The Biden administration this week announced another installment in its student loan forgiveness plan to “fix the long-standing failures” of the program. Translation: Taxpayers will pay again for the mistakes of Congress and the Obama administration.
Congress created income-based repayment plans in 2007 to help borrowers manage mountains of debt they can’t repay. Initially, borrowers could cap monthly payments at 15% of their discretionary income and pay off their remaining balance after 25 years. Those who went to work in the “civil service” had to pay 10% for 10 years.
Democrats made terms more generous when they nationalized the student loan market to pay for ObamaCare, reducing payments for new borrowers after June 2014 to 10% of their income and canceling debt after 20 years. As the 2016 election approached, the Obama administration extended these plans to older borrowers.
Many of the roughly eight million borrowers currently enrolled in these plans are not paying enough to reduce their balances and have continued to accrue interest. It’s one of the reasons federal student debt has more than doubled since 2010, even though the number of borrowers has only increased by about 25%.
The plans have also been a headache for loan servicers who have to certify income, which can change. Rather than sign up for the plans, many borrowers have opted to put payments on hold for a time, although this means their loans will ultimately not be forgiven. Progressives lambasted servicers for going along with borrowers’ wishes.
The Ministry of Education is now coming to the rescue by announcing that it will credit up to three years of suspended payments for loan forgiveness, in addition to the pandemic pause of two years and more. The administration removes “income” and “reimbursement” from the income-based reimbursement.
About 3.6 million borrowers will benefit. Who knows how much it will cost, but an internal Trump administration analysis predicted the government would lose $435 billion of the $1.4 trillion federal loan balance in 2018, mostly due to these cancellation plans. loan. This was before the pandemic break.
The administration has already written off more than $100 billion in student debt through quiet regulatory action and by extending the pandemic pause through August. None of this has been authorized by Congress or satisfied the demands of progressives. White House press secretary Jen Psaki indicated last week that the break would be “extended again or we will make a decision” on “cancelling student debt.”
Progressives won’t sleep until President Biden wipes out all of the $1.6 trillion federal student debt. As always, sappers are those who worked to pay off their debt on time.
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Appeared in the April 22, 2022 print edition.