The debt burden

When she got into the University of Ottawa’s law school, she applied for the Ontario Student Assistance Program and for a professional student line of credit from her bank, the CIBC. She knew she would have to go further into debt if she wanted to be a lawyer. She was still paying back debt from her undergraduate studies, and her family didn’t have funds to pay for law school tuition.

OSAP alone would not cover the tuition at the University of Ottawa in 2015, when it cost $17,574.99 for the first year of the common law program. It also wouldn’t cover rent on the apartment she would share with a partner or other living expenses. But Tronin was willing to go into debt to meet her goals. “I was 27,” she says. It was now or never. “I said I wanted to graduate by the time I’m 30 — I want to start work when I’m 30.”

If you want to go to law school in this country, there is a good chance you are going to pay a lot for it. The average tuition for common law programs in Canada in the 2017-2018 school year, excluding Quebec, was about $17,000.

And unless you, or your parents, have the money to pay for it, you will almost certainly have to borrow money.

The opportunity of becoming a lawyer can reap incredible financial, social and personal rewards. But what happens when you can’t repay the cost?

Law school tuition has steadily increased since professional school tuition was deregulated in the late 1990s. According to Statistics Canada, between the 1995-1996 and 2001-2002 school years, average law school tuition increased 61 per cent, accounting for inflation. The increase was particularly large in Ontario, where tuition shot up 141 per cent.

Since then, tuitions have risen, even at schools with relatively low tuition. McGill’s tuition, while still very low compared with that of other law schools, has almost doubled since it was just more than $2,000 in 2013-2014. In the 2017-2018 school year, it cost $4,388 to attend.

That’s nothing compared to the most expensive law school in Canada, the University of Toronto. In 2017-2018, a student could expect to pay $36,441 for one year’s tuition — a 20.5-per-cent increase from four years ago.

Let’s say a single person gets into U of T’s law school. They have no dependents, no disabilities and they don’t identify as an Indigenous person. They make minimum wage in Ontario — so, just more than $24,000 in income a year. That person, according to the OSAP 2018-2019 aid estimator tool, would qualify for a total of $15,300 in loans and non-repayable grants for school — not even half of U of T’s tuition for a single year of law school, never mind books, accommodation and other expenses.

To make up the shortages, students turn to private lending. The Law Students’ Society of Ontario’s 2014 Just or Bust survey found that 64.4 per cent of students surveyed secured private lines of credit.

Depending on the school and the bank, students can be approved for up to $150,000. Some of these lines of credits come with certain perks or competitive terms. At Scotiabank, fees are waived on credit cards offered through the bank. RBC offers students a two-year grace period to start repaying the line of credit. At TD, law students can be approved for up to $125,000.

Some law schools have even suggested students procure lines of credit at specific banks. The University of Toronto law school’s website notes that Scotiabank and TD Bank offer “special financial assistance” for U of T JD students. Students get a maximum of $50,000 a year through that bank — and, if they bank with Scotiabank, an extra $10,000 during articling.

Shaun Aaron, who graduated from Windsor Law in 2015, believed he understood the terms of his line of credit well. But there were certain pieces he missed. The summer after his second year, Aaron had to buy a new car to get to and from class from his home. “I bought it used, but I had to take out a chunk of cash and the line of credit to do that,” he says. He ended up draining the line of credit for his available amount for the year. “You have to leave X amount of money to cover off the interest payments that are occurring,” he said. “And, so, I wound up owing them several hundred dollars.”

One major question is whether law students understand exactly what they are signing up for when they get these lines of credit. In 2017, Stephanie Ben-Ishai, a professor of law at Osgoode Hall Law School, Saul Schwartz, a professor at the School of Public Policy & Administration at Carleton University, and Nancy Werk, an independent consultant, decided to ask law and medical students if they understood the terms of their line of credit contracts. Their study followed an American study that asked first-year students who get undergraduate student loans whether they understood how much student debt they had. About half of those surveyed did not.

Ben-Ishai, Schwartz and Werk looked at a small sample size — they interviewed 11 law students at Osgoode Hall Law School and 16 first-year medical students at the University of Ottawa to determine whether they understood the terms of their lines of credit contracts. What they found was that, “by and large,” the law students they spoke to were fully informed about their lines of credit and what they had borrowed, a fact the researchers credited to the plain language used in the line of credit contracts presented by the people they interviewed. “In general, they talked about their lines of credit in a remarkably relaxed and matter-of-fact way — no high anxiety was apparent,” the study reads, a result, perhaps, of students knowing they would have to borrow money if they wanted to graduate.

Ben-Ishai, Schwartz and Werk noted that law students were also aware that their plans might not work out and that that would present a challenge for them — some of the law students were described as laughing when they talked about the amount of debt they owed.

