much public good they are doing, law schools, like the universities to which most of them are attached, do have a bottom line.

But even achieving enrollment targets does not guarantee a balanced budget. For the past two decades, law schools have been relying on discounted tuition to recruit the best students. Students with higher test scores and undergraduate grade point averages boost rankings, which helps with student recruitment.

But tuition discounts, sometimes approaching 100 percent, are problematic. When aggregate discounts become too large, more students actually result in less net revenue. Without endowment income sufficient to cover tuition revenue lost to discounting (which very few schools have), the least qualified students with the worst prospects for gainful employment after graduation end up paying for the most qualified students to attend law school.

It is also the case that law school tuition has risen in excess of inflation for the past four decades. When I entered the University of Chicago Law School in 1969, tuition was equivalent to $16,000 in 2014 dollars. Chicago’s 2014 tuition was over $54,000. No one can claim that today’s students are getting three and a half times more value than I did 45 years ago, but they are willing and able to pay that much because they can get government guaranteed loans to cover the expense.

Top graduates from the University of Chicago will have no difficulty repaying $150,000 to $200,000 in law school debt, but most graduates of most law schools will spend most of their careers paying for their legal education, while many will never be able to do so. The economics of legal education are inextricably linked to the demand for new lawyers, which is linked to the market for legal services. That market has changed dramatically and permanently over the past decade resulting in six consecutive years of decline in the demand for new lawyers.

In the face of these economic challenges, most legal educators appear to assume that their options are three: cut expenses, somehow maintain enrollments or get their universities to bridge the growing financial gap.

Cutting expenses within the current business model is difficult. Short of moving into smaller and less commodious space, there is little to be done about facilities costs in the short term. Program cuts compromise highly competitive student recruitment. Indeed many schools are considering the addition of new programs, including graduate degrees that will add to total costs for students willing to enroll, in hopes of enticing more students. Faculty, the largest expense for most schools, are almost all tenured making cuts impossible without scaring off prospective students by declaring financial exigency.

As noted above, maintaining enrollments in the face of plummeting applications requires some combination of lowered admissions standards and tuition discounts. But the former threatens rankings, which undercuts recruitment, and the latter can lead to a decline in net revenue. Because most universities face similar financial challenges, there is little prospect for sustained help from parent institutions.

The current practice of year-to-year, incremental expense cuts, combined with heavily discounted tuition to maintain enrollments, is not going to fix the problem. The deeply ingrained business model that yields the numbers indicated above for both law schools and their students is not sustainable.

The longer legal educators remain in denial about the true magnitude of the financial crisis they face, the more devastating will be the crash. It should be obvious to even the casual observer why the existing business model is broken for all but the well-endowed, elite law schools.

The Failed Business Model

Through the first half of the last century law schools relied on small faculties to teach large classes in facilities consisting of a few lecture halls, offices and a library. Today large faculties teach small classes in elaborate facilities housing high tech classrooms, court rooms, cafes, lounges, suites of faculty, administrative and student organization offices, computer labs, libraries and even workout rooms in a few schools. Faculty teach not only smaller, but fewer, classes, with frequent sabbaticals and research leaves. Little wonder tuition has risen in excess of inflation for four decades.

As someone who promoted all of the above as a law school dean and benefited from it all as a law professor, it pains me to acknowledge that during my nearly four-decade career legal education, I abandoned frugality for profligacy. Some of the rise in cost resulted from program expansions in response to a plethora of new legal specialties and from steady pressure from the American Bar Association for more training in lawyering skills that requires a much lower student-faculty ratio.

But the core factor in the escalating cost of legal education is that the guild of law school professors long ago captured the combined regulatory apparatus of the American Bar Association (ABA) and the AALS. We law professors have constructed a legal education model that, first and foremost, serves faculty interests—higher salaries, more faculty protected by tenure, smaller and fewer classes, shorter semesters, generous sabbatical and leave policies and supplemental grants for research and writing. We could not have done better for ourselves, except that the system is now collapsing.

A New Business Model

With a new business model, a quality legal education could be provided at half of today’s average tuition. Here are a few suggestions for how to do it:

  • Cut faculty numbers in half by requiring faculty to devote most of their time to teaching. In the existing model, law faculty are expected to teach, produce scholarship, engage in public service and perform service to their institution. Because achieving tenure at most institutions depends almost entirely on the production of scholarship, that function has come to dominate faculty time. Prospective professors are asked not about their interest in and preparation for teaching, but whether or not they have a research agenda. High level scholarship is important to the development of the law and can be a positive influence on teaching, but it is not in the interest of the public or of students (paying the bills) for the thousands of law faculty at some 200 law schools to devote most of their time to writing articles that usually duplicate the efforts of others. Reducing the administrative responsibilities of faculty will also free up time for teaching. A role for faculty in institutional governance is important, but in most law schools endless committee meetings and mundane administrative tasks can become overwhelming despite the rapid increase in administrative staff.

  • Eliminate tenure and take advantage of a highly competitive market for law professors. Tenure once served as a bulwark of academic freedom, but today’s speech codes and mandatory trigger warnings make a mockery of that once grand idea. Tenure has become little more than a form of job security in a world where most people manage without a guarantee of lifetime employment. Today’s law professors earn a comfortable living. Some even become wealthy by double dipping through lucrative consulting assignments that also take away from time for teaching. While there are thousands of practicing lawyers and judicial clerks standing in line for law teaching jobs, tenure assures that available teaching positions at any given time are relatively few. A more competitive market for law teachers would reduce costs while improving teaching quality.

