Following up on this morning's post, NY Times: Has IBR Solved the Student Loan Crisis?:
New York Times, A Quiet Revolution in Helping Lift the Burden of Student Debt:
The change in college financing has a potentially serious drawback when it comes to college pricing. Income-based repayment programs in Australia and Britain work in part because national governments keep tuition low. Public universities are, to different degrees, legally obligated to hold down tuition prices in exchange for financial support from state governments. But that system has been eroded by state budget cuts, driving tuition and borrowing up, and there are no price restraints attached to the federal IBR system.
This is less a problem for undergraduate programs, for which traditional students are allowed to borrow only up to $31,000 in total. Graduate students, by contrast, can borrow up to the full “cost of attendance” — tuition, fees, room and board. For medical and law schools, this can run into the hundreds of thousands of dollars, all potentially forgivable under IBR. This creates a strong incentive for graduate and professional schools to raise prices and pass federal taxpayers the bill.
To counter such practices, the Obama administration has proposed moving the forgiveness threshold for students with large graduate debts to 25 years from 20, and capping public service loan forgiveness at $57,000.
Above the Law, A Final Warning To Those Who Enter The Law School Black Hole:
Don’t expect income-based repayment plans to stay in its current form.
Income-based repayment plans like IBR and PAYE were introduced with the purpose of temporarily helping people minimize or defer their payment obligations until they found a decent job. And PSLF was introduced to provide loan forgiveness to those who work for a tax-exempt organization or in public service for ten years. Nowadays, people are going to school with no intention of paying the loans back in full and banking on eventual loan forgiveness. Enrollment in IBR/PAYE has grown year after year.
The federal government has noticed this and changes may be made in the future to prevent abuses. As part of the 2015 budget, the president has proposed capping PSLF loan forgiveness to $57,500 with any amount above that being subject to a 25-year payment plan. Also, Marco Rubio has proposed an alternative income-based plan ...
Right now, both of these proposals are not likely to gain traction politically. But it is a signal that student loan reform is coming and not in a good way. So if your financial plan is to take out a large student loan and hope to PAYE it off in 20 years or work for your mother’s almost defunct tax-exempt entity and bank on PSLF forgiveness, you may want to think it over. If you take out a large student loan now and in the future, you will either pay the loan back in full or go through many years of financial pain in order to qualify for loan forgiveness.