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Student Loans Will Cost Taxpayers $36 Billion: Thanks, Obama | Stock News & Stock Market Analysis

Debt: The federal student loan program was supposed to make money. Instead it will cost tens of billions of dollars, forcing hardworking Americans to subsidize college-educated deadbeats. Who do we have to thank for that?

X A report from the Department of Education notes that the net cost of the federal government’s direct loan program is quickly heading into the red. This program, mind you, was supposed to be a moneymaker for the government, as students paid back federal loans with interest.

But as it turns out, borrowers have been flocking toward various loan forgiveness programs, by which the government will lose money, erasing gains from other loans. The report shows that the direct loan program went from a $25 billion surplus in 2012 to less than $5 billion by 2015.

A separate report says that this program ran a $36 billion deficit last year, up from $8.4 billion in 2016.

This is not how this federal loan program was supposed to work when President Obama launched it eight years ago.

In 2010, President Obama effectively nationalized student lending by cutting banks — which had been offering government-backed loans to students — out of the equation and having the government make the loans itself.

“By cutting out the middleman, we’ll save the American taxpayers $68 billion in the coming years,” Obama said when he signed this change into law. “That’s real money.”

As a result, federal student loan debt shot up from $154.9 billion in 2009 to $1.1 trillion by the end of 2017.


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The problem is that at the same time Obama was getting the government into the lending business in a big way, he was making it easier for students to avoid paying back their loans.

One program, called “income-driven repayment,” lets borrowers avoid payments if their income falls below a certain threshold, and then caps payments as a percentage of total family income. Any debt left over at the end of 25 years is forgiven.

Not surprisingly, students flocked to these and other programs that let them avoid paying back all their loans, even though the interest rates they had to pay were already subsidized.

Between 2011 and 2015, the portion of loans being repaid through these IDR plans shot up 625%, according to the report.

The direct lending program even earned the nickname “Obama Student Loan Forgiveness,” and surveys of student borrowers by LendEDU found that half of them don’t expect to have to pay back all their debts because the federal government would forgive them.

The rising expectation that loans wouldn’t have to be paid back in full also had the perverse effect of making students increasingly indifferent to college costs, thereby fueling tuition inflation.

As the Education report says, “Decision makers and others may not be aware of the growth in the participation in these IDR plans and loan forgiveness programs and the resulting additional costs.”

Given the $1 trillion in loan debt on the federal books, one hopes that awareness comes soon. Otherwise, the student loan program will quickly turn into one of the most regressive taxes on the books.

RELATED:

The Federal Government’s Student-Loan Fraud

Obama’s Legacy: Half Of College Students Now Expect Taxpayers To Bail Them Out

‘Higher’ Education: College Students Spend Loans On Booze And Drugs, Expect Taxpayer Bailout


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