Student Loans – An Interview with Dean Paul Schiff Berman

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NerdWallet has been closely covering student loan debt since the Consumer Financial Protection Bureau reported that national student loan debt was over $1 trillion. This high level of debt is crippling young adults, leading them into credit card debt and potentially bankruptcy. Debt is also keeping this consumer cohort from buying cars and homes and generally stimulating the economy. To get some perspective on the issue from the education side we sat down with Paul Schiff Berman, Dean of the George Washington University Law School. His students face even higher debt due to the high cost of tuition of law school, and he offers us some keen insight into the state of student loans and debt.

The new federal loan system helping today’s students

Students are now able to qualify for the Income-Based Repayment (IBR) Plan, a new federal loan program that began in July 2009. Available on most federal student loans, IBR allows loan payments to increase or decrease based on factors such as income and family size. According to Berman, most of his students who take out loans now borrow solely from the federal government rather than from private lenders, which means that they will be able to take advantage of IBR and will therefore face less financial stress and have greater purchasing power than their predecessors did just a few years ago. “Loans for new students are much more favorable than ever before,” says Berman. “The government has responded to the debt crisis by providing much-needed assistance.”

In addition to lowering the monthly repayment amount, the IBR program also helps relieve the loan principal on the back end. Under the program, borrowers with jobs in the government or nonprofit sector who make their (income-based) monthly payments for ten years have their debt completely forgiven. And even those in the private sector have their debt forgiven after 25 years (and a new proposal would reduce that to 20 years). We therefore encourage all future students to investigate the government student loans available to them.

The way to assess and the coming benefits

Berman predicts that within the next 5 years or so student loans will be almost entirely federal loans with income-based repayment plans. The national aggregate student loan debt (the $1 trillion we mentioned earlier) is very intimidating, but for most borrowers, the most important issue is not the total debt figure, but the monthly repayment amount. If repayments are lowered based on income, then this will allow young adults to spend and save more of their present earnings rather than being forced to take on high credit card debt, which has been the current trend for many young adults. In speaking about the near future, Berman says, “I think you will see fewer things like bankruptcy and troubling credit card debt because the student loan payments will be capped.”

Nevertheless, while the overall aggregate debt is less important than repayment amounts, the total student loan debt that an individual holds is not trivial by any means. Even if repayment rates allow people keep more of their present income, their total remaining debt still affects total indebtedness, which could affect one’s ability to qualify for mortgages and other bank loans. Still, income-based repayment plans wont send you into bankruptcy, and this is a real positive.

These effects will not be felt immediately, however. “The aggregate student loan debt will remain high for a while, but we will start to see improvement thanks to these repayment plans in a couple years.” This is great news for students across the country, especially those looking to go on to professional school. Berman estimates that his students graduate with about $110,000 – $120,000 of student loan debt, compared to the around $25,000 national average for undergraduates.

The effect on educational institutions

Addressing student loan debt is also crucial for educational institutions. Berman told us that applications to law schools nationwide  have dropped nearly 14.5% this year, in part due to skepticism about job availability in legal services but certainly also because of high costs and the fear of student loan debt. Greater awareness of the more favorable new federal loan system may help reverse this trend, which Berman says may be threatening some lower-ranked schools that rely on tuition to continue operating.

Schools know this is happening, and many are doing their part as well to help with the financial needs of incoming and future students. “We are doing a lot to address this problem.” Berman says, and his own efforts at GW Law since arriving in July 2011 are numerous. For example, he has made it a priority to keep tuition low by working to balance administrative costs and student programs. His success in this effort is easily seen as tuition for GW Law rose less than 4% for this coming year, far lower than in recent years. The law school also gives out close to $20 million in student aid every year through scholarships, and it has also recently expanded its Loan Repayment Assistance Program for students pursuing government or public interest careers. In addition, one of the more innovative programs that Berman oversees is Pathways to Practice. This service offers financial support for up to a full year to GW Law’s recently graduated law students, allowing them to volunteer or intern until they achieve full employment. “I strongly believe that we can’t just take their tuition and send them on their way when they graduate,” says Berman. “Students should feel that we did absolutely everything we could to help them, and so I have designed the Pathways to Practice Program to be the most generous program of its kind in the nation.” And he pointed to many instances of students actually securing permanent jobs with employers after starting out as volunteers in the Pathways Program.

These practices are indicative of schools doing their best to make their education available for students. Other law schools and undergraduate programs will undoubtedly be implementing similar programs, though it is certainly easier for larger private institutions than for public ones. The bottom line is that, while the problem of student debt remains a serious and important one, we can see government and universities taking steps to make education available, but more importantly affordable, to America’s students. Things continue to be rough for young adults who could not take advantage of such programs, but there may be relief for future nerds.

Others in the student loan debt series:

Christopher Lawson on income-based repayment
Education policy expert Wes Huffman

Experts, want to weigh in? Share your thoughts here.