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?