Graduate School Debt Often Curtails Plans of Nonprofit Work (U.S. News & World Report)

The Project on Student Debt's recently released report, titled "Student Debt and the Class of 2009," estimates that college seniors in 2009 graduated with an average of $24,000 in student loan debt. For those continuing on to obtain advanced and professional degrees, the situation is even more dire. For example, the American Bar Association's Legal Education Statistics for the academic year 2008-2009 indicate that the average amount borrowed by law school graduates attending public school is $66,045 and by private law school graduates is $100,002.

Put these grim statistics next to the fact that salaries for public service and government positions are stagnant, and you have an alarming trend: Many people who want to work in public service jobs will not be able to afford to pursue those careers.

[Read 10 things to know about applying for a nonprofit job.]

In 2002, Equal Justice Works, the National Association for Law Placement, and the Partnership for Public Service conducted a study "From Paper Chase to Money Chase: Law School Debt Diverts Road to Public Service" which found that law school debt prevented 66 percent of student respondents from considering a public interest job or government job. For example, entry-level civil legal aid lawyers earn on average $40,000 according to the NALP 2008 Public Sector and Public Interest Attorney Salary Report. Repayment under the standard 10-year plan, which would require a monthly payment of approximately $863, would be virtually impossible at that income level. Even under a 30-year repayment plan, the approximate monthly payment would be nearly $500 per month.

[Get tips and tools for managing student loans.]

Similarly, an ABA Commission on Loan Repayment and Forgiveness report, "Lifting the Burden: Law Student Debt as a Barrier to Public Service," came to the following conclusions:

-- As law school tuitions and student debt have sharply escalated, fewer and fewer law school graduates can afford to take comparatively low-paying public service positions.

-- Many law graduates who take public service legal jobs must leave after they gain two to three years of experience, just at the point when they have gained enough experience to provide valuable services to their employers and clients.

-- Public service employers report serious difficulty recruiting and retaining lawyers and have vacancies they cannot fill because new law graduates cannot afford to work for them.

These repercussions are not limited to the legal profession. Numerous professions demand advanced and professional degrees but do not provide salaries that reflect the educational debt graduates take on to obtain them. Examples include teachers, medical students who want to help their communities as primary care physicians instead of becoming specialists and, in many cases, government employees.

What are the consequences if graduates forego public service and government work?

For individuals, including some of the most energetic, entrepreneurial, and brightest of every generation, it entails deferring or giving up altogether their dreams of giving back to their communities at a nonprofit, a school, or in government.

On a social level, it means government and nonprofits are unable to recruit and retain people to do public service work. This means that fewer people will be working--to give a few examples--to improve education, preserve the environment, care for the sick and elderly, protect communities as prosecutors and police, or aid the underprivileged as civil legal aid attorneys. When these positions are unfilled, it is ultimately the poorest and most vulnerable among us who suffer the most.

Fortunately, in 2007 Congress passed the College Cost Reduction and Access Act of 2007 (CCRAA). Its two primary components, Income-Based Repayment and Public Service Loan Forgiveness, form the most powerful federal loan repayment assistance program in a generation.

Income-Based Repayment is a repayment plan that can substantially reduce the monthly student loan payments on federal loans. Public Service Loan Forgiveness provides complete forgiveness of any remaining Federal Direct loans after an individual has made 120 qualifying monthly loan payments while working in a qualifying public service position. Working in tandem, IBR and PSLF have the potential to relieve the burden of tens or even hundreds of thousands of dollars in educational debt for individuals committed to public service work.

[Get answers to reader questions about repayment.]

Will CCRAA provide an opportunity for a new generation to engage in higher levels of public service? If CCRAA had been available when you graduated, would it have changed your decision about where to work? And for those of you about to graduate or who have recently graduated, will it enable you take the job of your dreams? Or does more need to be done?

Let us know what you think!

Isaac Bowers is the senior program manager for Educational Debt Relief and Outreach at Equal Justice Works. He was previously an attorney at Shute, Mihaly & Weinberger LLP in San Francisco, where he focused on environmental, land use, and planning issues. A graduate of the New York University School of Law, Bowers also has extensive experience in nonprofit advocacy and outreach.

