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Money / Politics

A Hidden Plan to Stick Taxpayers With Billions in Student-Loan ‘Forgiveness’

taxes tax reform money taxpayers billions student loan forgivenessShould the Democrats regain control of the House of Representatives in November, their largely unnoticed plan to forgive billions of dollars in student loans at taxpayer expense will be on the agenda. Many borrowers with the means to repay would qualify.

The plan was devised by the top Democrat on the education committee, Representative Bobby Scott (Va.), as part of the Aim Higher Act, a reauthorization of student-aid programs. And earlier this month a group of Senate Democrats led by Jeff Merkley (Ore.) introduced a similar version in the Senate.

At first glance the proposal appears to be minor and harmless. It could be mistaken for a benefit restricted to low-income borrowers. In reality, it is nothing of the sort.

Under the existing “Income-Based Repayment” program for federal loans, borrowers may cap their payments at 10 percent of income above a base amount — meaning they pay nothing at all if their income is below that base threshold. Both Democratic proposals would increase this exemption from 150 percent to 250 percent of the poverty line, or from about $18,000 to $30,000 for an unmarried individual with no dependents. Any remaining debt would be forgiven after 20 years of payments, consistent with the current version of the program.

Many borrowers would see their monthly payments cut in half or more as a result of the larger exemption, which translates into the government forgiving more of their debts after 20 years. According to a U.S. Department of Education presentation, a typical borrower enrolled in Income-Based Repayment has an income of approximately $35,000. Based on the terms of the current program, these borrowers would pay $140 per month on their loans. Assuming their incomes start at $35,000 and grow by at least 4 percent annually, their payments — which increase with their incomes — would be sufficient to repay a typical amount of debt among those who take out loans and earn bachelor’s degrees, about $30,000.

Compare that scenario with what is proposed in the Aim Higher Act. Raising the income exemption to 250 percent of the poverty line means the borrower’s initial payments would be just $39. And even though the payments would grow over time as income increases, under the Aim Higher Act the payments would still be so low that they would barely cover the interest on the $30,000 loan. That would mean all of the original principal balance would have to be forgiven after 20 years of payments.

The act would also increase the generosity of another loan-forgiveness program: the Public Service Loan Forgiveness program, which gives better repayment terms to borrowers in non-profit or government jobs. These borrowers have their debts canceled after just ten years of payments. Combining that benefit with the lower monthly payments under the Democrats’ plan results in the borrower in the above example paying just $9,000 toward the $30,000 loan — with the government forgiving the rest.

Such generous repayment terms transform federal loans almost into grants, signaling that borrowing more is better than borrowing less. For graduate and professional students who, unlike undergraduates, can access unlimited federal loans for tuition and living expenses, the Aim Higher Act would turn the loan program into a veritable ATM that dispenses taxpayer dollars, at least for those who ended up earning middle-class incomes.

Suppose the student from the above example borrows $65,000 to attend graduate school and then earns a starting salary of $55,000. Under the current terms of the Income-Based Repayment program, the student would earn enough to fully repay the debt, including annual interest at 5 percent, over 20 years. But under the Aim Higher Act, the student’s total payments would be so low that a substantial portion of the obligation would be forgiven. After 20 years of payments, this borrower would still have $35,000 remaining on his loan, which would be forgiven. In other words, the Aim Higher Act ensures that borrowers with middle-class incomes who borrowed to finance graduate and professional degrees stand to routinely benefit from loan forgiveness.

It gets worse. Normally, a student would have to pay more for borrowing more. But thanks to the income exemption in the Aim Higher Act, payments are low enough that the additional principal and interest owed on debts higher than $65,000 for a borrower with the given income profile are simply forgiven at the 20-year point. A $165,000 loan costs this borrower the same as a $65,000 loan. Either way, monthly payments would be identical for 20 years, and then all remaining debt is forgiven. Graduate students who do not max out their loans under such incentives would literally leave free money — provided at taxpayers’ expense — on the table.

The Aim Higher Act will surely send the cost of the Income-Based Repayment program further into the stratosphere. In 2009 the Department of Education put annual costs at less than $1 billion. Today, the annual budget is $13 billion after factoring in the effects of Obama-era policies to forgive unpaid program balances sooner and reduce monthly payments. Those policies have made the program so expensive that the cost of forgiving loans now greatly exceeds the $4 billion that the government expects to lose via loan defaults each year. And it is not as if borrowers find the current terms of Income-Based Repayment unattractive. A quarter of borrowers are enrolled today, and these borrowers collectively hold over 40 percent of the debt in repayment. Most of them borrowed to finance a graduate degree.

The irony of the Democrats’ proposed expansion of the Income-Based Repayment program is that even President Obama admitted he overreached in changing the system, quietly proposing in later budget requests that lawmakers roll back some of his policies. Democrats should learn from those mistakes, not amplify them.

