Recently, I’ve written about how doctors are taking advantage of PSLF in what’s been described as the doctor’s loophole. Simply put, doctors begin making PSLF payments during residency (while they usually work for a hospital) and sometimes stretch the qualifying payments through internships, such that they might begin an attending job after having made 4-7 years of qualifying PSLF payments. From that position, it’s an easy decision to stay in PSLF (if eligible) and watch the entire student loan balance be forgiven tax-free in as little as three years. It may be an unintended consequence of the PSLF forgiveness program, but it’s squarely within the rules, so it’s hard to find fault with doctors pursuing this route.
I always thought that lawyers (who wrote the laws) had no such luck. That was until I learned about the Georgetown Loan Repayment Assistance Program (LRAP), which apparently has now been replicated at a number of law schools across the country. It works like this: if you pursue a career in public interest, the Georgetown LRAP program will make your minimum student loan payments under PAYE or IBR for 10 years, at which point your loans will be forgiven under PSLF. The end result: if you pursue a career in public interest, you can attend Georgetown law for free.
At first glance, this might appear to be Georgetown making a partial contribution to help payoff a student’s loans. If that’s all that is going on, it is a pretty impressive use of the PSLF program. If you’re working in public interest and making less than $75,000, your loan payments would be quite minimal over 10 years (in fact, your balance could be higher upon forgiveness than it was when you started making payments). For Georgetown to offer students the opportunity to wipe away loan balances that could start at $200K by making 10 years of minimal PSLF payments on your behalf is a smart move on their part. It also helps support the state and city governments that cannot offer competitive salaries to lawyers without the existence of PSLF.
The truly clever part of the plan is how Georgetown may be paying for LRAP. According to the Washington Post, LRAP funding may be coming from tuition paid by new students – tuition they’re often paying with federal loans.
If so, Georgetown is ultimately paying for the LRAP program (which is making the minimum payments on the student’s loans) with more money borrowed from the federal government. That’s money that could ultimately be forgiven by the very same PSLF program 10 years after the student graduates. Are you seeing a circle of federal money? That’s what I’m seeing.
Now, this only works perfectly in theory if you could charge students who wanted to pursue public interest a higher amount than you charge other students. The reality is that tuition is raised across the board for all students to pay for the LRAP program. But it’s clever in that at least a portion of those students paying a higher amount of tuition (thanks to the LRAP program) should see those amounts forgiven by the federal government through PSLF. And, because IBR/PAYE is based on income and not student loan balance, it’s immaterial whether the student graduates with $200,000 in debt or $200,000 + any increase required to fund LRAP, as LRAP’s minimal payment will always be tied to a percentage of discretionary income.
The Washington Post article even links to a video showing a financial aid session where Georgetown administration dismisses the thought that people currently in PSLF won’t be grandfathered into the program, noting that PSLF is written into the promissory note.
The main criticism of this loophole seems to be questioning whether the government should be picking up the entire tab for a Georgetown legal education. Putting aside whether law school tuition is too high in general (I think it is), I’m not sure it makes much of a difference either way. If you run the PSLF program, the government picks up the tab for your legal education. If you end PSLF, you’re forcing thousands of lawyers to abandon government jobs because those jobs don’t pay enough to both cover student loans and the cost of living. In order to attract lawyers back to the government jobs, they will have to raise salaries. Who will pay for the salary increase? Obviously, the government. So in the end, for lawyers at least, PSLF is largely just a reallocation of government funds.
The truly clever part is how Georgetown figured out a way to spread the cost among its students, including students that will eventually receive forgiveness themselves. Now, if I were a student at Georgetown that paid a higher tuition price than I otherwise would have on account of the LRAP program who wasn’t seeking forgiveness, I might be a little upset …
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Joshua Holt is a former private equity M&A lawyer and the creator of Biglaw Investor. Josh couldn’t find a place where lawyers were talking about money, so he created it himself. He is always negotiating better student loan refinancing bonuses for readers of the site.