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Money Advice for My Sister, the Graduate (U.S. News & World Report)

As my sister gets ready to graduate from medical school next week, she keeps sending me her money questions. Should she try to pay off her massive student loans or save for retirement? Would it be better to save money in a bank account or a Roth IRA? Should she get her credit report, and what's the best way to make a budget?

[In Pictures: 10 Smart Ways to Improve Your Budget.]

Her questions inspired my story this week on the top money mistakes that college graduates make. They include taking on too much debt (or not enough), spending a lot on lifestyle upgrades, and waiting to start saving and investing. After warning my sister about those common errors, I also made a list of the things she should do. (It wasn't the first time; see Money Tips for Young Doctors.)

Step one, I told her, was getting organized. When she came over to talk about money, she brought a three-ring binder full of paperwork on her student loans, credit cards, and other accounts. I suggested that she put more of that online, so she had less to carry around and sort through. Most banks let customers put almost everything online, which eliminates the need for paper statements (and filing). Since she's about to move across the country, the less stuff she has to carry, the better.

She created an account at Mint.com and uploaded her various accounts so she could start tracking her spending more easily. The free website also lets users set up specific savings goals and create alerts when spending in one category gets too high. "It's amazing to have everything in one place, and to track my expenses and get updates," she says. Many banks also offer free online tools through their own websites.

Second, I suggested that she get her school to do some work for her. She was missing key information about some of her student loans, including who owned them and what the interest rates were (and how those rates might change over time). A meeting with the financial aid office of her school could help sort all that out. Once she understood the details, she could then come up with a plan for paying off those loans, starting with the most expensive, or arrange to consolidate them. (She doesn't have any credit card debt, but if she did, paying it off would have been the top priority.) [See The Best Credit Cards for New College Grads.]

Her future employer also owed her some information. She wasn't yet sure about her health insurance options, retirement benefits, or other essential non-salary benefits. These benefits can be worth a lot; she didn't want to overlook them.

While many new grads can negotiate their salaries themselves, people in more regimented healthcare professions like my sister, or other jobs where pay grade is usually determined by a formula and is the same for everyone, don't have that option. There's still room to be savvy, though. New employees can make sure to take advantage of all benefits available, including health insurance, tax-advantaged retirement accounts, flex spending plans, and anything else the human resources office offers.

Third, she needed savings goals. Sure, she knew that she wanted to save for retirement at some point, but how should that goal fit in with her other savings goals, such as creating an emergency fund and saving for travel and other goals? There's no right answer here, but I suggested that she open a retirement account right away if her employer offers one as a benefit, especially if it matches any contributions. But instead of maxing out on retirement savings, she should balance that with the need to set up an emergency fund account.

After putting three months' worth of expenses into that account, she could decide to put more into the retirement account or save more for other goals, including international travel. In the next five to 10 years, she'll also probably experience some major life events, including buying a home and starting a family. Padding her bank account now will help make those events more joyful--and less stressful.

As for where she should keep those savings, I suggested putting most of her retirement funds into index funds that mirror the stock market, since she has so much time before retirement, and then keeping her more immediate savings in a low-risk savings account. Interest rates are low, sure, but if you need the money soon, you don't want to risk losing it. After accumulating that emergency fund, then she might want to consider shifting some of those longer term savings into more aggressive investments.

Lastly, I told her she should check her free credit report at annualcreditreport.com, just to make sure there was nothing on there that would raise any red flags. If she buys a house in near future, she doesn't want to be surprised by problems when she's shopping for a mortgage.

My sister actually took most of my advice. In addition to signing up for Mint.com, she spoke with her financial aid office and got all her questions answered. Soon after moving to her new city, she plans to ask her new employer, a big university hospital, about the retirement benefits. And when she pulled her credit report, she noticed a strange address, so she had it removed.

And now that she's a doctor, she's promised to answer all my pressing medical questions in return. I think I'm definitely the one who comes out ahead in that exchange.

Kimberly Palmer (@alphaconsumer) is the author of the new book Generation Earn: The Young Professional's Guide to Spending, Investing, and Giving Back.

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