Paul L. Caron

Thursday, November 30, 2017

House GOP To Cap Amount Of Student Loans For Law School, Eliminate Public Service Loan Forgiveness

Wall Street Journal, House GOP to Propose Sweeping Changes to Higher Education:

The Republican-controlled U.S. House of Representatives this week will propose sweeping legislation that aims to change where Americans go to college, how they pay for it, what they study and how their success — or failure — affects the institutions they attend.

The most dramatic element of the plan is a radical revamp of the $1.34 trillion federal student-loan program. It would put caps on borrowing by parents and students and eliminate some loan-forgiveness programs for students. ...

As part of its plan to slow the growth of federal student loans, graduate students and parents of undergraduates would face so-far-unspecified caps on how much they could borrow for tuition and living expenses—instead of borrowing whatever schools charge. The change could cut into enrollment and potentially siphon off billions of dollars a year from universities.

The bill would also end loan-forgiveness programs for public-service employees, who currently can make 10 years of payments and then have their remaining debt forgiven, tax-free.

It would preserve an option known as “income-driven repayment,” which ties borrowers’ monthly bills to their earnings, but would eliminate the ability of borrowers to have balances forgiven under them. Currently, borrowers can make payments of 10% or 15% of their discretionary incomes—as determined by a formula—and have remaining balances forgiven after 20 or 25 years. Under the bill, borrowers would pay 15% of discretionary incomes for as long as it took to cover the amount they would have paid under a 10-year standard repayment plan. Current participants in both programs would be grandfathered in.

Many Republicans and conservatives believe student-aid programs have become too generous and have enabled schools to charge higher prices, ultimately at taxpayers’ expense.

Michael Simkovic (USC), Republican Education Bill Would Boost Profits for Private Student Lenders and Raise Financing Costs for Students:

These measures, if enacted, would be a boon to private student lenders like Sallie Mae, who would be able to both increase their prices and increase their market share as federal student loans become less competitive and less available. Consequently, expected financing costs for students will likely increase, to the detriment of both students and educational institutions.

Legal Education | Permalink

Comments about this brilliant idea: Maybe schools could cut tuition?

Posted by: PDB | Nov 30, 2017 7:57:05 AM

I've been warning about this for years. You reap what you sow: given how long everyone has presented their counter-modern-reality pitch that all law school grads are lifelong financial successes, now the government plans to take away their financial crutches to reflect that pitch.

Incidentally Michael Simkovic's most-discussed paper, extolling the wage premium of all JDs, was partially underwritten by... a private student lender (Access Group). The irony, it burns. One wonders how many minutes will elapse after this bill's passage before they reactivate their private lending services. "[E]xpected financing costs for students will likely increase, to the detriment of... students." Well, yeah - you've been saying nonstop for years now that all law degrees are worth a million of dollars. Do you think it would have no consequences? I mean, it didn't help increase applications at all, but now the GOP is going to, in effect, tax that purported million dollars. Well done.

Posted by: Unemployed Northeastern | Nov 30, 2017 9:16:30 AM

I think that the proposals are a step in the right direction. I do wonder about how the phase-out of the loan forgiveness program is set up. I have been unable to find out how the bill treats those currently in the loan-forgiveness program: grandfathered? ended? pro-rated?

Posted by: CBI | Nov 30, 2017 9:34:09 AM

I am OK with some form of limited forgiveness of debt in exchange for public service. Primarily limited to physicians who agree to work in medical deserts like the Appalachians and in public hospitals in very low income neighborhoods, teachers in similar areas, and public defenders.

That's about it. A desk job at the Social Security Admin isn't public service.

Posted by: Dan Palmer | Nov 30, 2017 10:26:37 AM

Be nice to see something put the brakes on rampant LS tuition increases. Total COA for a run-of-the-mill law school should be nowhere near $200K.

Posted by: Dood, el Farbe | Nov 30, 2017 12:51:42 PM

If this reduces the number of young people who go to college, that's a good thing. You need a degree today for many jobs that you could do right out of high school in the '60s and '70s (e.g., marketing).

Posted by: Anna D | Nov 30, 2017 2:32:55 PM

Is Sen. Marco Rubio a part of this? Because during one of the 2016 GOP primary debates his position on making colleges accountable for loans/tuition, courses/majors, and the ability to actually get a job post-graduation in a graduate's stated degree was one of the most brilliant things I heard during the whole debate cycle.
Democrats always campaign on 'everyone should go to college' and then there are those who seek to make college 'free'. No. Not everyone should attend college, especially if your high school grades were mediocre and your work ethic is not up to maintaining the real grind of classes and real courses in real usable subjects.

Posted by: MaggieP. | Dec 2, 2017 6:26:09 AM

PS: I think the one area where loan forgiveness should be kept in place is if you are going into the U.S. Military to serve in your stated degree. And the comment posted by Dan Palmer is a good idea as well.

Posted by: MaggieP. | Dec 2, 2017 6:30:48 AM

Dood writes "Be nice to see something put the brakes on rampant LS tuition increases. Total COA for a run-of-the-mill law school should be nowhere near $200K."

But is sadly misinformed. If one actually goes through historical law school data - Matt Leichter's "Law School Tuition Bubble" is a great resource - they will discover that 1) tuition increases in the GradPLUS are pretty much the same as before GradPLUS when federal grad student lending was limited to ~$20k/year, and 2) many terrible law schools cost far more than $20k/year and were increasing their tuition bigly each year. This is all due to profligate private student lending, which in turn was largely due to nondischargeability and securitization of those underlying loans. As those conditions still exist (and indeed the private market has been growing for the last few years), there is no reason to think it won't be thus if/when GradPLUS loans are curtailed. One might even think this a feature, not a bug, of the GOP plan.

Posted by: Unemployed Northeastern | Dec 2, 2017 8:35:10 AM

I think it's interesting that the Republicans hate education and public service so much that they're willing to hurt the economy to hurt their enemies. The republicans didn't cap student loans for law school. They're capping student loans in general, including for engineering and science and medicine and dentistry and computer science and business.

Talk about scorched earth.

Posted by: Scorched earth | Dec 2, 2017 11:55:13 AM

Actually, it's all the dummies who've been attacking the value of education who brought this on. Republicans claim they're being fiscally responsible.

If education is worth a lot, then they're not. They're just driving up unemployment insurance costs and driving down future tax revenues.

Posted by: actually | Dec 2, 2017 12:02:43 PM

"The Economic Value of a Law Degree" wasn't funded by the AccessLex Institute or LSAC.
Only follow up studies that addressed a number of issues raised by critics, such as outcomes for those who graduate in a recession and with different college majors, were funded in part with grants (i.e. "Timing Law School").

In any case, the funding had no influence on the outcome of the studies. They simply reflect what the data shows and have been replicated by other researchers.

Unemployed Northeastern seems to be suggesting that people should lie about what the data shows for political advantage.

Posted by: Nope | Dec 2, 2017 12:25:16 PM