Law firms are joining a growing wave of workplaces that offer student loan repayment programs to attract and retain millennial employees.
Young lawyers, struggling with tens of thousands of dollars in student debt, are finding relief from a new source: their employers.
Some law firms are starting to contribute cash to help their newly hired lawyers meet monthly payments on education loans that can be as large as a mortgage payment on a house. That is a step beyond what some law firms now do in helping their junior lawyers refinance with lower-interest loans.
Orrick, Herrington & Sutcliffe, a large firm based in San Francisco that specializes in technology, energy and infrastructure law, recently announced that it will contribute a monthly amount to its new associates to offset accumulated education debt. Other firms are also beginning to embrace the idea, seeing substantial debt as a big worry for their entry-level lawyers.
People “have an emotional reaction to carrying debt, and they like it when employers show that they appreciate the financial challenges that people are facing,” says Beth Akers, an economist at the Brookings Institution’s Center on Children and Families.
On a more practical level, “more firms are likely to adopt this benefit because they need to compete to attract and retain lawyers and to present themselves in ways that attract and retain clients,” says Jack Zaremski, founder and president of Hanover Legal Personnel Services.
Such law firms will join a growing wave of other workplaces that offer student loan repayment programs to attract and retain millennial employees, including the mutual fund giant Fidelity. Last December, the accounting firm PricewaterhouseCoopers set up a loan repayment program that pays $1,200 annually toward an employee’s student loans.
Attracting young lawyers
Orrick, which has more than 1,000 lawyers, is offering $100 a month for starting lawyers for 18 months. After that, the junior lawyers will be eligible to receive a bonus from the firm. The program, which starts Sept. 1, is being offered to associates who are on the track to becoming partners as well as to those who choose the less intensive career associate track.
“We expect that quite a few of our lawyers will use the plan,” says Siobhan A. Handley, Orrick’s chief talent officer, who worked with Social Finance Inc. to devise the firm’s tuition benefit, which will be offered to the about 40 lawyers hired each year. “It’s pretty rare that someone comes here with no debt.”
The firm views the debt relief as another benefit, along with flexible work arrangements and parental leave, to attract young lawyers.
“With fewer students choosing law schools, fewer law school grads choosing big firms, and women leaving the profession faster than men, we wanted to distinguish ourselves in the market,” Handley says.
“This will help our associates reduce the level of financial stress so they can focus on their training, development and client service,” she adds.
Financial stress is evident even as new recruits at the nation’s elite law firms can earn as much as $180,000 in salary.
Yet they represent less than 9 percent of the typical recent graduating law school class, says Deborah J. Merritt, a law professor at the Ohio State University Moritz College of Law.
Graduates arrive at law firms with an average of $185,000 in student debt, Mark Kantrowitz, a higher-education expert who tracks student debt, estimates. That compares to $75,000 a decade ago, he found.
Debts weigh as a burden
It is not just big law firms that are reacting to the higher debt loads being carried by their young lawyers.
Ward and Smith, a 91-person regional law firm based in New Bern, N.C., is introducing a similar student loan repayment benefit to help its new lawyers tackle their debt. The firm is working with Gradifi Inc., a Boston company that tailors student loan payment programs for companies and, increasingly, for law firms.
“Summer associates that we wanted to hire began mentioning what a big burden student debt was,” says Mike Epperson, the firm’s chief operating officer. “They could have more than $100,000 in debt and they were worried. The firm already has a profit-sharing plan, but we decided that student loan repayment help was one more way we could show our younger attorneys that we wanted to help them from the very beginning.”
The program, which starts this fall, will help Devon D. Williams, 29, pay off the loans she took out for her law degree from the Norman Adrian Wiggins School of Law at Campbell University in Raleigh, N.C. She is in her second year practicing labor and employment law at Ward and Smith.
According to Gradifi’s debt calculator, if Ward and Smith contributes $200 a month, a graduate like Williams with $45,000 in debt borrowed, for example, at 6 percent interest, could save $5,518 in interest over the life of a 10-year loan and shorten the repayment period.
Conscious of their debt, Williams and her husband — who works for a health insurance company — watch their budget. Their top monthly debt is her loan repayment, which is more, she says, than the mortgage on their home in Cary, a suburb of Raleigh. One reason, she says, is that she borrowed money when loan rates were high.
And, she adds, “We don’t have enough equity in our house to consolidate our loans yet. But we’re trying to be pretty aggressive about paying them off.”
A major consideration is that they want to have a family.
“Of course, you want to get your debt down before you think about having children,” Williams says.
At Orrick, James M. Fee, 27, of Needham, Mass., owes $150,000 he borrowed to earn his degree from Boston College Law School. He joined the firm’s New York office in September.
His monthly loan repayment is the second-highest expense he has after his apartment rent.
“I’m not complaining,” he says. “I make a good salary, but I watch what I spend and what I save.” When he applied to law school, he chose schools that he thought were the best value.
Boston College Law School had a good reputation. Plus, he says, “living costs were lower, because the law school is in the suburbs rather than a big city like Boston or New York.”
Tim DeMello, the founder and chief executive of Gradifi, says the loan payback program was likely to spread, noting that an additional 20 law firms are looking at starting the benefit this year.
“Our clients see it as a way to attract, and retain, new talent,” he says.
Social Finance, based in San Francisco, also has more than a dozen law firms interested in setting up a debt benefit program.
But there are drawbacks to such programs. Law firm contributions are taxed as earnings. Several proposals are percolating in Congress to exempt taxation, up to a yearly maximum, on company tuition debt contributions — but none have passed.
Economists like Akers at Brookings question the wisdom of such plans. She points out that they benefit one class of employees — the debtors — over others, and draw from the same employee benefit pool that could be used to augment other universal benefits like health insurance.
“It’s a little bit like serving sushi in the workplace cafeteria,” Akers says. “It’s great for those who want it, but not so much for those who don’t.”