Paul L. Caron

Friday, November 13, 2015

American Lawyer: Congressional Showdown Over Law Student Loans Is Inevitable, With Law Schools The Likely Losers

American Lawyer LogoAmerican Lawyer:  Is Washington Finally Tired of Welfare for Law Schools?, by Matt Leichter:

Just as the academic year geared up this fall, both The Washington Post and The New York Times ran editorials sharply attacking the generous federal lending programs that law students depend on. ...

The Post's Charles Lane appropriately characterized the Grad PLUS Loan Program, which provides essentially unrestricted lending to graduate and professional students, as a "de facto bailout" for law schools. The schools capture the increased lending to law students and then perversely pass it back to them as higher tuition charges. Consequently, efforts to make legal education cheaper backfire, turning the federal loan program on its head. Eventually the government will write down the loans for what it intended to be a deficit reduction program.

The Times' editorial board struck with even more venom, calling the six for-profit law schools "scams" and accusing non-profit and public schools of similar behavior. The culprits: warped incentives and unchecked Grad PLUS loans. The Times' solutions were to either extend to all law schools the gainful employment rule—which limits student loans based on graduate employment rates—or to cap the funding to graduate students. At the same time, the paper argued for diverting the money flowing to law schools to legal aid for the poor.

The drumbeat of editorials criticizing law schools and the ABA is not new, but the response from lawmakers, especially to Times' article, may signal a future shift in how the government lends to law students. Notably, senators from both parties are raising concerns. ...

[T]he government obscures the crisis by treating loans on income-based repayment plans as in active repayment. Simple arithmetic shows that the kinds of debt law students amass cannot be amortized with the incomes most of them can expect to make. Assuredly, the government will forgive their loans after twenty or twenty-five years, with significant losses.

In fact, most law graduates do not earn enough to cover their interest payments. With the advent of generous repayment terms, the default rate no longer matters, especially for law students. All law schools need to do is ensure that their graduates sign on to such plans, and effective defaults disappear. ...

[L]egislators are already making their moves. The Post's editorial cites with approval a law reintroduced by Senator Lamar Alexander (R-Tenn.), dubbed the Financial Aid Simplification and Transparency (FAST) Act, which would drastically rein in federal lending to college and graduate students. The law would fix annual lending to undergraduates to $8,000 per year with a $37,500 aggregate limit, but graduate and professional students would only receive $30,000 per year in total, with a lifetime cap of $150,000. As of now, graduate students can borrow as much as their schools charge them, on top of $20,500 per year in unsubsidized Stafford loans.

The FAST Act also has bipartisan support in the Senate, but higher educators and their lobbyists are taking a hard line against it. ... Reform might not come in the form of the FAST Act, but a congressional showdown over student lending is looking inevitable. Thanks to the refusal of law schools to hold their enterprise accountable, it’s a fight they're likely to lose.

Legal Education | Permalink


$37k in an increase in the borrowing limit for undergrads .....

Posted by: Nathan A | Nov 14, 2015 4:00:33 AM

Uh, Ted, $8k/year and $37k cap for undergraduates is a considerable increase from the current undergrad federal student loan ceiling of $31.5k - an amount that hasn't been raised since 2008 or 2009, if memory serves.

Posted by: Unemployed Northeastern | Nov 13, 2015 9:21:52 PM

I'm comfortable with the FAST Act for law schools. The feds currently charge over market for law school loans. Private lenders will pick up the slack. The real problem is at the undergrad level. $8,000 per year? College will only be for the rich. Sounds like a Republican solution to me.

Posted by: Theodore Seto | Nov 13, 2015 6:49:13 PM

"Cue the inevitable comments by law profs that law school loans have lower default rates that other student debt . . . "

They also have higher repayment rates.

Posted by: um | Nov 13, 2015 5:04:42 PM

This is an easy pass. If it comes up for a vote, it passes. I wonder how much in federal GRAD Plus dollars the schools are burning on their lobbyists right now to keep the whole sordid charade going.

Posted by: Jojo | Nov 13, 2015 1:08:43 PM

Cue the inevitable comments by law profs that law school loans have lower default rates that other student debt, as though no one will ever look at the actual repayment rate that is occurring in IBR.

Posted by: JM | Nov 13, 2015 1:06:48 PM

'Bout time!

Posted by: Kneave Riggall | Nov 13, 2015 12:49:39 PM