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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, April 22, 2014

WSJ: Skyrocketing Graduate Student Debt Threatens Income-Based Repayment Programs

Wall Street Journal:  Student-Debt Forgiveness Plans Skyrocket, Raising Fears Over Costs, Higher Tuition; Some Law Schools Advertise Their Own Plans to Cover Loan Repayments:

Government officials are trying to rein in increasingly popular federal programs that forgive some student debt, amid rising concerns over the plans' costs and the possibility they could encourage colleges to push tuition even higher.

Enrollment in the plans—which allow students to rack up big debts and then forgive the unpaid balance after a set period—has surged nearly 40% in just six months, to include at least 1.3 million Americans owing around $72 billion, U.S. Education Department records show.

The popularity of the programs comes as top law schools are now advertising their own plans that offer to cover a graduate's federal loan repayments until outstanding debt is forgiven. The school aid opens the way for free or greatly subsidized degrees at taxpayer expense.

At issue are two federal loan repayment plans created by Congress, originally to help students with big debt loads and to promote work in lower-paying jobs outside the private sector.

The fastest-growing plan, revamped by President Barack Obama in 2011, requires borrowers to pay 10% a year of their discretionary income—annual income above 150% of the poverty level—in monthly installments. Under the plan, the unpaid balances for those working in the public sector or for nonprofits are then forgiven after 10 years. ...

Private-sector workers also see their debts wiped clean—after a longer period of 20 years—reflecting a government aim to have no one, wherever they work, paying down student debt their entire working life.

An independent study estimates the future cost of the 2011 program, known as Pay As You Earn, could hit $14 billion a year.

The Obama administration has proposed in its latest budget released last month to cap debt eligible for forgiveness at $57,500 per student. There is currently no limit on such debt. ...

Law schools at Columbia University, the University of Chicago and Georgetown University are among those offering some graduates additional aid to cover all or part of their minimum monthly payments under the federal plans.

Max Norris, a 29-year-old lawyer for the state of California, illustrates the potential costs of the program. He pays about $420 a month to the Education Department on his $172,000 in debt, which he says fails even to cover the interest owed. But his out-of-pocket expense falls to $100 monthly after aid from his school, University of California's Hastings College of Law.

Mr. Norris, who makes $60,000 a year in his job, would have about $225,000 in debt forgiven after 10 years, assuming he stays in public service and his salary rises 4% annually, according to a repaymentcalculator created by the New America Foundation, which advocates less-generous forgiveness. ...

Schools aren't shy in touting the programs' benefits. Georgetown said on its law-school website until recently the school's aid combined with the federal plan "means public interest borrowers might not pay a single penny on their loans—ever!" A school spokeswoman said the statement was removed this year in light of the proposed changes in Mr. Obama's budget.

Georgetown Law Dean William Treanor said the school sees steering graduates to public-service jobs as part of its Jesuit mission. The school, which assists only those who go on to work in the public sector, spent about $2 million last year covering payments for those in the federal program, he said. In all, 432 Georgetown graduates are now in the program, up from 264 in 2012. Annual tuition is $50,890. Mr. Treanor said the program doesn't influence the prices the school charges its students. ...

The plans are designed to help people like Jacqueline Grippe, a Monroe County assistant public defender in Rochester, N.Y. Using an income-based repayment plan, Ms. Grippe pays about $350 a month toward her roughly $180,000 in debt, most of it accrued at Syracuse University's law school, from which she graduated in 2012.

That keeps her payment manageable on a $58,500 salary, she said, and relieves the pressure of having to find work at a higher-paying law firm. Syracuse isn't assisting in the payments. "Being in the public sector is a calling for me," said Ms. Grippe, 29. Without the repayment plan, she said, "I don't know what I would do."


Update:  Steven J. Harper (Northwestern), Who Really Pays for Law Student Debt?

Legal Education | Permalink


The sooner that Congress reforms this, the better for the profession. If you can't afford to run a law school without federal funding, then you shouldn't be in the business of running a law school.

Posted by: Jojo | Apr 22, 2014 3:47:44 PM

This is getting out of hand. Why are we not tying loan availability to job outcomes?

