February 14, 2023
Last year, President Biden decreed that students who have federal college loans would have $20,000 of their debts canceled. That action has been challenged since it usurps Congress’s power of the purse. The Supreme Court will hear arguments in that case later this month.
But the government is not satisfied with just that huge loan cancellation; it also intends to make loan repayments far easier for student borrowers in the future. The Department of Education has announced that it has several “improvements” in mind for its student loan program. Students can already avail themselves of very lenient repayment terms, under which they only have to pay back based on their disposable income – the so-called Income Driven Repayment (IDR) policy.
Many college students borrow substantial sums only to find that they can’t earn enough to handle the monthly payments, but kindly Uncle Sam lets them enroll in IDR so they won’t have to suffer. They can pay the government back what the politicians think is a reasonable amount based on their income. Obviously, this encourages students to be careless in their borrowing. Imagine if mortgage lenders worked that way, requiring homeowners to pay back what they “reasonably” can, suspending payments entirely if their income should decline to the poverty level.
Politicians, of course, don’t have to worry about going out of business like a foolish mortgage lender would. The losses due to loans that can’t be repaid will be covered by the taxpayers.
Congress approved the IDR policy back in 1994. At that time, students could sign up for IDR, paying a maximum of 20 percent of their income for 25 years. Notice that the cap on the time for making payments was unnecessary—once the payments have been adjusted for periods of time when the student has low income, there is no reason to also say that the payments only must be made for a certain length of time. Twenty-five years after graduation, most people are coming into their peak earnings and there is no reason to end payments then.
Since 1994, Congress has made several adjustments in IDR policy, just as you’d expect from politicians who want to be popular with interest groups. Congress limited the amount of earnings that would be counted as disposable income for purposes of loan repayment; only after the student had earned 150 percent of the federal poverty level would he have to pay this percentage. It also lowered the maximum number of years to 20. And it lowered the percentage of income that the student would have to pay to ten.
All very generous with taxpayer money.