A New Law Forgives Student Loan Interest
Student loans have been a painful problem for almost two decades. Thousands of borrowers have seen their lives profoundly damaged by student loan collections.
All this suffering leads one to ask:
Why should the government be making student loans in the first place?
If the applicants are worthy — why not raise taxes and just give students the money? (like Pell Grants) Many other nations do this.
A college grant of perhaps $10,000 a year would cover about 2/3 of the tuition at a decent vocational school. Twenty million recipients would cost the taxpayers just $200 billion a year – which is a small fraction of our annual federal budget.
(This would not help the expensive liberal arts schools, but who cares? They are wildly overpriced.)
This kind of program was briefly considered in the 1980’s.
However – the liberals in Congress knew that straightforward tax increases would be vetoed.
So… they cobbled together a clumsy program based on loans, not grants….and included the banks ….thus, the disastrous burdens of loan interest.
How Student Loans Became a Revenue Source
As time went on, the government actually began relying on student loan repayments to prop up the federal budget.
For example, in 2008 the “profits” from student loans included $8.7 billion to pay for ObamaCare; and $10.3 billion went to pay down the national debt.
The Department of Education has had little incentive to fix the core problem. The loan program that had become a moneymaker for the federal government.
Federal loans issued between 2007 and 2012 currently are projected to generate $66 billion in income for the government, according to a Government Accountability Office report.
Just about everyone involved in the student loan industry made money off students – the banks, private investors, even the federal government.
The Student Loan Interest Elimination Act
Meanwhile —
Congressman Joe Courtney (CT-02) and Senator Peter Welch (D-VT) are doing their best to reform this beast and say “enough” to the loan interest burden.
They have re-introduced the Student Loan Interest Elimination Act.
It would allow borrowers to effectively cancel the interest on all current and future federal student loans to zero percent.
Thanks to this fix, 43 million Americans with existing federally held student loans would see their loan interest rates immediately eliminated.
The proposed law provides a budget-neutral solution to this problem. According to the bill,
“Unlike other proposals to lower student loan interest rates, the Student Loan Interest Elimination Act includes a pay-for to offset the cost of eliminating interest. Under this legislation, the Department of Education would create a Trust Fund to offset the elimination of interest.
Student loan borrowers will make payments on their principal balance, which would be deposited into the Trust Fund. The returns on those investments would save taxpayers from fronting the cost, while saving borrowers from higher interest rates and student loan interest capitalization. The bill is fully paid for with no cost to taxpayers.”
Questions About the Proposal
At least, this is what the sponsors tell us. Something feels to me like it might be too good to be true — but I am very open to arguments in favor of this bill.
I would like to see the bill’s process verified by an independent credit scholar — like John Cochrane, Susan Dynarski, Luke Herrine or Michael Hudson.