Here’s a bit of news that should surprise absolutely no one.
Obama’s plan to handle the growing college student loan debt crisis is going to make the situation worse.
Hans Bader of Open Market reports.
Obama’s Low-Quality College Bailout Will Fuel Skyrocketing Tuition
We wrote earlier about perverse federal financial aid policies that encourage colleges to jack up tuition. Recently, the Obama administration came up with something even worse. It announced a new financial aid policy that will effectively bail out low-quality, high-tuition colleges and especially law schools at taxpayer expense, and encourage colleges and professional schools to increase tuition even more. These changes are the product of a revised income-based federal student loan repayment program that will go into effect starting Dec. 21.
The revised “Pay as You Earn” program will allow eligible student-loan borrowers to cap monthly payments at 10 percent of discretionary income, and have their federal student loans forgiven after 20 years — or just 10 years, if they go to work for the government. An earlier version of the program capped payments at 15 percent and offered forgiveness after 25 years. For students who foolishly attended third-rate but expensive colleges and law schools, this could wipe out part of their debt, at taxpayer expense, since their salaries in the low-paying jobs they end up with will be insufficient to pay off all of their massive debt in 20 years if they pay only 10 percent of their leftover income on repaying their student loans.
In the short run, this will primarily benefit those students. But in the long run, the primary beneficiaries will be low-quality but expensive colleges and law schools, which will be able to raise college tuition through the roof, since no matter how much debt their students run up in college, it will be written off after 20 years. That will eliminate market-based price discipline for those colleges, resulting in even more rapid increases in tuition.
Obama’s Low-Quality College Bailout Will Fuel Skyrocketing Tuition (OpenMarket.org)