Many student loan borrowers panicked when they saw Trump’s proposed budget, as it cuts the public service loan forgiveness program (PSLF) which allows certain debtors to pay a small proportion of their income towards their debt, and then have their entire student loan balance forgiven after they work in the public sector for a period of 10 years.
The PSLF program was put in place during the Bush administration as a way to encourage students to enter public service by working for the government or non-profits. The idea was that most people don’t make like the Clintons and become $100 million richer leaving public service, so the government would forgive their debt. And while it may seem like a good idea to reward people for entering careers that help the community, the program quickly created perverse incentives and comical loopholes.
While PSLF is often touted as a way to help teachers and social workers pay off their modest loans, the bulk of expenditures under the program are likely to be paid to attorneys and doctors who often borrowed over $200,000 from elite institutions. For instance, if a doctor is able to do his internship and residency at a non-profit hospital and continue on that path for a period of 10 years, his entire medical school debt would be forgiven – conveniently at the same time he starts making real money.
Not to be outdone in terms of scamming the system, lawyers found an even better way to bilk tax payers. Georgetown Law and others not only encourage students to avail themselves of the benefits of PSLF, the universities have set up programs that will make students’ loan payments for them until the debt is forgiven after 10 years. While this may appear generous of a law school, it is important to realize that universities are never generous – they are always angling to scam someone whether it be athletes, students, parents, or taxpayers.
Unsurprisingly, Georgetown Law was running a clever con. As the Washington Post pointed out, the loan payments are also coming from the student’s tuition (which is being forgiven by the government). So federal taxpayers are on the hook for the entirety of these elite law student’s tuition, books, and living expenses:
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.
To demonstrate this fraud, suppose that new Georgetown law student Tiffany Trump took out student loans to pay for her education (which is not that far fetched given she’s clearly Donald’s least favorite child). Tiffany would be eligible for federal loans for the entirety of the school’s student annual budget of $85,000 ($57,000 of which goes to tuition). Over the course of three years, she would borrower upwards of $255,000 plus interest. Let’s assume that after three years Tiffany (or the secret service agent designated to take her exams) graduates and goes and works for her father in Washington for a salary of $60,000 per year. Rather than having to pay her monthly student loan payments, Georgetown would make the payments for her based on a percentage of her income (using the government funded loans she took out and paid to them). After ten years, if Tiffany is still working in government under the Ivanka administration or otherwise employed by a non-profit, all of the money she owed (and Georgetown pocketed) would be completely forgiven. Even Trump University wasn’t this fraudulent or lucrative.
While it is obvious that PSLF has to end (even Obama wanted to cap the amount forgiven), it would also clearly be cruel to end it for the 400,000 borrowers currently enrolled. Many of them did rely on the program in choosing to obtain a degree or to accept a lower paying job. Ending the program before their debt is forgiven would be like Lucy pulling the football away before Charlie Brown kicked it, if the football was a $300,000 debt that would force Charlie Brown into indentured servitude for life.
But PSLF needs to end because it and other programs offering student loan forgiveness, coupled with unlimited student loans, allow universities to increase tuition to astronomically high levels. Because of the greed of colleges, student loan debt in America has surpassed the GDP of Australia, New Zealand and Ireland combined. That means that Americans owe more money for communications degrees (that they put on the dashboard of the Uber car they drive) than the value of the Guinness beer, wool, vegemite, kangaroo rides, and whatever other goods and services that are produced in those countries over an entire year.
Then remember that most of those students could have replicated their “education” with cheap, pre-taped online learning. For instance, while Georgetown law costs $170,000 in tuition, online bar prep courses costs just $5,000 (though when you go to class online, you don’t have the benefit of spending your day protesting Halloween costumes and poop swastikas).
PSLF certainly had noble intentions. But if we really want more people to enter into public service, then we should provide more funding to public institutions to allow them to pay public servants more. Because if we’ve learned anything in the past decades, it’s that institutions of higher learning are the mobsters of the modern economy. If a transaction touches their ivy covered walls, they’ll scam all the parties involved out of every last dollar.