Posted by: HTA | Apr 22, 2014 3:57:11 PM

The government is making money on education. 40 cents out of every dollar extra earned because someone got a degree goes straight back into the federal government's budget.

Not to mention how they are cleaning up charging graduate students 400 basis points above treasuries for student loans!

It's only fair the government pay for part of the cost of education when the government is keeping so much of the benefit.

New America is a propaganda outfit working for the private student loan industry. They just want to kill federal loans so the private lenders can jack up their prices and charge students more.

Posted by: Anon | Apr 22, 2014 4:45:43 PM

The article kicks off by citing 'Government officials' - I'd like to know which officials are working on this.

Posted by: Karl | Apr 22, 2014 5:03:34 PM

"An independent study estimates the future cost of the 2011 program, known as Pay As You Earn, could hit $14 billion a year."

The independent survey, which was done by the Brookings Institute, was funded by the same Lumina Foundation whose mission statement is to increase the percentage of the American population with college degrees from today's ~32% or so to 60% by 2025. Wait, you ask: if they want to increase college access, why would they fund a study proclaiming that income-based repayment should repealed? Isn't that contradictory?

Not if you were cofounded and solely funded by Sallie Mae. Students as revenue streams, coming and going. Student loans for all, and loan forgiveness for none.

Posted by: Unemployed Northeastern | Apr 22, 2014 5:38:44 PM

"The government is making money on education. 40 cents out of every dollar extra earned because someone got a degree goes straight back into the federal government's budget."

This seems to imply that the federal loans are actually creating high-income jobs. If there was some unmet need for graduates and the federal program was helping fulfil that need, there would be a case here. As it stands, a large number of indebted graduates are not finding meaningful work. That's why there's been an explosion in income based repayment! I think the evidence is mounting that the federal government is over subsidizing.

The current system is primarily benefiting higher education institutions and their employees. If the federal government wants to subsidize higher ed., then there are better ways to do it.

Posted by: HTA | Apr 23, 2014 7:18:23 AM

I don't see why the results should surprise anyone. A huge debt is accumulated and the burden of it is mostly coming to light now, and now that a way out is provided, nobody actually ran the numbers to see how large such a relief program could grow to? Really??

Posted by: Russ | Apr 23, 2014 11:23:25 AM

"Income-based repayment can be a way for students responsibly to manage debt, but it should not be a bailout for students who borrow too much or for schools who charge too much," said Sen. Lamar Alexander of Tennessee, the ranking Republican on the Senate Education Committee.

How completely dishonest. The median debt load for law students is less than the 3 years of tuition at an ABA law school - pretty much all of which are running about 45K/ year.

How dare he put tuition inflation on students with that bold faced lie?

Congress intentionally inflates tuition by removing all caps on graduate school loans on the front-end and all bankruptcy on the back-end, and then blames its victims.

Nowhere does Mr. Alexander propose not lending unlimited amounts of money to law schools that are plainly running a ponzi scheme - aka Georgetown Law.

I don't think I've ever been more disgusted with my 'leaders' and more mistrustful of the notion that any good faith exists in Washington D.C. than I am now.

Posted by: Bold Faced Lies | Apr 23, 2014 9:11:23 PM


There have been lots of estimates made of the federal student lending program, most of which have been accomplished by more able economists than the John Galt club over at Brookings, whose study is the centerpiece of the WSJ piece. The ranges I have seen have more than a quarter-trillion dollar disparity, from $180 billion in profit over the next ten years to $95 billion in losses over the same period. These topics are complicated.

Posted by: Unemployed Northeastern | Apr 23, 2014 10:01:30 PM

"If you can't afford to run a law school without federal funding, then you shouldn't be in the business of running a law school."

Forget it - the law schools have been hip-deep in this political corruption for too long and their absurd cost structure cannot survive without it.

They are simply another aspect of the utterly corrupt political kickback machine (three guesses where the professoriat's political contributions go) that used to be a Constitutional government.

Another decade and the whole rotted sewer will collapse and the Chinese will buy up the very few worthwhile pieces of America worth salvaging.

Posted by: cas127 | Apr 24, 2014 1:26:32 PM