Friday, August 21, 2015

Student Loan Debt .... Government to the Rescue

The ongoing easy credit mortgage financing and housing bust fiasco was in large part caused by government encouraging lending to non-creditworthy borrowers. That we know.

And unpaid student loan balances are now greater than credit card balances. We know that too.

So now we'll solve the student loan problem by government again coming to the rescue? I don't think so.

But that's the plan. Taxpayers will pay, college costs will continue to rise unabated, and many still outstanding and unaffordable student loans will be forgiven --- by taxpayers.

See how easy this is?

Enrollment in Student-Debt Relief Plan Surges is subtitled 'Taxpayers risk covering cost of covering loans:'

"Americans are rapidly enrolling in programs to relieve student debt, a development the Obama administration credited for a decline in borrower defaults but also raises the risk of leaving taxpayers to cover a large share of loans.

Enrollment in plans that cap student-debt payments as a share of borrowers’ incomes has grown 56% over the past year, the Education Department said Thursday. As of June 30, almost 3.9 million borrowers under the federal government’s main student-loan program were enrolled in the plans.

The plans, known generally as “income-based repayment,” generally set payments at 10% or 15% of a borrower’s discretionary pay, defined as one’s adjusted gross income above 150% of the federal poverty level. Many borrowers reduce their monthly bills by hundreds of dollars under the plans.

Education Secretary Arne Duncan said Thursday the enrollment surge has reduced the number of delinquent borrowers. The share of student-loan borrowers who haven’t made a payment in more than 31 days fell to 21% from 23% in the past year.

“The fact that more and more borrowers are taking advantage of the opportunity to cap their monthly payments is a good sign,” Mr. Duncan said in a statement.

Avoiding delinquency is good for borrowers because it prevents them from damaging their credit and thus their ability to borrow for other things, such as homes and cars.

But enrolling in income-driven plans carries risks for both borrowers and the government. Many borrowers’ payments aren’t enough to cover the interest on their debt, allowing their balances to grow. At the same time, the government could be left forgiving huge amounts of debt if borrowers stay in the plans.

Under the plans, borrowers who stay current on their bills have balances forgiven after 10, 20 or 25 years, depending on their plan. That would drain revenue from the overall student-loan program. The government says student-loan programs overall will generate a profit over the long term.

The Wall Street Journal reported this week many borrowers enrolling in income-based repayment owe at least $100,000 in student debt after attending postgraduate programs, including law and medical schools."

Summing Up

The already untenable American debt burden continues to grow as government subsidized college costs continue to rise.

Whether that debt is related to such specific things as student loans, credit cards, auto loans, home loans, government borrowings or unfunded government promises for entitlement programs doesn't really matter much to the overall financial health of America.

It's still debt, and our economy is still stuck in low gear in large measure because of this debt.

Meanwhile, the politicians prattle on about building walls and wiping e-mail servers.

I wonder when, if ever, they will begin to talk seriously about growing the economy without piling on more unaffordable debt for future Americans.

Government spending on education and outcomes at all levels, including Social Security and Medicare, would be great places to begin the long overdue discussion.

That's my take.

Thanks. Bob.

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