In the last six months, hundreds of thousands of borrowers struggling with their student loan payments have enrolled in the federal “Pay As You Go” Income-Based Repayment (IBR) system, according to new figures released by the Department of Education and first reported by the Wall Street Journal (paywall). This news should come as little surprise to Salon’s readership: If you recall, last November, the Education Department embarked upon a huge promotional campaign for the IBR program, going so far as to put out a triumphant press release to advertise their massive new “outreach campaign.” And, voilà! Just like that, six months later, the program has seen a huge enrollment spike.
Unfortunately, this enrollment spike has brought its own share of problems: namely, way too many enrollees.
According to the DOE, there are now “at least” 1.3 million Americans enrolled in IBR — between them, they hold a total debt burden of $72 billion. And because these are federal loans that will be partially forgiven, that figure represents a lot of red on the government’s long-term balance sheets – it also represents, ominously, just a tiny fraction of the student debt load that Americans owe.
Meanwhile, even as young Americans clamor to enroll in the program, the cost of tuition continues to rise — 6 percent in 2014, well above inflation. In this way, the “Pay As You Go” Income-Based Repayment plan is a particularly ineffective “solution” to our student loan debt crisis; it only helps maintain our dysfunctional, broken system, allowing students to keep purchasing overpriced degrees, safe in the knowledge that they’ll only have to pay what they can afford, while schools keep raising prices without fear that enrollment will ever precipitously fall.
To its credit, the Obama administration seems to have realized the magnitude of its mistake, hastily suggesting a ceiling of $57,500 per student. In theory, this is a useful tweak to an imperfect system, effectively maintaining the program for the poorest students, while limiting its usefulness for wealthier ones. Unfortunately, changing the rules midway through the game seems unnecessarily cruel to the thousands of students who earned degrees in the last few years under the assumption that the IBR program would protect them if they failed to find a good-paying job in their field.
In an MSNBC write-up on the issue, Jane Timm presents the example of third-year medical student Ben Cocchiaro, who “has taken out more than $263,000 in federal student aid between undergrad and medical school to date. He expects that that number will be around $350,000 before he gets his degree and said that the public sector student loan forgiveness program is key to his future. [...] With loan forgiveness for public sector employees, he estimates that he will pay about $165,000 down over ten years and have the rest of his loans forgiven. If there is no debt forgiveness, he estimates he could pay as much as $800,000 total, thanks to the interest.”
I have a few close friends who went to law school after the Great Recession, before the “law school bubble” burst. Despite attending high-ranking schools and getting good grades, a few have been unable to find work. One has gone into social work, while another has been forced to get a job in retail — neither could possibly afford their enormous debt payments without some form of relief, and the Pay As You Go program has been a vital life preserver in this regard. Understandably, they’re quite horrified that the rules might suddenly change. Even as intended, IBR is not without its share of flaws: In addition to disproportionately helping higher-income borrowers, IBR frequently hides a tax penalty for borrowers who aren’t engaged in social welfare. For these individuals, when the program finishes, the IRS treats their forgiven loans as “income,” and collects taxes on the balance.
The problems here are frustratingly simple: Young Americans have way too much debt, while the cost of college remains way too high.
At its heart, the student loan debt crisis is really these two separate crises: The trillion-plus dollars in outstanding loans that young Americans currently hold, and the endlessly rising cost of college. While they’re two sides of the same tarnished coin, solutions for one won’t necessarily help the other. For instance, we absolutely must finance public education options at the state and local level to limit out-of-control tuition costs, but doing so won’t help current debt holders (like yours truly). And while we can expand IBR considerably, that will do little for Americans who’ve yet to attend college (and have no guarantee that the program will still be available — or solvent — when they themselves graduate).
The easiest way to help desperate borrowers? Enact a comprehensive program of loan forgiveness. For millions of Americans who’ve already finished school and are still struggling with debt, the IBR program simply doesn’t do enough — for some, it’s unavailable, and for others, it’s a trap, keeping them in a well of poverty where higher wages only translates to more money for Uncle Sam. We need an unconditional loan forgiveness program for the most desperate Americans, whose degrees are an ornament and whose debts are a weight.
Alternately, to bring down the cost of college, the fastest, easiest solution is absurdly simple: Offer some form of public higher education for free. Free higher ed would force private, nonprofit schools to price themselves competitively against colleges offering degrees for the cost of a bus pass, a backpack and some textbooks. Also, recent reports have shown a surprising decline in college enrollment nationwide, but this only highlights the pressing need for cheaper educational options: while overall, enrollment is dropping, four-year liberal arts schools are still experiencing record-high admissions rates. It’s the vocational and community colleges (i.e., schools that disproportionately serve poor minorities) that are seeing their enrollment rates decline. At the same time, the earnings of young Americans without advanced degrees lag further and further behind those of their college-educated peers’; taken together, these are ominous trends that will only reinforce our society’s racial and class divides.
In general, administering effective solutions to the student loan crisis will require the tacit acknowledgment that, for millions of young Americans the promise of higher education is an illusion, a kind of seductive fool’s gold. So why do we force millions of young people into this cruel Catch-22, where they must borrow heavily for the chance to get ahead, only to discover that the debts they took on to escape poverty are exactly what keep them trapped within it?