Leading education site Higher Ed Watch (under the umbrella of the New America Foundation) thinks Georgetown Law’s Loan Repayment Assistance Program (LRAP) is a pyramid scheme.

They write:

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.

Simply put, this is incorrect.  Which is too bad, because I'm a big fan of both Higher Ed Watch and the New America Foundation.  But they missed a key step, as I pointed out in the comments.  (Though for some reason my comment is now "awaiting moderation,“ even though it was up earlier).  In any event, here’s what I wrote:

Jason & Alex,

I’m generally a fan of the work y'all do here at Higher Ed Watch, and I think that, to an extent, you’ve done a service by shedding some light on how this program works. (And, as a student at GULC with federal loans in my name, I say that as an interested party.)

That being said, I think the key claim that you make here is highly misleading. You write that ”[n]either 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.“

This is not accurate, and your article gives the impression that taxpayers are on the hook for far more of GULC’s tuition than is likely the case. (You don’t go as far as to describe the program a pyramid scheme where the taxpayers hold the bag, but that is basically what you describe.)

A key fact – perhaps *the* key fact – is the fraction of GULC students that avail themselves of the LRAP program, which is not found anywhere in your analysis.

As you point out, Georgetown covers the cost of its LRAP payments by increasing the tuition it charges its students. If all GULC students enrolled in LRAP, then the taxpayer would eventually be on the hook for all the loan payments, as you describe.

But, critically, only a fraction of GULC students avail themselves of LRAP.
The Georgetown flyer you cite in "How Much Debt Will Georgetown Law Grads Have Forgiven?” notes that 245 students are currently receiving benefits from GULC’s LRAP III program (and 350 in all).

Since GULC graduates 500+ students annually, this is a relatively small program. Even conservatively assuming that the 245 LRAP III participants graduated in 2010, 2011, and 2012, the 245 participants constitutes only about ~15% of GULC’s alumni during that time period.

Since GULC hikes it’s tuition for all students to cover these loan costs, the majority of the LRAP costs are born by the 85% of GULC students who will not enter the LRAP program, either because they enter private practice (and, thus, probably can afford it) or are otherwise uninclined to do so.

Accordingly, your implication that the taxpayer ultimately bears the brunt of this burden is not correct.

As for your claim that “Georgetown loses little if any money from this scheme because the school simply includes the cost of the loan repayment program in its tuition,” I submit that this is how businesses, including those run not-for-profit, work. Businesses pass along their costs to their customers. GULC’s two sources of revenue are tuition paid by students (with some taxpayer subsidy on the margins!) and interest generated by its endowment. Since dollars are fungible, I’m not sure why it matters which pool GULC covers its LRAP costs from.

Sincerely, Joe Vladeck
www.joevladeck.com 

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