OfTheCross
Veteran
It used to be that we could blame colleges for failing to control their costs. But for the past decade or so, college costs have actually grown in line with the median household income, and the “origination” of new student loans has slowed down a little. The reason we haven’t seen a similar slowdown in overall student debt is that borrowers are making less progress on their loans. And a lot of the time they’re doing it on purpose — because they participate in programs that were dramatically expanded during the Obama years, and that forgive debt entirely so long as the borrower first makes small payments for a set period of time.
But the report also points to another factor that would seem to have a lot of explanatory power, especially when it comes to those with the highest debts: the still-growing popularity of “income-based repayment” (IBR) and similar programs, which were overhauled and dramatically expanded during the Obama years. Under these programs, students can make small payments for a decade or two, often not even covering the interest on their loans, and have the entire debt forgiven at the end.
This is not necessarily a bad idea in principle, but — as Jason Delisle has noted previously in this space — the programs were structured in a way that encouraged their abuse by people with incredibly high debt levels, especially from graduate studies rather than two- or four-year degrees. As Delisle wrote,
Under current law, anyone who takes out a federal student loan today can enroll in IBR and have his payments fixed at 10 percent of his income, less an exemption of $18,700 (which increases with household size). . . . Then, after 20 years of payments (or only ten years for those working in any government or non-profit job), all of the remaining balance is forgiven, no matter how high it is.
He further points out, that, using the Department of Education’s own debt calculator, someone with $80,000 in debt and an income of $60,000 could receive $62,000 in debt forgiveness if he works for the government. Someone with $150,000 in debt and a $75,000 salary could pay for 20 years and still receive $82,000, more than half the initial balance. Meanwhile, as noted in the Moody’s report, the median amount borrowed is just about $17–18,000.
The Moody’s report further demonstrates that income-based programs are, indeed, highly attractive to people with big debts: “Only 5% of the total balances of borrowers who owe less than $5,000 are covered by [income-driven repayment programs]. Meanwhile, 53% of the balances of borrowers who owe more than $200,000 are in IDR programs.” And unsurprisingly, heavy borrowers have a disproportionate impact on student loans in general: Folks who borrow $20,000 or less represent 55 percent of borrowers but only 14 percent of the overall debt.
Student-Loan Repayment Programs: Obama-Era Reforms Have Unintended Consequences for Taxpayers | National Review
Erasing student debt would be a small stimulus but would create a 'moral hazard,' Moody's says
But the report also points to another factor that would seem to have a lot of explanatory power, especially when it comes to those with the highest debts: the still-growing popularity of “income-based repayment” (IBR) and similar programs, which were overhauled and dramatically expanded during the Obama years. Under these programs, students can make small payments for a decade or two, often not even covering the interest on their loans, and have the entire debt forgiven at the end.
This is not necessarily a bad idea in principle, but — as Jason Delisle has noted previously in this space — the programs were structured in a way that encouraged their abuse by people with incredibly high debt levels, especially from graduate studies rather than two- or four-year degrees. As Delisle wrote,
Under current law, anyone who takes out a federal student loan today can enroll in IBR and have his payments fixed at 10 percent of his income, less an exemption of $18,700 (which increases with household size). . . . Then, after 20 years of payments (or only ten years for those working in any government or non-profit job), all of the remaining balance is forgiven, no matter how high it is.
He further points out, that, using the Department of Education’s own debt calculator, someone with $80,000 in debt and an income of $60,000 could receive $62,000 in debt forgiveness if he works for the government. Someone with $150,000 in debt and a $75,000 salary could pay for 20 years and still receive $82,000, more than half the initial balance. Meanwhile, as noted in the Moody’s report, the median amount borrowed is just about $17–18,000.
The Moody’s report further demonstrates that income-based programs are, indeed, highly attractive to people with big debts: “Only 5% of the total balances of borrowers who owe less than $5,000 are covered by [income-driven repayment programs]. Meanwhile, 53% of the balances of borrowers who owe more than $200,000 are in IDR programs.” And unsurprisingly, heavy borrowers have a disproportionate impact on student loans in general: Folks who borrow $20,000 or less represent 55 percent of borrowers but only 14 percent of the overall debt.
Student-Loan Repayment Programs: Obama-Era Reforms Have Unintended Consequences for Taxpayers | National Review
Erasing student debt would be a small stimulus but would create a 'moral hazard,' Moody's says
serious question that no one has answered
what does forgiving current debt mean to today's 15 year olds?