It’s a dirty job, but someone has to tell you about the federal government’s budget tricks. The latest is exposed in a new Congressional Budget Office report that shows how the 2010 Democratic takeover of student debt has created a new and vast entitlement.
CBO examined a sample of federal student loans that entered repayment between July 2009 and June 2013 to measure the extent borrowers were making progress on repaying their debt before the three-and-a-half years of pandemic forbearance. Short conclusion: They weren’t.
During the first six years after borrowers were supposed to begin making payments, CBO estimates that loans were in repayment status for only 45% of the time—about 32 months. Borrowers weren’t making payments for most of that time because they were either in default, forbearance or deferment.
It gets worse. CBO says “borrowers made payments greater than $10 in only 38 percent of the months” in which a payment was due. That means that even most borrowers who were making payments were doing so inconsistently and often in token amounts.
One reason is that the Democrats’ 2010 income-based repayment plans capped payments at 10% of discretionary income—i.e., income exceeding 150% of the poverty line—and canceled debt after 10 to 20 years. As a result, many borrowers had negligible required payments. But then their loan balances ballooned as they accrued interest.
After six years in repayment, the typical borrower owed 8% more than his beginning balance. A quarter of borrowers owed 30% or more debt. More than 75% of those in income-driven repayment plans had rising balances. Borrowers in such plans made payments of more than $10 a month in only about a third of the months.
Democrats say the student debt “crisis” is caused by for-profit colleges. But CBO shows that many students at nonprofit and public colleges are failing to repay their loans. After six years, the typical borrower who attended a nonprofit or four-year public college had paid down only 1% or 2% of his starting balance.
Unlike private lenders, the government has no incentive to ensure borrowers are making payments. The political imperative is to conceal the taxpayer losses on student loans by reducing defaults while effectively turning the program into a new entitlement.
This is what President Biden’s SAVE debt-forgiveness plan does. It eliminates payments for millions of borrowers while reducing them for most others to negligible amounts. Uncle Sam simply waives away unpaid interest. Wouldn’t it be nice if your credit card company did the same?
This accounting trick prevents the government’s $1.6 trillion in student debt from ballooning as borrowers fail to pay down their loans. Mr. Biden’s SAVE plan is estimated to cost $475 billion over a decade, which is on top of hundreds of billions that were already set to be written off.
To sum up: Democrats conned taxpayers by claiming their student loan takeover would save the government money. Now they’re trying to obfuscate the cost of their entitlement by expanding it. And they wonder why Americans don’t trust government?
— The Wall Street Journal
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