Posted by College Insurrection
Sunday, December 23, 2012 at 1:41pm
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
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