Having induced $1 trillion in debt, Democrats now want to write it off.

The taxpayer losses will come on some other President's watch.

Specifically, Mr. Obama announced an expansion of the burgeoning disaster known as his Pay As You Earn program. This gift from taxpayers caps monthly student-loan payments at 10% of a borrower's discretionary income, regardless of how much the borrower owes. Even better, the borrowers have their debts entirely forgiven after 20 years—or merely 10 years if they work in government or nonprofits. Those who work outside the profit-making economy don't even have to report the forgiven loans as income.

http://online.wsj.com/articles/the-latest-student-loan-charade-1402356675

(http://www.autoadmit.com/thread.php?thread_id=2589406&forum_id=2#25719598)

The Latest Student-Loan Charade

Having induced $1 trillion in debt, Democrats now want to write it off.

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June 9, 2014 7:31 p.m. ET

You can tell an election is coming, because President Obama is promising more student-loan relief to young people who are growing less enthralled with his economic record. The latest exercise unveiled Monday is also supposed to make these young people forget the loan burden that earlier free lunches supposedly provided. The taxpayer losses will come on some other President's watch.

Opinion Video

Senator Lamar Alexander (R., Tenn.) on President Obama's plan to relieve student-loan debt on the back of taxpayers. Photo credit: Getty Images.

Specifically, Mr. Obama announced an expansion of the burgeoning disaster known as his Pay As You Earn program. This gift from taxpayers caps monthly student-loan payments at 10% of a borrower's discretionary income, regardless of how much the borrower owes. Even better, the borrowers have their debts entirely forgiven after 20 years—or merely 10 years if they work in government or nonprofits. Those who work outside the profit-making economy don't even have to report the forgiven loans as income.

***

This deal has been so attractive that enrollment in this and other income-based repayment plans surged nearly 40% in the six-month period ending in March. The surge was so great that even President Obama felt obliged to propose in his 2015 budget released that month that it was time to reform Pay As You Earn "to ensure that the program is well-targeted and provides a safeguard against rising tuition at high-cost institutions."

Three months later, with the possibility of a Republican Senate on the horizon, "well-targeted" seems to mean no targets at all. The program used to be closed to people who borrowed before October 2007, or who have not borrowed since October 2011, but now Mr. Obama is by regulatory fiat opening the giveaway to older borrowers too.

And whereas the White House budget said expanding Pay As You Earn would cost more than $7 billion in the first year, White House domestic policy director Cecelia Munoz said Monday on MSNBC that expanding the program will now save money. So we are supposed to believe that more subsidies plus more loan forgiveness equals less cost to taxpayers.

Enlarge Image

Students look on as President Obama signs an expansion of the Pay As You Earn program on Monday. Bloomberg

The President also tried to help Democrats struggling to hold the Senate by endorsing still another expansion of student-loan subsidies. Majority Leader Harry Reid plans to hold a vote this week on Massachusetts Sen. Elizabeth Warren's bill to allow borrowers to refinance their old federal or private loans into new government loans at lower rates.

The Congressional Budget Office says the Warren bill would increase federal spending by $51 billion over a decade. But as CBO has repeatedly warned, its official scores by law must underrate the risk of defaults in such federal loan programs, so who knows what this latest election-year pander to young voters will ultimately cost.

Ms. Warren aims to pay for the new spending with one more tax increase—in this case the " Buffett Rule," which seeks to make Americans earning more than $1 million in income pay at least 30% of it to the IRS. Never mind their legal deductions or charitable contributions. This must be at least the 20th spending program that the Buffett Rule is supposed to finance, and Democrats use it to pretend their proposals won't increase the deficit. They know Republicans will kill it before it further harms the slow-growth economy.

Which brings us to the common political secret of the Obama and Warren proposals—they aren't aimed at aspiring college students hoping to matriculate but rather at former undergrads who are now suffering the economic hangover from Mr. Obama's previous policies. Thanks to a series of federal loan expansions supported by first Sen. Obama and then President Obama, student debt outstanding has nearly doubled since 2007 to more than $1 trillion.

A lot of these borrowers can't generate the income to service this debt, especially when so many of them can't get decent jobs. The left-leaning Center for Economic and Policy Research recently noted that among recent college graduates age 22-27, a full 45% were underemployed in 2013, meaning they were either unemployed or doing jobs that typically don't require a four-year college degree.

Democrats haven't yet been able to win the argument that education should be a universal federal entitlement. But by encouraging massive borrowing without consideration of a young person's ability to repay, they have created political pressure to force taxpayers to pay for it after the fact with loan forgiveness.

