Monday, December 20, 2021

Why Washington Won’t Fix Student Debt Plans That Overload Families

Lawmakers know federal Plus loans burden millions of parents and graduate-degree earners with balances they can’t afford, yet Congress repeatedly punts on changing the programs. Here are five reasons.

By Rebecca Ballhaus & Andrea Fuller of The WSJ

This reminds me of the area of economics called "Public Choice." That is the economic analysis of politics and political decision making. One of the ideas it has is "concentrated benefits and dispersed costs." Key passages from the article are highlighted in red bold that demonstrate this. Universities benefit greatly from these student loan programs while the costs are spread over all Americans. So the schools have a big incentive to fight to keep these programs as they are while it will not be worth it for anyone else to work to change things.


"U.S. lawmakers know the federal Plus student-loan programs have plunged millions of families into debt. They aren’t eager to fix the problem.

Congress in the 1990s created a way for parents to borrow essentially unlimited amounts to send their children to college. It did the same for graduate students roughly a decade later.

For undergraduate debt, the government imposes a dollar limit. The Parent Plus and Grad Plus programs let people borrow the total cost of attendance—room and board, books and personal expenses on top of tuition—for as many years as it takes to get the degree."

"The Plus programs combined have become the fastest-growing portion of student loans, miring 3.6 million parents and 1.5 million graduate students in debt. Plus loans made up about 12% of the outstanding $1.6 trillion in federal student loans as of June 30, but roughly 26% of the $78 billion in new loans in the academic year that ended then, a Wall Street Journal analysis shows. Their interest rates, at 6.28% for new loans this year, are significantly higher than for other federal student loans.

In 2018 and 2019, graduate students who were supposed to begin repaying Plus loans a decade prior collectively owed 70% of what they borrowed, just shy of the 74% that undergraduates from the same period still owed, a Journal analysis of new Education Department figures found. Parents had 60% of their debt outstanding at the end of that decade, the most recent data available show.

The beneficiaries are the universities, especially expensive private ones, which urge students and parents to take out Plus loans to cover shortfalls in tuition and fees."

"Democrats have largely opposed proposals to cap borrowing or restrict eligibility since 2011, when historically Black colleges and universities, or HBCUs, mounted intense pushback after the Obama administration strengthened the credit and income requirements for Parent Plus borrowers. The administration reversed the changes.

Restricting what families can borrow would send students to private lenders with higher interest rates and less favorable repayment terms, Democrats say, and would do little to rein in tuition costs. They want to expand access to plans that tie monthly payments to earnings and forgive the balance after roughly two decades—for which parents largely don’t qualify."

"There is a growing consensus that Grad Plus actually costs the government money, in part because so many borrowers have enrolled in plans that forgive loans after a period. Mr. Delisle [Jason Delisle, a senior policy fellow at the Urban Institute] estimates that eliminating Grad Plus would save $181 million to $3.9 billion annually, based on recent CBO figures."

"Lawmakers, congressional aides and former administration officials in interviews said an obstacle to legislative changes is the fear of angering universities, which are major employers.

Late in his presidency, Barack Obama proposed a government college-ratings plan to analyze data on graduation rates and student-debt loads, which could cause poorly performing schools to lose student-aid money. After college presidents and trade associations pushed Congress to oppose the plan, the administration announced it wouldn’t move forward—citing, in part, the lack of support from colleges and universities."

"Congress designed the Parent Plus program for higher-income parents needing liquidity to pay for children’s education. But as tuition rose faster than inflation, lower-income families increasingly sought Plus loans, student-debt researchers said. About half of recent Parent Plus borrowers had children who received federal grants meant for low-income students, the Journal’s analysis found."

"policy makers long assumed graduate students would easily be able to repay their loans. Instead, the Journal’s analysis of federal data has shown, master’s programs and professional programs often don’t provide graduates enough early career earnings to begin paying down their federal loans."

"orthodontists face unusually high debt: an average of $428,000, according to the association. That is about 2.6 times their average starting salary in a 2018 association survey."

Here are some earlier posts on related topics:

Maybe That College Degree Is Not As Valuable As You Thought (2010)

As college costs rise, sticker shock eased by student aid (2010)

Does It Pay To Go To College? (2009)

Who Is Most Likely To Default On Their Student Loans? (2016)

Student loan delinquency is higher than for other borrowing (2015)

The Diminishing Returns of a College Degree: In the mid-1970s, far less than 1% of taxi drivers were graduates. By 2010 more than 15% were (2017)

Student-Debt Forgiveness Is a Wonderful Boon, Until the IRS Comes Calling: Education analysts, student advocates warn of impending crisis from one-time tax bills individuals may not be prepared to pay off (2018)

The Diminishing Returns of a College Degree (2017)

For Some Grads, College Isn't Worth Debt (2014)

Is It Getting Too Expensive To Go College? (2011)

Is the U.S. student loan system broken? (2019)

Is College Still A Good Investment? (2012)

Many college dropouts are worse off economically than if they hadn’t started college (2019)

More employers offer workers help paying off student loans (2019)

No comments: