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Student loan holders are jumping to sign up for income-based repayment plans, writes Mikhail Zinshteyn in The Atlantic. That will be costly for taxpayers.
Depending on the program, the qualified borrower pays either 10 or 15 percent of his or her income over a duration of 20 or 25 years (10 years if the borrower spends that entire time employed at a government or nonprofit position). Any amount not paid off after those periods is excused, a perk that can translate into hundreds of thousands of dollars for borrowers with high student-debt loads.
Borrowing is limited for undergrads, but not for graduate students who who average much higher earnings than four-year graduates.
Income-based repayment programs are costing taxpayers $11 billion a year, estimates New America analyst Jason Delisle. But that could rise quickly, writes Zinshteyn. Colleges “could charge higher tuition and encourage students to assume the costs, with Uncle Sam swallowing their debt loads.”
In 2013, Delisle and colleagues wrote about an administrator at Georgetown University’s law school encouraging students to take out large amounts of debt that’d be excused after 10 years as part of the income-based repayment program’s public-service provision.
“We have a federal program that will provide $150,000 of loan forgiveness to someone who graduates from Georgetown Law, but a poor kid who wants to go to Georgetown undergrad can only get $5,000 a year,” Delisle said. “I would struggle to find a more regressive federal education policy.”
Small borrowers are the most likely to default, writes Susan Dynarski. “Defaults are concentrated among the millions of students who drop out without a degree, and they tend to have smaller debts.”