Public Service Loan Forgiveness Must Go
Congress is set to kill off loan forgiveness for those working in public service. It makes for a good headline but the reality is not so simple. Just as in so many other domains within the American political system, this is another one in which we seem to stubbornly refuse to discuss our policies in an honest way.
The loan forgiveness program that the Trump administration and congressional Republicans are attempting to eliminate is known as Public Service Loan Forgiveness, or PSLF. In effect, the program forgives whatever amount of federal student loan debt remains after 10 years’ worth of qualifying payments. To qualify, you must be working in public service, broadly defined, at the time of the payments. Recently, the PSLF has made headlines both because of the Republican proposal to eliminate it and because it is the 10-year anniversary of the program, meaning the first batch of students are set to receive loan forgiveness. Our public discussions of this program have thus far been schizophrenic. Both sides of the debate are talking past one another, with one side lamenting that the program is not widely known so not enough students are taking advantage of it, while the other is expressing shock at how much the program will cost the government.
Perhaps the most thoughtful analysis of PSLF comes from the New America Foundation’s Jason Delisle and Alexander Holt, who persuasively argue that PSLF creates perverse incentives. Unbound by the need to pay back debt, after students acquire loans exceeding the 10 years’ worth of payments, any additional amount they take out is essentially a free lunch. As a result, the students lose price sensitivity and universities are free to raise tuition to exorbitant levels.
One of the most egregious examples of this is Georgetown Law’s Loan Repayment Assistance Program (LRAP). Under LRAP, the cost of making the 10 years of loan payments is built into the tuition, allowing for both debt- and payment-free student loans at one of the most expensive law schools in the country. It is therefore no surprise that, according to data from the Law School Transparency project, 21.2 percent of graduates from Georgetown Law enter public service compared to 9 percent at the similarly priced Columbia University and 7.4 percent at the University of Pennsylvania. Moveover, students from Georgetown Law appear to be far more likely to be underemployed compared to these similarly priced institutions. Although the students benefit from LRAP tremendously, the primary beneficiary of the program appears to be Georgetown itself. Thanks to PSLF, the university can offer what amounts to highly enticing scholarships at no cost, or, rather, at the cost of the American taxpayer.
Let me be clear: Georgetown and the law students are not doing anything wrong here. The students are simply making wise financial choices for themselves, and the school is merely looking out for their students. This is what you would expect from a university run by people clever enough to read into the legal and economic implications of the well-intentioned but poorly designed legislation. What is unacceptable, however, is preventing lawmakers from correcting this going forward by lobbying them to maintain the status quo or by politicizing and emotionalizing a straightforwardly bad policy.
It is important to highlight what eliminating PSLF does not do. Firstly, it does not mean that students who already went to expensive schools to study medicine, law, or other fields are out of luck. Just like nearly all previous changes to the student loan system, the GOP’s proposed plan grandfathers in students who took out loans during the current rules. It does not simply pull the rug out from under students with existing loans because Congress regrets a promise it made to students in 2007 when the law enabling PSLF was passed.
Secondly, it does not mean that we cannot create more rational incentives for people to engage in necessary and meaningful work in public service. PSLF is a confusing and roundabout means of creating that incentive, as employees of the American Bar Association discovered when the Department of Education retroactively — and perhaps illegally — revoked numerous certifications that indicated ABA employees were on track to have their loans forgiven. Public servants would be better served by programs that do not require the submission of regular certifications that government bureaucrats can arbitrarily declare invalid after the fact.
Going forward, there are numerous possibilities for far smarter, simpler ways to ensure the civic-minded need not sacrifice their financial stability to perform public service. For instance, we could use categorical grants to pay educated government employees competitive rates nationwide, as has been suggested for public defenders. Furthermore, we could create greater incentives to donate to nonprofits so that these organizations can afford to hire more talented employees. Such changes may resolve the market failure resulting from PSLF, reduce the complexity and uncertainty in the federal student loan system, and create the same desired effect of helping those entering public service to afford higher education.
Obviously, concrete policy proposals would have to contend with additional complexities. For one, political reality constrains the actions of lawmakers; it is far easier to pass an expensive proposal like PSLF that takes effect a decade later than to pass one that has immediate costs, even if the latter is more efficacious. Now that it is time to start forgiving loans and the costs are no longer so abstract, congressional Republicans justifiably want to change course. While the Republican Party can be fairly criticized for many of its actions as of late, when the Party’s members take rational, principled — but politically unpopular — actions, they should be commended.
Only time will tell if our lawmakers will manage to summon the political will to establish more than stopgap measures like PSLF to the steadily expanding student debt crisis. If history is any guide, students will continue to be trapped by debt for many years to come before our representatives decide to try potential solutions, ranging from a student loan jubilee; eliminating federal student loans altogether (see the Bennett hypothesis); or incentivizing and destigmatizing vocational education. Advocates of the PSLF program are right about one thing: Repealing the program without putting in place an alternative could be very damaging to students. Simply ignoring the problem for another decade will not make it go away; students have waited long enough for sustainable solutions.
Alex Caro is a graduate of the Science Policy Research Unit (SPRU) at the University of Sussex. He tweets at @alexcarooo.