As George Leef points out at Minding the Campus, when the government tries to help, there are often unintended consequences.

Making a Bigger Mess of Student Loans

Federal student aid programs abound in examples that demonstrate a point economists often make: government policies almost always have undesirable consequences that weren’t anticipated, or if they were didn’t matter much to the politicians.

At the time they were begun, during President Johnson’s “Great Society” years and shortly thereafter, hardly anyone forecast that they would result in huge increases in the cost of going to college. Decades later, it is evident that they have.

Now that college is far more expensive and many students are borrowing huge sums to afford their degrees, politicians are tinkering with the system to solve the “student debt crisis.”

Two programs meant to ease the burden on students are Income-Based-Repayment (IBR) and Public Service Loan Forgiveness (PSLF). I wrote about them back in May and these programs are rapidly expanding, adding to the ever-accumulating federal debt.

To briefly recap, the idea behind IBR is that since some students have a difficult financial struggle with their payments because of their low earnings after college, their repayment schedule should depend on their income level. IBR caps repayments at 10 percent of their discretionary income and if, after 20 years of payments whatever balance remains is forgiven. (That is to say, the loss is covered by the taxpayers.)


 
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