In fact, all the Department of Education's loan-forgiveness programs are bleeding red ink. As the Government Accounting Office reported in November 2016, the Department underestimated the cost of these programs. For one thing, DOE assumed that student-loan debtors would sign up for a repayment plan and not switch.
But that's not what happened. Many college borrowers tried to repay their loans under DOE's standard 10-year plan but couldn't find jobs that paid enough to service their monthly loan payments. Millions then switched to income-driven repayment plans (IDRs), which lowered their monthly payments, but those payments were not large enough to cover accruing interest. In my estimation, most of the people in IDRs will never pay back their loans because interest is accruing on loan balances with every passing month.
PSLFs have specific problems, which make them particularly expensive for taxpayers. First, the PSLF program, which was approved by Congress in 2007, defined eligibility far too broadly. Anyone working for the federal, state or local government and anyone working for a nonprofit charitable corporation is eligible. As Jason Delisle observed in a Brookings Institution report, about a quarter of America's entire workforce is eligible for a PSLF plan.
PSLF advocates sometimes say the program was designed to encourage people to enter hard-to-fill public service jobs: police officers, fire fighters, ambulance drivers, and inner-city school teachers. But that description is misleading. Accountants, lawyers, public relations people--anyone working for the government or a non-profit--is eligible.
And there's a second problem with PSLFs: Congress put no cap on the amount a PSLF participant can borrow. DOE apparently calculated costs based on the assumption that most PSLF beneficiaries had relatively low loan balances. But a lot of people applying for the program are people who accumulated massive debt from attending graduate school. A typical lawyer, for example, graduates law school with an average of $140,000 in accumulated student loans.
PSLF participants--including lawyers, accountants and MBA graduates--will make monthly payments based on a percentage of their adjusted income for 10 years, with the unpaid balance being forgiven when their 10-year repayment plans expire. But most PSLF participants won't come close to paying off their loan balances after 10 years, and American taxpayers will be picking up the bill.
Thus, Trump and the Republicans have valid concerns about IDRs and PSLF programs.Nevertheless, I do not think these programs should be eliminated.
Why? Because 44 million Americans have student-loan debt and about half of them will never pay it back. Congress has blocked bankruptcy relief for most of these people, which means they have two choices: default or sign up for an income-based repayment plan.
In my view, then, DOE's income-based repayment plans and the PSLF program should be continued because the only other option for millions of distressed college borrowers is default.
But ultimately, there is only one way out of the student-loan morass. First. we must either allow insolvent student borrowers to discharge their college loans in bankruptcy or we must forgive the debt en masse. Second, we must shut down the venal and corrupt federal student-loan program and allow all Americans to get a free undergraduate education at a public college or university.
I realize this is a hard reality, which our government is refusing to face. But face reality it must; and the longer it waits to do so, the more people will be harmed by a student-loan program that is totally out of control.
Representatives Virginia Foxx: Republican Chair of the House Education Committee |
Douglas Belkin, Josh Mitchell, & Melissa Korn. House GOP to Propose Sweeping Changes to Higher Education. Wall Street Journal, November 29, 2017.
Ryan Cooper. The case for erasing every last penny of student debt. The Week, February 8, 2018.
Stacy Cowley. Student Loan Forgiveness Program Approval Letters May Be Invalid. New York Times, March 30, 2017.
Danielle Douglas-Gabriel. GOP higher ed plan would end student loan forgiveness in repayment programs, overhaul federal financial aid. Washington Post, December 1, 2017.
Scott Fullwiler, Stephanie Kelton, Catherine Ruetschlin, & Marshall Steinbaum. The Macroeconomic Effects of Student Loan Cancellation. Levy Economics Institute. Bard College, February 2018.
Jason Delisle. The Coming Public Service Loan Forgiveness Bonanza. Brookings Institution Report, Vol 2(2), September 22, 2016.
Andrew Kreigbaum. GAO Report finds costs of loan programs outpace estimates and department methodology flawed. Inside Higher Ed, December 1, 2016.
Eric Levitz. We Must Cancel Everyone's Student Debt, for the Economy's Sake. New York, February 9, 2018.
US. Government Accounting Office. Federal Student Loans: Education Needs to Improve Its Income-Driven Repayment Plan Budget Estimates. Washington, DC: U.S. Government Accounting Office, November, 2016.
Jordan Weissmann. Betsy DeVos Wants to Kill a Major Student Loan Forgiveness Program, Slate, May 17, 2017.
Jordan Weissmann. Betsy DeVos Wants to Kill a Major Student Loan Forgiveness Program, Slate, May 17, 2017.