Democrats claim to care about inequality, but kids who don't go to college are in even worse economic shape than college kids, with even higher unemployment rates. Yet when the cost of defaults and debt forgiveness finally comes due, it will be paid by all taxpayers, including those who didn't go to college. So the townies with jobs will end up paying more in taxes to give former college kids and grad students a break on their student debt.

***

The Warren bill has no chance to pass the House, as Democrats know. The Warren bill and the Obama debt-forgiveness-by-fiat are attempts to change the subject from the cascading examples of government failure—the VA scandal (see nearby), the Taliban prisoner swap, the rising cost of health insurance under ObamaCare. In the Obama era, government failure is never a failure. It's another political opportunity to call for more of the same.

(http://www.autoadmit.com/thread.php?thread_id=2589406&forum_id=2#25719778)

WSJ 2014: How dare you bail out students who took shitty loans!

(http://www.autoadmit.com/thread.php?thread_id=2589406&forum_id=2#25719626)

2. the AD bump from everyone being able to spend that $$ to buy new shit will help offset any losses

(http://www.autoadmit.com/thread.php?thread_id=2589406&forum_id=2#25719803)

STFU

(http://www.autoadmit.com/thread.php?thread_id=2589406&forum_id=2#25719634)

a standard payment plan has you paying off the

entire

amount over whatever time period

so there's no fucking way you end up paying more on paye

(http://www.autoadmit.com/thread.php?thread_id=2589406&forum_id=2#25719732)

the only way you can pay more is if you try to pay more

(http://www.autoadmit.com/thread.php?thread_id=2589406&forum_id=2#25720735)

that's not a genuine position because you can accomplish the same thing by just pushing off payments

(http://www.autoadmit.com/thread.php?thread_id=2589406&forum_id=2#25720748)

if i am mistaken, show me

100k loan example

(http://www.autoadmit.com/thread.php?thread_id=2589406&forum_id=2#25720774)

then you end up making all 10 years of 10 year repayment amounts plus the first 10 years of PAYE payments. it cost you whatever your payments were for those first 10 years. if you make $50K, that's $500 per month, or $6K per year, $60K total. if you make $75K, it's around $100K total. you do have to discount all this to npv, but you're out a not insignificant amount of money.

i'm not the guy you're arguing with and don't get me wrong it's a hell of a deal. just giving an example where doing PAYE is worse than doing standard 10 year repayment.

(http://www.autoadmit.com/thread.php?thread_id=2589406&forum_id=2#25720832)

are you arguing it's bad because you end up paying off the loan sooner under paye because your 10% is more than you otherwise would be paying under a regular plan

or

are you saying that you actually end up paying more principal?

I don't think you can actually end up paying more principal under paye and i'm not inclined to give any weight to the ways you can end up paying more interest

(http://www.autoadmit.com/thread.php?thread_id=2589406&forum_id=2#25720876)

simple example, $100K debt at 6.8%. you start out making $50K, then 10 years in your salary jumps to $150K.

without PAYE, total amount paid over 10 years: $138K

with PAYE, total amount paid over 20 years: $177K (and an additional $49K is forgiven)

it gets worse the larger the initial debt and larger the income jump. plug some numbers in yourself and put 10 years in for when the income jump occurs:

http://www.finaid.org/calculators/ibr10.phtml

(http://www.autoadmit.com/thread.php?thread_id=2589406&forum_id=2#25720954)

as i said above

a simpleton argument that is disingenuous.

it's like saying you pay more on a 30 yr loan at x % interest than you do on a 10 yr loan at x % interest. that's just a moronic tautology.

if you are getting principal forgiven, you are better off in the long run and you are receiving charity.

i suppose if paye has a higher interest rate things could change, but no one is making that claim

(http://www.autoadmit.com/thread.php?thread_id=2589406&forum_id=2#25723458)

Government bros laughing in excitement and relief

(http://www.autoadmit.com/thread.php?thread_id=2589406&forum_id=2#25719651)

(http://www.autoadmit.com/thread.php?thread_id=2589406&forum_id=2#25719726)

this will help to some extent but it's far too little.

http://nypost.com/2014/05/16/team-obamas-war-on-schools-for-poor/

i just don't see how they are going to fix it until they somehow bring some underwriting principles to student loans though. someone who is going to get CS degree from Stanford shouldn't be paying the same interest rates as some idiot going to DeVry for a criminal justice degree.

(http://www.autoadmit.com/thread.php?thread_id=2589406&forum_id=2#25719785)

"Payeeeee"

(http://www.autoadmit.com/thread.php?thread_id=2589406&forum_id=2#25719915)

http://www.staffordloan.com/stafford-loan-info/faq/how-much-can-i-borrow-under-a-stafford-loan.php

(http://www.autoadmit.com/thread.php?thread_id=2589406&forum_id=2#25720626)