Politicized federal student loan program bails out ‘deadbeats’

by Grace

After a Wall Street Journal editorial related how the federal government advises “deadbeats” to avoid paying back student loans, George Leef of the John W. Pope Center for Higher Education Policy escalated the conversation with charges that politicized federal student-aid programs are promoting waste, fraud, and abuse,  In a surprising development, similar criticism is being echoed on the left.

The Consumer Financial Protection Bureau produced a report explaining how taxpayers are bailing out “deadbeat” student borrowers.

A new analysis by the bureau shows federal-backed student loan debt surpassing $1 trillion, which is nearly double what it was at the start of the Obama Presidency. As college costs have continued to balloon in tandem with federal loan and grant subsidies, students have assumed more debt. Many jobless Americans have also sought asylum from the Obama economy by returning to school….

But deadbeats need not fear. According to the bureau, “there are ways to avoid default on a federal student loan even when you think you can’t afford your payment.”

For instance, income-based repayment plans allow borrowers who meet the Department of Education’s criteria for a “partial financial hardship” to cap their monthly loan payments at 15% of their discretionary income (which is defined as income above 150% of the poverty line). They can also have their entire remaining loan balance forgiven in 25 years regardless of how much they still owe….

Graduates entering “public service” (i.e., government or 501(c)(3) nonprofit employment) get an even sweeter deal since they can discharge their loans entirely after a mere 10 years of making regular payments. That’s right. Take out a big loan, work 10 years for the government repaying as little as possible, and then have your debt entirely forgiven. Maybe this incentive falls under some previously unknown “Making Government Work Pay” program.

Leef’s response chastises the government’s politicized misallocation of taxpayer money that has helped to inflate college tuition costs.

Regarding your editorial “The Rolling Student Loan Bailout” (Aug. 10): Whenever the government gets involved in an activity that is not properly any of its business, we get the infamous trio: waste, fraud, abuse, and then the politicians feel the need to meddle still more in an effort to solve the problems they’ve created. The federal student-aid programs are a perfect illustration. Repayment of loans is being politicized, with easy terms for students provided they make the “right” choices in employment. That will only further misallocate resources and help to keep the higher-education bubble inflated.

Instead of further politicizing student lending, the right move is to get out of it altogether. Even if there were any constitutional warrant for federal lending to college students (and there isn’t), it would be a bad policy. Politicians and bureaucrats are very bad at deciding how to lend other people’s money.

Even Rolling Stone is conceding that easy access federal funds has played a part in propelling college costs to staggering levels.

The federal government has made it easier than ever to borrow money for higher education – saddling a generation with crushing debts and inflating a bubble that could bring down the economy


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