  • Reduce law school from three to two years. Although the law has become ever more complex over the last many decades, the basic intellectual skills required of practicing lawyers have changed little. Two years in a well-conceived curriculum are ample to provide those skills. It would be a fool’s errand to try to teach law students the broad substance of our burgeoning and always changing laws no matter how long they stay in law school. Law schools also have taken on many tasks, like instruction in basic writing skills, which should be and can be more effectively acquired prior to law school. The expansion of lawyering skills training appeals to students anxious to become “real” lawyers. But after a half century of clinical and other skills programs, law schools continue to be faulted for too much theory and not enough skills training. This suggests that the existing model is not working. Perhaps legal educators should look to the British or elsewhere for a different approach. It is long past time to acknowledge that the biggest obstacle to making law school significantly less costly for students by reducing it to two years is that law schools are addicted to the tuition revenue generated by the mandatory third year or its equivalent. The fact of the matter is that most third year students are biding their time, at great expense, until they are allowed to take the bar exam and get on with their careers.

  • Stop the facilities arms race. While new programs and larger faculties have required law schools to expand office space, the last two decades have witnessed a surge in the construction of ever more palatial law school buildings. Many have been debt financed placing an added burden, along with new maintenance costs, on operating budgets. With declining enrollments and smaller faculties law schools will require smaller, not grander, facilities in the coming years.

  • Take greater advantage of online instruction technologies. There is little doubt that some of what lawyers need to know is best taught by professors in a classroom. But there is much that can be learned, as well or better, through online instruction. Why have hundreds of professors ranging from excellent to terrible teaching the rules of evidence, or the Internal Revenue Code, or administrative procedures act to 50 or 100 students at a time when a handful of truly outstanding teachers could be made available to every law student in the country? Most law professors will object that they are teaching students far more than the substance of the law—that they are teaching them to solve problems and to think like lawyers. But those skills do not need to be taught in every course, and the reality is that most law students are centrally concerned with learning the substance so they can pass a bar exam. The Socratic method can be stimulating and mind-opening, but few professors do it well, and even if all professors were masters of Socratic dialogue there are steeply diminishing returns to its repetition in every course.

Other Obstacles Remain

These are just a few of the more obvious elements that might contribute to a new business model for legal education. Once legal educators accept that drastic change is needed, other, and probably better, ideas will surface.

But there will be little such circumspection and innovation until law schools are freed from the heavy-handed, one-size-fits-all ABA accreditation standards. Although the ABA has just completed a comprehensive review of the standards and has made some changes intended to give law schools greater flexibility in meeting those standards, there remains little room for true innovation.

In fact, the most substantive change is to mandate for all law schools to require all students to take a minimum of six credits in “experiential courses,” a requirement that will increase the costs of compliance given the low student-faculty ratio normally required for such courses. The new standards also allow for more “distance education,” but with tight restrictions that protect the central role of in-house faculty.

The ABA would better serve the public and the profession if it turned its attention to ensuring that law schools are transparent about what they offer and how their graduates fare in the market for lawyers. Otherwise law schools should be allowed to innovate, specialize, experiment and appeal to prospective students not on their rank among a sea of law schools doing basically the same thing, but on the basis of the unique education they offer. Only then will new business models emerge and be tested against the realities of the 21st century market for legal services.

Because the ABA accreditation process serves the vested interests of law professors and of law schools in relation to their parent institutions, the needed reform is unlikely without pressure from others with an interest in the future of legal education.

Fortunately those others exist, and they have the power to force change. Each state, usually acting through its high court, determines who is qualified to practice law within its borders. To the extent that each state requires candidates for admission to the bar to hold a degree from an ABA accredited law school, each is complicit in sustaining the cartel that is American legal education.

Odd as it seems, the key to finding new business models for legal education may rest with the high courts of the 50 states. If their bar admission standards focus more on the qualifications in individual applicants and less on where applicants acquired those qualifications, legal educators would be freed to succeed or fail on the basis of the quality of the education they offer.

The legal profession and the public it serves would be better for it. Legal education would become sustainable and better adapted to 21st century needs. And law students could begin their careers with little or no debt.

James Huffman is dean emeritus and formerly the Erskine Wood Sr. professor of law at Lewis and Clark Law School in Oregon. This article first appeared on the Hoover Institution website.

Source: Newsweek

Tagged with:
Posted in ABA, Department of Education, Ethics, Jobs, Legal Education, Student Loans

Law Students Leave Torts Behind (for a Bit) and Tackle Accounting

A group of 170 Brooklyn Law School students cut short their winter break and headed back to campus in January for an intensive three-day training session. But not in the law.

Instead, they spent the “boot camp” sessions learning about accounting principles, reading financial statements, valuing assets and other basics of the business world — subjects that not long ago were thought to have no place in classic law school education.

“The boot camp helps you learn more of the nitty-gritty,” said Ricky Liang, 26, a third-year student who attended the workshop. “A lot of students hear phrases like mergers and acquisitions, and it sounds enchanting, but they don’t really know what it is.”