Reprinted with permission from - AEI.org - by Jason D. Delisle and Cody Christensen

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Wayne Peterkin

Forgive me for being old-fashioned, but when I borrow money for any reason I am obligated to pay it back according to the terms of the loan. And I mean obligated legally, ethically, and morally. No one is “entitled” to a college education paid for by someone else. If you borrow the money, which is your decision, you can pay it back or should be hammered for years including having your credit rating severely impacted. That’s just life. It’s the way things are and the way they should be. This effort to stick lenders and the public with the cost of someone’s college education is nothing but one more attempt by the stinking socialists to buy votes with someone else’s money. I will NOT go there and hope others won’t either. That said, I would favor congressional hearings that force college administrators to fully justify the escalation in tuition and… Read more »

Chuck

Democrats are excellent at throwing money away at taxpayer expense. Feeds their Socialist agenda. When the money is all gone, like rats, they will be the first ones to abandon their sinking ship. Then they will expect the people whom they robbed to help them. Yeah! Right!

Elton Yancey

Just one more reason to vote strait Republican.

Mimi

Crazy idea!! Especially when one realizes many of these grads are less educated after wasting 4 or more or less years in one of the crazy liberal out of touch colleges/universities. Sad thing too – no good jobs after graduating. Unless you have a professional degree. Another sad thing is the way a lot of them get brainwashed in liberal ideas that do harm to every aspect of life.

Alan

Heck, if the Dems get in I plan on going back to college for twenty years or so to get my doctorate in “wandering around aimlessly”. Then I will become a an over-paid professor and teach. A win-win for me so I don’t care about middle America paying my way. It’s their lot in life, so they can live with it.
(BTW. In case someone doesn’t realize, this is sarcasm)

TomB

We knew this manipulation was coming … especially after the Obama administration, in 2009, moved student loans from the banks to the government.

LDA

Another reason to vote RED! — People choose to get student loans! Therefore, they need to repay them! NOT me! — My husband and I repaid ours and our children repaid theirs! —– The Dems are insane!

Steve

The left is not throwing money away by forgiving student loans. They are investing in America. If you are unclear on what “investing in America” means, a better description would be to say they are buying votes. And not for just one or two election cycles. Once someone places himself into this student loan bondage (or, as Crazy Joe might put it “IN CHAINS!”) they will be fearful to ever vote for any other party, lest their free ride gets canceled. Not a bad deal for the left, considering they are investing somebody else’s money.

Michael

While all the above is true, something must be said of the banks & others offering such outrageous loans. However, since the government is ‘just’ PRINTING MONEY to keep the US afloat, a massive crash is surely to eventually follow !

Phyllis poole

It’s about time the gov worked toward bringing down the cost of education . Maybe they need breaks on their taxes. The deans and others that run the colleges get paid way over normal salaries. Other costs should come down Professors who work only a few hrs need lower salaries.
It’s also time parents realize their child doesn’t need a college education! Most do not work in the field they paid high costs to achieve Many years ago many did not go to a higher education. High schools need more trade schools instead of college courses in the last two years of high school
It all has gotten out of hand with no common sense which doesn’t seem to be common any more!

Robert

All congress has to do is mandate that 1% of there earnings go to pay off the loans

CHALY

If we could get rid of the DNC’ommunist party we would have the money we need. I am not against education however we have a ‘community’ college that has grown to 40 thousand students and they are now politically able do as they wish. They have the support to tear down neighborhoods to expand their footprint and that has brought them to a DIV 1 size school in their sports program. We have two major universities within sight of each other and they never end finding ways to spend tax money. They are ready to build a covered walkway for students over a 12 lane freeway so kids can get to school. No one ever asked me if I would pay for it! Like the ‘ol saying, they seem to think money grows on trees. The real problem is that it won’t end anytime soon!

Fran

I don’t want to pickup the college tab for some strangers slacker kid.

steve mclean

Duh. Did anyone think that this was going to be financed any other way?

Thomas H

democRats- the party of the “free” giveaways!

Bill Hutchison

A vote buying scheme of the first order! Totally against good sense.

Jeffrey Lynn

Trump will never sign it even if they grabbed a couple of GOP senators to pass it. As they say there are 2 chances they could overturn a veto, slim and none with slim having left the building.
Bring this up to our attention again before the 2020 election as it would make a good campaign promise by the president and may even turn the House back to GOP control.

Dennis Stewart

We are now vastly more aligned to the precepts of the COMMUNIST MANIFESTO than we are to the so
called principles of the US CONSTITUTION because there are no principles governing or guiding the
US CONSTITUTION. Why? Because governing by principles means DOING THE SAME EXACT THINGS
UNDER DIFFERENT CIRCUMSTANCES.

Paul W

Hey Pelosi…I WANT MY CRUMBS!!!

ahem tonto

The surreptitious corruptocrats prepare to strike again and suck the breath out of the taxpayers money to fund their power struggles and financial gains. VOTE! Don’t let them get away with it again.