Student Loans Are Too Expensive To Forgive

Late last year, graduate students watched as legislators in the House debated giving them a hefty new tax bill: A version of the GOP tax plan proposed to treat tuition waivers as taxable income. Although that plan was later dropped, Congress is once again considering legislation that could affect graduate students’ bottom lines. And the federal government is considering ending some of its student loan forgiveness programs, which could raise the economic barrier to entering certain public service professions and leave social workers, teachers and other people in public-service fields that require graduate degrees paying thousands of dollars more for their education.

President Trump’s Education Department and its inspector general, as well as lawmakers and think tanks of all ideological stripes, have raised concerns about the growing cost of the federal government’s student loan programs — specifically its loan forgiveness options for graduate students. Members of both chambers of Congress have said they are committed to passing new higher education legislation this year that will include changes to these programs.

The costs of the suite of plans currently offered by the government to lessen the burden of grad school debt has ballooned faster than anticipated, and the federal government stands to lose bundles of money. A new audit from the Department of Education’s inspector general found that between fiscal years 2011 and 2015, the cost of programs that allow student borrowers to repay their federal loans at a rate proportional to their income shot up from $1.4 billion to $11.5 billion. Back in 2007, when many such programs launched, the Congressional Budget Office projected they would cost just $4 billion over the 10 years ending in 2017.

The cost of the loan forgiveness programs exploded, in part, because policymakers did not correctly estimate the number of students who would take advantage of such programs, according to higher education scholar Jason Delisle. Now there’s an emerging consensus that some programs should be reined in, but ideas on how much and in what ways vary by party affiliation. Senate Democrats just introduced a college affordability bill that focuses on creating “debt-free” college plans by giving federal matching funds to states that, in turn, would figure out ways to help students pay for school. In the past, President Barack Obama acknowledged the need to require borrowers to repay more of their debts and made some proposals for modifying the programs’ rules. The GOP goes much further in its suggestions: A new proposal from House Republicans would eliminate some loan-forgiveness programs entirely.

The federal government currently offers several types of loans, with varying repayment terms, one of which can cover up to the full cost of a student’s graduate program. If, after they leave school, a borrower signs up for an income-driven repayment plan, they will pay back their loan at the rate of 10 percent of their discretionary income each year, and the remaining balance will be forgiven after 20 years.

Under the Public Service Loan Forgiveness Program, however, a student’s debt can be forgiven after just 10 years. The program was created to ease economic barriers to entering public service, which is defined as work for any federal, state, local or tribal agency, or any tax-exempt nonprofit.

Right now, a Georgetown Law grad who’s gunning for a job at a U.S. attorney’s office and enrolled in the Public Service Loan Forgiveness Program would expect that the federal student loans she took out to help pay her $180,000 tuition will be forgiven after 10 years. If, like the typical lawyer, she graduates with $140,000 in federal student loan debt and her salary rises from $59,000 to $121,000 a year over her first 10 years on the job, she could have the government wipe out $147,000 in debt — the full remaining principal of her debt plus interest — according to a 2014 study from the think tank New America, which Delisle co-authored.

Or let’s say a second-grade teacher with a master’s degree and $42,000 in federal student loan debt (a typical amount for a first-year teacher after undergraduate and graduate school) earns in the 75th percentile for his age for 10 years. If he dutifully fulfills all the requirements for a federal debt forgiveness program — including completing all of the onerous paperwork — he, for now, stands to have about $33,000 of that debt forgiven, according to the New America report.

But this year the House is poised to consider the PROSPER Act, which would, among other things, reinstate a cap on how much graduate students could borrow (up to $28,500 per year, or $150,000 total) and shrink the number of income-based repayment programs currently available for both grad and undergrad students from five to just one, though a traditional, non-income-based repayment plan will also be available.

Experts say the borrowing cap is unlikely to be a problem for graduate STEM and medical students, since Ph.D.s are often funded by grants and tuition waivers. But graduate students who are enrolled in the Public Service Loan Forgiveness Program are far more likely to borrow significant sums. A presentation by the Department of Education revealed that nearly 30 percent of all students enrolled in such programs borrowed more than $100,000, with a median debt over $60,000. If the House plan becomes law, students would likely have to go to the private loan market to finance their education, said Seton Hall University higher education professor Robert Kelchen.

Ending the option of having student loans forgiven also removes a bargaining chip for graduate programs that have a reputation for supporting public service careers, like Georgetown University’s Law Center. Dean of admissions Andy Cornblatt says the Public Service Loan Forgiveness Program, among others, helps the school attract the best candidates.

“Everyone in legal education is scared to death that some of these federal programs could go down the drain,” Cornblatt says. “Everybody wants to make sure that the ability to attract these kids is not compromised” because of proposals like the PROSPER Act.

So, let’s return to our hypothetical Georgetown Law grad, the would-be attorney who wants to go into public-sector law and is enrolled in the loan forgiveness program. If the PROSPER Act passes, rather than paying 10 percent of her discretionary income for 10 years and having $147,000 in federal student loan debt forgiven, she would have to choose from one of the two repayment plans it allows. That means she’d either pay 15 percent of her discretionary income until she’s paid off as much as she would have under a 10-year plan, with some of the interest potentially forgiven, or she would have to use a standard 10-year repayment plan, also with no loan forgiveness involved.

It’s a bleaker picture for a social worker — who likely needs a master’s in social work to practice and typically starts with an annual income of $24,000, earning $57,000 annually by year 10, according to the New America report. If that social worker is enrolled in one of the currently available income-based repayment programs, all of his remaining federal loan debt (typically $49,000 upon graduation) can be forgiven. Including interest, that would be around $51,000 — more than the original loan — even though he would have repaid about $15,000 over the years. Without loan forgiveness, he’d be looking at many more years of loan payments.

Though Kelchen predicts that if the PROSPER Act passes, some colleges will try to either increase how much financial aid they offer or reduce tuition, he cautions, “I don’t think it will be enough to make up for loss of loan access, particularly in low-paying fields.”