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This summer, while the Supreme Court was striking down the Biden Administration’s unconstitutional plan to forgive student loans, the Department of Education finalized new rules for student loans subject to income-driven repayment.
As the department announced on July 14,
“The Saving on a Valuable Education (SAVE) will cut payments on undergraduate loans in half compared to other IDR plans, ensure that borrowers never see their balance grow as long as they keep up with their required payments, and protect more of a borrower’s income for basic needs.”
The administration is engaged in false marketing when they trumpet SAVE as an income-driven repayment plan.
It really should be explained as the administration’s newest massive student loan cancellation plan because it will result in many borrowers paying $0 a month toward their loans until the balance is forgiven.
The Biden administration fails to explain that those lower payments made by borrowers will result in taxpayers covering the difference!
What is that cost to taxpayers?
According to a Penn Wharton Budget Model report, the difference will amount to an estimated $475 billion over the next 10 years, with a higher-end estimate coming in at $558.8 billion. Anyone hoping for the smaller end of that estimate is either an eternal optimist or has not been paying attention to federal spending in the 21st century.
This newest attempt to shift the cost of college from borrowers to taxpayers is another bad policy idea that fails to address the underlying causes of the student loan crisis: soaring costs. Since 1980, tuition has increased more than six times the rate that the average income has grown.
This new policy will be one more failed taxpayer-funded subsidy intended to make college more affordable but with the opposite effect. This rule does nothing to incentive institutions to reduce tuition or change borrowers’ behavior. As demonstrated above, the federal government’s heavy-handed role in financing higher education correlates with soaring college costs over the past four decades.
Instead of strengthening the government’s role in an already broken system, lawmakers should address the misaligned incentives that result from bureaucrats and institutions limiting students’ access to individualized education options.
They can do this by ensuring higher education funding, such as Pell Grants, goes directly to students, not education providers, so students can make true trade-off decisions between college and alternatives in a robust postsecondary education marketplace.
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