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August 2, 2017

$100B Price Tag for Obama’s Student Loan ‘Forgiveness’

Surprise — the program is vastly more expensive than originally billed, par for the course with government spending.

In 2010, desperate to get the projected cost of ObamaCare under $1 trillion, Democrats used accounting gimmicks and sleight-of-hand to achieve their goal. This included collecting ObamaCare taxes from Day One while pushing off full implementation, and therefore the costs, for half a decade, and stripping $700 billion from Medicare to help pay for ObamaCare.

But one largely overlooked gimmick was Barack Obama’s federal takeover of the student loan industry.

As Democrats told it, evil, greedy private lenders were preying on poor, hapless college students, loaning them tens of thousands of dollars for college tuition, and then having the audacity to expect the loans to be repaid. Democrats promised the federal takeover would bring lower rates and friendlier repayment terms. For hundreds of thousands of students, this has worked out fantastically.

It’s just taxpayers who get shafted.

For decades, the federal government has offered student loan forgiveness programs to certain groups of government workers. These efforts targeted a limited number of students in specific categories, such as teachers in schools with mostly low-income students. The forgivable debt was limited to relatively small amounts, around $5,000. In 2007, Congress created a program that would forgive the student loans of people who work in “public service” for 10 years.

The Public Service Loan Forgiveness (PSLF) program was expanded to allow both government and non-profit employees to participate. Under PSLF, employees make monthly loan payments tied to their income level, and after 10 years of payments the loan balances are forgiven, no matter how high the remaining balance.

The eligibility criteria have been expanded so broadly that a staggering 25% of the American workforce meets the participation requirements. Not surprisingly, the number of enrollees in these programs exploded to the point where we now see 60,000 new enrollees per quarter. More than half of these loans are for more than $50,000 and a third for more than $100,000, meaning a large number of loans, the bulk of which will land on taxpayers’ backs, are to graduate students who will soon become some of the highest earners in society.

As detailed by the American Enterprise Institute’s Jason Delisle, according to the “repayment estimator” on the federal student loan website, a student with a $50,000 loan, making an adjusted gross income of $40,000 (which, by the way, does not include pre-tax contributions to things like health insurance premiums, retirement savings, or student loan interest payments), would pay back just $30,168 over the 10 years, being forgiven the additional $49,832 in principle and accrued interest, meaning the borrower pays back just 37.7% of the loan.

Even more astounding is that the exact same amount — $30,168 — is paid back on a $100,000 loan, meaning $129,832 is forgiven, for a loan repayment ratio of just 18.85%.

Like ObamaCare itself, which doubled in cost in less than three years, the PSLF program has quickly blown past initial estimates, in part because Obama made the program, originally available only to students taking out loans in 2014 and after, retroactive.

It was originally thought the program would see limited participation, and the Congressional Budget Office projected the cost of the program to be $265 million over 10 years. Last year the CBO revised its projection to $6.7 billion, and then two weeks ago the CBO again revised its estimate, quadrupling it to an estimated $24 billion over the next 10 years. Ever-ballooning cost is a “feature” of government programs, after all.

Unfortunately, the burden, as usual, falls on the backs of the working class. In December 2016, the Government Accountability Office estimated the losses to the American taxpayer at $108 billion, and that number has only risen since then.

As noted in The Wall Street Journal, “GAO warns that the department may still be undershooting the actual cost since it ‘assumes no borrowers will switch into or out’ of the plans. The department’s ‘quality control practices do not ensure reliable budget estimates,’ GAO concludes, with hilarious understatement. A company that was this sloppy with its accounting would be prosecuted.”

Ironically, 2016 Democrat presidential candidate Bernie Sanders gained enormous popularity among Millennials, primarily on the basis of his anti-free market, free-stuff-for-everyone-except-the-evil-1% rhetoric, including free college. Yet nothing is free, and these taxpayer losses are rapidly expanding the national debt, which means Millennials will end up paying far more in taxes in future years.

Of course, when the GOP is forced to deal with the bankrupt program, Democrats will blame Republicans for the misery that resulted from their reckless, spendthrift policies.

The whole situation is an enormous fiasco. Democrats claimed the government takeover would save billions for students and the American taxpayer, but the reality is that abandoning the free market has resulted in an aggregate student loan debt of more than $1.3 trillion, a U.S. historical record.

The great French economist Frederic Bastiat once said, “Government is the great fiction through which everybody endeavors to live at the expense of everybody else.”

Then socialist playwright George Bernard Shaw chuckled and said, “A government that robs Peter to pay Paul can always depend upon the support of Paul.”

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