Like Brooklyn Law, more law schools are adding business-oriented offerings to better equip students to compete in a job market that is being reshaped and slimmed down as more routine legal work is being outsourced and corporate budgets cut back. And in the contracting market, students are more focused on trying to land a well-paying job to pay off sizable student loans.

“There’s a broader shift for law schools to prepare students to be more practice-ready when they graduate,” said Brian Z. Tamanaha, a law professor at Washington University in St. Louis who tracks changes in the legal profession and wrote the book, “Failing Law Schools.”

Law schools as diverse as Brooklyn, Cornell and the University of Maryland are offering focused sessions that aim to bring students up to speed on business practicalities. Like Brooklyn, many are offering brief business-centered workshops, prompted by the lack of exposure many graduates have to teamwork, business strategy, client interaction and other fundamentals of running a corporation.

“Law firms were telling us that associates had no business literacy,” said the dean, Nicholas W. Allard, who arrived at Brooklyn in mid-2012 from the Washington law firm Patton Boggs.

“The need for business literacy has existed for a long time and graduates had to learn the business basics on the wing,” Mr. Allard said, “but the legal recession has forced law schools to address flaws like this that had been papered over, or not addressed, in flush times.”

For the boot camp, Brooklyn Law joined with Deloitte Financial Advisory Services, which had developed a program to give new hires at law firms some business background. The Deloitte team worked with John P. Oswald, chief executive of the investment and merchant bank Capital Trust Group. Mr. Oswald, a Brooklyn Law alumnus and board trustee, has financed the program for three years, helping to shape it for law students.

“The programs law firms offer are very specific, but our program covers a broad diversity of topics, following a business from its inception, through various phases, including franchising and purchasing an overseas business,” said Mr. Oswald, who is also a certified public accountant.

Last year, Cornell University Law School started a similar business-focused workshop, called “Business Concepts for Lawyers.” The idea came from a Harvard Law School survey of employers released in February 2014, said Lynn A. Stout, a professor of corporate and business law at Cornell.

The 124 firms that responded to the survey, called “What Courses Should Law Students Take? Harvard’s Largest Employers Weigh In,” listed accounting, financial statement analysis and corporate finance as the best courses to prepare lawyers to handle corporate and other business matters.

Since nearly 50 percent of Cornell’s graduates end up working at large law firms, Professor Stout organized an intensive weekend program taught by Cornell faculty members.

“You simply can’t be a lawyer at a large firm without grounding in business language and business institutions,” she said. “Clients are less patient about paying large bills for associates who are not prepared to add value to a firm’s legal work.”

Few law schools, however, have taken steps to change their curriculum, in part because first-year courses are seen as indispensable to legal learning and also because some professors typically resist teaching courses that seem vocational. The Francis King Carey School of Law at the University of Maryland is one that has retooled some of its course offerings in recent years and created a business law track for interested students.

An increasing number of students are opting for the business track program, said Michelle M. Harner, the law professor who is director of the program. From two graduates in 2012, there were 15 last year, and as many as 25 graduates are expected this May, she said.

The Baltimore school also offers a boot camp for its students, which is held over three consecutive Friday afternoons in the fall, “providing an opportunity for students to learn to speak the language of their business counterparts,” Professor Harner said.

Students who attend the business workshop also “learn negotiation skills, dealing with case files and other skills,” she said. A team from Deloitte participates in the sessions, which enroll about 90 students each time. Last month, a separate session was also held for first-year students.

“It’s eye-opening for many students who are focusing all their attention on taking courses to get ready to pass the bar exam,” said Brittani N. Gordon, 26, a third-year student at Maryland who attended the workshop last fall. “They know they want to practice law, but they really don’t know what kind. So this is a crash course in areas like tax law and real estate transactions that they haven’t been exposed to.”

The business-directed programs are a response to the new realities of the legal world. In recent years, law schools have seen lower numbers of applications and a drop in job placements. The publication of jobs data, required by the American Bar Association about a year after each graduating class, has highlighted the broad decline in legal hiring across the country.

The Center for the Study of the Legal Profession at Georgetown Law and Thomson Reuters recently issued a report that found law firm hiring was flat, and business spending on legal services rose only slightly over the last decade as corporations moved work from outside law firms to internal legal staffs and more frequently farmed out more routine tasks to nonlaw firms.

Emphasizing delivery of legal services, the University of Colorado Law School last summer began a four-week summer boot camp called “Tech Lawyer Accelerator,” where companies teach the students how to use technology tools to streamline and improve the efficiency of legal work. There were 16 students last summer and each followed the boot camp with a 10-week internship at a technology company to put their newly acquired skills to use.

Still, some legal experts said they were not convinced that only business-specific offerings were an answer in the changing legal market. Professor Tamanaha of Washington University endorsed what could be viewed as a modern twist on the traditional model of “reading the law,” where aspiring lawyers train by working in a licensed lawyer’s practice.

Law schools typically arrange fellowships or externships, many in public service. Increasingly, legal educators are expanding them to include placements in companies. The University of Maryland, for example, will soon announce yearlong fellowships, where a student works and is paid, with Brown Advisory, an investment firm, and the Cordish Companies, a real estate development company, in addition to its summer placements.

“Practice-ready efforts are a strong underlying trend,” Professor Tamanaha said, “But the best answer may take place in externships, where students get practical experience.”

