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.
Let the universities ‘forgive’ the student debt - with their endowments.
The vast majority of students having loans they cannot pay off pursued courses that were not even worthy of grade school.
No way am I willing to pay for those academic losers, so are all now members of the “dependent Democrat” party and never amount to anything. As such, they are future democrat politicians and pot users.
Now, for grads who took real courses and real subjects, but were perhaps screwed by Dorkbama the Muslim eunuch quota boy’s economics, perhaps we can come to an agreement.
If the degrees earned cannot earn enough the loans taken out to pay for them then the loans must be made dischargeable through bankruptcy.
I do not believe for a nanosecond that the universities didn’t know they were making fraudulent claims about what they were selling, and our university system is so antiquated that replacing it rather than trying to overhaul what is already there will be more efficient anyway.
Wouldn’t forgive the debt of any who were fool enough to squander student loans on a BA in queer studies or intersectional feminist literature, etc. Those teaching such classes are grifters.
This is the march toward “FREE” education for all, making it very expensive for the country to basically GIVE worthless degrees to professional students.
If one makes bad choices in life, one needs to live the consequences.
No forgiveness of loans!
What’s funny is that even the “losers” of the degree earners will have jobs under Trump, so there’s no excuse for forgiveness.
Taxpayers were on the hook from the very start of government being involved in education loans. Nobody seemed to have a problem with it until the cost of education blew out like pharmaceuticals.
Already, tuition rates are ridiculously high and climbing higher by the year, far higher than normal costs of living increases would predict. All sorts of added expenses are now mandatory to pay for campus gyms and other perks. Not to mention the costs of maintaining a host of grievance studies majors. Colleges and universities have had no problem hiking tuition rates and fees knowing that students and their parents can “simply” take out loans. If colleges know that their students’ loans will be forgiven in the near future what is to stop them from increasing college costs at even higher rates? Absolutely nothing. It will become a selling point for colleges to encourage even a higher rate of student loans.
I’m not sure if this applies to student loans, but I imagine it does: In general, federal law bars persons who default on U.S. government loans from receiving further financial assistance.
Student loans are one benefit specifically denied under the law to those who cause a loss to the government on direct or guaranteed loans for businesses, farms, houses and other purposes. So anyone who doesn’t repay student loans may not be able to rip off the government a second time.
Small consolation, but at least it will help make their lives harder — just as their deadbeat habits make things miserable for the rest of us, who pay their bills.
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.
This was the ultimate reason for making all student loans through the federal government.
I agree. Money-back guarantees on degrees that are worthless.
That in turn was made possible by the bizarre and unique property of student loans as being non-dischargable. All the risk was offloaded to the public by doing that.
There’s no way 18-year-olds should be regularly getting 5- and 6-figure loans for education. That part is simply unsustainable and lies at the root of the problem. The university system has turned into a system of extracting the financial futures of students for the benefit of bureaucrats and financiers and no longer serves its alleged primary function.
watch Rob and Vangie debate Virgina house 1. I happened upon it. She’s good acting and sway people, but as I listened every answer was “we deserve better” and blame placing. Rob wasn’t real substantive in answers either mostly said he has a record of..... which she kept bringing up supposed facts of monies he takes and things he voted against etc. She will be another Maxine (expect the govt to do all) type if she gets the seat.
She seemed to think she would get to congress and get medicare Plus Plus for all, college incentives, combine broad band expansion with other underground work on infrastrucure and lots of other great things for people but she gave no way to pay for or how she would be able to get others to vote with her to approve any of it. she came across as a frustrated “mother of 6 girls” who has all the answers but really is clueless imo.
In particular, out of the endowments of the departments that offered the majors these people took that they subsequently couldn’t repay.
Let the “disciplines” that aren’t marketable learn that they have to pony up for encouraging kids to waste money they didn’t have.
This is the key point. 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...
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.
Yep, the public assumed the risk, the ignorant students were tagged with the responsibility, and meanwhile the lenders and the schools profited. The whole thing was a was a manipulation from the get-go. Making the debts dischargeable would have secured the integrity of the lenders and the schools without any need for vast bureaucracy and legislation. At this point, we can make a credible argument that discharging the debt is either a public good for the original premise or a public good for reforming an utterly corruptible institution and giving the public a well deserved bitter taste of socialist folly.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.