Loan Forgiveness: A Superficial Solution to the Student Debt Problem

Bills filed in the North Carolina General Assembly would provide student loan debt relief to “public interest” attorneys and to K-12 teachers. Both proposals are ill-advised.

Rather than erase debt for those in politically connected groups, lawmakers should work to address the root causes of skyrocketing college costs, which are borne by all North Carolina students through the tuition and fees they pay each semester. Of course, state taxpayers also cover those costs, with roughly $2.6 billion allotted annually to the University of North Carolina System.

One of the bills, H.B. 1015, would allocate $500,000 each year to the North Carolina Legal Education Assistance Fund—NC LEAF—to restore a loan repayment assistance program for public interest attorneys. (From 2002-03 through 2010-11, the program received more than $3 million from the state.)

In a Pope Center interview, the bill’s sponsor, Representative Sarah Stevens (R), said the funds would “entice attorneys to stay in the public defender’s office or District Attorney’s office” by helping to pay loans of staffers who earn less than $50,000. Stevens said she filed the bill at the behest of the N.C. Courts Commission, which is comprised of politicians (including Stevens), judges, district attorneys, and bar representatives.

Such loan forgiveness, however, is already offered at the federal level and is therefore duplicative. The Public Service Loan Forgiveness program, created in 2007, wipes out debt of qualified employees after ten years. In addition, income-based federal loan repayment programs created under the Obama Administration allow recent graduates to significantly reduce their monthly payments.

Because of such federal programs, even individuals with six-figure debt (the NC Legal Education Assistance Foundation—which would distribute LEAF funds—says the average debt of recent law school graduates is $110,000) can pay affordable monthly installments, and after twenty years have their outstanding balance erased.

Besides program duplication, publicly funded loan forgiveness presents an ethical problem. As my colleague George Leef argued last November, it is “extremely wasteful to lure students into high-cost degree programs with easy-to-get government loans, then saddle the taxpayers with the unpaid balance when the student later defaults or manages to qualify for loan forgiveness. That artificially inflates the demand for college credentials and helps to accelerate the constant increase in the cost of higher education.”

Since 1991 the state’s Legal Education Assistance Foundation has provided more than $5.8 million to more than 500 public interest attorneys. Almost half of that money came from donations from private law firms and various state attorney associations. Instead of shifting the majority of the costs of this program to taxpayers, it is better to let charity and attorney associations pick up the tab.

Another dubious proposal, House Bill 1031, would create the North Carolina Help Educators with Loan Payment Fund (HELP Fund) and dedicate $38.5 million of state lottery profits to reduce teachers’ debt burdens. The idea is that doing so would help to keep more educators in the state and address teacher shortages. The State Education Assistance Authority would operate the new government program, to pay up to $10,000 per year, for up to four years, of a teacher’s debt. Disbursements would depend on an individual’s ability to pay, as well as on whether he or she is assigned to a school in a low-income neighborhood or a rural part of the state. Teachers would have to stay in North Carolina for four years to receive loan forgiveness.

Defending the proposal in an interview with the Winston-Salem Journal, bill co-sponsor Representative Ed Hanes (D-Forsyth) said, “Our public school teachers are being financially squeezed at every turn. While we are working on raises, they simply aren’t coming fast enough. Our teachers and their families need relief.”

But Rep. Hanes is mistaken. According to the National Education Association, since 2013 North Carolina has topped the nation in terms of teacher pay increases. And as John Hood noted in Raleigh’s News & Observer, when factors such as cost of living and teacher age/experience are accounted for, it’s clear that state leaders have—contrary to criticism from left-leaning interest groups and teacher unions—treated educator salaries as a top priority.

Perhaps the biggest problem with Hanes’s proposal is that it is not tied to teacher quality. That was the argument made by Dr. Terry Stoops, the John Locke Foundation’s Director of Education Studies, in a recent Pope Center interview.

“The program would be more palatable if it guaranteed that only exceptional teachers would receive loan repayment,” he said. “I worry, however, that the program would benefit mediocre teachers, rather than those with a strong track record of raising student achievement.”

Aside from teacher quality, would the HELP Fund increase teacher retention?

“There is a limited body of research on the use of loan repayment as a teacher recruitment and retention tool, particularly for math, science, and special education teachers and/or those who teach in a low-performing school,” Stoops said. “It might make more sense to transfer the funds to the North Carolina Education Endowment Fund—Lt. Governor Dan Forest’s performance pay initiative—than to establish a new program and agency to run it.”

State policymakers are right to focus on student debt, which is a problem for many of North Carolina’s college graduates, not just those in teaching and legal professions. But a focus on the front-end of the problem, rising college costs, makes more sense.

Across the UNC System’s 16 schools, cost drivers include a rapidly swelling higher education bureaucracy; high instruction expenses resulting from low faculty teaching loads; and the continuation of low-enrollment degree programs. By addressing those issues, state policymakers would help reduce costs and student debt loads in the long run.

Providing special interest groups with a debt bailout would not.