Source: NYTs

Posted in ABA, Education, Financial Planning, Jobs, Legal Education

Law students overwhelmed, stressed and concerned about job prospects


Edmund Tadros

The tough graduate employment market is compounding the stress of university law students already struggling under a difficult workload and a competitive, high-pressure study environment.

A new survey has found the majority of law students feel stressed most or all of the time, with almost half having considered dropping out of law altogether.

This dire picture of student life, based on an online survey of more than 1500 users of the law students’ advice website Survive Law, also revealed almost half of the students feel overwhelmed by their workload most or all of the time.

Survive Law editor Kat Crossley said the lack of legal job prospects was a major problem.

“One of the biggest challenges is that the number of graduates remains high when the legal profession’s demand for entry-level lawyers has dropped,” she said.

“Since the [global financial crisis], many of the major law firms that ran large clerkship and graduate programs have reduced the size of their intakes.”

The oversupply of law graduates has meant legal firms have their pick of graduates of unprecedented quality.

Not helping matters is that law students, competitive and high-achievers by nature, can be overly focused on roles at top-tier law firms, said Carolyn Evans, the chair of the Council of Australian Law Deans and the dean of Melbourne Law School.

“One of the sources of anxiety is fixating on one outcome that you don’t achieve,” Professor Evans said.

“Law students can become fixated on one type of job after school –as a particular type of lawyer at a particular type of firm.

“One of things all law schools are being clear about now is … the types of careers that a law degree can offer.”

Professor Evans said the graduate employment market, which is the worst on record, is a problem for all university students.

“It is becoming more difficult to get jobs in law and jobs generally,” she said.

“That has implications not just for law students; there are a lot of issues arising for the mental health of young people in general.”

The legal profession, long known to have higher-than-average incidences of mental health problems, has made great strides in acknowledging and offering support to assist lawyers and barristers.

This has extended to law schools, where programs and an increasing level of openness about mental health are apparent, according to Marie Iskander, a final year law student at the University of New South Wales and a vice-president of the Australian Law Students’ Association.

“When I started law school [six] years ago, the issue of mental health still seemed taboo and was seldom spoken about,” she said.

“Law students often presented themselves with a tough exterior and resisted showing any signs of weakness or struggle, so as not to diminish their ‘perfect law student’ image.

“Of course, what we have learned is that the concept of the ‘perfect law student’ is a myth and I think, or at least, I hope, that law students are increasingly learning how common stress, anxiety and even depression can be among their peers.”

Ms Iskander said she had learned to accept what she cannot control during her job search.

“[I] am in the same pool – on the brink of finishing my law degree, and still haven’t acquired a graduate position; my advice would be that you are allowed to be upset in the face of job rejections –they’re not easy for anyone,” she said.

“At the same time, I have always been of the mindset that everything happens for a reason and there is always something better or more suitable awaiting me, even when I’m rejected from a job.

“Perhaps this is a naive approach to the very realistic and daunting job market at the moment, but it keeps me in a positive frame of mind, so that when I do acquire that dream job – a job that I can be passionate about – all the past rejections will make sense.”

The law school at the University of Technology, Sydney, has a program aimed at reinforcing the link between the course and justice with its Brennan Justice and Leadership Program.

More than 1000 of the approximate 2500 law students at the university have signed up for the program, which involves volunteer work such as tutoring and mentoring.

Law students can be reluctant to get help

Marie Jepson, who lost her law graduate son Tristan to suicide 2004, has learnt it can be difficult to get law students to accept they need help.

She now does outreach work in the legal profession and law schools for the foundation named in her late son’s honour, the Tristan Jepson Memorial Foundation.

“They won’t listen if you tell them to take care of their mental heath,” she said.

But they do pay attention when she taps into their competitiveness and compares their situation to that of a sports star.

“I [tell them] professional athletes want to be the best, so they invest in their wellbeing, and what they need to do to ensure that they can sustain [their performance].

“They need to choose to invest in their own ‘talent sustainability’.”

This involved doing activities that didn’t “look good immediately” but were important in the long term, such as putting time into important personal relationships.

She added: “These are things you do that don’t look good on your CV, but if you can build in those practices then you have life skills.”

Source: Financial Review

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Posted in ABA, Jobs, Legal Education, Student Loans

6 Reasons to Love (Okay, Grudgingly Accept) Your Student Loans

Valentine’s Day is coming up, but we know you don’t want to put a ring on your student loans. Even if you can’t love them, here are six good reasons to value your loans.

A college degree is still good value. A recent study by the Federal Reserve Bank of New York affirms what we have long said: going to college still remains a good deal for most graduates. According to the study, the return for a bachelor’s degree has been about 14-15 percent for the last decade, compared to an annual return of 7 percent for stocks and 3 percent for bonds since 1950.

Student loans increase access to higher education. There’s no doubt student loan reforms are needed to decrease the risk of student loans for individual borrowers and that something has to be done about the constant increase in the cost of college. That said, there’s no doubt that many (if not most) students are only able to go to college because student loans are available. Perhaps you’re one of them — if so, please share your story below. Those are stories worth celebrating.

There is help available for lower-income families. As we’ve reported before, thanks to Pell Grants and other forms of need-based aid, lower-income families paid less in net price to go to college than higher-income families did in 2011-2012. There’s still room for more aid to those who are less well-off. But that’s an indication that the student loan system is doing something right.

