In the summer of 2014, Sharon Casola was preparing to move to New York City to begin working as an associate at Latham & Watkins.
A recent graduate of University of Virginia School of Law, she had not yet found out whether she’d passed the bar exam, which would ensure her employment at Latham. Still, Casola had to commit to a yearlong lease on an apartment in one of the most expensive cities in the country.
There was another thing weighing on her: the loans she took out to attend law school. Casola was paying interest rates of more than 7 percent and was worried that she wouldn’t be able to make loan payments and rent at the same time if for some reason she wasn’t able to keep her job at the firm.
That November, Latham’s chief operating officer, LeeAnn Black, gave a presentation to the entire first-year associate class about the financial state of the firm. After the talk, Casola chased Black down and explained her predicament.
“Of course, I knew that our associates, some of them have debt, but I had no idea they were paying rates that high,” said Black. “I said, ‘Give me a couple weeks, and I’ll speak to some of my contacts at banks.’”
Latham partners connected Black with San Francisco-based First Republic Bank Co., a firm client and former Bank of America unit backed by private equity firms Colony Capital LLC and General Atlantic LLC. After Black arranged a phone conversation in which Casola explained her situation to First Republic officials, the bank agreed to refinance associates’ student loans that exceed $50,000 for rates as low as 2.5 percent.
The refinancing program attempts to address a nationwide student debt issue that has some researchers predicting that the crisis will affect the entire economy. Law school students have not been immune to the rising costs of higher education: Tuition has risen steadily since 1985, even when adjusted for inflation, according to Law School Transparency, a nonprofit that tracks tuition rates and student debt data.
Before the 2008 economic recession, banks had an appetite for bundling student loans and refinancing them, but in the years since, those programs have dried up, said Heather Jarvis, a student loan expert and Duke University School of Law graduate. Jarvis has not yet heard about programs such as the one Latham has facilitated with First Republic.
“It sounds like the kind of model program that other firms could evaluate and say, ‘Hey, could we do that too?’” said Jarvis, adding that big firms tend to take the position that they pay their associates enough to allow them to comfortably repay their loans.
Jarvis said that there is a lot more “that employers can and ought to do” when it comes to assisting their employees, noting that while law school tuition has gone up, associate salaries have remained largely stagnant. Law firms can also “help them navigate the [banking] system, which is unconscionably complex,” Jarvis said.
Since Latham launched its program with First Republic nearly a year ago, more than 100 associates have refinanced $13 million in student debt, said COO Black (pictured right). She estimated that Latham associates in the program have an average of between $120,000 and $140,000 in loans, with some holding as much as $200,000.
“I was ecstatic,” said fifth-year Latham associate Casey Calhoun in New York, when asked about her firm’s student debt initiative.
Calhoun and her husband had both graduated law school with six-figure loans and were paying close to 8 percent interest rates. Calhoun said that last year she was just starting to get marketing materials for refinancing programs, but found the process intimidating and worried about what kind of protections she might lose.
“Latham stood behind it and scrubbed the contract,” Calhoun said of the First Republic program, explaining that the firm “made sure terms were the most beneficial they could be.”
Jarvis noted that refinancing is not right for everyone. Most law school graduates who borrow take out federal loans, and leaving those programs means giving up certain protections, she said.
Isaac Bowers, director of law school engagement and advocacy at Washington, D.C.-based nonprofit Equal Justice Works, agreed with Jarvis.
“I would really take into account those borrower protections and not just the interest rate in considering consolidating my federal loans into a private loan,” said Bowers, noting that many associates have been laid off since the 2008 recession.
But Jarvis added that Latham associates are likely in a position to take on a small amount of risk. That makes them more attractive clients for banks, particularly one such as First Republic looking to establish relationships with top law firms. (First Republic went public in late 2010.)
“These are individuals who are starting off in a nice career at a nice firm,” said Latham’s Black. “Our primary bank is [Citigroup], but [First Republic is] just trying to break in.”
Latham also works with Social Finance Inc., a San Francisco-based company better known as SoFi for its work refinancing student loans. Black said that at slightly higher rates, the SoFi program is able to refinance debt that amounts to less than $50,000 and works with associates in foreign offices, something that First Republic does not do.
During the first-year associate orientation this year, First Republic officials were on hand to help students get the refinancing process started right away. Black said that the firm will also be able to use the program as a recruiting tool and noted that if the associates leave Latham, they can still stay in the program.
Programs like these have implications for federal student loan policy, said Kyle McEntee, executive director and founder of Law School Transparency.
McEntee doesn’t blame banks for going after this market or the graduates for opting into a program that reduces their interest rates. But he said that in the federal student loan program, “the high-risk people are being subsidized by the low-risk people.”
Refinancing loans for low-risk law school graduates who have great jobs “makes student loan programs less profitable for the government,” McEntee said. That’s not an argument for banning these types of programs, but an argument for keeping law school tuition down, he added.
Latham is far from the only firm whose associates refinance their student loans, but Jarvis said that she had not heard of another instance where a large firm like Latham was as involved with a project like that of First Republic.
Through Black, the bank declined to comment. The Am Law Daily contacted several other Am Law 100 firms to see if they had similar programs, but all either said they did not or did not provide a response by the time of this story.
As for Casola, she did pass the bar. Now in her second year at Latham, she is using the SoFi program.
– Nell Gluckman, The Am Law Daily