Phi Beta Cons

But Don’t College Degrees Lead to Higher Incomes?

As reported in the Wall Street Journal and elsewhere, new federal rules will now allow 5 million additional students to qualify for income-based repayment terms for their federally-issued college loans. 

Under the initial program established in 2012, close to 29 million Americans were eligible, but not the 5 million who took out student loans prior to 2007. Under the new rules,  these earlier borrowers will also be included, thus capturing almost all students who have availed themselves of these easy-to-obtain student loans.

Enrollment in this program has been robust, and why not? It allows a student to pay no more than 10% of discretionary income, even if that is not enough to cover the interest on the loan. Repayment horizons are stretched out to 20 years, and then any unpaid balance (and presumably interest?) is forgiven. Right now, forgiven balances are considered income, so taxes must be paid. But no fear — the administration plans to ask for legislation that would make forgiven loan balances non-taxable.

Of course, it’s easy to guess who picks up the tab for all of this largesse, since this is a federal program. Whether loan defaults occur early, as they do now with startling frequency, or later on through loan forgiveness, the taxpayer is on the hook, to the tune of $15 billion over ten years.

But wait a minute. I thought that the government was making it easy for students to afford college so that all could secure good jobs and good pay upon graduation. If that is the case, why do we need to forgive anything? Isn’t all of this forgiveness exactly the opposite of what should be expected?

The entitlements never stop. This is just another example of how federal involvement has completely distorted the higher education market, just as the Feds did when making it easy for people to purchase homes they could not afford. Like the housing debacle, this student loan nonsense will not end well for the American taxpayer.

Vic Brown had a thirty-year career in the chemical industry with FMC Corporation, where he held senior positions and worked internationally in sales, marketing, manufacturing, information technology and procurement.


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