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The Obama administration’s student-loan gift to graduate students just keeps on giving. That’s according to the latest news from the Congressional Budget Office.
Back in 2010, President Obama and Democrats in Congress supercharged an existing loan forgiveness program called Income-Based Repayment (IBR) to provide disproportionately large benefits to students borrowing for graduate and professional degrees.
Early warnings about the windfall these borrowers would reap from the Obama-era changes — even borrowers earning middle and upper incomes — were dismissed as welfare-queen exaggerations. Last year, the Wall Street Journal profiled an orthodontist with a six-figure income who was benefiting from the program; skeptics said it was an outlier that didn’t merit any attention.
The latest figures from the Congressional Budget Office should give the skeptics pause. For the fourth year in a row, the CBO has revised the cost of the government’s lending to graduate students sharply upward. What’s driving costs higher? CBO expects more graduate students to enroll in IBR and the related Public Service Loan Forgiveness Program and have more of their debts forgiven.
In 2016, CBO projected that the government’s loans to graduate students would cost taxpayers about $4 billion a year. That’s according to the agency’s preferred “fair-value” accounting method that it says is a more comprehensive measure of costs, plus administrative costs reported separately by the Department of Education. The next year, CBO scrapped that estimate and put the costs at about $6 billion a year. Then in 2018, another revision: $8 billion a year. Now the latest estimate shows costs reaching over $12 billion a year.
IBR and Public Service Loan Forgiveness are extremely generous to graduate students because they can borrow more in government loans than undergraduates, yet they qualify for the same income-based repayment terms as undergraduates. Payments are capped at 10% of discretionary income and remaining debts are forgiven after 10 years for those working in public service jobs or after 20 years in all other jobs. At those terms, a borrower with a high balance from graduate school will have debt forgiven even if he earns an income above the typical US household.
The IBR program was originally intended to provide a safety net for borrowers who unexpectedly had trouble repaying their debts, like when the economy is weak and they are temporarily unemployed. Since the Obama administration’s changes, the cost of the program has done nothing but go up, even as unemployment hits a record low and economic growth remains strong. That’s a sure sign the program is providing more than a safety net.
The program was originally intended to provide a safety net for borrowers who unexpectedly had trouble repaying their debts, like when the economy is weak and they are temporarily unemployed. Since the Obama administration’s changes, the cost of the program has done nothing but go up, even as unemployment hits a record low and economic growth remains strong. That’s a sure sign the program is providing more than a safety net.
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