Showing posts with label Committee for a Responsible Federal Budget. Show all posts
Showing posts with label Committee for a Responsible Federal Budget. Show all posts

Wednesday, March 15, 2023

Biden Administration's Proposed Income-Driven Repayment Plan for Student Debtors is a Disaster

 Everything Everywhere, All at Once. That's a good description of the Department of Education's handling of the federal student-loan program. From every perspective and by any measure, the program is a disaster.

Even before COVID, the program was in crisis. Education Secretary Betsy DeVos admitted in a 2018 speech that only one out of four borrowers were paying down the principal and interest on their loans. And she reported that about 20 percent of borrowers were either delinquent on their loans or in default.

But why dwell on evil tidings?  Shortly after Betsy resigned from the Trump administration, her speech was removed from the web. 

Then came the COVID pandemic, and the feds paused all student-loan debt collection. Thus, 43 million college borrowers stopped making monthly loan payments without penalty and without accruing interest. This pause has now lasted three years.

According to the Committee for a Responsible Federal Budget, the cost of the loan repayment pause was $155 billion as of December of last year. And that cost continues going up as each day goes by.

To add fuel to the flames--the Biden Administration is rolling out a modified income-based repayment plan, which is about as close as one can get to free money.

Under the new plan, undergraduate borrowers will only pay 5 percent of their discretionary annual income on their student loans, which is generously defined as the amount over 225 percent of the federal poverty-level guidelines.

For example, college graduates in three-member households will only pay 5 percent of their annual income over $55,935. Thus, grads making $50,000 a year will make monthly payments of zero, regardless of how much they borrowed!

Our scatter-brained Department of Education estimates this plan will cost the taxpayers $138 billion over ten years--chicken feed!

However, the Penn Wharton Budget Model projects the cost to be more than double DOE's estimate--$333 billion to $361 billion.

Why are the estimates so different? Because Penn Wharton reasonably predicts that more borrowers will sign up for this new easy-peasy repayment plan. 

Currently, about a third of eligible student debtors participate in an income-based repayment plan.  Penn Wharton estimates that 70 to 75 percent of student borrowers will sign up for the new program because most borrowers will only be required to make token payments (or no payments) on their student loans. 

Penn Wharton also predicts that students will take out bigger loans when they realize the new income-based repayment plan is breathtakingly generous.  If that happens, the cost of the program will be even higher.

In short, the Department of Education's new income-based repayment plan is nutso.  It will encourage students to take out ever-larger student loans, which, in turn, will prompt colleges and universities to keep raising the cost of tuition.

DOE's revised income-based repayment plan is nutso.

Wednesday, November 16, 2022

President Biden Is Under Pressure to Extend Pause on Student-Loan Payments. What Will That Cost?

Federal student-loan borrowers are disappointed by federal court decisions that have stopped President Biden's student-loan forgiveness scheme. Advocacy groups are arguing that Biden should extend the pause on student-loan repayments until after the legal challenges to his loan-forgiveness plan are resolved.

College borrowers are currently expected to resume monthly loan payments in January 2023. By that time, they will have been excused from paying their loans for 33 months. What will another pause cost taxpayers?

The Committee for a Responsible Federal Budget (CRFB) estimated that the current pause (33 months) will cost taxpayers $155 billion in lost interest and inflation that has eroded the value of loan balances.

The CRFB pointed out that the biggest beneficiaries of the loan repayment pause are people who took out the largest student loans--such as medical school and law school graduates. According to the CRFB, the typical person with an M.D. degree will effectively receive $68,000 in loan forgiveness due to being excused from making loan payments for 33 months. The average J.D. graduate will receive $41,500 in student-debt relief. 

People who took out smaller loans will receive smaller benefits. An associate-degree graduate will only get about $4,500 in debt relief. Thus, the pause on making student loan payments for almost three years primarily benefits people with professional degrees.

Is that fair--especially when we consider the cost of this relief will fall on taxpayers, whether or not they went to college? Should a blue-collar worker who didn't attend college be forced to subsidize student loans for high-earning doctors and lawyers?

If Biden extends the loan-payment pause beyond December (which he promised not to do), the cost to taxpayers will continue to grow.  If he extends the pause until his loan forgiveness plan is definitely ruled on by the federal courts, that pause will likely stretch out for two more years.

Shouldn't our government dispense with this nonsense about loan pauses and loan forgiveness and simply let distressed borrowers seek student-debt relief in the bankruptcy courts? 

Apparently, that solution is too goddamned simple. 

Hey, poor guy. Thanks for subsidizing my student loans!