While law students may be aware of what they are getting into, they may not be aware of what life can throw at them in the meantime. Tronin moved to Ottawa with her partner, who was also going to school and had his own debts to pay off. They rented an apartment for $1,200 a month that they had to furnish — paying to move furniture from Toronto to Ottawa was far more expensive than just buying new furniture. Soon after the move, her partner had to have two extensive root canals, each costing more than $1,000. They had no insurance, so the dental work had to be paid for with the line of credit. And with a demanding first-year schedule, there was no way Tronin could get a part-time job to supplement their income. To make things work, she even used credit cards to bridge financial gaps.

“We don’t talk about students being poor or living in poverty or having those barriers,” Tronin says. “We just talk about [it] as if it’s an outside concept that we’re going to deal with once we’re out there.”

According to the Just or Bust survey, law students in their third year had an average debt load of $71,444. More than one-third expected to have $50,000 of debt owed to financial institutions. Significantly, 13.5 per cent of those surveyed expected to have more than $90,001 in debt from a bank line of credit.

Banks certainly consider law students potentially good customers. In the Ben-Ishai, Schwartz and Werk study, they noted that they were told that at one bank “the bank lends money to professional-school students on the basis of payoff expected on their degree rather than on the basis of their current income or that of their parents.”

While the massive student loans market in the United States has stoked fears of a financial collapse, in 2010, Lawrence Engel, then vice-president of personal lending at TD Canada Trust, told Canadian Lawyer that professional student loans are “an almost ‘recession-proof’ product” when trying to reassure potential law students they could still get one even after the subprime mortgage crisis threw markets into tumult.

Seven years later, the average balance of all personal loans and credit cards held at Scotiabank was about $100 billion, contributing to $15 billion in net interest income that the bank made in 2017. Lines of credit are also traded on Canadian securities markets. In March 2018, unsecured lines of credit accounted for 2.6 per cent of the Canadian asset-backed-securities market. We can’t say for sure how many of those are professional student lines of credit. But we can say with certainty that law students are a revenue source for banks.

Law students also create revenue for federal and provincial government contractors. The Canada Student Loans Program is currently contracted to DH Corp. A Canadian company, in 2017, was purchased by an American investment firm and combined with a British fintech company to create Finastra — DH was kept intact for its Canadian business. The company made revenues off running the CSLP based on how many loans are taken out. “When the number of student loan borrowers enrolled in the Canada Student Loan Program and/or provincial programs increases, resulting in higher workload, the fee paid by Canada to DH Corp. also increases,” states the company’s 2015 annual report. That, of course, includes any federal government-funded loans or grants provided to law students. More than half of those surveyed in the Just or Bust report had at least $20,000 owing to government student loans.

All student debt, both private and government funded, currently makes up about two per cent of all debt in Canada, according to a report on the burden of post-secondary tuition that RBC released this year. While that is small overall, when you dig into that number, direr numbers emerge — student loan debt accounts for 27 per cent of all debt for people in the lowest-income brackets and, among Canadians under 35, one-quarter have student loans.

So why isn’t this a bigger issue in law schools? Perhaps it’s because, for a decent chunk of law students, money isn’t an issue.

One of the most significant findings of the Just or Bust survey is that 61 per cent of students surveyed entered law school with no prior debt and 30 per cent would leave with nothing owing to the government or banks. The implication here is that a not-insignificant number of students have no financial woes, at least when it comes to paying for law school.

Heather Donkers is the new president of the Law Students’ Society of Ontario. She says the results of the LSSO’s 2014 survey — which it plans on updating in 2018 — show clearly that Ontario law students see high tuition as an impediment to diversifying the student body and the legal profession. “Overwhelmingly, students are recognizing that it’s not only a problem just in terms of actual debt repayment and actual practical concerns but also that it causes a huge issue for access to education and access to justice.”

There are no official statistics on who is choosing not to apply to law school. But the cost, and the debt involved, make it highly likely that some of the people who could make law a truly diverse profession are blocked from attending law school for financial reasons.

Lorne Sossin was the dean of Osgoode Hall Law School until his term ended last spring. (He remains on the faculty.) During his tenure, he introduced a program that provides an interesting model for other law schools, the Income Contingent Loan Program. The program provides students with the total cost of tuition for all their law school studies — and they don’t have to start paying it back until a year after they graduate. If they make more than $80,000 a year, they must pay back the full share over a 10-year amortization period. If they make between $60,000 and $80,000, the alumnus pays back only part of the share. And if they make less than $60,000, they pay nothing — the loan is forgiven.

The pilot project, funded by an initial $1-million investment, was first offered in 2014 to five students — it has since increased to seven students a year. “We were trying to address how to broaden the pool of people who apply for law school because, often when we talk about accessibility, we’re just talking about among those who are applying,” Sossin says. “We never count those who don’t even send in the application because they think there’s no way I could take this kind of debt on.”

