Paul L. Caron

Tuesday, January 27, 2015

NY Times: Has IBR Solved the Student Loan Crisis?

Student LoansNew York Times, A Quiet Revolution in Helping Lift the Burden of Student Debt:

Has the student loan crisis already been solved?

This might seem an absurd question. Student loan debt is at a record high of $1.1 trillion, and the average undergraduate who borrows to attend school graduates nearly $30,000 in debt. Almost 20 percent of student borrowers are in default.

Yet a couple of little-noticed legislative tweaks to a small, obscure loan repayment program — revisions made under two very different presidents — appear to have created the conditions for far-reaching changes in how a college education is bought and paid for. The result may make it much easier for students to get out from under their debts.

The first changes happened in September 2007, when Congress passed a major overhaul of the federal college financial aid system. ... Under an income-based repayment, if you make little money, you repay little money. If you make nothing, you owe nothing, and your loan doesn’t go into default. The loan forgiveness provision protects borrowers from too much interest accumulating over time.

In 2010, Barack Obama was president, and he, too, pushed a financial aid overhaul through Congress. This time, the government-subsidized private sector loan program was entirely shut down. ...

We appear to be in the middle of a rapid transition in how student loans are repaid, one that is moving the federal government into the same role that state governments played for much of the 20th century: the foundational provider of broad, unqualified subsidies for higher learning. ...

By moving more students into IBR, the federal government [requires] those who earn more pay more, returning the full amount of their loan, plus interest, before the 20-year forgiveness threshold is met. Those who earn less, for whatever reason, pay less. Nobody will ever default simply because they can’t afford to pay. ...

If it seems as if the whole concept of a government-backed student “loan” is disappearing, that’s true, and probably a good thing. Using a debt system to make college affordable has always been an awkward fit.

(Hat Tip: Mike Talbert.)

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Sadly, becoming the next "entitlement" to be paid for by redistribution.

Posted by: Tom N | Jan 27, 2015 6:47:29 AM

Holy elitism Batman!!! Entitlement?! Education should truly be reserved for the moneyed class, because I cannot think of any other way where we make sure that the best and brightest in our society get the chance to pursue higher ed without economically handicapping themselves at the same time. I think we should also close down those public libraries, no need letting the masses read off the backs of us money-makers. Can I get some of these people over to my house today to cook and clean. I am tired of these kids being in public school when they could be working, producing, and earning.

Posted by: Daniel | Jan 27, 2015 8:00:00 AM

Redistribution is only a problem if you think the current distribution is fair and appropriate. But if there is nothing inherently appropriate about the current distribution, then a redistribution could result in greater fairness.

Posted by: Matthew Bruckner | Jan 27, 2015 9:11:03 AM

Really wonderful article Paul. This is very nice that who earn more, pay more and who earn less, pay less. What are your thoughts on the proposed student loan forgiveness program proposed by President Obama?

Posted by: Joe Kazan | Jan 29, 2015 1:14:08 PM