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Everything everywhere, all at once. That’s a good description of the Department of Education’s handling of the federal student-loan program. By any measure, the program is a disaster.
Even before COVID, the program was in trouble. Education Secretary Betsy DeVos acknowledged in a 2018 speech that only one in four borrowers was paying back principal and interest on their loans. And he reported that about 20 percent of borrowers were either delinquent or in default on their loans.
But why dwell on the bad news? Shortly after Betsy resigned from the Trump administration, her speech was removed from the web.
Then came the COVID pandemic, and the Fed halted all student-loan debt collections. Thus, 43 million college borrowers stopped making monthly loan payments without penalty and without accruing interest. This pause is now three years old.
According to Committee for a Responsible Federal Budget, a bunch of notoriously sneaky party poppers, cost the debt repayment moratorium $155 billion as of December of last year. And this cost continues to mount as each day passes.
To add fuel to the fire– the Biden administration is rolling out a Modified Income-Based Repayment PlanWhich is about as close as one can get to free money.
Under the new plan, undergraduate borrowers will pay only 5 percent of their discretionary annual income on their student loans, which is liberally defined as any amount in excess of 225 percent. federal poverty-level guidelines,
For example, college graduates in families of three will pay only 5 percent of their annual income over $55,935. Thus, a grad making $50,000 per year would have a monthly payment of zero!
Our scattered-minded Department of Education estimates that this plan will cost taxpayers $138 billion over ten years – chicken feed!
Although penn wharton budget model The cost of the projects to be more than double the DOE’s estimate – $333 billion to $361 billion.
Why do estimates differ so much? Because Penn Wharton reasonably predicted that more borrowers would sign up for this new easy-pace repayment plan.
Currently, about a third of eligible student borrowers 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 on larger loans when they realize the new income-based repayment plan. If this happens, the cost of the program will be even higher.
In short, Natso is the Department of Education’s new income-based repayment plan. This would encourage students to take on more and more student loans, which in turn would prompt colleges and universities to raise the cost of tuition.
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| DOE’s modified income-based repayment plan is Natso. |
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