Monday, September 10, 2007

College Cost Reduction and Access Act

Last week, Congress passed the College Cost Reduction and Access Act, which President Bush has indicated he will sign. It has been hailed by the House of Representative's Education and Labor Committee as "the single largest investment in higher education since the GI Bill." Interestingly, a separate press release from that committee explains that this "investment" actually comes "at no new cost to taxpayers." A cynical soul might point out that this is not so much an "investment" as is it a "cost reallocation," but I suppose the larger (and more important) question is whether the act will be beneficial.

As with much legislation passed by Congress, the act is long and contains numerous provisions. Text of the full bill is available here (click on "Text of Legislation," then choose option #6--the version "Enrolled as Agreed to or Passed by Both House and Senate"). For purposes of this post, I will focus on two provisions that might affect law students and recent law graduates.

Section 203: A High Debt/Low Income Provision

Section 203 of the act would limit loan repayments to 15% of "discretionary income," as that term is defined in the act. Without getting into a great deal of detail or math, the point is that monthly payments on student loans, which by the end of law school can rival a mortgage, will be capped, with the cap level depending in large part on the loan holder's discretionary income. So if you want (or have) to take a lower paying job, then your loan repayments cannot eat up all of your income.

On the one hand, this means that payment schedules might be stretched out for a long, long time--just like if you were to make the minimum payment on existing credit card debt. On the other hand, at least it helps manage cash flow. And on the third hand (there's no limit to the number of hands when discussing legal issues), any remaining principle is forgiven after 25 years.

That third hand provision is astounding, in a good way. I wonder exactly on whom such costs will fall, and how that jibes with the Edlabor Committee's claim that the legislation imposes no new costs on taxpayers. It certainly imposes a cost on somebody. But as worded, this section looks like it will operate as both a protector of loan recipients' cash flows/discretionary income, and also as a loan reduction provision.

Section 401: Accelerated Debt Forgiveness for People in "Public Service Jobs"

Section 401 allows people who intend to work for 10 years or more in a "public service" job to obtain debt forgiveness after 10 years, instead of 25. For someone who has funded expensive college and law school educations with student loans, that is an enormous write-off. There are of course technical requirements and limitations, which I do not want to go into here. But it is worth setting forth the definition of "public service job" in full. It is quite broad.

PUBLIC SERVICE JOB- The term `public service job' means--

(i) a full-time job in emergency management, government, military service, public safety, law enforcement, public health, public education (including early childhood education), social work in a public child or family service agency, public interest law services (including prosecution or public defense or legal advocacy in low-income communities at a nonprofit organization), public child care, public service for individuals with disabilities, public service for the elderly, public library sciences, school-based library sciences and other school-based services, or at an organization that is described in section 501(c)(3) of the Internal Revenue Code of 1986 and exempt from taxation under section 501(a) of such Code; or

(ii) teaching as a full-time faculty member at a Tribal College or University as defined in section 316(b) and other faculty teaching in high-needs areas, as determined by the Secretary.

So clearly, a lot of jobs, including jobs in the public interest legal sector, are covered. There are many law schools in the U.S., including my school, that have started offering Loan Repayment Assistance Programs, or LRAPs, which are intended to help graduates who pursue low-paying public interest sector jobs. These programs should stay in place (at least I hope they do). And perhaps the College Cost Reduction and Access Act might be best viewed as a great big federal LRAP program--one that is not limited to law graduates. Which is a good thing.

Of course, being a professor of Administrative Law, I will be very interested to see the regulations that are promulgated pursuant to this statute, and exactly how the act's provisions play out at the regulatory level. As any lawyer or law student knows, the devil is in the details.


NOTE: For more details concerning the act, I refer you to a soon-to-be-available article by Professor Philip Schrag of the Georgetown University Law Center. Professor Schrag currently serves as Vice-Chair of the Committee on Government Relations and Student Financial Aid, which is part of ABA's Section of Legal Education and Admission to the Bar. He has been very involved in this area, and he has drafted an excellent technical analysis of the act, which will be posted online at the Social Science Research Network (SSRN) and also will be published in the Hofstra Law Review in the fall of 2007. (I have an advance copy that he has requested not be made available online, and it's very good.)

ADDITIONAL NOTE, SEPT. 18, 2007: Since the original date of this post, Professor Schrag has posted his article online here.

28 comments:

ms_hgrits said...

Hey thanks - this was the best summary of the Act that I've read so far. I have been tracking this very closely (as an employee of a 501(c)3 nonprofit, with more student loan debt that I care to mention). As you noted, the regulations will tell the tale. Any word on when they will be published? I will stay tuned.

Nicole said...

Thank you for the information provided and for the article you refer to--both were very helpful.

Jazmin said...

Thanks for summarizing the keys points to the Act. I hope it passes as is with the forgiveness of the principal after 25 years and the 15% of discretionary income as the maximum monthly payment. I funded law school solely with loans, and this is a welcome development, to say the least. I just hope this applies to all loans and those of us who have already graduated will not be penalized.

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librarychick said...

Hi, Well, I thought this was the answer to my prayers. I am a Public Service Librarian with 10 years of servcie to date and a lot of Student Loan debt. This new plan would have join this new payment plan, then have raise my payment 400% and pay it for 10 years starting in 2009. This is really not a help at all. Why did they bother to call this Public Sevice Student Loan Reduction. It seems like ist the complete. opposite to me..
Sorry for the angst......

Anne
Scottchick@gmail.com

Anonymous said...

Is there a definition of "full time employment?" I checked the statute on westlaw but couldnt find a definition.

Gregory W. Bowman said...

Anonymous: A standard working definition (pun intended!) is 35 hours a week. That's 40 hours a week, minus 5 hours for lunch breaks. Although for purposes of benefits, I believe it's 30 hours a week--which is why, sadly, so many institutions hire people for 25 hour-a-week positions. But I say this without any having yet done any research on the matter.

Librarychick: I feel your pain. Statutes never live up to their euphemistic names. And the CCRA is not going to help everyone. And even if it did help in some sense, there might well be better options out there from a cash flow perspective, such as consolidating your loans at a lower interest rate over a longer period of time. It sounds like that's what you may have done.

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Anonymous said...

There is a major problem with this bill as it relates to assiant public defenders and assistant states attorneys. There is no cap on the salary of those receiving aid. In many areas of our country there is a glut of attorneys and the public attorneys are better paid, on average, than private attorneys. The bill would be better at encouraging attorneys to serve in underserved communities if there was a salary cap.

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Laura Brasnan said...

Will this program apply to people that have student loans in current collections and aren’t able to get a deferment?

faulknerstatecommunitycollege said...

Interesting article, you make some interesting points.

allen said...

cost reduction strategies can save huge amount of money for corporate world if they put a focused and planned program in their organization .The College Cost Reduction and Access Act, which includes provisions to allow students better access to college and an improved ability to pay off post-education debt, is now fully in place.

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Anonymous said...

And the CCRA is not going to help everyone. And even if it did help in some sense, there might well be better options out there from a cash flow perspective, such as consolidating your loans at a lower interest rate over a longer period of time. It sounds like that's what you may have done.

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