Federal student loans have increasingly good borrower protections. From new income-driven repayment plans to deferments, federal loans give you options to help you avoid default (and preserve your credit score — see more below). And for those willing to commit to 10 years of work in the public interest, there’s the opportunity to earn Public Service Loan Forgiveness. Nothing says love like forgiveness, right?
Your student loans may help your credit score. As we’ve reported in the past, responsibly managing your student loans can potentially have a positive impact on your FICO scores. Notice we stress responsibly here. The key is making your payments on time and building up an excellent payment history.

Your son or daughter may not have to pay student loans at all. President Obama’s recently proposal to make community college free has received widespread love (certainly among Huffington Post readers). There’s no guarantee that it’s going to happen anytime soon, but wouldn’t that be a great Valentine’s Day gift?

If you have further questions about how to manage your student debt — and ensure your continued creditworthiness – feel free to utilize comprehensive resources like our free webinars and free e-book. And in the meantime, try to love the loans you’re with.

Posted in Economics, Student Loans

Important Tax Basics for Freelancers

Source: WSJ

Whether you are wholly self-employed or moonlight as an independent contractor, there are quite a few steps to remember when filing your taxes. In addition to annual returns, most freelancers must make quarterly estimated tax payments, depending on the amount of freelance income earned. Most self-employed individuals choose to set aside a portion of their income to prepare for estimated tax payments. Remember, self-employed people are often taxed at a higher rate than company employees, because they are accountable for their full share of payroll taxes. If you have numerous clients, variable income, and complex expenses, you might consider hiring a professional to file for you. But with careful research, planning, and record keeping, it is completely feasible for freelancers to file their own taxes.

Purchasing software through a company such as TurboTax or H&R Block is an option that will probably be more affordable than hiring a tax preparer or accountant. Tax software can be a useful tool to help translate some of the difficult language on IRS forms and allow for straightforward online filing. Just be sure that you choose the right software package for your needs, which may change year to year. Many freelancers who were able to file with TurboTax’s “Deluxe” package last year now must upgrade to the “Home and Business” package. Once you have determined the package that fits your needs, you could even receive a large discount by purchasing your software over the phone.

TurboTax also offers limited guidance via a call center for general tax questions, even for people who are not using their products. Calling the IRS or state taxcenters with questions can also be tremendously helpful to DIY tax preparers. The IRS website is one of the most reliable resources for tax help. Try visiting its “Self-Employed Individuals Tax Center.” The Nolo website can be helpful to freelancers as well. Nolo’s book Working for Yourself by Stephen Fishman is a useful resource, particularly for small business owners, whose taxes are even more complex.

Accurate recordkeeping and organization are essentials for every freelancer. Keep track of all income and business expenses, and keep receipts for all expenses you will be reporting. Do extensive research and educate yourself early in the year, as you will likely owe quarterly estimated tax payments. Here are the tax basics you need to know if you have earned income as a freelancer.

Quarterly estimated taxes

Generally, individuals who receive self-employment income must make estimated tax payments quarterly. If you wait until you file annual returns to pay taxes on freelance income, you are likely to be charged a penalty in addition to the taxes you owe. The federal due dates for estimated tax payments this year are April 15, June 15, September 15, and January 15, 2016. To determine the amount you owe federally, fill out the 1040-ES form. You are also likely to owe estimated tax payments at the state level. Remember, even if you have clients based in other states, you only need to file in the state where you reside while earning the freelance income. States have their own estimated tax worksheets to help determine your payments. You can make your federal payments online, but some states require you to make your payments through the mail.

Annual tax returns

When it’s time to file your annual returns, you will need to file both federally and at the state level. If you have lived in multiple states, make sure you have kept records of how much income you earned while living in each particular state. Be sure to research all the necessary forms you’ll need to file for your specific state. Before you start your annual return, be on the lookout for any W-2 statements or 1099-MISC forms you expect to receive, as these are due to employees/contractors by January 31.

If you are a part-time freelancer and received wages from an employer as well, that income should be reported on your federal 1040 form. Independent contractors also must fill out a Schedule C and a Schedule SE. If your expenses are $5,000 or less, you may be able to file Schedule C-EZ instead of the Schedule C. To find out if you can use the Schedule C-EZ, see the instructions in the Schedule C-EZ form. The Schedule SE is used figure the amount of self-employment tax owed.

Business expenses

Tax deductible expenses for freelancers can include computers and electronics, software, office supplies, meals with clients, travel expenses, memberships/subscriptions, reference materials, business cards, and more. If you pay for your own health insurance, you can deduct the full cost on your 1040 as a personal expense. You may even be able to deduct rent and utilities, such as your Internet bill. If you work from home, you may qualify for the home office deduction, which is available to both homeowners and renters.

More from Personal Finance Cheat Sheet:

Posted in Financial Planning, Freelancer, Tax

Will You Be A Winner When Uber-Style Platforms Replace Bosses?

Is an Uber-ized, free agent economy one of abundance—or scarcity, deprivation and economic insecurity for workers? Or both? And how can we keep society fair when more people are getting work through digital middlemen and other nontraditional routes?

These are not easy questions to address. But with President Obama placing “middle class economics” front and center, they’re very important. And so far the only real leadership in answering them is coming from financial services entrepreneurs on the bleeding edge of the on-demand economy, who are offering new solutions to keep freelancers afloat. (More on them later).

