My coblogger, John McGinnis, recently had a great post about the new programs for forgiving college loans for certain students. John was responding to this article in the New York Times about the programs.
John had three complaints about the program, all of which I agree with:
First, differential forgiveness [which forgives loans for people who work in the so called public interest sector but not the private sector] could distort choices in the labor market, to the disadvantage of the private sector. . . . Second, more favorable terms for student borrowing takes away pressure on educational institutions to cut costs. [And] third, I worry that the costs to the government of future loan forgiveness are off budget and may be substantial.
Here I want to note how we got into this mess. Part of the story is, of course, the Obama Administration and the Democratic Congress, which passed a change in the law as part of the same legislation that passed the Affordable Care Act. The Obamacare law – the gift that keeps on giving. It wasn’t enough that no one knew what was in Obamacare; Congress had to add a college loan revision that was overlooked given the focus on the health care law.
But it is important to note that it was the actions of the Bush Administration that were a significant part of the road to where we are. As in various other areas, the Bush Administration walked in the direction in which the Obama Administration would eventually run.
According to the New York Times:
The 2007 law modified that idea and called it IBR (for Income-Based Repayment). Under the new program, the repayment terms were made more generous. Monthly payments were capped at 15 percent of income, rather than 20 percent, and the living expense deduction was raised significantly. The loan forgiveness threshold stayed at 25 years, with an important exception: Loan balances would be wiped clean after only 10 years for people who worked in public service jobs, broadly defined as anywhere in the government or nonprofit sectors.
It is true that the Democratic Congress enacted this law, but Bush certainly did not have to sign it. Yet he did, even though he recognized some of the imperfections. As the Washington Post reported at the time:
But as Bush signed the bill, he suggested that it is not perfect. “This bill makes some spending commitments that aren’t paid for yet, and I look forward to working with the Congress to ensure Pell Grant increases that are not fully funded in this bill are paid for with offsets in other areas.”