Tuesday, April 10, 2018

Jake Brooks in NY Times: Direct Federal Student Lending Should Provide Insurance to Students and Public Investment in Education (Michael Simkovic)

John Brooks of Georgetown's excellent Op Ed is available here

Brooks calls to task some of the questionable and alarmist narratives that have been coming out of nominally liberal think tanks (which are funded by foundations linked to the private student loan industry and purveyors of ed-tech of dubious value), noting that Direct Lending, IBR and debt forgiveness can benefit both students and taxpayers.  He also notes the dangers of the new PROSPER act and graciously linked to Friday's post about how small the direct budgetary impact of student loans is when viewed in context.

Brooks notes that some Democrats have been advancing a traditionally Republican privatization agenda.  Jeff Sachs has similarly taken Obama and Clinton to task for underinvestment in basic and essential public services and infrastructure, noting that by the numbers they invest only marginally more than Republicans.  Brooks argues that because of IBR, Obama deserves more credit, and that this important legacy of his presidency should be preserved.

An excerpt or Brooks' Op Ed appears below:

"Before 2010, private lenders made most student loans. But during the financial crisis student lending seized up, and in response Congress effectively nationalized the program. Today, the federal Department of Education makes about 90 percent of all student loans . . .  The old system included big government subsidies to private lenders. Congress and the Obama administration directed that money to income-driven repayment and Pell Grants instead. Today, all borrowers . . . can limit their monthly payments to 10 percent of discretionary income. After 20 to 25 years (or 10 for those who qualify for public service loan forgiveness), any unpaid balances are forgiven.


Higher education remains a good investment for most students, but [some still graduate with relatively high debts and low incomes, at least to start]. Keeping loan payments at an affordable level allows these borrowers to invest in their careers, families, homes and savings.


The Republican attack on these repayment plans is based in part on the claim that the benefits are too generous and too expensive. . . . This view is backed even by some left-leaning organizations . . .  A New America Foundation report [authored by Republican Jason D. Delisle] called the program a “windfall.” One from the Brookings Institution said that the program was “sinking under its own weight.” Yet another from the Urban Institute said that “the current IDR system is likely to impose high costs on taxpayers.”


Emboldened, Representative Virginia Foxx, Republican of North Carolina, sponsored the Prosper Act, which [would cap federal student loan borrowing and limit debt forgiveness].


Income-driven repayment does have a price tag, of course. Estimates vary, but the Department of Education puts the cost for all loans outstanding at about $36 billion. Even though this may sound like a lot of money, $36 billion is pretty low in context. For one thing, it’s a tiny piece of the $1.3 trillion in loans outstanding. For another, the cost of the program is nearly the same as one year of Pell Grants, the other major federal program for low-income students, but it covers 25 years’ worth of loans. And most of this cost is just lost interest — the government anticipates that it will still get back more than it lends to these borrowers.


Even with this cost, the student loan program could still net as much as $50 billion for taxpayers. It has long been a profit center. The profit used to be sucked up by banks, but today it belongs to the federal government, and it is appropriate to reinvest some of this money in higher education rather than kick it all back to the Treasury. According to the Congressional Budget Office, the Prosper Act’s changes to student loans would pad the government’s profit by another $40 billion over the next 10 years. That’s money coming directly out of borrowers’ pockets — to what end?


Even if income-driven repayment did erase the loan program’s profit margin, would that be such a bad thing? Taxpayers have always subsidized higher education, recognizing that it produces enormous gains for the economy and for society as a whole. The prospect of high debt is a financial (and psychological) barrier for many students, and some insurance for those who may end up with lower incomes is a worthy goal. To call that insurance a “loss” is to imply that taxpayers are entitled to profit off the backs of struggling borrowers. . . .


Cutting back on student loan relief because of hysteria about nonexistent losses is pound-foolish. The Department of Education is a lender, but it is not a bank; its purpose — and the purpose of the student loan program — is to further education and support students, not to turn a profit.


The Prosper Act would make higher education more expensive for many students, especially graduate students, while increasing profit margins for the government and private lenders. That is precisely the opposite of what our country needs now. .  . ."


Guest Blogger: Michael Simkovic, Law in Cyberspace, Legal Profession, Of Academic Interest, Science, Student Advice, Web/Tech, Weblogs | Permalink