Posted on 10/23/2018 7:59:46 AM PDT by SeekAndFind
The Aim Higher Act would let borrowers out of loans they could afford to pay back.
Should 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 payment.
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.
Eventually we are going to be on the hook for ALL of the student debt.
I’ve come to accept that as inevitable. The political demand will simply rise to the point where it WILL happen, bad idea or not. It’s an issue that will turn enough desperate borrowers out to vote, and so politicians will address their demands.
Hell, Republicans might even do it first in order to take the issue away from Dems.
It is really another form of the many federal tax supported gifts to the education industrial complex, to relieve pressure on them to lower their costs - which have risen at an excess of the general inflation rate for decades.
The Dim pols are working for one of their biggest campaign contributors and supporters - not “students”, not “education” just the education industrial complex.
If politiicians really wanted to see tuition at colleges lowered, they would cut off all federal loans and grants for college. With the federal taxpayers no longer backstopping the largess of the education industrial complex, either their customer base would shrink immensely, or large tuition reductions would have to be made.
What about the tens of millions of students who diligently worked their asses off for five or ten years to pay off their student loans? Are they going to get paid back? Or are the thrifty, the honest people who put off other life expenditures like cars and houses on hold to pay back their student loans going to be thoroughly screwed by government paying off the loans of their wastrel colleagues?
Here’s a solution. Get the damnable government OUT of funding higher education. There would be three huge benefits:
1. The cost of college would revert to market levels.
2. The politicians could not buy youth votes by promising to lend money for college.
3. The politicians could not buy youth votes by promising to forgive the loan they gave them in #2.
Loans would not be needed at all in the first place if government stopped trying to make college “affordable.”
Getting government OUT of higher education denies politicians one small bit of their demagogic power.
Having successfully completed the progressive indoctrination program called “college”, they have earned their reward as faithful RAT voters. The RATs want to pay them.
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We could see this coming for a long time now. Made to order for the Rats.
Bribe millions with forgiveness of student loan debt. Colleges keep raising tuition to pay inflated Rat professor’s salaries then once millions are shackled with huge student loan debt the Rats say vote for us and we’ll free you.
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Sorry, you can’t lay this entirely @ the feet of the Leftists.
(R) platform had removal of DoEd for YEARS, but did little to NOTHING since the educational take-over of the 18-1900’s.
Hell, THEY are the party that passed NCLB, expanded MediXYZ, gave us the TSA, NSA
“If the degrees earned cannot earn enough the loans taken out to pay for them then the loans must be made dischargeable through bankruptcy.”
Lenders are extremely fast learners. Doing this would immediately dry up junk courses and degrees - and junk colleges.
Of course they are going to pay themselves back.
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the loans must be made dischargeable through bankruptcy.
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This is the key point.
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Sorry, no. The KEY point is govt has ZERO authority to be stealing from taxpayers to GIVE to *ANY* enterprise/entity (be that student or institute of ‘higher learning’.
Anyone think otherwise, I can point to a plethora of Amendments that state my conclusion even better.
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In the first place, allowing un-secured debt that cannot be discharged by bankruptcy amounts to a government subsidy to money lenders and fraudulent sellers. More importantly, it is creates a moral hazard to civilization by creating a class of people who can be manipulated by worthless debt. Or should we say enslaved by debt? As well, we were manipulated into subsidizing the worst of academia.
It may be a bitter pill to some. However, arguing that people went into these loans with eyes wide open is a false premise. They were manipulated into believing it was proper and according to the status quo. To allow this to continue is to more deeply institutionalize the fraud as a fundamental part of society...
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“Moral hazard”? What a load of dog-sqeeze. Those contracts weren’t written in braille or any alien language. Like the fake ‘predatory mort. lending’ these people WILLINGLY signed on the dotted-line, ZERO coercion required. They could have cheaply/easily hired some legal help to go over/review and understand, if they so wished.
And, too, it’s not like there wasn’t YEARS of *EXAMPLES* to show ‘em their folly.
Indentured servitude\slavery were supposedly outlawed in this Country....Unless it’s the GOVT doing it (theft for unconstitutional edicts/programs and numerous “welfare”, such as this).
I paid for every last dime of my college education except for $600 in scholarship. They can pay for their own, too.
Universities are also piling up ridiculous required poo-poo lib courses adding up to a whole extra semester.
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forgive billions of dollars in student loans
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I wish conservative publications would not buy into liberal language when writing these articles. No one is “forgiving” loans. Its a plan to shift payment of the loans from students who benefited from the education to taxpayers. Or worse yet, future generations by incurring more debt.
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Sorry, but it seems YOU have fallen into the same trap you warn: “conservative” publication, “buy into”, “education”. The 1st having ZERO static meaning and the fallacy of the ‘opposition’ party not being in cahoots from the get-go; let alone the belief what is/was received can be construed as anything CLOSE to an ‘education’ (more INDOCTRINATION).
The government has been forced to renege on many deals over the time of its existence.
Oh? Previous administrations promised to reimburse for this crap?
Sorry, the public says no.
Future generations may change the government.
“Poof” unsecured.
Eat it.
When I learned that students were rolling in their day-to-day “living expenses” into their student loans, I lost any sympathy I may have had for them selecting non-value added majors, leading to no or low employment opportunities.
I paid mine off a couple of decades ago too.
I think you are underestimating how powerful the lobbying pressure to do this will be. In addition to armies of thirtysomething Millenials there will be the entire automotive and real estate industries, looking to sell to them with suddenly more disposable income.
IMO the turning point was in 2008 when the banks got bailed out. Once you’ve done that people don’t want to hear the argument that you can’t bail them out too.
Sorry pal, we've just had multiple generations of government subsidized bs in the educational system promoting the idea this was perfectly reasonable. Plus we also had an administration who set up a system of guarantees such that as long as the borrowers - who are also voters - indefinitely serviced a portion of the interest on the loan there would be no consequence for not repaying the principal. Thus providing an incentive to all politicians involved to never spurn that constituency. Thus creating a social contract secured by moral hazard. We're never going to get rid of it by saying the borrowers are just responsible while ignoring the actors that truly benefit and have no incentive to end it, namely the schools, lenders, and politicians....
Seems to me like you dislike the taste of this argument, hence the "bitter pill", heheh. I think bankruptcy and discharge of debt is the perfect way to solve this problem through our system of justice, and legislative attempts to co-opt this by subsidizing risk and legitimizing debt slavery just open the door to all sorts of perpetual large scale corruption, as we can easily see.
The only real economic incentive to result from this is to give the advantage to (1) students who stay students forever; (2) students who graduate and never earn enough to pass the threshold, or; (3) students who can manage an exemption from the system. It's number (3) that the progressives are counting on because that's how socialism works.
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