30 November 2016

Another Perspective on Student Loans

This time, from the taxpayers' side of the problem. I've posted many times about the problem for students of nondischargeable student loans (here, here, and here, for example). Merely because student loans are nondischargeable in bankruptcy, however, does not mean they'll be paid.

Rather than changing federal bankruptcy law, Congress and an aggressive Obama administration have multiplied the ways in which those burdened with student loan debt can "work it off" for less than the full amount due. "Income Driven Plans" (IDR's) are increasingly common. According to today's Wall Street Journal (here),
Enrollment in the plans has more than tripled in the past three years to 5.3 million borrowers as of June, or 24% of all former students who borrowed directly from the government and are now required to be making payments. They collectively owe $355 billion.
What's the fiscal effect of IDR's? According to the GAO, $108 billion of that student loan debt will be forgiven "in the coming years." That's a fair amount of money, even by federal government standards, and makes a difference to taxpayers. Either we cover it with tax collections or it gets rolled into the ever-increasing federal debt. The latter seems much more likely.

Is student loan debt forgiveness sound public policy? Doubtful, given the woeful state of much of American higher education. Even pragmatically, will Americans collectively get more than $108 billion of value from this back-door federal expenditure? That's doubtful, too, although it's much harder to say with certainty. There is a correlation between level of education and all sorts of social goods but there are too many confounding factors to conclude whether higher education causes those goods or that the sorts of folks who do well would have done so apart from federal student loans. (Feel free to look at a Cato Institute study here.)

In short, we're looking at another can that despite Republican control of the levers of federal power will be kicked down the road.

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