Donkers, in fact, wouldn’t be a student at Osgoode if it hadn’t been for the project. “I applied to law school knowing that, unless I got into Osgoode and unless then I also got into the ICLP program, which at that point had only been around for one year, I wasn’t going to go.”

Other law programs do offer some form of loans or debt relief for a limited number of students. U of T offers a post-graduation debt-relief program, and the University of Manitoba has debt relief available for students who remain in the province to practise.

However, these programs don’t necessarily address the overall issue of the cost itself or what happens to students who, while they don’t qualify for special assistance, may also not be able to fully cover the cost of law school itself.

The obvious question here is: Why not fight to make law school tuition lower for everyone? Deregulation of tuition and the cuts to federal transfer payments to universities have had a direct impact on the cost of legal education. But, according to Sossin, a million-dollar investment that can help fund seven students’ education a year won’t make a dent in overall tuition rates. Otherwise, lowering tuition would mean cutting programs and services law students have come to expect.

In a 2017 paper, Sossin and Darcel Bullen made the case for a new model of legal education — flex-time JDs, which would open part-time programs to students far beyond the limited number that now take JD programs on a part-time basis. Bullen and Sossin cite night and part-time law schools established in the late 19th century that opened the doors for people traditionally shut out of law schools because the programs were designed to be taken around work schedules.

“I think there is a huge untapped reservoir of people who would be able to financially manage law school or legal education if they didn’t have to give up work or it didn’t have to replace the care [for family] that they weren’t able to provide,” says Sossin. However, Sossin says Osgoode’s working group on flex-time JDs identified some challenges with offering the program. Now, rather than fully offering a flex-time JD, Osgoode has two evening sessions of the first-year program as a “first step” toward flexibility.

Andrew Hills, who graduated from Queen’s this year, is tightening up his finances to pay back about $100,000 in loans. “Basically, I’m living with either one other or two other people in Toronto,” he says. “We’re going to get a pretty shitty apartment for a year at least.” He wants to put anything he isn’t spending on food or accommodation toward his loans. And that’s with a job at a good firm that is covering his licensing fees. Not everyone is so lucky.

The research by Ben-Ishai, Schwartz and Werk shows that some law students assume they will get jobs that pay well enough to pay off these loans. Students “seemed to believe — rightly or wrongly — that their earnings from the jobs the degree would make available to them would be sufficient to repay the accumulated loans without undue hardship,” wrote the three researchers.

The U of T Faculty of Law’s student newspaper, Ultra Vires, releases a yearly report that includes hiring data for 54 law firms and government agencies. In 2018, 428 students from across Canada were hired for summer positions. In the last 10 years, according to Ultra Vires’ data, hiring has ranged between a low of 351 people in 2013 and a high of 444 people in 2010.

There are far more law school graduates than there are paid positions for them. While programs such as the Law Practice Program, introduced by the Law Society of Upper Canada in 2014, have tried to address this issue, there will inevitably be law students who won’t get high-paying jobs and will be left unable to pay their student loan debt.

Debt carries a high mental and social burden. The Just or Bust report found that higher debt levels had negatively impacted the mental health of students. An Ipsos poll commissioned on behalf of RBC Economic Research found that more than 50 per cent of respondents with student debt didn’t have enough savings in case of emergency, while more than 40 per cent had put off buying a home or weren’t saving enough for retirement.

Unlike loans issued under the Canada Student Loan program, private lines of credit can be discharged in bankruptcy at any time after the student graduates. (CSLP loans can only be discharged seven years after graduation — five if the student can show demonstrable financial duress). However, that carries with it other burdens — discharging debt negatively impacts credit and makes it difficult to make other large purchases in the future.

What all this means is that, by and large, “the same kind of people” — says Donkers — are getting accepted to law school and becoming lawyers. “The classes are, by and large, filled with people who have had either lawyers as parents or family members or just professional people who have been highly educated,” she says. Their families can provide financial and emotional support, providing them with guidance about how to navigate white collar professions.

“We’re excluding the many groups of people and the many individuals who haven’t had that kind of guidance [or] financial support.”

Tronin completed her degree this year. She got an articling position in the field she wanted — family law.

But her perspective on what a legal career is has changed. “Going into law school, I thought law would be, I don’t know, not a working-class profession.” But with her debt load — now more than $90,000 — and the lower comparative pay of family law versus corporate law or working at a Bay Street Firm means that, for all intents and purposes, her financial reality is much different than what she thought it would be after becoming a lawyer.

“People don’t talk about money,” Tronin says, reflecting on a culture at school where it even felt impolite to talk about finances.

She hopes that she’ll find an associate position after her articling is done, so she can start chipping away at her debt. “I don’t really know what kind of future I’m looking at,” Tronin says. “It’s so hard to say.”