The lack of attention to solo business owners is shocking. About 53 million Americans now work as one-man or one-woman bands in the “contingent” economy as freelancers, contractors, temps or part-timers, by the Freelancers Union’s count. And more businesses are relying on these flexible workers. In a new report, Elance-oDesk–one of the larger freelance marketplaces–found that U.S. businesses spent $604 million hiring freelancers through its platform in 2014, up 30% year-over-year since 2013. People of all levels of professional skill now rely on freelance work. The most in-demand skills on Elance-oDesk include mobile technology, sales and marketing, administrative support, and writing and translation.

Still, the fate of the enormous group of freelance taxpayers is almost always an afterthought in discussions of public policy. Join the world of independent employment–whether with enthusiasm or because you were forced by circumstances–and you will find yourself strangely invisible and living with almost no safety net.

With Uber growing aggressively and freelancing getting rebranded with sexier names like the “on-demand economy,” that may be changing–a little. Some people are starting to become concerned about the rights of Uber’s drivers, and whether they should be considered employees of the company or not. With the debate brewing, the latest round of Uberized headlines focuses on a recent survey of its drivers. Seventy-eight percent of the folks behind the steering wheels said they were satisfied with the Uber platform; most reported that driving for Uber was a part-time gig. However, as Newsweek says it verified, many drivers declined to participate in the research. And the sample size was small.

To me, the heated debate signals that it’s time to reinvent our industrial-era institutions. Many people now work in ways that don’t fit neatly into the old-fashioned W-2 vs. 1099 buckets. It doesn’t make sense to shoehorn digital platforms and the freelancers who use them into dated, punch-clock era employment models that have just about run their course.

In any discussion of the middle class, it is time to consider some new questions:

* What is different about an online freelance marketplace from a traditional employer? Given the differences, what is the fairest way for the platforms to operate and treat workers who use them?

* What do we do when workers gets kicked off of one of these platforms for reasons they think are unfair–and potentially lose their whole business?

* What happens when a platform fails? Do we need to view it the way we would if a big corporation failed and try to control the fallout?

* Should we create systems to deal with the disruption that will eventually occur when a new technology, like driverless cars, puts an end to the livelihood of certain on-demand workers?

With legions of people finding work through digital platforms, the answers matter.

The few leaders who are concerned about contingent workers tend to turn to the same old solutions, like crackdowns on employee misclassification. Going after employers who are trying to cheat low-wage workers out of benefits is very important. But many freelance workers are not misclassified. And they like running their own businesses. Nonetheless, to stay in the middle class, some need a little help sharpening their business skills and replicating the support systems that many traditional workers get from their jobs. We need innovative new ideas to help them do that.

Right now, most government programs for business treat one-person firms as an annoying problem to be fixed. The thinking is that these solopreneurs are potential job creators who could potentially grow if only they had the right mindset to scale up. The emphasis is on getting the owners to the point where they are employers. The underlying reason is that government does not want to create more freelancers. They are harder to tax than W-2 workers whose payments to Uncle Sam get deducted automatically from their paychecks. That is very annoying to bureaucrats. Why create more hard-to-control folks who don’t fit into a cookie-cutter system?

As a result, there’s almost no meaningful help offered to a freelancer who, for instance, wants to get from $25,000 in income to $150,000 or $200,000 to support a family in a high-cost state and then keep the business running profitably for years as a solo operation. We should be asking “Why not?” Of the 28.2 million small businesses the SBA has tallied, more than three quarters are nonemployers. These folks have collectively created millions of jobs–for themselves. It would help society tremendously if all of these folks knew how to give themselves a “raise” –even if they have no desire to become the next Mark Zuckerberg or Sara Blakely.

One of the biggest areas where these soloists need help is managing cash flow, given the unsteady income that comes from self-employment. The financial sector has had little interest in solving this challenge so far. But new ideas are finally starting to percolate among entrepreneurs.

The Pacific Standard recently reported on a startup – still in beta testing — called Even that aims to help freelancers and part-timers. They contribute their pay to the startup, which gives them a regular paycheck based on their average weekly income for the past six months, paying $5 a week to use the service. When users are tight on funds, Even allows them to take an interest-free loan to be paid back through their future earnings. If the business model works, it could potentially help many freelancers bring financial stability to their lives–particularly if Even partners with some of the major freelance platforms to make the process seamless.

In Europe, another interesting idea being tested is worker-run collectives to insulate freelancers from loss of income if they fall ill, as The Guardian recently reported. They put a certain amount of money into the pool, based on how much income they would need to replace if they could not work, and therefore get the right to collect if they get sick for more than a month. While there is some potential for abuse, these worker-friendly alternatives to disability insurance seem to be holding up well so far and are worth watching.

Freelancing is not going to slow down. Both freelancers and their customers like the on-demand economy and the Uber cabs it brings. But that doesn’t mean we can’t find creative new, digital-era solutions to make sure that freelancers can stay in the middle class. And the moment to do that is right now.

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How This Family Got Creative To Eliminate $200,000 In Law School Debt


Erik Furer started at Seattle University School of Law in 2004 with no debt. He graduated in 2007 with $200,000 in student loans.

After graduation, he got a job as an assistant city attorney in the Seattle area. He eventually married and had two daughters.

Erik’s father, Hans Furer, says his son wasn’t really thinking about the debt he would graduate with — and how he would pay it off — when he started law school.

