Understand Calls for Loan Repayment Reform

Equal Justice Works

Millions of students and borrowers attending community colleges up through elite graduate and professional programs could be harmed by a proposal making waves among student loan experts. An analysis of Georgetown Law School's Loan Repayment Assistance Program by Jason Delisle and Alex Holt at the New America Foundation leads them to propose capping Public Service Loan Forgiveness at $30,000 and instituting an aggregate limit of $75,000 for all federal loans.

The Student Loan Ranger thinks these wide-ranging reforms are not justified by their analysis. Loan Repayment Assistance Programs are set up by institutions ranging from schools to employers to the federal government to provide funds to help borrowers - usually ones involved in some form of public service job - make the monthly payments on their loans.

They are usually uncontroversial. But in this case, the authors argue, Georgetown Law is using its LRAP to give away a free legal education at the taxpayers' expense.

They claim that after graduation, the school's students enroll in Income-Based Repayment, one of several income-driven repayment plans that reduce borrowers' monthly payments to an affordable percentage of their income. Georgetown Law then covers their monthly payments for 10 years via its LRAP. After that, students can apply for Public Service Loan Forgiveness - available to people who have made 120 monthly student loan payments and who work full time in public service - and the remainder of their loans is forgiven.

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The authors argue that Georgetown Law actually pays out "little if any money from this scheme because the school simply includes the cost of the loan repayment program in its tuition" and "students just take out more loans to cover that cost." As a result, the taxpayers foot the bill and the students go to school for free.

However, as Georgetown Law student Joe Vladeck notes in a blog post, only a fraction of Georgetown Law students avail themselves of the repayment program. Vladeck's contention is borne out by American Bar Association data on Georgetown Law which shows that only 12 percent of its 626 graduates in 2012 even initially took jobs eligible for the LRAP. Most of its graduates go into the private sector and pay back their loans with interest, which profits the federal government. The school's private sector graduates - not the taxpayers - subsidize its LRAP.

In the authors' view, Income-Based Repayment and Public Service Loan Forgiveness work well alone. "But when schools and students strategically combine them, like ammonium nitrate fertilizer and gasoline, the result is financially explosive," they state in the post.

Congress created both programs in the College Cost Reduction and Access Act of 2007 with the intent of providing an incentive for students to enter public service by combining affordable monthly payments with the ability to earn forgiveness. Income-Based Repayment was deliberately designated by Congress as one of the limited number of qualifying repayment plans eligible for Public Service Loan Forgiveness.

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In fiscal year 2012 alone, the government disbursed $112 billion in federal loans. The vast majority of these loans will be paid in full with interest, which is why the Congressional Budget Office projects that the federal government will make a massive profit of more than $184 billion in the next 10 years. Far from being financially explosive, the forgiveness ultimately earned by the small percentage of borrowers expected to complete 10 years of qualifying public service will probably be just a drop in the gigantic bucket of student loans.

The authors also assert there is nothing to stop every graduate school from including all of their graduates in an LRAP, not just those who commit to public service careers, by taking advantage of the 20- or 25-year forgiveness in income-driven repayment plans. However, they provide no evidence that schools are planning to do this, and the Student Loan Ranger finds it far-fetched that schools would embrace such a logistically difficult and ethically and legally questionable scheme or that the Department of Education would allow them to do so.

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Based on these arguments, the authors propose capping Public Service Loan Forgiveness at $30,000 and instituting an aggregate limit of $75,000 for all federal loans.

Capping Public Service Loan Forgiveness - a broad-based program that is available to anyone, not just lawyers or graduate and professional students, willing to commit to a long-term public interest career - would limit the ability of millions of middle- and lower-class students to dedicate their lives to public service.

Limiting the availability of federal loans would force these students to rely on private student loans, which lack vital borrower protections and are the equivalent, as the Student Loan Ranger sees it, of paying for a higher education on a credit card.

Isaac Bowers is a senior program manager in the Communications and Outreach unit, responsible for Equal Justice Works's educational debt relief initiatives. An expert on educational debt relief, Bowers conducts monthly webinars for a wide range of audiences; advises employers, law schools, and professional organizations; and works with Congress and the Department of Education on federal legislation and regulations. Prior to joining Equal Justice Works, he was a fellow at Shute, Mihaly & Weinberger LLP in San Francisco. He received his J.D. from New York University School of Law.