Skin In the Game At Last

Startling news from the world of student-loan reform: A federal intervention appears to be not only working on its own terms but producing beneficial knock-on effects. With apologies to the Obama administration, these are great days to be on the (actual) right side of history.

Earlier this year, the University of Kansas School of Law announced a new institutionally sponsored student-loan program in response to the One Big Beautiful Bill Act. Because that law caps professional-program student lending at $50,000 a year (with a $200,000 lifetime maximum), the occasional legal Jayhawk may need private loan dollars to bridge the tuition-and-expenses gap. Now, that money will come from—and be owed back to—the institution’s endowment. If law-school graduates fail to repay what they’ve borrowed, KU will have at least some modest skin in the game.

Rather than contributing to the vicious circle by which federal-loan availability drives up tuition, institutional lending is likely to create a virtuous one. A similar program at the Washington University School of Law was launched just over a month later, in February. Law students at the St. Louis institution may now borrow up to $25,000 per year directly from the university. As Inside Higher Ed reported last week, both schools plan to charge a lower interest rate than the one used by the federal government for graduate loans.

There is a great deal to like in these developments. Rather than contributing to the vicious circle by which federal-loan availability drives up tuition, institutional lending is likely to create a virtuous one. Poor repayment rates may force the programs in question to lower costs or raise the quality of their academic offerings—or both. (Neither school will be checking students’ credit scores or histories.) At the margins, students who ought not to be spending tens or hundreds of thousands of dollars on a legal education in the first place might be persuaded by market signals not to do so.

Indeed, if there is a complaint to be made about this confluence of federal and institutional policy, it is that Uncle Sam has not gone nearly far enough. The federal government ought not to be in the student-loan business at all and will presumably one day awaken to that reality. (The outstanding federal student-loan balance is currently $1.693 trillion and shows no sign of coming down.) But even those who would hate to see the nation’s undergrads cut off must surely acknowledge that paying to jumpstart 40,000 legal careers each year is a bad investment for John Q. Taxpayer. According to Education Data Initiative figures, only 78 percent of law-school graduates find full-time work within a year, and public-sector attorneys take 21.8 years to pay off their loans if they use 25 percent of their income—no sure bet. Moreover, many law-school graduates qualify for various debt-forgiveness schemes. The federal government is not always getting its money back.

If, as seems reasonable to expect, the new loan options rolled out by KU and Washington University are successful, policymakers should take careful note. A graduate-loan cap that slows tuition creep is a very good thing. An even lower cap, forcing universities to make up the difference themselves? Well, that’s solid gold.

Graham Hillard is editor at the James G. Martin Center for Academic Renewal.