“The problem that people at his age have is, they’re really not exactly comprehending and realizing what will happen four or five years down the road,” Hans says. “They’re single, they can handle their finances. So it’s basically the typical story of somebody who got married, had kids, bought the little townhouse, and started to realize that he was really financially in trouble.”

Seven years after graduation, Erik was still struggling to make his $1,700-$1,800 loan payments every month — he could only manage to pay about $1,500 at a time.

That’s when his parents decided to help.

Hans and his wife owned a house in Los Angeles, which was valued around $1.3 million. They bought the house in 1979 at a 12% mortgage rate.

“Over the period of time that we owned the house, we refinanced three times, and the last time we refinanced, we turned the mortgage into a 10-year period,” Hans says. “And we probably paid it off five or six years ago.”

Erik’s younger brother, Peter, had stumbled across a company online called Lenda, which allows people to refinance their homes online, as opposed to going through a bank. He suggested that his parents look into it.

After discussing options with two local banks he and his wife had used before, Hans says he decided to go through Lenda, which eliminates the need for a loan officer, for better interest rates and lower fees — nowhere near the $10,000 in refinancing fees one bank had quoted him.

The decision to refinance wasn’t an easy one.”The hardest thing was probably making the decision to do it,” Hans says.

The Furers had not paid for either of their children’s undergraduate educations. Instead, Erik and Peter had received scholarships and grants and some help from their grandparents. But Hans and his wife felt it was their responsibility as parents to step in and help Erik, even though he had not asked.

Erik Furer & FamilyErik FurerErik Furer with his wife and two daughters.

“He was not pushing,” Hans recalls. “He didn’t bring up the idea, but we just felt he’s a dad with two kids working hard. He’s doing the best he can, and as parents that’s what we could do for him, and it was obviously very much appreciated.”

Since their house was already paid off, the Furers refinanced in order to get what’s called a cash-out loan — receiving cash from the equity of their home.

Hans and his wife were able to secure a loan for $210,000, with a 30-year fixed term at an interest rate of 3.125%. Erik used this loan to pay off his student loan debt, and is now paying the refinance loan back to the bank with a monthly payment of $899.60 — roughly half of his original monthly payment for his student loans.

In other words, the Furers allowed Eric to borrow against the equity in their home without any fees.

Looking back, Hans admits he and his wife should have spoken up when Erik chose where he wanted to go to law school.

“As parents you always feel that you raise your kids to be able to make important decisions, and what I know now is that Erik could have gone to law school closer to where we are, probably lived at home, and could have probably gone through the process of graduating and passing the BAR with half the debt,” Hans says.

But that doesn’t mean that Hans regrets his decision to refinance. If need be, he says he would do it again.

“Whatever cash is in the house will belong to the kids one day anyway,” Hans says. “So if they get something now instead of when we’re dead, why not?”

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The Uberification of the “1099 Economy”

The Uberification of the “1099 Economy”

Shopping cart on a navigation barA new buzzword has emerged in the tech lexicon: “1099 economy.” Referring to the growing ranks of single proprietors and contractors, this trend is part of the massive transformation taking place in the local services economy.

This stems from On Demand Local Services (ODLS). The focus of a recent column, this is the exploding and well-funded sector of apps that let you summon services that are fulfilled locally, a la Uber.

Among other things, these apps create transparency in customer demand. Resulting supply-side liquidity empowers individuals to have the customer acquisition prowess formerly reserved for larger companies.

Also handling core operations like payments and scheduling, some ODLS apps are a full blown startup kit in a box. That sidesteps overhead costs endemic to the enterprise service models we’ve known for centuries.

In micro terms, that will do cool things like improve unit economics and pass savings to consumers, as we’re seeing with apps like In macro terms, it could be an economic inflection point in local services.

Of course ODLS is nothing new, nor is the 1099 economy itself. But the innovation we’ve seen with Uber, Airbnb and a few other standouts of this sector are about to take over many more local service categories.

“It’s empowering what we’ll call the 1099 ‘economy,’” CEO Chris Spanos told me. “UberX is probably the best example, but expect that revolution to occur across every vertical that you can imagine.”

Many things are driving this expansion, including smartphone penetration, app innovation, mobile payments, and societal acclimation. But Spanos brings up another important factor: generational.

“An old economy business model that millennials can’t relate to [is] an annual subscription for something you might not need,” he said. “Millennials expect everything now, and they turn to their phones for that.”

Another thing occurred to me after talking to Spanos. On demand mobile services aren’t just a good match for millennials’ proclivities as consumers; but also to their potential to fill the ranks of service providers.

In other words, the same fickle nature of (some) millennials that causes them to not want to commit to subscription services could make many also not want to be caged in traditional 9-to-5 jobs.

The Uberification of the 1099 economy could therefore be form-fitted for a generation that doesn’t want to be told when to come to work. Ask any Uber driver whether they like being able to make their own schedule.

This bodes well for the Ubers of the world, whose supply/demand balance requires constantly adding service professionals in a step function that leads with the supply side (i.e. more drivers).

The question is whether or not this “uberification” extends beyond service industries. If it can move up the ladder to higher paid corporate or creative fields (which it already is), it could employ an entire generation.

Panning back, the combination of an increasingly millennial workforce and a new societal employment structure, could mean we’re entering an era of professionals identified more by 1099s than W-2s.

