Grad-School Loan Binge Fans Debt Worries

August 21, 2015

A growing number of Americans owe more than $100,000 in student debt and are having difficulty paying it back. Most are paying less than the interest on their balance taking advantage of a federal income-based repayment program, says Josh Mitchell in the Wall Street Journal.

Student debt has doubled since the recession to $1.19 trillion and is likely to become a topic for debate in the 2016 presidential race.

Post graduate students, who account to 14% of students in higher education, are responsible for 40% of this debt. Some federal programs have made it easy for students to borrow huge sums of money and eventually have those debts forgiven.

These Federal programs have had unintended consequences:

  • Graduate schools have been able to keep raising tuition.
  • High-earning graduates who can afford to repay their loans have been subsidized without careful consideration.
  • The students’ ability to repay is not carefully assessed.
  • The amount of students who owe more than $100K has swelled to 1.82 million in 2015.

The current administration has stood behind this program claiming that graduate students have the highest earning potential and will most likely repay their loans. These programs are also designed to generate income for taxpayers. Nonetheless, there has been a rise in enrollment in debt forgiveness programs and an expansion in the less stringent repayment program will cost taxpayers $15.3 billion.

Many borrowers are planning to combine debt forgiveness programs with income-based repayment plans. Debt forgiveness was devised to encourage graduates to remain in public sector jobs instead of leaving for the higher-paying private sector. However, recent studies show that the programs are benefiting the people who need it the least.

Source: Josh Mitchell, “Grad-School Loan Binge Fans Debt Worries,” Wall Street Journal, August 18, 2015.

– Read online from NCPA HERE…

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