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

Wednesday, June 28, 2017

Trump And Devos Deliver One-Two Punch On Law School Loans

American Lawyer LogoAmerican Lawyer:  Trump and Devos Deliver One-Two Punch on Law School Loans, by Steven J. Harper (Northwestern):

Since 2007, the public service loan forgiveness (PSLF) program for federal student loans has been an escape hatch for law graduates and others saddled with overwhelming educational debt. The idea was that a graduate would take a public service job at low pay and reduced monthly loan requirements. After a decade of service, any remaining loan debt was forgiven.

The well-known backstory is that student loans are not dischargeable in bankruptcy. They can follow a person to the grave.

There were and still are problems with PSLF, such as the resulting tax on the imputed income from the forgiven loan. And 10 years is a long time to toil in low wage positions. But the country and many recent graduates have been the better for it. ...

For young lawyers hoping that public service loan forgiveness could be an answer to a lifetime of student debt burdens, President Trump has some bad news. Rather than remedy the problems with a program that can provide enormous help to many recent grads and the organizations for which they work, he wants to eliminate it altogether. It’s analogous to his approach to the Affordable Care Act. Fixing something is more difficult than eliminating it altogether. So Trump proposes to eliminate it.

Amid Trump’s scandals involving Russia and claims of obstruction of justice and business conflicts of interest, many important stories got lost. What’s happening in the U.S Department of Education is one of them. On May 17, The Washington Post reported, “Funding for college work-study programs would be cut in half, public-service loan forgiveness would end and hundreds of millions of dollars that public schools could use for mental health, advanced coursework and other services would vanish under a Trump administration plan to cut $10.6 billion from federal education initiatives.”

http://taxprof.typepad.com/taxprof_blog/2017/06/trump-and-devos-deliver-one-two-punch-on-law-school-loans.html

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Comments

It's all about da money, innit?

Posted by: Dale Spradling | Jun 28, 2017 5:44:26 AM

PSLF is terrible policy, and my guess is that the great majority of Americans would be happy to see it abolished. Loan forgiveness programs benefits schools the most because it allows them to charge and unlimited amount of tuition to a significant segment of the student population that believes they can obtain a qualifying job.

What really needs to happen is that key public service jobs (ADA's, State's Attorneys, etc.) need to pay significantly more, and take higher quality candidates. That way, benefits will be distributed equally, rather than loaded towards indebted recent grads.

Posted by: JM | Jun 28, 2017 6:22:06 AM

The problem isn't the PSLF. The problem is the outrageous high tuition of law school. Tuition should be clawed back to pay loans when the graduate doesn't obtain the promised high salary.

Posted by: STEVE KARPA | Jun 28, 2017 7:24:27 AM

Boy am I glad I went into private practice.

Posted by: Doug | Jun 28, 2017 8:14:02 AM

I thought the democrats that passed it said it was fully funded... I guess that was a lie.

Posted by: MB | Jun 28, 2017 8:42:01 AM

"10 years is a long time to toil in low wage positions. But the country and many recent graduates have been the better for it. .."

Oh? Says who?

Posted by: Noway | Jun 28, 2017 9:12:59 AM

I agree with Harper that eliminating PSLF would be a mistake. However, it is puzzling that American Lawyer continues to publish Harper when he can't bother to get his facts rights. Student loans can in fact be discharged in bankruptcy (although the "undue hardship" standard is difficult to meet). And borrowers whose loans are forgiven under PSLF are not subject to taxes on their forgiven loans. Harper is likely confusing the program with IBR in this regard.

Posted by: Milan | Jun 28, 2017 9:27:38 AM

Translation: Legal academics are agitated that Trump is going to take away a huge de-facto subsidy to law schools. No longer will they be able to say "don't worry about the huge debt you'll be in, you can just go on PSLF and after 10 years it will be gone."

Why don't law schools implement their own PSLF programs to mitigate their obscenely high tuition?

Posted by: Lonnie | Jun 28, 2017 9:35:01 AM

Make all law school loans dischargeable in bankruptcy. That would provide relief to the law grad bag holders who were duped into believing most would have steady six figure incomes, making six figure loans reasonable. It would also make schools have to prove to the lenders that giving out a loan in the first place is a worthwhile bet.

Posted by: Jeffrey Antonelli | Jun 28, 2017 9:52:07 AM

Oh wow. This is going to chap the asses of some of my former classmates if it takes effect in the next 2 years.

Posted by: Jim W | Jun 28, 2017 9:59:03 AM

That's too bad. I take away three things:
1-Lawyers will have to pay back their loans just like every other American.
2-Some market sense will be re-injected into the process, forcing students to make serious career decisions regarding job prospects in an overcrowded field, not to mention whether they've got what it takes to be a good attorney.
3-Government doesn't need more lawyers.

Posted by: LA Grant | Jun 28, 2017 9:59:10 AM

A solution to the problem is to make the loans dischargeable in bankruptcy and require schools to underwrite/co-sign for 50% of each loan balance.
Schools should be required to utilize some percentage of their endowments to underwrite the loans as well.

Posted by: styrgwillidar | Jun 28, 2017 11:02:46 AM

Rather than remedy the problems with a program that can provide enormous help to many recent grads

This is galling to claim that robbing tax payers to pay for other people's poor decisions "helps" anyone.

Posted by: Ken | Jun 28, 2017 11:45:35 AM

Excellent! President Trump is right to cancel yet another a multi-hundred-million dollar program that provides no value. Public schools are notorious for graduating ignoramuses. Their worthless courses waste young people's time and taxpayer money.

Posted by: Brian P. Blake | Jun 28, 2017 2:29:49 PM

'Bout time.

Posted by: Kneave Riggall | Jun 28, 2017 2:54:45 PM

We do not need more lawyers. We especially do not need more lawyers that the taxpayer is subsidizing. We do need fewer law schools and fewer legal leaches.

Posted by: wjr | Jun 28, 2017 7:22:52 PM

The irony of "LA Grant's" first point, of course, is that the sitting president used his corporate bankruptcies to avoid having to pay back vast personal debts and guarantees. $900 million of personal liabilities he dodged just in his first business bankruptcy.

Posted by: Unemployed Northeastern | Jun 29, 2017 7:57:40 AM

What's really galling about this are the self-righteous comments devoid of fact-based knowledge or compassion for people who can't afford to pay private firms for help so that they can, in turn, pay outrageous six-figure salaries to lawyers who enjoy selling their souls.

Posted by: SW | Jun 29, 2017 1:13:19 PM