A degree from Georgetown’s prestigious law school may be one of the most well-known credentials a lawyer can have, but that degree can certainly be expensive. To someone, at least.
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Taxpayers could end up footing the entire bill for the education of hundreds of law students who seek work in the public sector, according to a new study by New America Foundation. The study says Georgetown’s law school has found a loophole in the federal student loan program and incorporated it into their “Loan Repayment Assistance Program III,” or LRAP III.
“LRAP III means public interest borrowers might not pay a single penny on their loans -- ever!” Georgetown’s website boasts.
The program is the latest version of a long-standing commitment to encouraging graduates to enter the lower-paying public service sector, which can make it hard to pay off student loans. Similar programs are offered at law schools across the country. In a statement, Georgetown University Law Center says, “We are happy to make public interest careers a viable option for our students.”
And a number of graduates are relying on Georgetown’s program for help: More than 350 students are enrolled in one the school’s public service programs with 245 of them use LRAP III.
Federal Student Loan Loopholes
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In its report, New America Foundation paints a scenario where taxpayers could end up paying all or most of the education bills for the students in LRAP III based on a combination of several different federal student loan programs which were created or expanded within the past decade. First, graduate students are eligible to borrow an unlimited amount through the Grad PLUS loan program to cover tuition and living expenses. The principal can add up fast. Georgetown’s website estimates the cost to attend this year tops $70,000, and average total debt at graduation is $146,000, according to U.S. News and World Report.
LRAP III offers to reimburse graduates’ student loan payments for up to 10 years after graduation, as long as they are working in public sector jobs. Once a graduate makes more than $75,000 each year, Georgetown’s reimbursements begin to taper off.
Students in the program must qualify for Income-Based Repayment or Pay-As-You Earn. Those federal repayment plans help graduates with lower incomes repay their student loans as a small percentage of their take-home pay, keeping payments low. The New America Foundation estimates the average student enrolled in Georgetown’s program will only pay the government about $45,000 over the course of ten years. After that time is finished, the government forgives the remaining debt. The New America Foundation estimates some students will have enormous amounts of debt forgiven—nearly $160,000 on average. That’s even more than the average student borrows to attend Georgetown Law.
The New America Foundation bases these calculations on a complicated equation with several assumptions built in, including a fixed interest rate of 7.9% for Grad PLUS loans and 6.8% for Stafford loans. Congress just passed a student loan reform bill that will change those rates to a market-based model, making it even harder to predict how much debt students will accumulate over time.
Georgetown’s Share of Repayment
Georgetown Law says the loan program costs the school $2 million each year, and even with the federal student loan provisions, costs associated with the program are expected to rise.
However, the report suggests taxpayers are actually bearing the cost of the school’s program, saying the school raises tuition—much of which is paid by federal student loans—to fund reimbursements.
“Because students can borrow an unlimited amount of federal student loans, they [Georgetown Law] charge a higher tuition,” said Alex Holt, one of the study’s authors. “The students take out more student loans, and then that money that was borrowed from the government goes right back into paying the federal government a small percentage back on that tuition.”
But Georgetown law says the vast majority of its students fully repay their loans, which more than covers the cost of the program for public service grads. The school adds it has been helping public-service graduates afford their loan payments for years—well before these federal repayment programs were put into place.
“These funds come primarily from the tuition paid by our students, either through their own resources or through federal loans that are fully repaid at up to 7.9% interest [far in excess of the government's lending costs] by the vast majority of our graduates who are in other fields of work,” the school says in a statement. “By choosing to allocate resources toward this additional benefit, Georgetown Law is furthering the exact goal evidenced by Congress in passing and expanding the federal programs.”
Is the Assistance Necessary? Some say, Yes
Education advocates are pushing back on the report as well. They say the loan programs are working exactly as Congress intended, by helping those graduates who want to serve the public good.
“Only a small minority of people end up going into public service, much less dedicating 10 years of their life to making a far lower salary than their peers in the private sector,” said Isaac Bowers of Equal Justice Works. “It’s a blip on the radar in terms of the student debt problem and frankly the student loan budget in the United States.”
Advocates also point out the government makes money from student loan programs, more than $50 billion this year alone, according to the Congressional Budget Office.
Since income-based repayment is a relatively new program, the actual effects of loan forgiveness are hard to prove, critics say.
“There certainly is the potential for moral hazard with the PLUS loan, but whether there is an actual problem remains to be seen,” said Mark Kantrowitz, a higher education expert. “The real problem is not a problem with income-based repayment or public service loan forgiveness, but with the unlimited nature of the PLUS loan limits.”
The concern over these programs spills beyond Georgetown, according to experts, and even beyond law schools.
“With the federal student loan program, law schools are really the canaries in the coal mine,” Holt says. “Their costs are so out of sync with their employment rates and their incomes that whatever comes later on with other masters and professional programs will probably happen first with law schools.”
Congress could have an opportunity to change the student loan program soon. The Higher Education Act, the main law governing student loans, is due to be re-authorized this year. The reauthorization process is often a long and contentious process, and education experts don’t expect this cycle will be much different. But, education experts on all sides look to the reauthorization in hopes that Congress will put reforms in place to help drive down college costs, and the student loan balances that accompany them.