05 February 2018

A Few More Thoughts on Student Loans

(For a sampling of my earlier posts on this topic go here, here, and here.)

H/T to Dordt College prexy Eric Hoekstra for tweeting links to two recent articles about the student loan crisis in America. This time, however, the relevant crisis is not that of borrowers but of the primary lender to students, the Federal government.

First is the report from Inside Higher Education titled "Costs Mount for Federal Loan Programs." Why would such cost mount? In other words, why should a program of lending lose money when, after all, loans are to be repaid with interest? Especially when such loans for practical purposes cannot be discharged in bankruptcy?

In an acronym, IDR ("income-driven repayment"). IDR permits qualified student borrowers to repay their loans for less than their full amount by gearing monthly payments to a percentage of annual income even if those payments are not adequate to amortize the loan. And, after 25 years, the unpaid balance is wiped away. (There is a tax consequence to the discharge of the unpaid loan but it is far less than the discharged debt.) Per the article,
Between the 2011 and 2015 fiscal years the balance of this form of loan increased from $7.1 billion to $51.5 billion ... an increase of 625%. ... As a result, the government subsidy for income-driven repayment plans increased to $11.5 billion in 2015 from $1.4 billion in 2011 ... And at this pace, the feds may soon lend more money overall than is being repaid by borrowers.
The Wall Street Journal picks up this story here and raises the question of what can be done:
The prospect of taxpayer losses on student loans increases the chances that Congress will make major changes to the program, such as eliminating debt-forgiveness options or placing new dollar limits on how much individuals can borrow. Congressional Republicans have proposed such changes.
I'm not holding my breath that any legislation this Congress and the President enact will be adequate to solve the problem. While undoubtedly something will be done, it will, like the recent Republican tax reform legislation, involve its own fiscal sleight-of-hand. In addition, IDR benefits many in the middle class and middle-class welfare is nearly sacrosanct.

No comments:

Post a Comment