Would axing a loan-forgiveness program narrow options for graduates?

The proposed White House budget would eliminate a loan-forgiveness program designed to encourage students to take public service jobs.

When Eve Rips was considering her job options after getting a law degree five years ago, she was most interested in doing nonprofit work.

But with nearly $300,000 in student loan debt, including long-term interest accrual, this might have seemed unlikely. Ms. Rips had earned an undergraduate degree in philosophy at Stanford University, where she made honors concentrating on ethics in society. After that she went on to complete a law degree from the University of Chicago in 2012. Her two exclusive educations seemed to require that she would make exclusive money.

Despite owing such a staggering sum, Rips was able to take the lower-paying job she wanted, planning her future by enrolling in the federal government’s loan forgiveness program. Signed into law by former President George W. Bush in 2007, the program served as a kind of social incentive, encouraging young lawyers, doctors, and teachers to take on 10 full years of public service, taking certain jobs in regions starving for top-notch talent. In return for a decade of such lower-paying work, the government agreed to wipe certain student loan debt sheets clean. 

“There are a lot of folks doing meaningful work that’s deeply critical to society, who wouldn’t have a choice to pursue those options but for public service loan forgiveness,” says Rips, now the director of regional strategy for Young Invincibles, a political advocacy group in Washington, D.C., that focuses on education and health care issues affecting Millennials.

“It’s really an equity issue,” she continues. “Making values-based career decisions shouldn’t be a luxury that’s afforded just to those who are able to attend college without taking out loans.”

For the Trump administration and other conservatives, however, such debt relief itself might seem a kind of taxpayer-subsidized luxury, or a way of taking sides in the partisan debate over values. On Tuesday, the White House proposed to eliminate the loan forgiveness program for borrowers like Rips – just one part of its uber-austere budget proposal that would dramatically slash a host of social equity programs, including food stamps, Medicaid, and other student assistance programs.

“There’s a certain philosophy wrapped up in the budget,” said Mick Mulvaney, President Trump’s budget director, on Monday. “And that is, we are no longer going to measure compassion by the number of programs and the number of people on those programs. We’re going to measure compassion and success by the number of people we helped get off those programs and get back in charge of their own lives.”

“This is, I think, the first time in a long time that an administration has written a budget through the eyes of the people who are actually paying the taxes,” said Mr. Mulvaney, who unveiled the 2018 $4.1-trillion budget while the president is overseas. 

On the one hand, Mr. Trump’s proposed elimination of the loan forgiveness program has jarred many of the some 552,000 borrowers in the program, especially now with the first cohort of participants poised to see their loans wiped clean 10 years after the program began. But on a call with reporters Tuesday, education officials put those concerns to rest by clarifying that the president’s proposal would only affect people taking out loans on or after July 1, 2018. 

Experts caution that Congress must also weigh in before the final budget is approved, and even many Republicans have balked at the president’s deep and wide-ranging cuts, combined with tax cuts for the nation’s wealthiest.

Yet behind these worries, too, is a deeper clash between ideas about the role of the federal government and the values of promoting social equity efforts – efforts that are often highly partisan and supported mostly by liberals.

The debt burden is actually a symptom of a bigger problem of the increasing price of college, notes William Doyle, professor of public policy and higher education at Vanderbilt University in Nashville, Tenn. And though it’s a laudable goal to think that some people will go into public sector jobs because of a program like this, he says, it’s reasonable to question whether that should even be one of the federal government’s goals.

“The student loan program’s overall goal should be to get people to go to college who wouldn’t otherwise have gone,” Professor Doyle says.

Yet with more than 44 million student loan holders in the United States owing a total of $1.4 trillion, many have seen a wider crisis. Student debt will shackle millions of Americans in years to come, some experts say, holding the economy back as fewer are able to afford to buy a home and limiting overall spending.  

“Certainly, there was social purpose for the programs – i.e. encouraging students to work in lower paying public jobs with the carrot at the end of the stick of being debt free,” says Aaron Gottlieb, a bankruptcy attorney with Godwin Bowman & Martinez in Dallas who has seen first hand the effects of student debt. “Unfortunately, because these programs apply to federally-backed student loans only, an elimination of the program would help fund the proposed tax cuts in the Trump plan.”

But critics contend that in addition to costing taxpayer money, many borrowers could be using the program as a kind of back-door subsidy for expensive graduate degrees. According to a 2016 study by the non-partisan Brookings Institution in Washington, D.C., both the enrollment and costs of the public service loan forgiveness program are skyrocketing.

“The disproportionate share of graduate and professional students using PSLF should be a wake-up call for policymakers,” the report stated, noting that the median debt of those enrolled exceeded $60,000, with nearly 30 percent having borrowed over $100,000. “In fact, PSLF provides a big incentive to borrow more for graduate school,” the report concluded.

The Obama administration, too, proposed legislation last year to cap any loans forgiven at $57,500, but Congress never acted on the money-saving proposal. Trump's budget proposes simplifying all loan repayment assistance options for students, combining the current five different income-driven repayment plans with a single plan that prioritizes undergraduate borrowers.

Some critics also contend that loan forgiveness programs are better designed on the state level. “The line between providing incentive and getting the workforce you want is clearer at that level,” says Doyle.

Indeed, both conservative and liberal states have loan forgiveness and other financial incentives to draw teachers to their regions, especially.  Among others, Arkansas, Mississippi, and South Carolina each offer loan forgiveness incentives, according to the American Federation of Teachers.  States such New York and Connecticut also offer loan forgiveness and mortgage assistance programs for new teachers.

Such competition among states, too, in which those choosing careers weigh a range of factors, from location to compensation, is more in line with values many conservatives hold dear.

“I don’t see it as a major affront to civilization or anything, but it probably does continue the trend that we’ve had anyway, of people focusing more and more on careers based on the compensation as opposed to anything else,” says Mike Sullivan, a personal finance consultant with Take Charge America, a nonprofit in Phoenix, Ariz.

For others, federal loan forgiveness programs have far greater possibilities to allow more people to choose jobs in public service, even with crushing debt.

“In general, Americans pay teachers, public defenders, social workers, and the like pretty terribly, especially considering the educational investment necessary for some of these jobs,” noted Jordan Weissmann in Slate last month. “Giving them a break on their student debt is one way to make these lines of work accessible to people who aren't independently wealthy, or at least somewhat appealing to people who could otherwise go work for another corporate law firm.”