Gaming Student Loans

by Reihan Salam

Jason Delisle and Alex Holt of the New American Foundation Education Policy Program describe some of the quirks of the Georgetown University Law Center’s Loan Repayment Assistance Program, which exploits the generosity of Grad PLUS Loans and Income-Based Repayment:

Under Georgetown’s LRAP, students take out Grad PLUS loans to cover the full cost of attending law school (around $75,000 per year, which includes living expenses). After they graduate, they enroll in Income-Based Repayment. If they work in government or non-profit jobs, Georgetown pays 100 percent of their loan payments for 10 years, after which IBR’s loan forgiveness wipes away the remaining balance. The students pay nothing for their education.

On the surface, it seems like Georgetown Law is taking a loss on students who go into public service. But the truth is far more sinister. Georgetown loses little if any money from this scheme because the school simply includes the cost of the loan repayment program in its tuition. And since the federal government issues loans for whatever amount Georgetown charges, students just take out more loans to cover that cost.

See the problem? Neither Georgetown nor its students are financing the program. You are, as a taxpayer by providing them with access to unlimited loans and unlimited loan forgiveness.

Delisle and Holt offer ideas for how to stem such abuses, and they’ve also done an invaluable job of drawing attention to the various ways Income-Based Repayment can be gamed.