Safety net or windfall for student debtors?

President Obama proposes expanding income-based repayment of student loans:  Debtors would pay 10 percent of their discretionary income, down from 15 percent, and the loan balance would be forgiven after 20 years instead of 25. The changes will help  borrowers with expensive graduate or professional degrees and lots of debt, concludes Safety Net or Windfall?, a New America Foundation analysis.

A borrower with an MBA or a law degree can easily have a six-figure loan balance forgiven, even if his income exceeds $100,000 for much of his repayment term.

The report recommends changes to target benefits to borrowers with lower incomes. The plan is expected to go into effect by the end of the year.

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Comments

  1. I would not call a free pile of unwanted crap a “windfall” for students. Students might reasonably feel reief at the release from the burden of paying for it, but 100 semester hours of instruction that, in a different institutional environment, would have cost them $1.50 in late fees at the public library is still a pile of crap. The tax-generated post-secondary revenue stream is a windfall for college professors. That is all. Credit by exam would bust this racket.

  2. twitter_ClassJoy1 says:

    Unintended consequences?

  3. Foobarista says:

    How about making student loans dischargable, and putting universities on the hook for part of them? Incentives matter, and if the universities are incented to make sure their graduates actually have productive careers, they’d be more careful in who they admit and what they learn in college. And if it means we have fewer critical-race-theory or whatever-studies majors, they won’t be missed.

    Infinitely throwing money at universities won’t fix the problem.

    • Combine that with something like Florida’s move to favor STEM students over political indoctrination and you know what you’ve got?

      You’ve got meritocracy and the government actually looking out for the public’s long-term interests, that’s what.

      That’s going to have huge Disparate Impact, making it very, very Racist™.  Expect the usual suspects to sue and/or hold protests.

    • Crimson Wife says:

      So it’s a university’s fault if an alumnus/alumna becomes unemployed or disabled or whatever, no matter how long it has been since he/she graduated? If the individual has both undergraduate and graduate loans, and they are from different schools, which school get the blame?

  4. The United States can barely afford its existing entitlements; how are we going to afford an entitlement where the government now pays for the lion’s share of college costs?

    Under your Income Based Repayment model students lose all incentives to choose an affordable college or graduate program or even consider the economic utility of a degree at all. Someone who owes $50,000 and someone who owes $150,000 (typically holders of graduate degrees) pay the same amount of money back, as long as their incomes are equal. (If you don’t believe me, test some numbers out on the Department of Education’s own IBR calculator, http://studentaid.ed.gov/repay-loans/understand/plans/income-based/calculator)

    There are many reasons college costs have increased faster than core inflation. One reason is employee healthcare, but colleges have also vastly increased the number of administrators per student and the luxury of dorms, gyms, and aquatic centers. Colleges even charge more because parents often misinterpret a high tuition as a signal of academic excellence (“the Chivas Regal Effect”). Tenured professors have extremely privileged lives and many college presidents make over $1,000,000 a year. For every dollar spent at a college not every cent is spent on education.

    Currently, average student debt is only $27,000. That amount is repayable for most grads. The BA-holders who have $100,000 in debt are now a tiny minority. My fear is that with Income Based Repayment the $100,000+ students will become much less rare and we, as taxpayers, will be on the hook for their choices.

    If you object to this new expensive, underreported subsidy, I urge you to write into Secretary Duncan. His Department of Education email is arne.duncan@ed.gov.

  5. Better yet, the federal government should get out of the financial aid business entirely. State-funded grants should be based strictly on SAT/ACT; those who don’t have college-level knowledge and skills shouldn’t get any kind of taxpayer funding and, without funding, wouldn’t and shouldn’t be admitted. Free private lenders to choose which students/majors are good risks for repayment. Those who want to major in theater, anthropology, aggrieved-victim studies or religion can do it on their own dime.

    At the federal level, a law should be passed limiting the salary of any non-profit institution receiving any kind of federal money (research grants, anyone?) to that of the President. That would include coaches, college presidents and all admins and professors. It would also be nice to see restrictions on the percentage spent on admin and other overhead/staff. Of course, it won’t happen, but it’s nice to dream.

  6. I agree with momof4 on the merits issue, a unprepared student shouldn’t be admitted at all to any university, period.

    If this sounds harsh, consider the facts that unprepared students usually don’t last longer than a year, taking coursework which won’t apply to a major or certificate in question, and when they find out they’re drowning in the coursework, most of them just drop out.

    momof4 is 100% correct in her statement.

    • Unfortunately, (too) many do not drop out but drop into really weak majors which require no academic knowledge or skills other than whining and regurgitating the proper ideologic spiel. Saddled with lots of debt, they can’t get jobs that will enable repayment of their loans because those jobs require knowledge and skills they don’t have.

  7. A couple have mentioned the “privileged” lives of college professors and hinted at our presumably exorbitant salaries. Here is a data point: I am a college professor in the hard sciences at a California State University in the southern part of California… I have been a professor for 6 years, after having been a postdoc/research scientist for 4 years, and after 8 years of getting a PhD. Both my undergrad and grad degrees are from the top 5 in science, world-wide. I easily work 60 hours per week: teaching classes, supervising labs, grading, serving on committees, mentoring research students, writing grant proposals, and of course doing scientific research and publishing papers.

    Honestly, I LOVE it… but it isn’t because of the high salary.

    Salary: $63,000/year (that is 9 months, but in science/engineering, you work full-time over the summer, unpaid, in order to get research done… otherwise, you don’t publish, don’t get grants, and don’t get tenure… we’re not off sipping mojitos in the Caribbean).

    • A competitive market will far more accurately assign a dollar value to a good or service than will a tax-subsidized monopoly. What do taxpayers gain from subsidization of social science research such as “The Myth of the Individual in the Films of Clint Eastwood” (by UH Ethnic Studies prof Dr. Noel Kent) or “Mumford, Mailer, and the Machine” (Dr. Neil Abercrombie’s PhD thesis in American Studies)? For the cost of one American Women’s Studies department, we could probably support a labor camp in Lop Nor where dissident Chinese intellectuals could generate enough “Feminist-Marxist Analysis of Houseware Advertising in the 1955 Sears Catalog” and similar tripe to equal the current total US output.

      Even if it’s real science, why should taxpayers fund it? Private money built Keck. I can see a sound “public goods” argument for the search for Earth-crossing asteroids and the study of sunlike stars.

    • Anonymous NJ says:

      Jab,

      If you teach a hard science at a state school then Income Based Repayment isn’t for your students. Only 3-4% of college students graduate with more than $100,000 in debt and barely 15% graduate with more than $50,000 in debt. Students who choose a state college and are smart enough to major in a hard science 1) are not going to accumulate that much debt 2) have intelligence and employable skills to pay that debt off. If they are smart enough to major in a hard-science they may have even received merit aid.

      The beneficiaries of Income Based Repayment are students who choose expensive schools – like the New School for Social Research, like NYU, like Sarah Lawrence – and who did not qualify for merit aid or much financial aid but who went anyway. Income Based Repayment is for students with low-utility graduate degrees in law, journalism, education, library science, and the humanities. Graduate students with degrees in medicine and engineering may accumulate large amounts of debt, but they are highly likely to have incomes that make that debt serviceable under the old fixed-cost repayment system.

      The United States has to look at the Masters Degree industry critically. Universities accept and mint MA/ JDs without regard to those students’ likelihood of finding a job post graduation. In many cases, like MATs, even when a student gets a job there is no measureable performance boost. Many jobs that now require a MA only required a BA a generation ago.

      IBR is a massive transfer of wealth to a highly unproductive part of the economy.