First encourage more student debt, then promote nonpayment.
One of the slow-rolling and under-reported government debacles is the rising amount of student-loan debt that is guaranteed by taxpayers and will never be repaid. Thanks to the federal takeover of the student-loan market in 2010, the Education Department now stands behind more than $1 trillion in outstanding debt. Less well known is how the same federal government that has promoted and subsidized this debt is also scheming to make sure it doesn’t have to be repaid.
Income-based repayment programs are one way for borrowers to shift responsibility over to taxpayers.
So-called income-based repayment programs reduce a borrower’s monthly payments and then forgive the remaining principal after a period of years. Graduates who choose the nonprofit and government jobs favored by the President can have their loans forgiven entirely after 10 years.
The Obama administration greatly expanded benefits under income-based repayment plans in recent years and has launched efforts to promote them. Enrollments are growing rapidly and now stand at an all-time high. Some 24% of Federal Direct Loan Program balances ($115 billion) that have come due are enrolled in the two most generous plans, Income-Based Repayment and Pay As You Earn. That is up from 14% a little more than a year ago. The number of borrowers using the plans has doubled over that time, to 2.2 million.
At the same time, default rates are trending upward. This at a time when the economy is supposedly improving.
Student loans are promoted for everyone, regardless of qualifications. And loans are being made easier “not to repay”.
This all makes sense, however, when you realize that the student-loan program has been designed to achieve two political goals: Loans should be available to any student, at any school, pursuing any credential; and student debt is bad and burdensome, so it should be easy for borrowers not to repay.
Based on these goals, the program is performing quite well for students and the institutions whose coffers swell under such loose lending standards. Loan issuance has grown rapidly in recent years while repayment rates have declined steadily. From the perspective of the taxpayers who must ultimately finance these liabilities, however, the federal student-loan program is performing badly and steadily getting worse.
Here is another prediction that IBR schemes “will dramatically increase in 2015”.
Use and availability of income-based repayment (IBR) schemes, which set repayment expectations at a set percentage of the student borrower’s post-college income, will dramatically increase in 2015. This is because policymakers have narrowly defined the student debt problem as a problem of student borrowers struggling to keep up with payments (i.e., avoid default). Therefore, setting payments at a more affordable level would seem to resolve the problems student debt creates….
William Elliott III
Founding Director of the Assets and Education Initiative at the University of Kansas, School of Social Welfare and an expert on student debt
Meanwhile in New York, Gov. Andrew M. Cuomo will propose new legislation to forgive the student debt of thousands of college graduates.