When Millennial Politics Collide with the Reality of Failed Student Loan Policy

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When Millennial Politics Collide with the Reality of Failed Student Loan Policy

With the 2020 presidential election heating up, Democratic contenders for their party’s nomination are appealing to Millennial voters with  a variety of student loan proposals that expand the loan forgiveness and income-based payment plans begun in the Obama Administration.  

However, many moderates and conservatives are becoming skeptical of that approach.  Senator Michael Bennet (D-CO), one of the 20 contenders, has criticized his opponents for “running off on these tangents that appeal to the social media base of the Democratic Party”.  The Wall Street Journal editorial board recently called the Obama student loan legacy a “great scam” and suggesting that it “may be the biggest accounting fraud in history”.  

Here’s the facts. In 2010, the Democratic-controlled Congress passed the Obama Administration’s plan to take over the Federal student loan program by moving away from federal guarantees to private lenders and having the Federal government lend and collect the money directly. In 2012, the Congressional Budget Office (CBO) estimated that this change would save taxpayers over $219 billion over the next 10 years.  

These “savings” were then used to offset additional spending on Obama Care and changes in student loan payment plans designed to reduce defaults. However, these “savings” never materialized, and CBO now states the program will cost taxpayers $31.4 billion over the next 10 years.

Rather than helping borrowers manage and pay down their student loans, the latest New York Federal Reserve survey on household debt shows that a whopping 60 percent of the $1.5 trillion in Federal student debt is held by borrowers who are not making current payments on their loans:

  • 30 percent is held by borrowers who are in income-based repayment plan which allow borrowers to make  payments lower than the standard monthly payment and which are based on a percentage of their discretionary income  — even if that amount is lower than the amount of interest due on the loan.  
  • 20 percent is held by those in deferment or forbearance periods that do not require the borrowers to make payment for a specified period of time; and 
  • 10 percent is held by borrowers who are more than 30 days delinquent.

Former CBO Director Douglas Holtz-Eakin has said that the Obama Administration’s “move to a whole bunch of loan forgiveness and income-based repayment models, [CBO] can’t anticipate that and both of those things bring in less money. The money goes out and it doesn’t come back and they’re bigger losses.”

The McKeon Group has over 35 years of experience in Federal student loan policy and we are national experts that work with college leaders and those in industries that serve higher education.  We understand the nuances of the political, policy and budget process and can help you craft workable, sustainable policy solutions that address the persistent problems in higher education.

Contact Jeff Andrade (jeffandrade@mckeongrp.com) for more information.

By |2019-09-10T18:12:27+00:00September 10th, 2019|Budget, Education|Comments Off on When Millennial Politics Collide with the Reality of Failed Student Loan Policy

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