- Obama administration is looking to forgive $108 billion students loans.
- Auditors have questioned the “reliability” of the Education Department’s plan.
- Taxpayers might end up suffering as a result of this policy.
If President Barack Obama has to go out, he is making sure that he does so with a bang! His administration is working on a policy that forgives $108 billion students’ loans from government-owned banks.
How will income-driven repayments program forgive student loans?
With the current policy in place the borrower can get away by paying as low as 10% of their discretionary earnings. And after a span of 20-25 years, the remaining loan amount will be forgiven.
However, this program is not a new venture from the government, as it was started back in 2000. It was passed by the congress initially in order to curb the number of loan defaulters during recession.
Student borrowers quickly realized the benefit of the policy and enrollment to this program tripled over the recent years. Today, more than 5.3 million borrowers are enlisted under the program.
Ted Mitchell, undersecretary at the Education Department told The Wall Street Journal such programs “are helping millions of borrowers successfully manage loan repayment, particularly those for whom standard repayment may prove challenging.”
Shortcomings And Criticisms Of The Revised Income-Driven Repayments Program
However, auditors at the Government Accountability Office have questioned the efficiency of the latest policy. They have pointed out its “shortcomings” and lack of statistical analysis of the plan:
- It has been more than a decade since the program was introduced and the federal government is yet to make any profit on student loans. This has caused it to alter revenue plans frequently.
- The Education Department has failed to form an exact estimate of how much the borrowers stand to benefit from the plan.
- Taxpayers will be the biggest sufferers as a result of this policy. Forgiving loans will only cause the Federal Reserve to become lighter. Eventually, it will have to come out of the pockets of taxpayers.
Senate Budget Committee Chairman Mike Enzi criticized President Obama and his team for only adding to the national debt:
“This Administration has been manipulating the terms of the student loan program without the consent of Congress, while shirking its statutory duty to carefully assess the cost impact of those changes.”
Even though his vision of the program slightly varies from President Obama’s, Donald Trump supports this form of income-driven repayments. Only he wants the minimum payment percentage to be set at 12.5% of the total income. And the remainder loan amount will be forgiven after 15 years.
That being said, Trump has called the Education Department a “disaster” and plans to abolish it.