(c) 2013, The Washington Post.
(c) 2013, The Washington Post.
Did you know that you can go to Georgetown Law absolutely free of charge? No, really. If you get in and commit to working for the government or for nonprofits, making $75,000 a year or less, for 10 years, you can get your JD absolutely free of charge. It's called the Loan Repayment Assistance Program (LRAP), and it's a very good deal for students.
It's a very good deal for Georgetown, too — but not in the way the government intended. Georgetown has found a very clever way to exploit recent reforms to federal student loan programs so as to greatly reduce the price of law school for students without costing the school anything either.
Georgetown Law students who use LRAP use loans from Grad PLUS — the federal government's student loan program for grad students — to fund the entire cost of going to law school. That includes not only tuition and fees but living expenses like housing and food. Grad PLUS has no upper limit on the amount you can borrow, so there isn't any constraint on how much you take out.
Once out of school, the students enroll in an income-based repayment program, in which, if they're working for a nonprofit, the federal government forgives all loans after 10 years. For that 10-year period, however, the borrower has to pay a share of their income. But under LRAP, Georgetown commits to covering all of those payments.
Upon first glance, it looks like what's happening is that Georgetown is paying for part of the cost of law school and the federal government is forgiving the rest. But as Jason Delisle and Alex Holt at the New America Foundation discovered, Georgetown's cleverer than that. The tuition paid by new students — tuition they're often paying with federal loans — includes the cost of covering the previous students' loan payments.
So Georgetown is ultimately paying its share with money its students borrow from the federal government. The feds are paying back themselves. At no step in the process does Georgetown actually have to pay anything. The feds are picking up the entire bill.
Here's a simplified example of how it works. Let's say that, without this program, Georgetown would be charging $10 for tuition. Let's suppose further that, without this program and just using the normal federal income-based repayment program, these students would end up paying, on average, $5 over the 10 years before their loans are forgiven.
Now suppose Georgetown proposes this program, wherein instead of the student paying the $5, Georgetown pays the $5. It then increases the starting tuition to $15 to cover the new expense. Under normal student loan programs, that would mean that students would have to pay more back because they would need to take out a larger loan to cover the increased tuition.
But under income-based repayment, your payments vary with your income, not the size of the loan, so you still only have to pay back $5 before the loan is forgiven. So Georgetown gets $15 from the federal government, using $10 for education and using the other $5 to pay back the loan (or an equivalent earlier loan) before it's forgiven. So the federal government is paying for all of this. Neither Georgetown nor the student pays a cent.
Of course, the real version doesn't end up costing just $15. Delisle and Holt estimate that the average LRAP student gets $158,888 in federal money. Not loans, but money they don't have to pay back. So the program amounts to a massive educational grant to Georgetown law students, who are likely to make more as lawyers than the vast majority of Americans and whose ability level suggests that they could make more than most Americans even if they didn't go to law school.
Particularly shocking, as Delisle and Holt point out, is that there's nothing, in principle, limiting this to students who go into public interest. For students who don't go into public interest careers, the federal income based repayment program only forgives debt after 20 years, and because private-sector lawyers make more, the income-based payments will be larger than for public interest lawyers.
But if Georgetown wanted to, it could jack up tuition enough to cover 20 years worth of big payments on loans taken out by alums who go into the private sector. Their students would have to take out much bigger loans, but since Grad PLUS doesn't have an upper limit on loan size, that needn't be a problem.
Georgetown isn't doing this yet. But it, or any other graduate or professional degree program in the country, could do it if they so chose. If federal policy stays the same, there's nothing stopping grad schools from having the federal government fully fund them.
Maybe we want that, but given that the kind of people who go to grad school — no matter where — make more than most Americans anyway, perhaps the money could be better directed elsewhere. Delisle and Holt suggest capping PLUS loans, and other grad loans, at $25,000 a year, or $75,000 total, or else delaying when loans can be forgiven. They also suggest capping the amount that can be forgiven for public interest workers after 10 years. Both of those would prevent schools from doing what Georgetown did here.
But fixing the program now would leave a lot of people currently participating in the lurch. Delisle and Holt found a video of Charles Pruett, assistant dean for financial aid at Georgetown Law, explaining to students that he doesn't worry about the Feds figuring out what's going on, since they aren't going to dare force former law students to pay big loan bills that they were promised they never had to pay.
There's also video of Pruett encouraging students to (legally) shelter income from the federal government so as to lower the loan payments that Georgetown Law has to make on their behalf through income-based repayment.
When reached for comment, Elissa Free, a spokesperson at Georgetown Law, did not dispute any of the facts as presented by Delisle and Holt. "Through its Loan Repayment Assistance Program, Georgetown Law adds its own funding on top of the government's to help defray public interest graduates' remaining monthly loan repayment expenses," Free writes. "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. 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."
But no one is disputing that the funds come from tuition paid by the students. The question is whether that tuition is higher than it otherwise would be so as to pay for Georgetown Law's share of the loan repayments.
To be clear, what Georgetown Law is doing is perfectly legal. The question is whether it's appropriate for the federal government to be paying almost $160,000 to students at an elite law school.