Government

Loan Forgiveness to Cost Billions

More free stuff that kinda isn’t🤑

A new Brookings report out from American Enterprise Institute scholar Jason Delisle examines the Public Service Loan Forgiveness (PSLF) program—a little-known facet of the student loan program with a potentially significant effect on the budget. PSLF allows student borrowers who work in government or at most nonprofit organizations to discharge their student loan debt after making ten years’ worth of qualifying payments.

As the program went into effect in 2007, the earliest an eligible borrower could receive loan forgiveness is 2017. Hence, we do not yet have hard data on how much PSLF costs taxpayers. But Congressional Budget Office analyses of proposed reforms to the program, obtained by Delisle and detailed in his new report, show that the losses to taxpayers could be far greater than originally anticipated.

One proposal, to cap discharges under PSLF at $57,500 per borrower, was estimated to save $265 million in 2014. That estimate has since risen 25-fold to $6.7 billion. Another proposal would remove a feature of loan repayment plans that caps payments at lower amounts, thereby increasing the potential amount of forgiveness once the borrower reaches the ten-year PSLF threshold. That proposal, originally scored at $135 million, has seen its estimate rise 40-fold to $5.4 billion. In technical terms, this is what’s known as a “doozy.”

According to CBO’s estimates, the PSLF program has grown from a footnote to a major budget drain in a matter of years. Around a quarter of the workforce holds a position theoretically eligible for PSLF, according to Delisle’s report. 

Why the cost explosion? First, enrollment is much higher than anticipated. Just four years ago, just 26,000 borrowers were certified for PSLF. Now, that number is over 430,000.

Source: Loan Forgiveness to Cost Billions

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5 replies »

  1. There was a time when it was advised to avoid debt as much as possible. Not anymore.

    In the new America, here is how debt is handled.

    Step 1- do whatever it takes to get the loan. Once you have the loan, go to step 2

    Step 2- do whatever it takes to not pay the loan back.

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  2. I admit that I do not recall the details of PSLF program. First if it is a government program it probably was not well thought out or managed but let’s say that it was. To me this is an example of how free college should be, either serve in the military or teach at an inner city school. Both should require hazardous duty pay. Maybe you should work at some out of the way place to be the only doctor for 100 miles. This is how free college should work. You give the government the benefit of your college education and the government will forgive your debt after a period of time. True it is not free in the sense you are trading your labor but you are not paying cash out of your pocket.

    Second, maybe they should put a cap on the program to what the government projected needs are and only to certain useful degrees.

    Third, the free or forgiven college debt is not free. Somebody has to pay and that is everybody else. Talk about fairness, where is that fair that somebody gets a benefit and sticks it to everybody else to pay. These are the same people who want to tax just the rich. At least the rich gave you something. Steve job gave you the iPhone that people willfully paid a few hundreds dollars for. Sport fans willing give money to million dollar ball players to play a game, but when a person receives a direct benefit like a college education, they do not want to pay. Go figure.

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  3. Why are taxpayers again and again asked to bailout less than 500,000 citizens , thousands of dollars each? When we have 20 trillion in debt alreday. What the hell makes these citizens so special. A mortgage lasts 30 years and student loan payments should also, before any reduction or forgiveness.

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