The debt of law school graduates is threatens to undermine the quality of American law schools, according to a recent article published in ABA Journal. This is worth noting, because this sort of thing is eventually going to be a problem for all college graduates.

As William Henderson and Rachel Zahorsky write:

In 2010, 85 percent of law graduates from ABA-accredited schools boasted an average debt load of $98,500, according to data collected from law schools by U.S. News & World Report. At 29 schools, that amount exceeded $120,000. In contrast, only 68 percent of those grads reported employment in positions that require a JD nine months after commencement. Less than 51 percent found employment in private law firms.

Obviously, reasonably high unemployment is common during economic downturns. The problem here is that all of these underemployed people owe money, lots of it, to banks and the federal government. That’s how they paid for law school.

It’s not that there aren’t jobs available for lawyers; there just aren’t that many jobs that pay enough to allow people to comfortably make payments on $98,500 worth of student loans.

There are protections, of course, but they don’t address the structural problem here. Those deferments that underemployed people have taken out eventually will end. Right now it’s like a whole world of people sweeping the problem under the rug. Eventually this will improve. Eventually firms will start hiring, and paying lawyers big money again. Eventually graduates will be able to make payments. Well sort if.

As the article points out, even the policy solutions to address the education debt problems may cause further troubles. Presidnet Obama’s Income-Based Repayment plan, in particular, could turn out to be a fiscal disaster. Henderson and Zahorsky:

The Congressional Budget Office may have underestimated the extent to which students will be eligible for the federal Income-Based Repayment plan, a relatively new innovation. IBR caps student loan repayment at 15 percent of adjusted gross income. Extensive use of that plan would both reduce revenues and create a shortfall in program funding for new loans. With approximately $200 billion in student loans each year, and high amounts projected in years to come, a 10 percent shortfall in repayments under IBR could amount to $20 billion to $30 billion lost.

The greater structural dilemma here is that the system we’ve got in place for law school funding (and undergraduate education suffers from similar problems) is just unsustainable.

As Hendeson and Zahorsky point out, education financing is based a very similar assumption to that behind the housing market crisis: higher education will always result in vastly higher personal incomes.

Higher education does result in greater earnings, but that’s not the important point here. What really matters is earnings relative to debt payments. Because college costs keep rising, and incomes don’t, eventually it’s going to get difficult for Americans with education debt to make payments on student loans.

This becomes clear with law schools first because they have students with really high debt and the industry reflects the economy as a whole.

But this isn’t going to stop with law schools. The situation we’re seeing with law school graduates may be a harbinger of problems likely to occur with college graduates in general. [Image via]

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Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer