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Saturday, August 10, 2013

Georgetown, Other Elite Law Schools Exploit Loophole to Offer 'Free' Tuition

IncomePolitico:  Law Schools Devise Debt-Free Path to Degree:

The pitch could be straight from a late-night infomercial: Get a law degree with no money down and don’t spend a penny of your own paying the loan back.

But that’s the promise that law schools at Georgetown University, New York University, the University of California-Berkeley and other top universities are making to some graduates. If they spend 10 years outside the private sector, the law school will make their loan payments for a decade. Then, starting four years from now, a federal program kicks in to forgive the remaining balance, often more than $100,000.

The schools are exploiting a loophole that could lead to billions of dollars in written-off federal student debt and both education activists and lawmakers want to crack down on the practice. The New America Foundation has warned of an “undeserved bonanza for wealthy lawyers and expensive law schools.”

Prior TaxProf Blog coverage:

http://taxprof.typepad.com/taxprof_blog/2013/08/georgetown-other.html

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Comments

That's a good news. Loopholes must be filled in order for the rules and regulations to work in proper way.

Posted by: Russell Thomas | Aug 10, 2013 11:02:42 AM

This headline is quite sensationalist. Law schools are not exploiting any loophole, the program works exactly as designed. IMHO the big scandal is the existence of the program itself. Why is the federal government subsidizing students who work for government, or the (mostly liberal) non-profit sector? For those of us in tax, jobs at the IRS or Treasury can pay as well or better than any alternative option except BigLaw - why should they be subsidized by taxpayers?

Finally, 10 years to start your career is a long time. If the average law school grad is 26-28, that places you into your mid to late 30s. For those at the elite law schools who have the best shot at BigLaw jobs, that is a significant sacrifice just to get loan forgiveness.

Posted by: Todd | Aug 10, 2013 11:07:13 AM

I really wish there was no federally subsidized loan assistance for government attorneys. Especially not full debt forgiveness after 10 years of service. Instead, they should pay a higher salary, perhaps significantly higher, and expect the job to be more demanding. As it currently stands, government offices are magnets for attorneys that want light work schedules and flexible hours. It is unfair to the people who rely on their service.

Posted by: JM | Aug 10, 2013 11:33:41 AM

Elite Law School X charges $50,000 in tuition per year. Graduate Y finds that his private sector options are worse than working in government or for non-profits once his loan payments are taken into account, so he takes a job as an assistant district attorney for the litigation experience, as well as putting up to $2k a month back in his pocket.

Elite Law School X finds this program oversubscribed relative to expectations for a year or two, and it uses its unfettered discretion to raise tuition to help cover the cost of this program (plus a little cost-of-living increase for its tenured staff, perhaps). Not to worry, Elite Law School X tells its students: we will do the same for you if you follow in Graduate Y's footsteps. That is, until the Department of Education understands that it and these students are the suckers in a Ponzi scheme, and Congress shuts it down to the detriment of the class just after the last one eligible for loan forgiveness.

Posted by: Morse Code for J | Aug 10, 2013 12:23:51 PM

@JM and Todd,

There is already at least one proposal in the House to kill PSLF altogether, by Representative Petri (R) of Wisconsin, citing exactly the sort of moral hazard that you two are describing.

Posted by: Unemployed_Northeastern | Aug 10, 2013 1:03:37 PM

Why is this a loophole? It seems like a reasonable idea.

Posted by: michael livingston | Aug 11, 2013 3:54:39 AM

Michael Livingston is right, this is not a loophole at all. In fact, the Government should be pleased because it is effectively a matching contribution from the school. It enhances the Government's purpose.

With that said, I stand by my earlier comment that all Government student loan forgivness programs should be repealed.

Posted by: JM | Aug 11, 2013 10:46:09 AM