Source: Street Fight Magazine

About the author: Michael Boland is chief analyst and VP of content at BIA/Kelsey. Previously, he was a tech journalist for Forbes, Red Herring, Business 2.0, and other outlets.

Posted in Innovation, IRS, Millennials, Start-Up, Technology

3 Student Loan Repayment Plans You Need to Know About

A recent Washington Post article discussing the student debt plight of Wayne Tibak demonstrates the fundamental strengths and weaknesses of income-driven repayment plans. An Income-Based Repayment reduced Wayne’s monthly payments on his federal student loans from $976 a month to $105, helping him make his monthly payments and avoid default. However, his private loans aren’t covered by these federal repayment options and, since he is paying less each month, he will be paying off his loans for longer and pay more in interest than he would in a ten-year repayment plan. Seeing these strengths and weaknesses is essential to understanding repayment plans so that you, like Wayne, can decide what is right for you. Here’s a quick primer:

There are three basic income-driven repayment plans: Pay As You Earn (PAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR). They all have slightly different provisions and (even more confusingly) the benefits change depending on when you borrowed your loans. Let’s break them down.

Pay As You Earn

  • PAYE limits your monthly payments to no more than 10 percent of your income and provides for taxable forgiveness in 20 years.
  • Only “new borrowers” are eligible for PAYE. This requirement has two prongs: First, you must borrow your first federal loan on or after Oct. 1, 2007. If you had federal loans from before Oct. 1, 2007, you can still meet this test if you completely repaid those loans before taking out another loan on or after Oct. 1, 2007. Second, you must receive a new loan, receive a disbursement on an existing loan, or consolidate your loans on or after Oct. 1, 2011.
  • You must have a “partial financial hardship” to enroll. This means that if the annual amount due on all your eligible loans under a standard 10-year repayment plan would exceed 10 percent of your “discretionary income” (aka what you file on your taxes minus 150 percent of the federal poverty level for your family size), then you meet this threshold.
  • Only Federal Direct Loans (not loans borrowed through the now-abolished Federal Family Education Loan program) are eligible for PAYE. You can read more about that distinction here. If you have Federal Family Education Loans (FFEL), you can consolidate them into Federal Direct and enroll in PAYE.

Income-Based Repayment

  • IBR determines the percentage of your income you will pay based on when you first borrowed federal student loans.
  • “New borrowers” who take out their first federal loan after July 1, 2014, or who repay all their earlier loans before taking out a new loan after July 1, 2014, pay no more than 10 percent of their income. Borrowers who do not meet these criteria pay no more than 15 percent. Yes, this is different than the “new borrower” definition for PAYE!
  • New borrowers in IBR are eligible for taxable forgiveness after 20 years; the rest of us have to wait 25 years.
  • As with PAYE, borrowers must have a “partial financial hardship” to enroll. You have a partial financial hardship if the amount you would pay annually on your eligible loans on a standard 10-year repayment plan exceeds 10 percent of your discretionary income if you are a new borrower (or 15 percent if you aren’t).
  • Both Federal Direct and FFEL Loans are eligible for IBR.

Income-Contingent Repayment

  • ICR calculates your monthly payments on the basis of your adjusted gross income (plus your spouse’s income if you’re married and file your taxes jointly), family size, and the total amount of your Direct Loans. You can pay up to 20 percent of your income in ICR – more than in either PAYE or IBR.
  • There is no “partial financial hardship” requirement to enroll in ICR. So, even if you don’t qualify for PAYE or IBR, you still may benefit from ICR.
  • You can’t utilize any of these plans to repay Parent PLUS Loans. But, you can repay FFEL or Direct Parent PLUS loans that are part of a Federal Direct Consolidation Loan in ICR if you entered repayment on or after July 1, 2006. That is not an option under PAYE or IBR – so parents who paid for a dependent child’s education expenses may find ICR the only income-driven repayment option they have.
  • Only Federal Direct Loans (not FFEL) are eligible for ICR.

All of these plans have interest accumulation and capitalization protections (PAYE’s are the most robust). But, as noted earlier, it is important to consider the affordability of a 10-year repayment plan against the likelihood you will pay more and for a longer amount of time in an income-driven repayment plan. To work through some of these issues – and to help you determine which plan is best for you – use the Department of Education’s repayment estimator or the very helpful calculators at

PAYE, IBR, and ICR are all also eligible plans for Public Service Loan Forgiveness. To see if you can benefit from this program – which allows you to earn forgiveness of federal student loans after making 10 years of on-time monthly payments while working full-time in a wide range of public service positions – sign up for one of Equal Justice Works’ free monthly webinars or download our free e-book, “Take Control of Your Future: A Guide to Managing Your Student Debt.”

Isaac Bowers is the Associate Director for Law School Engagement & Advocacy at Equal Justice Works, overseeing the Student Debt, Student Engagement, and Law School Relations programs. He was previously responsible for the organization’s educational debt relief initiatives. In that capacity, he wrote a weekly blog for U.S. News; conducted monthly webinars for a wide range of audiences; advised employers, law schools, and professional organizations; and worked with Congress and the Department of Education on federal legislation and regulations. Prior to joining Equal Justice Works, he was a Fellow at Shute, Mihaly & Weinberger LLP in San Francisco, where he represented citizen groups and local agencies in environmental litigation and land use and planning issues. Isaac received his J.D. from New York University School of Law.

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