“Buried in the White House budget is a $21.8 billion writedown on the government’s student loan portfolio that no one seems to want to mention – perhaps because taxpayers can expect more red ink to come…

…The budget news that dare not speak its name is that more borrowers with larger student debts are enrolling in President Obama ’s Pay As You Earn loan forgiveness plan, which caps graduates’ payments at 10% of their adjusted gross income minus 150% of the poverty line. After 20 years, borrowers can shed their remaining debt. Those who go to work in “public service” can be debt-free after 10 years……the Education Department and student-loan servicers have been aggressively steering more borrowers into these plans with the goal of keeping down politically embarrassing default rates. High-priced law and graduate schools have also been advertising the benefits. Georgetown Law holds seminars instructing students on how to stick taxpayers with the maximum writeoff….”, “Obama’s Student Loan Bargain”, Wall Street Journal Editorial Board

Review & Outlook

Obama’s Student Loan Bargain

How to turn rising defaults into ‘savings’ that politicians spend.

Liberals make it seem as if federal student loans don’t cost taxpayers a penny. Some, notably Elizabeth Warren , are aghast that the government is profiting handsomely from lending to students. No need to worry, Senator. Buried in the White House budget is a $21.8 billion writedown on the government’s student loan portfolio that no one seems to want to mention—perhaps because taxpayers can expect more red ink to come.

The budget news that dare not speak its name is that more borrowers with larger student debts are enrolling in President Obama ’s Pay As You Earn loan forgiveness plan, which caps graduates’ payments at 10% of their adjusted gross income minus 150% of the poverty line. After 20 years, borrowers can shed their remaining debt. Those who go to work in “public service” can be debt-free after 10 years.

Photo: Getty Images

The Administration’s definition of public service is, well, broad. The liberal advocacy groups 350.org and Center for American Progress, which has been lobbying hard for more student loan forgiveness, would qualify since they’re 501(c)(3) nonprofits under the tax code. Can journalists qualify, too?

Under a 2010 law, only new borrowers as of 2014 qualified for these generous loan forgiveness programs; Congress wanted to keep a short-term lid on the costs. Then in 2012 President Obama extended the loan giveaway retroactively to 2007, which happened to cover more of the young voters he needed to win re-election. Then last year he eliminated the statute of limitation in toto to qualify an additional five million borrowers.

Meantime, the Education Department and student-loan servicers have been aggressively steering more borrowers into these plans with the goal of keeping down politically embarrassing default rates. High-priced law and graduate schools have also been advertising the benefits. Georgetown Law holds seminars instructing students on how to stick taxpayers with the maximum writeoff.

According to the New America Foundation, 24% of Federal Direct Loan Program balances that have come due are enrolled in loan forgiveness plans, up from 14% about a year ago. Hence the White House’s new $21.8 billion writedown, which isn’t included in the White House budget summary tables that project how its proposals would affect deficits. That’s because the writedown is now built into the budget baseline.

Instead and incredibly, the White House projects $14.6 billion in savings over a decade from its de minimis “reforms” to Pay As You Earn, such as extending the repayment term on balances greater than $57,500 to 25 years from 20. The putative savings are so large only because the original, undisclosed costs of extending eligibility were so big.

In a giant fiscal shell game, President Obama wants to pump these fictitious savings into expanding other higher-ed subsidies such as Pell grants. Then in next year’s budget, he can propose more “reforms” to pocket more “savings” that he can use to increase spending again. The proper name for this budget charade is Kick It Forward.

Posted on February 11, 2015, in Postings. Bookmark the permalink. Leave a comment.

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