Obama’s Giant Student-Loan Con The huge taxpayer bill for buying millennial votes is coming due.
http://www.wsj.com/articles/obamas-giant-student-loan-con-1480640259
Democrats devised the government takeover of student loans as an entitlement that might never be repaid, though they sold it as a money saver. New evidence of this giant con arrives courtesy of a report this week by the Government Accountability Office that estimates the taxpayer losses at $108 billion and counting.
To help pay for ObamaCare, Democrats simultaneously federalized the student loan market and projected fictitious savings, all while adding more than $1.2 trillion to the federal balance sheet. The amount keeps increasing like the debt clock. Liberals then cited the government “savings” to peddle the fallacy that the feds make money off student loans—a pretext they then used to sweeten debt forgiveness plans that have helped keep default rates artificially low.
The Education Department claims the national student loan default rate is 11.3%, yet only half of all debt is in repayment. Borrowers can seek forbearance or deferment if they are unemployed, return to school or claim financial difficulties. Or they can enroll in income-based repayment plans that let them discharge the debt after making payments equal to 10% of their discretionary income for 20 years. Those who work in “public service”—government or a nonprofit—can wipe out their debt in 10 years without a tax penalty.
Initially, only students who borrowed in 2014 or later were eligible for these generous loan forgiveness plans. Then President Obama retroactively extended the benefits to buy millennial votes. Over the last three years the share of outstanding federal direct loan dollars in income-based repayment plans has doubled to 40%. Costs have exploded.
GAO estimates that 5.3 million borrowers, or 24% of former students, have enrolled in income-based repayment plans. They collectively owe $355 billion, $108 billion of which will eventually be forgiven. But this sum covers only loans through the current school year and will likely grow as more borrowers exploit the entitlement. In April the Administration announced a goal of adding two million to the debt-forgiveness rolls over the next year.
The agency scores the Education Department for repeatedly low-balling the cost, which has made its loan forgiveness look more affordable. Over eight years the Administration’s budget estimates for income-based repayment plans have more than doubled to $53 billion. The department now forecasts that taxpayers will pick up about 21% of the cost for loans in these plans.
GAO warns that the department may still be undershooting the actual cost since it “assumes no borrowers will switch into or out” of the plans. The department’s “quality control practices do not ensure reliable budget estimates,” GAO concludes, with hilarious understatement. A company that was this sloppy with its accounting would be prosecuted.
To sum up: The Obama Democrats used student loans and loan forgiveness to buy votes and dissembled about the cost. Now as they leave town they are handing Republicans the bill. As for millennials, they’ll pay in the end with higher tax rates.
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