White House education policies aimed at helping borrowers with $1.3 trillion in student debt are gaining traction-- with enrollment in income-based-repayment programs doubling in the last two years. While the programs may be working to ease the burden for borrowers, it’s coming at a potentially hefty price tag for taxpayers.
Hidden in a footnote of the president’s 2016 budget blueprint, the White House estimated that it expects to earn $22 billion less than projected in student loan payments this year. That multibillion-dollar tidbit was first unearthed by Politico, which noted that the sum was “larger than the annual budget for NASA, or the Interior Department and EPA combined.”
The White House said the downgrade can largely be attributed to faster-than-expected enrollment in the president’s income-based payment plans like Pay As You Earn, which caps borrowers’ monthly payments at 10 percent of their income, then forgives the debt after 20 years of consistent payment. Originally, people could qualify for the program if they took out loans after October 2007 and continued borrowing through 2011, but Obama recently expanded the program to borrowers who took out loans before that.
In 2010, President Obama signed the Pay As You Earn program into law—but hardly anyone used it thanks to a less than impressive outreach campaign. In an attempt to ramp up enrollment in the program, the president used an executive order requiring the Department of Education to reach out to borrowers in danger of defaulting to tell them about all of their options—including Pay As You Earn. Participation ticked up a bit—but it was still marginal.
Last summer, he used another executive order to go a step further with the program and expanded eligibility to people who took out loans prior to October 2007. The expansion was estimated to cost about $9 billion, according to the White House budget. As expected, the effort boosted participation significantly.
In just one last year, enrollment in the income-based repayment plans doubled from 1.1 million in 2013 to 2.2 million in 2014.
There are other forms of repayment plans, which typically cap payments at 10 percent to 15 percent of borrowers’ annual incomes. Their debt is forgiven after 10 to 25 years of consistent annual payments—it all just depends on their circumstances. People in the public sector can have their debts forgiven after 10 years.
The good news is the repayment policies are working to help borrowers find manageable ways to pay back their loans and ease their burdens, especially at a time when the average American with outstanding student debt owes $29,000. Meanwhile, college tuition continues to rise.
According to The College Board, the average price of attending a four-year private college jumped 146 percent in the past 30 years, and the price for a four-year public school ticked up by 225 percent, the Motley Fool noted.
The bad news is that these programs are costing taxpayers a fortune and adding to the national debt. An earlier report from the Brookings Institution estimated Pay As You Earn would end up costing taxpayers $14 billion a year.
The administration’s revision of $21 billion is just a drop in the bucket compared to the $740 billion in direct student loans.
As The Atlantic’s Jonathan Weisman explains, “These dollars are being subtracted from the value of every single outstanding federal student loan at once. In other words, it’s basically a one-time charge; it’s not like we’ll be spending an additional $22 billion every year from now on.”
Still, as more people continue using the program, the costs will continue to climb.
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