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How the College Cost Reduction and Access Act Affects Law Students

This is a guest post from Philip G. Schrag, professor at Georgetown University Law Center

[Yesterday] morning, President Bush signed the College Cost Reduction and Access Act of 2007 (H.R. 2669), which includes two provisions that will make it much easier for law students who graduate with high educational debt to have long-term public service careers.  The bill includes a section creating an income-based repayment (IBR) plan that enables graduates to make much smaller monthly payments when their incomes are low: the IBR formula caps repayment at 15% of (AGI minus 150% of the federal poverty level).  Interest not paid because of the IBR limit is capitalized for later payment, but if any funds are still owing at the end of 25 years, that amount is forgiven by the federal government.

Even more important, if the borrower spends ten years in full-time public service while paying through IBR, the remaining debt is forgiven at the end of those 10 years rather than 25 years. The new law defines public service in terms of a long list of types of jobs, plus a catch-alls that include all government jobs and all employment by all 501(c)(3) tax-exempt organizations.  Loans that qualify for IBR payment and forgiveness include nearly all the loans that most law students use: Stafford loans and Grad PLUS loans, whether they are government-guaranteed or government-extended.  If the borrower has government-guaranteed (FFEL) loans, they must be consolidated into a federal direct consolidation loan before a repayment counts toward the ten years of IBR repayment before forgiveness occurs.  For federal direct loan recipients or those who have consolidated into federal direct consolidation loans, the ten years can start on Oct. 1, 2007, but the IBR formula doesn’t start until July 1, 2009.  Meanwhile, graduates may use income-contingent repayment (ICR), which also qualify for forgiveness.  ICR payments are higher than IBR payments but much lower than standard ten-year repayment requires.

I have written an article for the Hofstra Law Review explaining this new law in depth and criticizing two of its features.  It is posted at http://www.law.georgetown.edu/news/releases/documents/Forgiveness_000.pdf and also on SSRN at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1014622

Students and graduates may compute exactly how the law will affect them by consulting the calculators at http://www.finaid.org/calculators/ibr.phtml (IBR) and http://www.finaid.org/calculators/icr.phtml (ICR).

Philip G. Schrag

Georgetown University Law Center

schrag@law.georgetown.edu